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

[bitcoinBull]

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

But that's begging the question: what makes people willing to exchange something valuable for bitcoins? Answer: the trust that they can trade the bitcoins for debt on exchanges, and that the exchanges are capable of paying said debt.

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[Zarathustra]

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.

No, money originates from organized violence. Organized violence (state and church, militarism and patriarchal religion) indebted the people with a tax. This started the economy, the market and the money, which is a derivative of owed taxes. No state - no market - no collectivism and instead of it we find the self-sufficient communities. These are the historic facts. A barter economy beyond the state (organized violence) is Science Fiction. In the rainforest, where organized violence (state and church) is absent, you won't find a market/economy. You'll find self-sufficient communities beyond any business.

[johnyj]

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.

So government owes money to FED, and FED belongs to government, so the government owes money to himself. If the government owes large amount of the national debt to himself, who cares  

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.

Again, if you loan something that does not exist and do not belong to you to someone else, that is fraud

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.

This has nothing to do with the sequence: After the loan, there is money, and there is ownership, who get this ownership and what did they pay for it?

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.

Don't think in the way of loan, that just make it more difficult to see the simple truth. Loan is just a way to exchange the ownership, it does not CREATE the ownership, if some ownership were created out of nothing after a loan process, something must went wrong

To create ownership for something, either you create it by work(plant a flower/dig out the gold), or you rob it (conquer a country). Never heard about that you can get the ownership of something by loan it  

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.

If you have one ounce of gold, you can issue a note that worth one ounce of gold, and that note get a transaction value of one ounce of gold (backed by your gold reserve). No loan involved here. Same, the government can issue notes that worth their corresponding asset without using any loan process. But unfortunately, they don't have this right today, both of the presidents who ever tried to issue government money have been assassinated
http://www.michaeljournal.org/lincolnkennedy.htm

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.

That's true, by this means, government will not have a debt, their net asset value is positive

[mirelo]

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

But that's begging the question: what makes people willing to exchange something valuable for bitcoins? Answer: the trust that they can trade the bitcoins for debt on exchanges, and that the exchanges are capable of paying said debt.

What makes people willing to exchange something valuable for gold? It is the monetary properties of gold: its divisibility, homogeneity, durability, etc. The same happens with Bitcoin: society chooses its money according to its monetary utility.

[mirelo]

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.

So government owes money to FED, and FED belongs to government, so the government owes money to himself. If the government owes large amount of the national debt to himself, who cares  

It is usually the creditor that owns the debtor.

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.

Again, if you loan something that does not exist and do not belong to you to someone else, that is fraud

If it walks like a duck, looks like a duck, sounds like a duck...

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.

This has nothing to do with the sequence: After the loan, there is money, and there is ownership, who get this ownership and what did they pay for it?

As you already concluded yourself, this is not legitimate 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.

Don't think in the way of loan, that just make it more difficult to see the simple truth. Loan is just a way to exchange the ownership, it does not CREATE the ownership, if some ownership were created out of nothing after a loan process, something must went wrong

Central banks take advantage of the confusion between money and its representation, just like commercial banks do. The process is the same: creating money by loaning it.

To create ownership for something, either you create it by work(plant a flower/dig out the gold), or you rob it (conquer a country). Never heard about that you can get the ownership of something by loan it  

You never heard it from the FED or the government (understandably), but there are many other people already talking about it for quite some time.

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.

If you have one ounce of gold, you can issue a note that worth one ounce of gold, and that note get a transaction value of one ounce of gold (backed by your gold reserve). No loan involved here. Same, the government can issue notes that worth their corresponding asset without using any loan process. But unfortunately, they don't have this right today, both of the presidents who ever tried to issue government money have been assassinated
http://www.michaeljournal.org/lincolnkennedy.htm

Go research how fractional-reserve banking originated: goldsmiths issuing certificates for gold they did not have. In 1971, Nixon severed the last requirement for gold convertibility there still was, leading us to where we are today.

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.

That's true, by this means, government will not have a debt, their net asset value is positive

I am trying to show you the government cannot own the FED since the latter loans money to the former.

[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.

No, money originates from organized violence. Organized violence (state and church, militarism and patriarchal religion) indebted the people with a tax. This started the economy, the market and the money, which is a derivative of owed taxes. No state - no market - no collectivism and instead of it we find the self-sufficient communities. These are the historic facts. A barter economy beyond the state (organized violence) is Science Fiction. In the rainforest, where organized violence (state and church) is absent, you won't find a market/economy. You'll find self-sufficient communities beyond any business.

Money is much older than the state or the church. Just do a little research.

[bitcoinBull]

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

But that's begging the question: what makes people willing to exchange something valuable for bitcoins? Answer: the trust that they can trade the bitcoins for debt on exchanges, and that the exchanges are capable of paying said debt.

What makes people willing to exchange something valuable for gold? It is the monetary properties of gold: its divisibility, homogeneity, durability, etc. The same happens with Bitcoin: society chooses its money according to its monetary utility.

All the alt-coins also have similar properties as bitcoin. What is it about bitcoin that sets it apart from the clones and makes it so much more valuable?

[solex]

All the alt-coins also have similar properties as bitcoin. What is it about bitcoin that sets it apart from the clones and makes it so much more valuable?

First-mover status. 99.9% of the merchants which accept cryptocurrency will take bitcoins and not alt-coins. The public do not want to see dozens of alt-coins which are a confusing duplication. So, basically, the alt-coins are not recognized as currency outside the cryptographic community.

[mirelo]

All the alt-coins also have similar properties as bitcoin. What is it about bitcoin that sets it apart from the clones and makes it so much more valuable?

First-mover status. 99.9% of the merchants which accept cryptocurrency will take bitcoins and not alt-coins. The public do not want to see dozens of alt-coins which are a confusing duplication. So, basically, the alt-coins are not recognized as currency outside the cryptographic community.

Some alt-coins do offer possible improvements over Bitcoin. For instance, PPCoin offers proof-of-stake, which in the long run tends to offer lower energy consumption, lower fees and increased network security. Other examples are Primecoin (proof-of-work with prime numbers) and Anoncoin (first Zerocoin implementation). These experiments may be valuable for Bitcoin by testing possible improvements to it without requiring their implementation on Bitcoin itself. Some day, Bitcoin may implement some of those improvements, or even its monetary value could be transferred to a new Bitcoin implementation via proof-of-burn (in itself another possible improvement). However, given the already rich ecosystem built around Bitcoin and its momentum, in addition to the already established Bitcoin "brand" (thanks to all media coverage so far), it is hard to see any alt-coin competing with it, as you put it, "outside the cryptographic community."

[bitcoinBull]

All the alt-coins also have similar properties as bitcoin. What is it about bitcoin that sets it apart from the clones and makes it so much more valuable?

First-mover status. 99.9% of the merchants which accept cryptocurrency will take bitcoins and not alt-coins. The public do not want to see dozens of alt-coins which are a confusing duplication. So, basically, the alt-coins are not recognized as currency outside the cryptographic community.

Precisely. What makes bitcoin so much more valuable is the fact that merchants trust them enough to accept them, and more importantly that there is already a big market for them on (trusted) exchanges. My point is that the value of bitcoin comes mostly from the trust that people have in the market. Not so much its intrinsic properties (or the various alt-coins would be of equal value).

[Zarathustra]

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.

No, money originates from organized violence. Organized violence (state and church, militarism and patriarchal religion) indebted the people with a tax. This started the economy, the market and the money, which is a derivative of owed taxes. No state - no market - no collectivism and instead of it we find the self-sufficient communities. These are the historic facts. A barter economy beyond the state (organized violence) is Science Fiction. In the rainforest, where organized violence (state and church) is absent, you won't find a market/economy. You'll find self-sufficient communities beyond any business.

Money is much older than the state or the church. Just do a little research.

No, it is not. Organized violence (complicity of priests and militant chieftains - aka patriarchy and state) was established 10'000 years ago. That startet collectivism, market, money etc. and ended the anarchy, the self-sufficiency of mankind.

[mirelo]

All the alt-coins also have similar properties as bitcoin. What is it about bitcoin that sets it apart from the clones and makes it so much more valuable?

First-mover status. 99.9% of the merchants which accept cryptocurrency will take bitcoins and not alt-coins. The public do not want to see dozens of alt-coins which are a confusing duplication. So, basically, the alt-coins are not recognized as currency outside the cryptographic community.

Precisely. What makes bitcoin so much more valuable is the fact that merchants trust them enough to accept them, and more importantly that there is already a big market for them on (trusted) exchanges. My point is that the value of bitcoin comes mostly from the trust that people have in the market. Not so much its intrinsic properties (or the various alt-coins would be of equal value).

Let me give you an example to evidence your mistake: do people board a plane because of its ability to fly or because of their trust on that ability?

Although people use a form of money because they trust it, they can only trust it because of its monetary properties. Trust needs justification, which ultimately comes from the properties of its object. Because people trust the monetary properties of an object, they collectively decide to use it as money, which makes it so. However, this would not be possible (or would result in a plane crash) if the same object did not have those properties in the first place.

Unfortunately, we are about to see an instance of such a misplaced monetary trust.

[murraypaul]

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.

You seem to suggest that a barter economy could not exist without money, which is wrong.
I can agree to mow your lawn for a week if you fix my car.
We need to agree that the value obtained by each of us is relatively even, but we don't need to be able to express that value in monetary terms.

[mirelo]

Organized violence (complicity of priests and militant chieftains - aka patriarchy and state) was established 10'000 years ago. That startet collectivism, market, money etc. and ended the anarchy, the self-sufficiency of mankind.

Money originates from the problems presented by direct exchange, as I already showed here: https://bitcointalk.org/index.php?topic=298681.msg3203857#msg3203857. Although a private group can partially control it, money originates from the market.

[mirelo]

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.

You seem to suggest that a barter economy could not exist without money, which is wrong.
I can agree to mow your lawn for a week if you fix my car.
We need to agree that the value obtained by each of us is relatively even, but we don't need to be able to express that value in monetary terms.

By definition, barter is direct, non-monetary exchange.

[murraypaul]

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.

You seem to suggest that a barter economy could not exist without money, which is wrong.
I can agree to mow your lawn for a week if you fix my car.
We need to agree that the value obtained by each of us is relatively even, but we don't need to be able to express that value in monetary terms.

By definition, barter is direct, non-monetary exchange.

You said:
a) if accommodation and food had no independently expressible exchange value, then they could not be owed in exchange for labor
b) This independently expressible exchange value requires money

You have therefore said that accommodation and food cannot be owned in exchange for labour.
But that is clearly possible in a barter economy.

[mirelo]

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.

You seem to suggest that a barter economy could not exist without money, which is wrong.
I can agree to mow your lawn for a week if you fix my car.
We need to agree that the value obtained by each of us is relatively even, but we don't need to be able to express that value in monetary terms.

By definition, barter is direct, non-monetary exchange.

You said:
a) if accommodation and food had no independently expressible exchange value, then they could not be owed in exchange for labor
b) This independently expressible exchange value requires money

You have therefore said that accommodation and food cannot be owned in exchange for labour.
But that is clearly possible in a barter economy.

I said they could not be owed in exchange for labor without having an independently expressible exchange value. The concept of debt (owing something to someone) refers to monetary value, which requires its independent expression. However, if you take the word "owing" as just meaning I must give you the precise object for which you already gave me another object in exchange (rather than any other object having the same exchange value - or money), then you can apply that word to barter.

[murraypaul]

I said they could not be owed in exchange for labor without having an independently expressible exchange value. The concept of debt (owing something to someone) refers to monetary value, which requires its independent expression. However, if you take the word "owing" as just meaning I must give you the precise object for which you already gave me another object in exchange (rather than any other object having the same exchange value - or money), then you can apply that word to barter.

I disagree.
People can owe a debt of labour/service, and have done so throughout history.

[mirelo]

I said they could not be owed in exchange for labor without having an independently expressible exchange value. The concept of debt (owing something to someone) refers to monetary value, which requires its independent expression. However, if you take the word "owing" as just meaning I must give you the precise object for which you already gave me another object in exchange (rather than any other object having the same exchange value - or money), then you can apply that word to barter.

I disagree.
People can owe a debt of labour/service, and have done so throughout history.

Owing labor is just owing the exchange value of the expected product of that labor. In today's labor market, this gets obscured by the standard labor-time interval. However, that interval merely standardizes the time required in producing a monetary value: once you consistently don't deliver that value in time, you get fired.

[murraypaul]

Owing labor is just owing the exchange value of the expected product of that labor. In today's labor market, this gets obscured by the standard labor-time interval. However, that interval merely standardizes the time required in producing a monetary value: once you consistently don't deliver in time, you get fired.

In feudal times, lords had an obligation to provide their own military service, and that of a set number of their serfs, when called upon by the King.
It wasn't until much later that they had the option of providing money instead, to buy themselves out of that service.
The debt of labour came first, the monetary equivalent much later.

Indeed you could say that the same is true now of any country with compulsory national service. You owe a debt of labour, which does not have a monetary equivalent buy-out option.