What is money?

[l82start]

emperor Norton issued his own money (along with a deceleration of being emperor of the united states) and people accepted it.

[Kshartle]

So Kshartle and others...

If money is a liquid commodity that people use absent of government, what if people, in the absence of government, chose to use IOU's for various products/services as a medium of exchange?  Would that still not be money?

Why would something used freely as money not be money just because it's not a commodity?

I don't think I've used the word commodity anywhere here. I think the IOUs could function as money. But you'd have to find someone who wanted the IOU for that service. It wouldn't have the universal acceptance of say, gold, where you know you don't need to worry about it not being wanted and can exchange it for anything else of value.

An IOU for typewriter repair is not going to be a very good store of value. That type of system would be a horrible flop as a monetary system and the market would not choose it. Anyone who tried to fight the fight and adopt it would lose a lot of wealth until they gave up and went with something better (gold most likely).

[Pointedstick]

So, if I can summarize... According to KShartle, Mdraf and Libertarian666, we aren't using "real" money today. We are just using debt to buy and sell things, and we just happen to call those various forms of debt "dollars".

If that's what you're saying, then we all can agree with that for the discussions at hand about US solvency, etc.

The question now is, how do we tell what our debt-based non-money (what we call "dollars") will be worth in the future. And to determine that... we should probably go back to the other thread...

I'm good with that.

Congrats everyone. This has been epic.

[Gumby]

So, if I can summarize... According to KShartle, Mdraf and Libertarian666, we aren't using "real" money today. We are just using debt to buy and sell things, and we just happen to call those various forms of debt "dollars".

If that's what you're saying, then we all can agree with that for the discussions at hand about US solvency, etc.

The question now is, how do we tell what our debt-based non-money (what we call "dollars") will be worth in the future. And to determine that... we should probably go back to the other thread...

I'm good with that.

Congrats everyone. This has been epic.

Awesome. I'm fine with that too.

To the other thread!

[Kshartle]

No. They can't destroy the value of gold. That's why they hate and fear it.
Except of course for their own monetary reserves... assuming that those still exist.

I can think of a way. The government decides we're going back on the gold standard and pegs the value of an ounce of gold to $50. Overnight, the value of gold to holders of dollars is reduced by 96%!!!

How would the government enforce such a ridiculous decree?

[Kshartle]

No. They can't destroy the value of gold. That's why they hate and fear it.
Except of course for their own monetary reserves... assuming that those still exist.

I can think of a way. The government decides we're going back on the gold standard and pegs the value of an ounce of gold to $50. Overnight, the value of gold to holders of dollars is reduced by 96%!!!

How would the government enforce such a ridiculous decree?

It would have to be willing to sell gold at $50 an ounce I think. That would last about 5 minutes.

[Libertarian666]

I can think of a way. The government decides we're going back on the gold standard and pegs the value of an ounce of gold to $50. Overnight, the value of gold to holders of dollars is reduced by 96%!!!

How would the government enforce such a ridiculous decree?

It would have to be willing to sell gold at $50 an ounce I think. That would last about 5 minutes.

I'd be amazed if it lasted that long. It's more likely that Goldman Sachs and/or JP Morgan Chase would clean them out in 50 milliseconds.

[Kshartle]

Exactly.

Yay!!

So, if I can summarize... According to KShartle, Mdraf and Libertarian666, we aren't using "real" money today. We are just using debt to buy and sell things, and we just happen to call those various forms of debt "dollars".

If that's what you're saying, then we all can agree with that for the discussions at hand about US solvency, etc.

The question now is, how do we tell what our debt-based non-money (what we call "dollars") will be worth in the future. And to determine that... we should probably go back to the other thread...

I hate to say it but I don't agree that debt and dollars are the same thing. However let's not let that minor detail derail us. Let's just call it money or dollars.

[Mdraf]

 

Back in the 1970s Italian banks began to issue their own money due to shortage of coins. Although each bank issued its own you could cash them at any bank. So they became a medium of exchange as everybody accepted them to buy "stuff".  Money or not money?

Were they redeemable in something else? Why would people accept them? Why did other banks accept them? I'd have to lean towards not money. Sounds like a money substitute but I don't know enough of the details.

What did the bank have that gave the note accepted value?

The bank would give you money for them if you had enough to add up to the value of a banknote. They were universally accepted, even by the Post Office, buses, shops etc.  My opinion is that it was money because it was a universally accepted medium of exchange within a closed system (Italy). It was not backed by any coercion of the government.  It was in effect a currency created by the private sector to fill a need.

[Kshartle]

No. Everything else is a money substitute of closer or greater resemblance to gold. That resemblance varies depending on events.

I would not go as far to say nothing other than gold is real money. There are other things, silver is the best example I think, that share gold's characteristics that lead people to voluntarily choose it as money. I don't think the marketplace has found anything that works quite so well as gold for money though.

So, would you say that only fungible commodities are money?

No, but I think the market would only choose them eventually because the deficiencies in other forms of money would push them out of use.

[Pointedstick]

The bank would give you money for them if you had enough to add up to the value of a banknote. They were universally accepted, even by the Post Office, buses, shops etc.  My opinion is that it was money because it was a universally accepted medium of exchange within a closed system (Italy). It was not backed by any coercion of the government.  It was in effect a currency created by the private sector to fill a need.

I would agree.

[Kshartle]

I'm good with that.

Congrats everyone. This has been epic.

Awesome. I'm fine with that too.

To the other thread!

Sorry just caught up.

[Libertarian666]

 

Back in the 1970s Italian banks began to issue their own money due to shortage of coins. Although each bank issued its own you could cash them at any bank. So they became a medium of exchange as everybody accepted them to buy "stuff".  Money or not money?

Were they redeemable in something else? Why would people accept them? Why did other banks accept them? I'd have to lean towards not money. Sounds like a money substitute but I don't know enough of the details.

What did the bank have that gave the note accepted value?

The bank would give you money for them if you had enough to add up to the value of a banknote. They were universally accepted, even by the Post Office, buses, shops etc.  My opinion is that it was money because it was a universally accepted medium of exchange within a closed system (Italy). It was not backed by any coercion of the government.  It was in effect a currency created by the private sector to fill a need.

Then it was a money substitute, i.e., something that people would accept in lieu of "real money". In this case, the "real money" was fiat paper, thus the "".

[Kshartle]

Then it was a money substitute, i.e., something that people would accept in lieu of "real money". In this case, the "real money" was fiat paper, thus the "".

For what it's worth....I think that's spot on analysis.

[Pointedstick]

Then it was a money substitute, i.e., something that people would accept in lieu of "real money". In this case, the "real money" was fiat paper, thus the "".

For what it's worth....I think that's spot on analysis.

It makes sense to me too… but at what point does the money substitute become the real money? I guess that's the $64,000 question.

[Libertarian666]

Then it was a money substitute, i.e., something that people would accept in lieu of "real money". In this case, the "real money" was fiat paper, thus the "".

For what it's worth....I think that's spot on analysis.

It makes sense to me too… but at what point does the money substitute become the real money? I guess that's the $64,000 question.

Or the $64 trillion question, these days.

The answer, by the way, is "never". The reason is that money substitutes cannot extinguish debt, as they are debt themselves; only money can do that.

[Pointedstick]

Or the $64 trillion question, these days.

The answer, by the way, is "never". The reason is that money substitutes cannot extinguish debt, as they are debt themselves; only money can do that.

If the government hypothetically began to issue debt-free "greenbacks" or some other form of purely fiat non-debt-backed currency, and then used it over the course of years and decades to pay off the national debt by slowly replacing it with debt-free dollars... what then? Would those dollars be money?

[Libertarian666]

Or the $64 trillion question, these days.

The answer, by the way, is "never". The reason is that money substitutes cannot extinguish debt, as they are debt themselves; only money can do that.

If the government hypothetically began to issue debt-free "greenbacks" or some other form of purely fiat non-debt-backed currency, and then used it over the course of years and decades to pay off the national debt by slowly replacing it with debt-free dollars... what then? Would those dollars be money?

What would they be worth if the issuer disappeared? If they were money, they would still have value in that case, as they would be a commodity with uses other than as a medium of exchange.

[Mdraf]

Or the $64 trillion question, these days.

The answer, by the way, is "never". The reason is that money substitutes cannot extinguish debt, as they are debt themselves; only money can do that.

If the government hypothetically began to issue debt-free "greenbacks" or some other form of purely fiat non-debt-backed currency, and then used it over the course of years and decades to pay off the national debt by slowly replacing it with debt-free dollars... what then? Would those dollars be money?

Or, more generally, where is that real money (i.e. the stuff that is used to extinguish the debt that accompanies money substitutes) going to come from?

The paper itself is printed by the government. The value of it is determined by the free market

[Libertarian666]

Or the $64 trillion question, these days.

The answer, by the way, is "never". The reason is that money substitutes cannot extinguish debt, as they are debt themselves; only money can do that.

If the government hypothetically began to issue debt-free "greenbacks" or some other form of purely fiat non-debt-backed currency, and then used it over the course of years and decades to pay off the national debt by slowly replacing it with debt-free dollars... what then? Would those dollars be money?

Or, more generally, where is that real money (i.e. the stuff that is used to extinguish the debt that accompanies money substitutes) going to come from?

Gold mining.

[moda0306]

Wait, what about debts that are not denominated in money, but in products or services?

You would "extinguish" debt not with money, but with real economic value.

So how can you say that only money can extinguish debt if by the very language of a private contract, the only thing that can extinguish debt is (insert delivery of product or service here).

[moda0306]

tech,

Though it seems that kshartle still disagrees, if you agree with Gumby and I that our currency and our treasury bonds are just fiat liabilities of the government on our balance sheets, what is the fundamental difference between the two?  Why should a swap of one for the other have any meaningful affect on our nominal purchasing power?

[Libertarian666]

Wait, what about debts that are not denominated in money, but in products or services?

You would "extinguish" debt not with money, but with real economic value.

So how can you say that only money can extinguish debt if by the very language of a private contract, the only thing that can extinguish debt is (insert delivery of product or service here).

I already said that you can write a contract with any terms you like. But if I agree with you to pay you for your work in bushels of wheat, which side of the contract is the "money" side? Obviously, neither, since neither your work nor bushels of wheat are commodities having the greatest liquidity of any commodity ("money", for short).

Which side is the "debt" side? Well, that depends on who delivers first. If you work for me and then I "pay" you with wheat, then I owe you wheat in the meantime. If I deliver the wheat and then you "pay" me with labor, then you owe me labor. But in neither case is the contract denominated in monetary terms, and there is therefore no debt as is commonly understood.

[Libertarian666]

tech,

Though it seems that kshartle still disagrees, if you agree with Gumby and I that our currency and our treasury bonds are just fiat liabilities of the government on our balance sheets, what is the fundamental difference between the two?  Why should a swap of one for the other have any meaningful affect on our nominal purchasing power?

The fundamental difference is that it is possible that the Fed will not buy every Treasury the government issues at ridiculously low interest rates. If the Fed would commit forever to buying all the Treasurys at these rates, then there would be almost no difference (aside from the interest, most of which is rebated to the Treasury anyway).

Of course that would also cause the dollar to lose most of its tiny fraction of its 1913 purchasing power, which is why the Fed doesn't announce that.

[Pointedstick]

The fundamental difference is that it is possible that the Fed will not buy every Treasury the government issues at ridiculously low interest rates. If the Fed would commit forever to buying all the Treasurys at these rates, then there would be almost no difference (aside from the interest, most of which is rebated to the Treasury anyway).

Of course that would also cause the dollar to lose most of its tiny fraction of its 1913 purchasing power, which is why the Fed doesn't announce that.

I think it's pretty obvious that the Fed is going to, though. I mean, it's their primary job.