Real money vs debt, and the value of bitcoin. (Mitchell-Innes credit theory)

[User705]

I'm more of a fan of the classic qualities of money durability, divisibility, transportability, and noncounterfeitability.  Modern credit/debt fails a number of those points so it's hard to see it as money.  Bitcoin on the other hand fits all four rather well.

[1713959640]

1713959640

[1713959640]

1713959640

[mirelo]

Graeber is right. Debt is the only real money. All other goods are assets and valued in debt.

Today, most money is debt. However, money is essentially different from debt since:
 
1. Debt depends on money.

2. Money does not depend on debt.

The confusion between debt and money is in the origin of the present monetary crisis.

[johnyj]

Government bonds are the obligation the government has of repaying the face value of those bonds to their holders, with interest. It is only because government bonds are the promise of money that we can treat them as if they were already money. However, this can only be true as long as we believe on that promise.

Regarding houses or land (let us leave bitcoins out of this for a while), again: we could not treat them as money if they had no monetary value, which requires their expression in money that is just money (and not an asset).

Finally, we can only call a government bond an asset as long as we mistake the debt it represents for actual money to then mistake that money by a particular asset.

Monetary value is a very vague term, same thing can have different monetary value if the money's value changed. This is clearly visible that USA good's value represented in Euro constantly changes depends on the exchange rate between USD and EURO

Essentially the value only depends on supply and demand, in a world that everything's supply and demand constantly changing, their value also fluctuates, and this also include money itself, means that money's value could also drop to zero if the demand disappeared

Currently the fiat money's value do not disappear because there is a demand for transaction with those money, but mostly because there is only one type of currency. If there are more credible currencies, "monetary value" becomes more complex

From money creator's view, money is not a debt but an asset, just like gold mined by the miners, and paper notes created by the FED. FED created money, money becomes their asset, and they lend this money to government, they receive government bonds in exchange

[herzmeister]

it's just a matter of definition, really.

At the end of our day, we trade our work. I mow the lawn for you, so you owe me a favor in return.

How we do this bookkeeping and keep this information reliable is a question of the available toolset.

Gold/Silver coins are just tools to store and transport the information of value, as are ledgers or tally sticks.

We now live in the information age, so tools like time banking or Bitcoin make sense.

All tools have certain advantages and disadvantages, which mostly revolve around the issue of trust.

Gold/Silver coins don't corrode and you don't have to trust a government, that's why some people like them, that's why they make good tools. But they're still tools. They only carry the information of value, they are not the original value itself (of me having mowed the lawn). They underlie external risk, as they can inflate/deflate in value (imagine massive population decrease for example).

[mirelo]

Monetary value is a very vague term, same thing can have different monetary value if the money's value changed.

Monetary value and "the money's value" are the same thing, which makes your statement a tautology.

From money creator's view, money is not a debt but an asset, just like gold mined by the miners, and paper notes created by the FED. FED created money, money becomes their asset, and they lend this money to government, they receive government bonds in exchange

Regarding the FED's money, there is not an act of money creation followed by an act of loaning: those two acts are one and the same. What "backs" the newly created money is nothing other than the act of loaning it. This is how debt and money get confused with each other.

[mirelo]

it's just a matter of definition, really.

At the end of our day, we trade our work. I mow the lawn for you, so you owe me a favor in return.

How we do this bookkeeping and keep this information reliable is a question of the available toolset.

Gold/Silver coins are just tools to store and transport the information of value, as are ledgers or tally sticks.

We now live in the information age, so tools like time banking or Bitcoin make sense.

All tools have certain advantages and disadvantages, which mostly revolve around the issue of trust.

Gold/Silver coins don't corrode and you don't have to trust a government, that's why some people like them, that's why they make good tools. But they're still tools. They only carry the information of value, they are not the original value itself (of me having mowed the lawn). They underlie external risk, as they can inflate/deflate in value (imagine massive population decrease for example).

There is an essential difference between Bitcoin and bank money: Bitcoin distinguishes the object representing money (the "available toolset") from the money itself (monetary value). It does that by representing money with a private key (monetary value), then metarepresenting it with a public key (monetary representation). By doing this, Bitcoin prevents the confusion between debt and money.

[johnyj]

it's just a matter of definition, really.

At the end of our day, we trade our work. I mow the lawn for you, so you owe me a favor in return.

How we do this bookkeeping and keep this information reliable is a question of the available toolset.

Gold/Silver coins are just tools to store and transport the information of value, as are ledgers or tally sticks.

We now live in the information age, so tools like time banking or Bitcoin make sense.

All tools have certain advantages and disadvantages, which mostly revolve around the issue of trust.

Gold/Silver coins don't corrode and you don't have to trust a government, that's why some people like them, that's why they make good tools. But they're still tools. They only carry the information of value, they are not the original value itself (of me having mowed the lawn). They underlie external risk, as they can inflate/deflate in value (imagine massive population decrease for example).

There are many human desire, consumable things and services are just part of them, the demand for accumulating a large amount of saving so that people can retire early is also very real for everyone. Historically recessions happened not because people had less consumable goods, most often it is because that people had produced too much consumable goods but without corresponding consumption (lacking of money)

Actually the demand for money is always the highest due to money's universal equivalence property. You might get bored by eating same bread or watching the same lawn in your backyard, but you never get bored by getting more money. That's the reason money usually hold its value very well even people know that it costs almost nothing to make. As long as other people accept, no questions

Then, since accumulating money itself is a demand, it is important to know what kind of money you will get. You would like to get deflative money instead of inflative money, a money with a production cost instead of a money without a production cost

Gold/silver is more valuable than paper money because even the payment function is totally removed, they can still be used to produce luxuries and tools, and they bear a production cost, which is the fundamental support for their price

[mirelo]

it's just a matter of definition, really.

At the end of our day, we trade our work. I mow the lawn for you, so you owe me a favor in return.

How we do this bookkeeping and keep this information reliable is a question of the available toolset.

Gold/Silver coins are just tools to store and transport the information of value, as are ledgers or tally sticks.

We now live in the information age, so tools like time banking or Bitcoin make sense.

All tools have certain advantages and disadvantages, which mostly revolve around the issue of trust.

Gold/Silver coins don't corrode and you don't have to trust a government, that's why some people like them, that's why they make good tools. But they're still tools. They only carry the information of value, they are not the original value itself (of me having mowed the lawn). They underlie external risk, as they can inflate/deflate in value (imagine massive population decrease for example).

There are many human desire, consumable things and services are just part of them, the demand for accumulating a large amount of saving so that people can retire early is also very real for everyone. Historically recessions happened not because people had less consumable goods, most often it is because that people had produced too much consumable goods but without corresponding consumption (lacking of money)

Actually the demand for money is always the highest due to money's universal equivalence property. You might get bored by eating same bread or watching the same lawn in your backyard, but you never get bored by getting more money. That's the reason money usually hold its value very well even people know that it costs almost nothing to make. As long as other people accept, no questions

Then, since accumulating money itself is a demand, it is important to know what kind of money you will get. You would like to get deflative money instead of inflative money, a money with a production cost instead of a money without a production cost

Gold/silver is more valuable than paper money because even the payment function is totally removed, they can still be used to produce luxuries and tools, and they bear a production cost, which is the fundamental support for their price

Once "the payment function is totally removed," then gold has no longer any monetary value. Otherwise, even with no commodity exchange value, it can still function as money: its monetary value essentially consists in its equivalence to everything it can buy - just like the monetary value of any other form of money.

[johnyj]

From money creator's view, money is not a debt but an asset, just like gold mined by the miners, and paper notes created by the FED. FED created money, money becomes their asset, and they lend this money to government, they receive government bonds in exchange

Regarding the FED's money, there is not an act of money creation followed by an act of loaning: those two acts are one and the same. What "backs" the newly created money is nothing other than the act of loaning it. This is how debt and money get confused with each other.

The root of this question: Does government own FED?

If they do, then money created by FED is backed by government's own bond, no questions

But this has been discussed many times, FED is a private organization and the ownership of the FED lies in a group of regional reserve banks, and none of them belong to the government. They have 3 mandate from the congress: Maximum employment, stable prices, and moderate long-term interest rates. As long as they can achieve this, government have no more control over their decision. They can claim the ownership of the whole country (by printing money) while achieve these 3 goals

http://theunjustmedia.com/Banking%20&%20Federal%20Reserve/The%20Federal%20Reserve%20is%20Privately%20owned.htm

[mirelo]

From money creator's view, money is not a debt but an asset, just like gold mined by the miners, and paper notes created by the FED. FED created money, money becomes their asset, and they lend this money to government, they receive government bonds in exchange

Regarding the FED's money, there is not an act of money creation followed by an act of loaning: those two acts are one and the same. What "backs" the newly created money is nothing other than the act of loaning it. This is how debt and money get confused with each other.

The root of this question: Does government own FED?

If they do, then money created by FED is backed by government's own bond, no questions

But this has been discussed many times, FED is a private organization and the ownership of the FED lies in a group of regional reserve banks, and none of them belong to the government. They have 3 mandate from the congress: Maximum employment, stable prices, and moderate long-term interest rates. As long as they can achieve this, government have no more control over their decision. They can claim the ownership of the whole country (by printing money) while achieve these 3 goals

http://theunjustmedia.com/Banking%20&%20Federal%20Reserve/The%20Federal%20Reserve%20is%20Privately%20owned.htm

The FED is a banking cartel regulated by the government, which is its only client, just like we can be clients of commercial banks. If the government owned the FED, then by making loans to the government the FED would be making loans to itself, which does not make any sense. Government bonds are just a form of debt, so dollars being backed by government bonds just means their being backed by debt. As I said before, dollars are utterly backed by the act of the FED loaning them to the government, represented by bonds.

(Please watch the following video before answering to this post: http://www.youtube.com/watch?v=04MPZgyhG5s.)

[johnyj]

The FED is a banking cartel regulated by the government, which is its only client, just like we can be clients of commercial banks. If the government owned the FED, then by making loans to the government the FED would be making loans to itself, which does not make any sense. Government bonds are just a form of debt, so dollars being backed by government bonds just means their being backed by debt. As I said before, dollars are utterly backed by the act of the FED loaning them to the government, represented by bonds.

(Please watch the following video before answering to this post: http://www.youtube.com/watch?v=04MPZgyhG5s.)

I have seen this video before, the fact that there are so many different versions about how FED works just proved that no one really understand how it works

The most simple way is to look at the ownership of the newly created money

If you don't have the ownership of some money, how can you loan those money to someone else? That would be crime. I can lend you all the money in the FED if I don't need to have the ownership of those money  

Let's do a step by step analysis: When government sell $1 billion asset (bond, since debt=asset in the future) to FED, FED must first have the ownership of that $1 billion money, then government get the ownership of those money from FED, in exchange they transfer the ownership of their bond to FED. Now the FED owns the bond, means they become the creditor of the government

If government issue money by themselves, they would issue $1 billion money backed by their $1 billion worth of assets (bond). But there is a HUGE difference here: They would have BOTH the ownership of the issued money and the ownership of their asset. They spend money to exchange for some products/services, and if someone come back to redeem the money, they give them asset

So, if FED belongs to government, then it does not matter who have the ownership of those bonds, government will own those bonds anyway. But if it is really so, how come they could have that huge amount of national debt owed to FED?

[Adrian-x]

Graeber is right. Debt is the only real money. All other goods are assets and valued in debt.

Now we just need a unit of measure by which to denominate the "debt" and a way to account for past and future debt that is impervious to manipulation.

I think Bitcoin will work well, those who don't have it are indebted to those who have it, problem solved.

And while we are at it let's take an honest look at "Debt" an asset a risk to the lender and a liability to the borrower.

[mirelo]

The FED is a banking cartel regulated by the government, which is its only client, just like we can be clients of commercial banks. If the government owned the FED, then by making loans to the government the FED would be making loans to itself, which does not make any sense. Government bonds are just a form of debt, so dollars being backed by government bonds just means their being backed by debt. As I said before, dollars are utterly backed by the act of the FED loaning them to the government, represented by bonds.

(Please watch the following video before answering to this post: http://www.youtube.com/watch?v=04MPZgyhG5s.)

I have seen this video before, the fact that there are so many different versions about how FED works just proved that no one really understand how it works

Just pay attention to whom tells which version.

The most simple way is to look at the ownership of the newly created money

The government owes it to the central bank, to which it hence belongs.

If you don't have the ownership of some money, how can you loan those money to someone else?

There is no money before the central bank loans it to the government: it is the act of loaning the money that creates it, hence making the central bank its owner.

That would be crime. I can lend you all the money in the FED if I don't need to have the ownership of those money  

It is the loan that creates the ownership: before that loan, there is no money, hence no ownership.

Let's do a step by step analysis: When government sell $1 billion asset (bond, since debt=asset in the future) to FED, FED must first have the ownership of that $1 billion money, then government get the ownership of those money from FED, in exchange they transfer the ownership of their bond to FED. Now the FED owns the bond, means they become the creditor of the government

The FED has no money: what it has is the power to loan money that did not yet exist before that loan.

If government issue money by themselves, they would issue $1 billion money backed by their $1 billion worth of assets (bond).

This makes no sense: the government could not loan money to itself.

But there is a HUGE difference here: They would have BOTH the ownership of the issued money and the ownership of their asset. They spend money to exchange for some products/services, and if someone come back to redeem the money, they give them asset

The difference here is that the money the government owed to itself would be already paid since the debtor and the creditor would be the same.

So, if FED belongs to government, then it does not matter who have the ownership of those bonds, government will own those bonds anyway. But if it is really so, how come they could have that huge amount of national debt owed to FED?

Again: if the government owned the FED the latter could not make loans to the former.

[mirelo]

Graeber is right. Debt is the only real money. All other goods are assets and valued in debt.

Now we just need a unit of measure by which to denominate the "debt" and a way to account for past and future debt that is impervious to manipulation.

I think Bitcoin will work well, those who don't have it are indebted to those who have it, problem solved.

And while we are at it let's take an honest look at "Debt" an asset a risk to the lender and a liability to the borrower.

Debt is the circumstance of owing monetary value to someone, which requires money to express this monetary value as different from that circumstance. Bitcoin is precisely the first form of money unmistakable by debt: with Bitcoin, debt is the circumstance of owing bitcoins to someone, and never those bitcoins themselves.

[solex]

A fundamental of economics is that only products can buy products (labor, goods, raw materials). A debt is simply a promise of future product delivery.

Money is a place-holder, it facilitates exchange of products by temporarily replacing one product in a transaction. It makes commerce far more efficient because barter relies upon two products in a transaction, whereas money allows for just one. Money needs to be a store of value for future use.

Currency is a structured form of money to make storage, accounting and exchange easier. Government debt can be declared to be fiat currency by government diktat. Bitcoin is a revolutionary currency as it comes with an inbuilt payments system, scarcity, and supports long-distance transactions.

Gold makes good money, as it can't be counterfeited, and might seem intrinsically valuable. However, a kilo of gold can be worth less than a litre of water. It all depends upon the price (desirability) of a product as how much money is needed in a transaction, so products can be arbitrarily expensive...

[mirelo]

A fundamental of economics is that only products can buy products (labor, goods, raw materials).

A fundamental of economics is that only money can buy anything. Additionally, money needs not be a product: there are historical records or people using huge, unmovable stones - not produced by anyone - as money.

A debt is simply a promise of future product delivery.

Money is a place-holder, it facilitates exchange of products by temporarily replacing one product in a transaction. It makes commerce far more efficient because barter relies upon two products in a transaction, whereas money allows for just one. Money needs to be a store of value for future use.

Debt is not "simply a promise of future product delivery."

Debt requires money: with non-monetary (direct) exchange, the concept of debt becomes impossible since there is no way of representing the exchange value of the product having its delivery delayed.

Currency is a structured form of money to make storage, accounting and exchange easier. Government debt can be declared to be fiat currency by government diktat. Bitcoin is a revolutionary currency as it comes with an inbuilt payments system, scarcity, and supports long-distance transactions.

Gold makes good money, as it can't be counterfeited, and might seem intrinsically valuable. However, a kilo of gold can be worth less than a litre of water. It all depends upon the price (desirability) of a product as how much money is needed in a transaction, so products can be arbitrarily expensive...

The value of money is essentially the value of the products it can buy rather than - despite possibly mistaken by¹ - its own value.

1. Bitcoin makes that confusion impossible.

[solex]

A fundamental of economics is that only products can buy products (labor, goods, raw materials).

A fundamental of economics is that only money can buy anything. Additionally, money needs not be a product: there are historical records or people using huge, unmovable stones - not produced by anyone - as money.

A debt is simply a promise of future product delivery.

Money is a place-holder, it facilitates exchange of products by temporarily replacing one product in a transaction. It makes commerce far more efficient because barter relies upon two products in a transaction, whereas money allows for just one. Money needs to be a store of value for future use.

Debt is not "simply a promise of future product delivery."

Debt requires money: with non-monetary (direct) exchange, the concept of debt becomes impossible since there is no way of representing the exchange value of the product having its delivery delayed.

You are putting the cart before the horse. Money is a product substitute to make commerce easier. Those immovable stones enabled single product transactions by representing a product on one side of the exchange. With many food products it is rare to find a buyer with the exact item the seller needs. That is why the concept of money developed - to resolve the product matching problem.

Debt was originally one of labor, for example, where a tenant performed farm-work in exchange for accommodation and food. Only later did it become monetary. A 30-year mortgage is effectively monetizing 30-years of future labor.

Debt does not require money, but it can be monetized and represented by currency. Bitcoin is a currency which has no debt component. It is in no way debt backed.

[mirelo]

A fundamental of economics is that only products can buy products (labor, goods, raw materials).

A fundamental of economics is that only money can buy anything. Additionally, money needs not be a product: there are historical records or people using huge, unmovable stones - not produced by anyone - as money.

A debt is simply a promise of future product delivery.

Money is a place-holder, it facilitates exchange of products by temporarily replacing one product in a transaction. It makes commerce far more efficient because barter relies upon two products in a transaction, whereas money allows for just one. Money needs to be a store of value for future use.

Debt is not "simply a promise of future product delivery."

Debt requires money: with non-monetary (direct) exchange, the concept of debt becomes impossible since there is no way of representing the exchange value of the product having its delivery delayed.

You are putting the cart before the horse.

Money comes after products and their direct exchange, not before.

Money is a product substitute to make commerce easier.

1. Money needs not be a product of labor (more on that below).
2. What defines money is not that it substitutes for products, but rather how it does that: with direct exchange products already substitute for products.
3. Money does not merely make exchange easy: in some cases, it makes it possible (more on that below).

Those immovable stones enabled single product transactions by representing a product on one side of the exchange.

The circumstance of money being a product is irrelevant regarding its function as money: its monetary value comes from expressing the exchange value of the products it can buy, not from expressing its own exchange value.

With many food products it is rare to find a buyer with the exact item the seller needs. That is why the concept of money developed - to resolve the product matching problem.

Money is not just a concept: it is an object. Money solves the following, objective problem (http://omniequivalence.com/money-as-multiequivalence/):

Let us imagine three owners A, B, and C of commodities x, y, and z, respectively, of whom A wants y, B wants z, and C wants x. Direct exchange cannot give those three owners their desired commodities, none of which belongs to whom (x to B) wants the commodity owned by whom (z by C) wants it (wants x).

Debt was originally one of labor, for example, where a tenant performed farm-work in exchange for accommodation and food. Only later did it become monetary. A 30-year mortgage is effectively monetizing 30-years of future labor.

Debt does not require money, but it can be monetized and represented by currency.

As I already pointed out, if accommodation and food had no independently expressible exchange value, then they could not be owed in exchange for labor. This independently expressible exchange value requires money. You are mistaking the expression of a monetary value in accommodation and food with the absence of any concept of money.

Bitcoin is a currency which has no debt component. It is in no way debt backed.

On that we agree.

[bitcoinBull]

You are putting the cart before the horse. Money is a product substitute to make commerce easier. Those immovable stones enabled single product transactions by representing a product on one side of the exchange. With many food products it is rare to find a buyer with the exact item the seller needs. That is why the concept of money developed - to resolve the product matching problem.

As the Graeber book explains, the product matching problem only exists in an economist's imagination. A much better explanation for why money was developed is that it solves the problem of a state procuring supplies for its army. It works like this: if a state has an army, it also needs to feed and clothe that army. Without a currency, it would require an additional army just to procure the food and clothes for the first army. To solve this problem, the King issues coins to its soldiers, and then mandates that every peasant pays one coin back to the King as a tax. Through such a coinage, the King has created the workforce needed to supply food and clothes for his Army.

Debt does not require money, but it can be monetized and represented by currency. Bitcoin is a currency which has no debt component. It is in no way debt backed.

That is not really true. The price of bitcoin is backed by the trust in exchange debt. Here's how: I wire transfer MtGox $100 to buy a bitcoin. Now MtGox is in debt to me for $100. I use that $100 USD to buy 1 BTC (which means now someone else is trusting mtgox to hold $100 USD for them). Now I'm trusting mtgox to hold 1 BTC for me (and MtGox is in debt of 1 BTC to me). Now I can withdraw this 1 BTC, and mtgox is no longer in debt to me. But MtGox is still in debt for $100 to someone else, and MtGox will remain in debt as long they have customers.

Now, you could have bitcoins that are in no way backed by debt. But in order to do so, you have to go back to when bitcoins were nothing more than worthless digital blips in a piece of p2p software: blips without a price, blips without value. The only thing that gives bitcoins real-money value is the trust that people have in exchanges to pay back held debt.

[mirelo]

You are putting the cart before the horse. Money is a product substitute to make commerce easier. Those immovable stones enabled single product transactions by representing a product on one side of the exchange. With many food products it is rare to find a buyer with the exact item the seller needs. That is why the concept of money developed - to resolve the product matching problem.

As the Graeber book explains, the product matching problem only exists in an economist's imagination. A much better explanation for why money was developed is that it solves the problem of a state procuring supplies for its army. It works like this: if a state has an army, it also needs to feed and clothe that army. Without a currency, it would require an additional army just to procure the food and clothes for the first army. To solve this problem, the King issues coins to its soldiers, and then mandates that every peasant pays one coin back to the King as a tax. Through such a coinage, the King has created the workforce needed to supply food and clothes for his Army.

Money originates from social interaction: it does not originate individually, within the head of a king, no matter how clever.

Debt does not require money, but it can be monetized and represented by currency. Bitcoin is a currency which has no debt component. It is in no way debt backed.

That is not really true. The price of bitcoin is backed by the trust in exchange debt. Here's how: I wire transfer MtGox $100 to buy a bitcoin. Now MtGox is in debt to me for $100. I use that $100 USD to buy 1 BTC (which means now someone else is trusting mtgox to hold $100 USD for them). Now I'm trusting mtgox to hold 1 BTC for me (and MtGox is in debt of 1 BTC to me). Now I can withdraw this 1 BTC, and mtgox is no longer in debt to me. But MtGox is still in debt for $100 to someone else, and MtGox will remain in debt as long they have customers.

Owing money makes that money the object of a debt, not itself that debt. Money becomes itself a debt when created by a loan.

Now, you could have bitcoins that are in no way backed by debt. But in order to do so, you have to go back to when bitcoins were nothing more than worthless digital blips in a piece of p2p software: blips without a price, blips without value. The only thing that gives bitcoins real-money value is the trust that people have in exchanges to pay back held debt.

What gives bitcoins monetary value is people willing to exchange something valuable for them, just like with any other form of money.