What is a US dollar?

[Libertarian666]

Simple, right? 

[Libertarian666]

No one wants to hazard a guess? How interesting!

[Mark Leavy]

Not much to argue about. It is a promissory note.  "Federal Reserve Note"
https://en.wikipedia.org/wiki/Promissory_note

Worth as much as the person making the promise.

[img width=800]http://i65.tinypic.com/b7c9x0.jpg[/img]

[Libertarian666]

Not much to argue about. It is a promissory note.  "Federal Reserve Note"
https://en.wikipedia.org/wiki/Promissory_note

Worth as much as the person making the promise.

[img width=800]http://i65.tinypic.com/b7c9x0.jpg[/img]

A promissory note must promise that someone will pay something.

What is the "something" that a Federal Reserve note promises to pay?

[Mark Leavy]

You just have to keep reading, Tech

"This note is legal tender for all debts, public and private"

That is the promise.

It is up to you whether you believe it or not.

[Libertarian666]

You just have to keep reading, Tech

"This note is legal tender for all debts, public and private"

That is the promise.

It is up to you whether you believe it or not.

"A promissory note is a legal instrument (more particularly, a financial instrument), in which one party (the maker or issuer) promises in writing to pay a determinate sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms."
(https://en.wikipedia.org/wiki/Promissory_note).

We know the maker (the Federal Reserve) and the payee (bearer). But what determinate sum of money does a Federal Reserve note promise to pay and under what terms will it be paid?

[Mark Leavy]

Well, clearly, the promise has decayed over time.

It is no longer a gold certificate or a silver certificate.  Now it is just a promise to satisfy debts denominated as USD.

Take that for what it is worth.  It is a promissory note.  Read the fine print.

[Libertarian666]

Well, clearly, the promise has decayed over time.

It is no longer a gold certificate or a silver certificate.  Now it is just a promise to satisfy debts denominated as USD.

Take that for what it is worth.  It is a promissory note.  Read the fine print.

Is the note a dollar, or is it a promise to pay a dollar? It can't be both.

[Mark Leavy]

It is surprisingly both.  It is a promise to pay a debt denominated in promissory notes of the same.
Just because that sounds insane to you doesn't make it untrue.

[LazyInvestor]

I think it's a FIAT currency that has become the world's currency of choice due to the economic development of US and the fact it was the last to remove gold backing. Compared to other FIAT currencies that are purely "violence-backed" to create a monopoly on money in a certain geographical/state(s) area, USD has that additional value due to the sheer volume and world-wide acceptance so that it cannot be that easily manipulated as the other currencies. This gives it more of gold-like features as compared to other smaller currencies.

[Libertarian666]

It is surprisingly both.  It is a promise to pay a debt denominated in promissory notes of the same.
Just because that sounds insane to you doesn't make it untrue.

It is logically impossible for something, call it A, to be both a promise to pay something else, call it B, and to be the thing paid, B, at the same time.

If you can't see this, you probably don't understand why Escher's images are impossible either.

[Libertarian666]

Ok, anyone else want to take a crack at this? I'll post the answer later today.

[barrett]

Ok, anyone else want to take a crack at this? I'll post the answer later today.

Yes. It is a piece of paper that is currently (11:52 EST) worth 1/1210th of an ounce of gold.

[rickb]

It's an IOU corresponding to a (very) small portion of the total public and private debt.

[Libertarian666]

Ok, anyone else want to take a crack at this? I'll post the answer later today.

Yes. It is a piece of paper that is currently (11:52 EST) worth 1/1210th of an ounce of gold.

Is that its definition?

[Libertarian666]

It's an IOU corresponding to a (very) small portion of the total public and private debt.

IOU is short for "I Owe You". We know who the "I" is, namely the Federal Reserve, and we know who the "You" is, the bearer of the "note". But there is a third part of an IOU: what is owed.

What is owed in the case of a Federal Reserve note?

[Tyler]

It's a little piece of time.  Think of it as life force.

Before money, if you wanted something from someone else you had to earn it by trading something of equal value.  Either you made that thing or you provided that service with your own two hands, but both require a corresponding percentage of the life you have on this earth to generate.

Eventually, people figured out that the barter system was inefficient because the most valuable things you are personally capable of generating and trading aren't equally valued by the people you need to trade with.  The fisherman may not need your bricklaying skills, but you definitely need his fish.  So people invented currency as a method for exchanging the most productive use of their time in a format that everyone agreed on.  The form of that currency changes in different cultures (shells, beads, coins, greenbacks), but what it represents is always the same. 

[Pointedstick]

A dollar is the governmentally-defined unit of money in the United States. Nothing more. No need to read too much into it.

[Maddy]

What is owed in the case of a Federal Reserve note?

More federal reserve notes?

[Libertarian666]

What is owed in the case of a Federal Reserve note?

More federal reserve notes?

Close, but not quite.

Here's the definition of a US Dollar:

"Under President Richard M. Nixon, the gold content of the dollar was reduced to 12.63 grains (31 March 1972) and then reduced another 10 percent to 11.368 grains (12 February 1973). For each dollar weight in gold, there is a corresponding price of gold per fine troy ounce of 480 grains (480/11.368 ? $42.22). "
http://www.encyclopedia.com/topic/devaluation.aspx

Since the legal definition of the US dollar has not been changed since 1973, it is still defined as 11.368 grains of fine gold.

A "$1 Federal Reserve Note", on the other hand, is a piece of paper that bears the words "One Dollar" on it. This has exactly the same relationship to a US Dollar as a piece of paper that bears the words "Empire State Building" has to the Empire State Building, namely none at all.

[Pointedstick]

I'll admit I'm having trouble seeing the relevance of any of this.

[Libertarian666]

I'll admit I'm having trouble seeing the relevance of any of this.

What is the relevance? It is really important to know the meanings of the words we use, as without their having clear and agreed-upon definitions there is no way ever to reach meaningful agreement about discussions involving those words.

This is generally recognized in fields like physics and chemistry, and even in soft fields like sociology there are definitions for IQ and other psychological entities, although they are not nearly as precise as they are in the hard sciences.

However, in economics it seems very common for people to talk about money in general, and the US Dollar in particular, without being able to define what these words mean. Does it not matter what a US Dollar is, or a Federal Reserve Note, when we are having discussions about money?

[Pointedstick]

Does it not matter what a US Dollar is, or a Federal Reserve Note, when we are having discussions about money?

Not really, and I think you already know why: it's a fiat currency. It's not connected to anything. The precise mechanisms and historical details of how this came to be are interesting only in an academic sense. The fact that we transact in FRNs that are payable in dollars that are tied to gold but do not actually circulate, instead of directly in dollars that are themselves not tied to gold, really makes no difference to anyone. The point is academic. When we say "dollar" we are referring to a unit of currency payable for debts and used by default in the USA. The fact that that dollar is actually only implicit because it is what is promised by the FRNs that promise to pay them is for all intents and purposes irrelevant.

[moda0306]

These semantic games are far less important than this question:

"Does the government have the ability to make sure USD's stay valuable."

The answer is yes, but not with enough certainty to justify abandoning a hedge in one's individual portfolio.

Boy, Austrians do love to distract from their glaring wrongness over the last several years by playing semantic games with us.

Let's try this one:

What is the definition of inflation?





All in good fun, tech. Please take no offense.

[Libertarian666]

Does it not matter what a US Dollar is, or a Federal Reserve Note, when we are having discussions about money?

Not really, and I think you already know why: it's a fiat currency. It's not connected to anything. The precise mechanisms and historical details of how this came to be are interesting only in an academic sense. The fact that we transact in FRNs that are payable in dollars that are tied to gold but do not actually circulate, instead of directly in dollars that are themselves not tied to gold, really makes no difference to anyone. The point is academic. When we say "dollar" we are referring to a unit of currency payable for debts and used by default in the USA. The fact that that dollar is actually only implicit because it is what is promised by the FRNs that promise to pay them is for all intents and purposes irrelevant.

I think you are a bit out of date. It is true that FRNs used to promise to pay some specific number of dollars to the bearer on demand, e.g., https://en.wikipedia.org/wiki/Federal_R ... r.898a.jpg  promised to pay 10 dollars in gold to the bearer on demand.

Current "FRNs", e.g., https://en.wikipedia.org/wiki/Federal_R ... series.jpg are not payable in dollars. They are not payable at all. They aren't even defaulted notes, as the 1914 note above is, because they don't even promise to pay anyone anything.

Which is why they aren't notes; they are scraps of paper with "nnn Dollars" printed on them.

Of course, the "Federal Reserve Bank" is as "Federal" as "Federal Express" and has no reserves, but let's not get into that just yet.