What is money?

[Libertarian666]

I don't argue with people who believe it's all right to initiate force against other people, or for the government to do it, which is the same thing. Once you agree with that, you are beyond the realm of rationality and in the realm of violence, and you are not worthy of debating.

Too bad we couldn't just leave it at the point where we agreed that the "money" we are forced to use is nothing more than debt.

[Gumby]

I don't argue with people who believe it's all right to initiate force against other people, or for the government to do it, which is the same thing. Once you agree with that, you are beyond the realm of rationality and in the realm of violence, and you are not worthy of debating.

Too bad we couldn't just leave it at the point where we agreed that the "money" we are forced to use is nothing more than debt.

Please spare us the drama. Nobody agrees with it. Nobody here says its "right." You are putting words in our mouths. We are simply saying that — according to our nation's history — significant economic growth appears to happen when the government spends. You certainly haven't proven otherwise.

...And if you bet against those periods of intense money spending, you would have missed out on the greatest periods of economic expansion the world has ever seen.

[doodle]

I don't argue with people who believe it's all right to initiate force against other people, or for the government to do it, which is the same thing. Once you agree with that, you are beyond the realm of rationality and in the realm of violence, and you are not worthy of debating.

Too bad we couldn't just leave it at the point where we agreed that the "money" we are forced to use is nothing more than debt.

Historically speaking however, money seems to have always come into being as debt and credit between two parties. The actual physical medium doesnt seem to have been necessary for economic activity to exist. A ledger often would suffice.

[Gumby]

A ledger often would suffice.

And often it did. Some of the very first forms of writing were debt records:

http://en.wikipedia.org/wiki/Writing#Th ... of_writing

Archaeologist Denise Schmandt-Besserat determined the link between previously uncategorized clay "tokens", the oldest which have been found through the Zagros region of Iran, and the first known writing, Mesopotamian cuneiform. The clay tokens were used to represent commodities, and perhaps even units of time spent in labour, and their number and type became more complex as civilization advanced. A degree of complexity was reached when over a hundred different kinds of tokens had to be accounted for, and tokens were wrapped and fired in clay, with markings to indicate the kind of tokens inside. These markings soon replaced the tokens themselves, and the clay envelopes were demonstrably the prototype for clay writing tablets...

...In approximately 8000 BC, the Mesopotamians began using clay tokens to count their agricultural and manufactured goods. Later they began placing the tokens in large, hollow, clay containers (bulla) which were sealed; the quantity of tokens in each container came to be expressed by impressing, on the container's surface, one picture for each instance of the token inside. They next dispensed with the tokens, relying solely on symbols for the tokens, drawn on clay surfaces. To avoid making a picture for each instance of the same object (for example: 100 pictures of a hat to represent 100 hats), they 'counted' the objects by using various small marks. In this way the Sumerians added "a system for enumerating objects to their incipient system of symbols". The original Mesopotamian writing system (believed to be the world's oldest) was derived from this method of keeping accounts circa 3600 BC, and by the end of the 4th millennium BC, this had evolved into using a triangular-shaped stylus pressed into soft clay for recording numbers.

Source: http://en.wikipedia.org/wiki/Writing#Th ... of_writing

[Libertarian666]

I don't argue with people who believe it's all right to initiate force against other people, or for the government to do it, which is the same thing. Once you agree with that, you are beyond the realm of rationality and in the realm of violence, and you are not worthy of debating.

Too bad we couldn't just leave it at the point where we agreed that the "money" we are forced to use is nothing more than debt.

Please spare us the drama. Nobody agrees with it. Nobody here says its "right." You are putting words in our mouths. We are simply saying that — according to our nation's history — significant economic growth appears to happen when the government spends. You certainly haven't proven otherwise.

...And if you bet against those periods of intense money spending, you would have missed out on the greatest periods of economic expansion the world has ever seen.

It is a lie (or to be more charitable, a misunderstanding) to say that there was economic growth during WWII. There was no such thing. The amount of goods and services available to the US population was far less during that time than before or after the war.

The appearance of such growth is a statistical illusion due to the fact that GNP figures INCLUDE GOVERNMENT SPENDING. Thus, government spending ALWAYS raises GNP (now GDP). But that has nothing to do with actual economic growth, which is based on increases in goods and services available to the public.

I hope that helps dispel any illusions to the contrary.

[Gumby]

It is a lie (or to be more charitable, a misunderstanding) to say that there was economic growth during WWII. There was no such thing. The amount of goods and services available to the US population was far less during that time than before or after the war.

Now you're just redefining what "economic growth" is. Military goods and services were produced. Not a good idea in my book, but nevertheless, significant economic growth still happened in the historical record...

http://en.wikipedia.org/wiki/Military_p ... rld_War_II

...and investments responded accordingly. We are generally talking about investments here — not how useful or morally appropriate our production is (even though you are right about that!).

The appearance of such growth is a statistical illusion due to the fact that GNP figures INCLUDE GOVERNMENT SPENDING. Thus, government spending ALWAYS raises GNP (now GDP). But that has nothing to do with actual economic growth, which is based on increases in goods and services available to the public.

Sorry, but it's not an illusion when the government is paying for something to be created. The creation of goods and services still actually happens. And the military equipment was available to the nation. We just don't like the product.

Whether you agree with me or not, betting against the USA when all that money printing was taking place wouldn't have served you very well.

[Kshartle]

Not trying to be rude, but to be honest, it sounds like you guys are very good at denying actual historical events.

You say that there could never be a liquidity problem with gold... and yet there was a well-documented liquidity problem with gold in the midwest, during the late 1800s. And trade deficit nations had obvious gold shortages.

You say that it's been "proven beyond a reasonable doubt" that economic growth is retarded from money printing.... and yet, the greatest expanses in economic history, over the past century, coincided with/after a lot of money printing.

A lot of what you're saying makes sense in the context of a textbook. But reality seems to play out very differently. Imagined if you had bet against economic growth in the US after 1940, or 1950, or 1980, or 1990, or today....

Who knows, maybe economic growth will die in the US going forward. But, just because you have a text-book version of the future in your head doesn't mean it will play out that way.

Agreed. Back to WW2... The fact that the printed money during that period was spent on war machines doesn't negate the fact that the government printing money created a lot of jobs and the real production of material goods. Those productive forces could have been mobilized towards creating more socially beneficial things besides bombs and tanks, but that is beside the point which is that massive government printing took a depressionary economy with high unemployment and reduced unemployment to 0 percent and ramped up production of material goods significantly. This is a solid empirical argument that money printing can facilitate the creation of real material wealth. Again, the fact that it went to creating war machines instead of bridges and schools is only because it took a massive war to mobilize our politicians to begin really deficit spending to the degree necessary. Roosevelt attempted stimulus before hand but it was insufficient in size and scope compared to that which occurred during the war.

Just got home.

I'll demolish this in the morning. There is a very important lesson here.

[Kshartle]

I don't argue with people who believe it's all right to initiate force against other people, or for the government to do it, which is the same thing. Once you agree with that, you are beyond the realm of rationality and in the realm of violence, and you are not worthy of debating.

Too bad we couldn't just leave it at the point where we agreed that the "money" we are forced to use is nothing more than debt.

I'm about to teach some critical lessons that will hopefully break through the programming. It's good that we've continued.

[moda0306]

I don't argue with people who believe it's all right to initiate force against other people, or for the government to do it, which is the same thing. Once you agree with that, you are beyond the realm of rationality and in the realm of violence, and you are not worthy of debating.

Too bad we couldn't just leave it at the point where we agreed that the "money" we are forced to use is nothing more than debt.

Predicting inflation isn't a moral game.  Stating that there are lessons within the spending of WWII isn't saying that building machinery is right.

But if you need me to say it I will:

Coercion is bad.

Though I'll add that it's even bad if someone who wants to develop land kills Indians to kick them off it, and that said person's children have no natural right to it.

But that's a different argument for a different thread.

[Kshartle]

  Stating that there are lessons within the spending of WWII isn't saying that building machinery is right.

I'll teach some WWII lessons, and put to bed the virtues of money printing and government spending tomorrow.

Then we can move onto more advanced topics.

[moda0306]

  Stating that there are lessons within the spending of WWII isn't saying that building machinery is right.

I'll teach some WWII lessons, and put to bed the virtues of money printing and government spending tomorrow.

Then we can move onto more advanced topics.

I don't know. Like you said, if we can't even agree on some basic economic principles, maybe moving beyond that is a lost cause.

But I'd be curious to here your take on WWII.

[Libertarian666]

It is a lie (or to be more charitable, a misunderstanding) to say that there was economic growth during WWII. There was no such thing. The amount of goods and services available to the US population was far less during that time than before or after the war.

Now you're just redefining what "economic growth" is. Military goods and services were produced. Not a good idea in my book, but nevertheless, significant economic growth still happened in the historical record...

http://en.wikipedia.org/wiki/Military_p ... rld_War_II

...and investments responded accordingly. We are generally talking about investments here — not how useful or morally appropriate our production is (even though you are right about that!).

The appearance of such growth is a statistical illusion due to the fact that GNP figures INCLUDE GOVERNMENT SPENDING. Thus, government spending ALWAYS raises GNP (now GDP). But that has nothing to do with actual economic growth, which is based on increases in goods and services available to the public.

Sorry, but it's not an illusion when the government is paying for something to be created. The creation of goods and services still actually happens. And the military equipment was available to the nation. We just don't like the product.

Whether you agree with me or not, betting against the USA when all that money printing was taking place wouldn't have served you very well.

The economic effect of military spending is exactly the same as that of digging holes and filling them in, although of course the human toll is much greater; no goods or services are produced that meets the needs of consumers in either case.

Therefore, I assume that you also think that if the government paid people to dig holes and fill them in, that would count as economic output too.

[Gumby]

The economic effect of military spending is exactly the same as that of digging holes and filling them in

Not true at all. Whether you like it or not, when the government spends billions of dollars on an aircraft carrier or a nuclear sub, it spurs a tremendous amount of economic activity — particularly for the community that builds the aircraft carrier or nuclear sub.

Metal suppliers buy machines to dig up and shape metal.

Paint manufacturers produce hundreds of thousands of gallons of paint.

Crane manufacturers place orders for all sorts of parts to build the cranes necessary to build the ships. People get paychecks and those paychecks are used to purchase food and clothes, and iPods, etc. etc.

Paying someone to dig a hole and fill it in does not result in orders and supplies. Do you think these ships are built with a shovel and some dirt??

no goods or services are produced that meets the needs of consumers in either case.

And yet... the economy literally grows from the orders placed to build the military industrial complex. Go figure.

Therefore, I assume that you also think that if the government paid people to dig holes and fill them in, that would count as economic output too.

I didn't say that. You did. Digging a hole and filling it in doesn't result in any product. Building a nuclear sub or aircraft carrier results in a ship and hundreds of thousands of bolts and computers and antennas and pipes and railings and cables and stairways and elevators and engine turbines and windows and toilets and sinks and showers and mirrors and chairs and instruments and gyroscopes and navigation equipment and GPS chips and employs thousands of programmers and operators and I could go on and on and on and on...

I don't see how you can compare digging a hole and filling it in with building military machines. For all practical purposes, building a military ship is no different from building a private building that only a few government workers get to go in. The building isn't consumed by the society, but it's still a product of the society that sets foreign policy.

To be clear, I don't think it's wise to build military machines. You're right, they aren't particularly useful beyond insuring safe trade routes (pretty important, actually). But, let's not pretend that they don't have a profound effect on our economy. They clearly do.

[Gumby]

I'll teach some WWII lessons

Be sure to cover the Marshall Plan and the Permanent War Economy, professor — and be sure to leave out the part about all the money printing that took place to fund those endeavors!

Honestly, you can teach us all the lessons you want. But, the fact of the matter is that the economy has undergone a massive expansion since WWII and it coincided with a significant amount of money printing. Go figure.

[Gumby]

And while you're at it.... be sure to tell us why this, somehow, isn't true:

“The deficit of one sector must be the surplus of another.

This is not a theory. It’s actually an accounting identity. But the effect of that identity is beyond question. Elevated corporate profits can be directly traced to the massive government deficit and depressed household savings that we presently observe.

I should note that this result is the outcome of hundreds of millions of individual transactions, so it’s tempting to focus on those transactions as if they are alternate explanations. For example, one might argue that corporate profits are high because people are unemployed, many workers have been outsourced, and government transfer payments are allowing corporations to maintain revenues from consumers despite low wage payments. That’s a perfectly reasonable of saying the same thing – but the transaction detail does not change the basic equilibrium that profits are elevated because government and household savings are dismal. One will not be permanent without the other being permanent.

To see this, notice that corporate profit margins have always moved inversely to the sum of government and household savings.”?

[align=center][/align]

Source: http://www.hussmanfunds.com/wmc/wmc130311.htm

In other words, government deficits are a big driver of corporate profits.

Now, you guys can pontificate until the cows come home about how this isn't somehow "real" or it's "bad" or whatever. But, for those of us who are trying to invest, we just care about the historical facts. We are just acknowledging what actually helps fuel corporate profits — and that appears to be government spending (whether we like it or not).

[Kshartle]

Just got up and saw those posts.

For starters, if you can't tell the difference between digging holes and filling them in vs. economic growth, this is all pointless.

You can't tell the difference between economic activity and economic growth.

Economic growth requires activity that is sustainable on it's own merit. It is activity that generates profit because other people desire the goods and services and are willing to trade for them. It's like building a factory that makes cars because people want cars and will produce things the car makers want to trade for them. Or better yet everyone will trade for money so they can buy the things they want (like cars).

The government does not engage in this, and does not create economic growth. It can't because it always produces activity that people do not want or they want but are unwilling to pay the price the government is. That's why it needs to use force to do it. It consumes more resource value than it returns. By God is this not obvious?!!??!

The activity that the government creates or stimulates or whatever can only be sustained through continued funding via theft (taxes or inflation). The activities cannot be maintained without this funding and without pointing guns at people.

As Tech said if the government ordered a thousand people at gunpoint to dig holes and fill them up this would not be economic growth. It's no different than if they ordered them to build a factory or stole money from someone else and paid them to build the factory, or bridge, or whatever.

You can't escape the theft or the force involved. This is not a moral condemnation (although that is sufficient), it's a basic economic principle. The resources the government has commandeered (human and material) already existed. If they were idle there is a reason. People do not need to be forced to create economic growth, sustainable growth. They do that on their own. The government interferes with this process and makes everyone poorer.

Some things government does look like growth. You're only seeing one side of the equation. As I've said before, the challenge is comprehending what is unseen.

You see factories built during the war and weapons of death and think it's growth. What you miss is all the shattered lives that were wasted, the terrible diminished standard of living across the globe (I mean Jesus this has been pointed out), and the terrible waste of resources. Absent the war (and government) real growth could have occurred during this time. Factories could have been built making products people actually wanted that they could sell.

Notice how the wartime industries shrank immediately following the war and millions of soldiers were suddenly unemployed?!?!?!?!  That's because they were part of an unsustainable military bubble. The government never, ever creates growth, it can only distort the market and create an bubble that must be sustained through further distortion. The distortion can go on for a long long time (post office) or maybe a decade (housing boom). Sometimes it just results in wasted resources and a recession (housing boom). Sometimes the result is terribly diminished standard of living alongside death and destruction (WWII). It never results in profit and sustainability.

Even the few things government does that look like a business the marketplace would create require tax subsidies and laws outlawing that activity on the part of the market.

As for the money-printing, we have gone over this before and I've provided the equations. Creating a new dollar, absent an increase in goods and services available raises the general price level. Creating a new dollar does not create new purchasing power, it simply redistributes it to the counterfeiter. That purchasing power had already been available to spend by it's rightful owners. That right has now been stolen. This is a critical point you are not getting. The government cannot stimulate growth by stealing the purchasing power of others and re-directing it. It can only create an unsustainable bubble and missalocation because it doesn't know what the market wants to spend it's purchasing power on. At best it can guess and it will be wrong.

Something was said about printing during a deflation to get people to work. The principle is no different during a deflation. As the number of dollars shrinks their purchasing power grows. Refer back to the equations if need be. Left in the hands of the marketplace the purchasing power will be used in the most efficient manner. If something is idle it's because the economy needs to restructure before it is profitable to use again. This is a very quick process unless the government intervenes with "stimulus". When the government prints or taxes (both theft mind you), and it engages in "stimulus" it interferes with the process. The economic activity (not growth) that results has the immediate appearance of working. That's why they do it, it's good for votes even though it's bad in the long run. The "stimulus" can only be sustained through further theft and there is a limit to what they can steal through inflation or taxes. Borrowing does not make it sustainable since the borrowed money requires theft.

Once the "stimulus" ends (which it must eventually" the entire thing crashes and is exposed and the economy is worse off for it. The market may have improved the standard of living in the meantime, masking the damage in people's lives but there is no question we are all poorer for it. A little stimulus can be shrugged off. The gigantic ones like WWII or the housing or this latest government/welfare/housing bubble are much much more destructive

In summation:
-Force causes economic activity we do not want
-Since we don’t want it, economic activity created by force can only be sustained by force
-If the interference by force is big enough we get a recession. If the recession is intereferred with we get a depression.
-Even if our lives are better after the forced activity they are not as good as they otherwise would be. If you don’t understand why this is so refer to the first 3 points
-printing money does not create wealth
-printing money does not create purchasing power
-printing money only redistributes purchasing power to the counterfeiter
-the printed money is always spent in ways the market does not want, therefore it is unsustainable, start back at point one

If I made grammatical errors I apologize. This was a lot to write and I did it in about 15 minutes.

[Kshartle]

when the government spends billions of dollars on an aircraft carrier or a nuclear sub, it spurs a tremendous amount of economic activity — particularly for the community that builds the aircraft carrier or nuclear sub.

And yet... the economy literally grows from the orders placed to build the military industrial complex. Go figure.

You had it right at first........activity.....then you screwed it up by calling it growth. I'd call it a bubble or a waste that can only be maintained through theft and we are all poorer for it.

You should be Krugman's side kick. I think he suggested to get out of recession the goverment should fake an alien invasion, print trillions and then entice people into the activity of building defenses against the aliens. Man that would be some real growth there.

[Kshartle]

I'm not willing to waste any more time on this. Do your own homework.

Please don't interfere with interesting threads anymore with this nonsense . Please. If I'm in an economic thread that you haven't posted in please stay out. I will not be in many and rarely more than one at a time.

I'll list the nonsense:

Government can create economic growth
Money printing can create economic growth
Currency issuer debt is risk free
Printing money is not inflationary
If the money supply doesn't grow neither can the economy

This nonsense has been completely destroyed in this thread.

MR, Keynesianism etc. have all been show to be false here and based on false premises.

They are to economics what the WWE is to greco-roman wrestling. Funny and amusing, filled with comical characters, staged, fake, and anyone who believes they are real.....well, those people live in an alternate reality.

Tech, Mdraf please feel free to add to my list of nonsense.

[Kshartle]

In other words, government deficits are a big driver of corporate profits.

Yeap, in unsustainable ways that make us poorer.

Every dollar spent by the government is a dollar the market can't spend. Let me re-phrase so everyone can understand - Every dollar's worth of purchasing power the government spends is a dollar's worth of purchasing power the marketplace can't spend on things that we ACTUALLY want.

[Gumby]

Just got up and saw those posts.

[...]

In summation:
Blah Blah Blah Blah blah
Blah blahblah Blah
Blah Blahblah Blahblah
Blah Blah blah Blah blah
Blah blah Blah Blah blahblah blah

Again... feel free to waste your time pontificating on why you think the economic of the past century is all in our heads. But, the numbers don't lie. The US has had powerful economic growth that coincided with lots of government spending. When the government spends, it drives corporate profits. That's all we really care about for investments.

But, sure... I'll freely admit that coercion is "bad" or whatever you want to say about it.

[Gumby]

Every dollar's worth of purchasing power the government spends is a dollar's worth of purchasing power the marketplace can't spend on things that we ACTUALLY want.

Huh? If the government spends a dollar's worth of purchasing power on something we don't want — such as an aircraft carrier — that dollar then becomes an asset in the private sector and can then be used to buy a real product that people ACTUALLY want. I suppose you could argue that the dollar's worth of purchasing power diminishes our purchasing power, but you haven't shown that successfully yet. All you've done is tell us that increasing base money causes inflation, but we've already shown you that isn't usually true.

[Kshartle]

I don't follow your logic.

That's because you can't follow logic.

Dollars don't transform into other assets.

You are a lost cause.

[doodle]

I think a lot of Austrians would do well to meditate on this quote from Bertrand Russell:

"When a man tells you that he knows the exact truth about anything, you are safe in inferring that he is an inexact man."

Austrians have a very clear dogma about how money and the economy work. When reality tends to contradict this dogma they then try to convince others that reality must somehow be mistaken.

[Gumby]

I don't follow your logic.

That's because you can't follow logic.

Dollars don't transform into other assets.

You are a lost cause.

Easy, buddy. I'm not the one who is unable to prove their own logic. You still haven't proven anything. You're just telling us ideas that don't match up with history or reality. It's like you're getting mad at us for telling you that your wonderful ideas haven't come true in over a century.

[Gumby]

Dollars don't transform into other assets.

Sure they do. Dollars can be converted into Treasury Bonds. Treasury Bonds are an asset of the private sector. They represent our savings (literally, in the case of the Permanent Portfolio). Those assets can be used to back private credit and spur investment in all the wonderful things you think we should be producing.