What is money?

[Pointedstick]

edit: oops, accidentally messed up the first post. Restoring it

- Is gold money?
- Is cash in my pocket money?
- Does my checking account consist of money?
- Does my savings account consist of money?
- Does my treasury money market fund consist of money?
- Is the debt that backs these account money?
- If not, are these accounts fraudulent for using my money to buy non-money but telling me I still have money?
-- And when one deposits money in one of these fraudulent accounts, it is disappearing from the money supply as the bank uses it to buy non-money?

[Gumby]

For those who don't believe that Debt=Money, the following YouTube video explains why money has always been debt — for thousands of years.

YouTube: Money as Debt

The video is pretty good, but it believes heavily in the money multiplier effect — which the Fed says is a myth.

If you ignore the video's wild claims of the money multiplier effect, the video does a good job explaining why money — even gold backed money — has always been a form of debt.

[Mdraf]

For those who don't believe that Debt=Money, the following YouTube video explains why money has always been debt — for thousands of years.

YouTube: Money as Debt

The video is pretty good, but it believes heavily in the money multiplier effect — which the Fed says is a myth.

If you ignore the video's wild claims of the money multiplier effect, the video does a good job explaining why money — even gold backed money — has always been a form of debt.

I'm not going to play The Battle Of The URLs.  Feel free to do your own research and then post your views in your own words.  This is a discussion among intelligent people who should be capable of writing their own views.

[Kshartle]

For those who don't believe that Debt=Money, the following YouTube video explains why money has always been debt — for thousands of years.

YouTube: Money as Debt

The video is pretty good, but it believes heavily in the money multiplier effect — which the Fed says is a myth.

If you ignore the video's wild claims of the money multiplier effect, the video does a good job explaining why money — even gold backed money — has always been a form of debt.

I'm not going to play The Battle Of The URLs.  Feel free to do your own research and then post your views in your own words.  This is a discussion among intelligent people who should be capable of writing their own views.

Clearly you are unable to refute the video. (Tounge in cheek)

[Pointedstick]

- Is the debt that backs these account money?
- If not, are these accounts fraudulent for using my money to buy non-money but telling me I still have money?
-- And when one deposits money in one of these fraudulent accounts, it is disappearing from the money supply as the bank uses it to buy non-money?

I'm just gonna quote myself here… but as a former Austrian, I believe--and someone please correct me if I'm wrong--that the perspective is that the entire fractional reserve banking system is a giant fraud in that it uses people's money to purchase non-money, lies to them about the true availability of their funds, etc.

And that may all be true, but IMHO it doesn't actually help us understand the mechanics of the elaborate fraud and better comprehend the world we live in. It may be an elaborate fraud, but it's the world we live in, and unless we're going to withdraw from the banking system entirely, I think it's worth it to learn the fraud's internal logic.

But that's just my perspective.

[Gumby]

For those who don't believe that Debt=Money, the following YouTube video explains why money has always been debt — for thousands of years.

YouTube: Money as Debt

The video is pretty good, but it believes heavily in the money multiplier effect — which the Fed says is a myth.

If you ignore the video's wild claims of the money multiplier effect, the video does a good job explaining why money — even gold backed money — has always been a form of debt.

I'm not going to play The Battle Of The URLs.  Feel free to do your own research and then post your views in your own words.  This is a discussion among intelligent people who should be capable of writing their own views.

Fine. I've asked you this before, Mdraf, and you've never answered it....

Where does money come from?

We all agree that base money is our "medium of exchange." But, where does base money come from?

The answer is that — except for coins, which are debt-free — all our base money comes from debt. Even Federal Reserve Notes are liabilities of the Federal Reserve.

If the Fed "prints" money it does so by swapping it with the private sector for public debt of private credit. In other words, the debt or credit must exist in order for the money to be printed in a debt-based/credit-based monetary system. If the debt or credit does not exist in the first place, the Fed cannot print anything unless it is issuing a short-term loan (i.e. credit).

[dragoncar]

Is time money?
Is power money?

[Libertarian666]

“Gold is money, everything else is credit.”? - Attributed to JP Morgan, 1912

[Pointedstick]

“Gold is money, everything else is credit.”? - Attributed to JP Morgan, 1912

That is what I suspected. Is your opinion similar to Kshartle's, i.e. that ideally money is the voluntary means of exchange, not the one that the government forces on us?

If so, are bitcoins money?


This discussion is fascinating because of the diversity of opinions as to what constitutes something as seemingly basic as "money"!

[Gumby]

Other than minted gold and silver coins, perhaps platinum we are not really using money...However as I said earlier, for purposes of our discussion we can just refer to dollars as money.

Interesting. So, it sounds like you believe that only debt-free money is really "money" — since coins are the only form of debt-free money in our society currently. Note that pure debt-free paper fiat money would also be a form of debt-free money — which is what Thomas Edison argued for during the early 1900s — but the last pure debt-free paper fiat money in the US was "Greenbacks".

You have to understand that you are using an extremely narrow definition of money, because even in the middle ages most coins were borrowed into existence, from goldsmiths. And when a kingdom ran out of gold, it just borrowed more and more gold from goldsmiths.

Today, the goldsmiths became "bankers" and now we borrow most of our savings, collectively, from bankers.

[Kshartle]

even in the middle ages most coins were borrowed into existence

"Borrowed" into existance?

Anything that must be "borrowed" into existance, surely is not money.

This is the magical notion that something can be created from nothing.

Even printed dollars come from paper and ink. Their purchasing power is not created through the magic of the ink hitting the paper. The purchasing power comes from the decree that they must be accepted. There is a cost to the one making the decree. Even the decree doesn't come from nothing, it comes from the effort of creating the army and dungeons needed to support the decree.

And incidently, no new purchasing power is created, it's just redistributed from the other dollars, thus devaluing them.

[Libertarian666]

“Gold is money, everything else is credit.”? - Attributed to JP Morgan, 1912

That is what I suspected. Is your opinion similar to Kshartle's, i.e. that ideally money is the voluntary means of exchange, not the one that the government forces on us?

Yes.

If so, are bitcoins money?

No. Money is the commodity that has the greatest liquidity. Bitcoins do not have the requisite attributes for a monetary commodity, because they are not a commodity at all.

Of course people can use them for trade if they wish, but they can do the same with any other object (assuming a bitcoin is an object), but they are not money.

This discussion is fascinating because of the diversity of opinions as to what constitutes something as seemingly basic as "money"!

[Pointedstick]

even in the middle ages most coins were borrowed into existence

"Borrowed" into existance?

This is splitting hairs. Obviously the coins had to be minted through human effort. The point is that the king had the goldsmiths mint coins for them without paying in full beforehand, by promising to pay later. Thus, even though the coins were made of precious metals, they were still backed by the king's ability to pay later--they were debt-backed, just like today's federal reserve notes.

[Kshartle]

“Gold is money, everything else is credit.”? - Attributed to JP Morgan, 1912

That is what I suspected. Is your opinion similar to Kshartle's, i.e. that ideally money is the voluntary means of exchange, not the one that the government forces on us?

Yes.

If so, are bitcoins money?

No. Money is the commodity that has the greatest liquidity. Bitcoins do not have the requisite attributes for a monetary commodity, because they are not a commodity at all.

Of course people can use them for trade if they wish, but they can do the same with any other object (assuming a bitcoin is an object), but they are not money.

This discussion is fascinating because of the diversity of opinions as to what constitutes something as seemingly basic as "money"!

I would consider them money although it's very tough. They don't have utility except as a medium of exchange. They certainly have a cost to produce. Absent the ability to use them as money I don't think they have value.....

ehhh....it's a tough one. I take it back. I've thought on bitcoins a lot and whether or not they are money.....jury's still out for me. We'd have to nail down an exact definition of money and weigh against that. Maybe we'll get there in this thread.

[Pointedstick]

Thanks Libertarian666. You said two things:
1. Money is the voluntary means of exchange, not the one that the government forces on us
2. Money is the commodity that has the greatest liquidity

Combining these statements, we arrive at their intersection, which is:

"Money is the commodity that has the greatest liquidity that people choose to be their voluntary means of exchange, not the one the government forces on them"

Does this mean that if the government forced people to use gold as money when they didn't want to (perhaps they preferred silver or platinum), gold would actually not be a legitimate form of money?

[Kshartle]

even in the middle ages most coins were borrowed into existence

"Borrowed" into existance?

This is splitting hairs. Obviously the coins had to be minted through human effort. The point is that the king had the goldsmiths mint coins for them without paying in full beforehand, by promising to pay later. Thus, even though the coins were made of precious metals, they were still backed by the king's ability to pay later--they were debt-backed, just like today's federal reserve notes.

Didn't mean to split hairs. Does this mean the gold coins require the king to make them money? I don't understand the point. What is it that makes them money? I don't think the borrowing has anything to do with it.

[Kshartle]

Does this mean that if the government forced people to use gold as money when they didn't want to (perhaps they preferred silver or platinum), gold would actually not be a legitimate form of money?

Yes. Same as peanuts. Or slips of paper with dead presidents on them.

But for other economic discussions reffering to gold as money would be fine.

[moda0306]

Mdraf & Kshartle,

You keep dogging these discussions as being pathetic, nonsensical, up-is-down, etc, and then trash the work Gumby does with backing his assertions with internet sources that are interesting reads or views.  There's nothing wrong with posting other sources. 

When Gumby makes an argument, he comes fully loaded, and you're trying to use it against him instead of trying to refute the argument.

I think these discussions are great.  I think most onlookers interested in money/macro would agree.  The only thing that brings them down is when things get snarky, and especially when you start completely avoiding having a meaningful debate and resort to.


As to whether "debt is money," it clearly has been used as a medium of exchange, if not the MAIN medium of exchange at many points in history.  Is there any disagreemet there?

[Pointedstick]

Moda, please don't be so confrontational. I'd really like this thread to go more smoothly than the other one…

[Libertarian666]

even in the middle ages most coins were borrowed into existence

"Borrowed" into existance?

This is splitting hairs. Obviously the coins had to be minted through human effort. The point is that the king had the goldsmiths mint coins for them without paying in full beforehand, by promising to pay later. Thus, even though the coins were made of precious metals, they were still backed by the king's ability to pay later--they were debt-backed, just like today's federal reserve notes.

I'm afraid that makes no sense.
The coins weren't backed by anything, because they were money.
The king's purchase of the coins was backed by his promise to pay for them later.
And by the way, exactly what did he promise to pay in? I think I know...

[Pointedstick]

Does this mean that if the government forced people to use gold as money when they didn't want to (perhaps they preferred silver or platinum), gold would actually not be a legitimate form of money?

Yes. Same as peanuts. Or slips of paper with dead presidents on them.

But for other economic discussions reffering to gold as money would be fine.

So this actually raises the question: what would people use as money absent government?

I think there's a lot of historical weight pointing to fiat substitutes of whatever commodity gets chosen. I mean, back in the days of gold money, people eventually started trading gold certificates because lugging all the coins around was a pain in the neck. In today's world of instantaneous electronic commerce and finance, it's unimaginable to me that we'd revert to a purely physical currency--there would have to be some kind of easily transmissible paper or electronic version of it that was backed by the underlying commodity.

But then you get right back to the dangerous game of the paper/electronic money supply expanding faster than the commodity backing it all over again…

[Libertarian666]

Thanks Libertarian666. You said two things:
1. Money is the voluntary means of exchange, not the one that the government forces on us
2. Money is the commodity that has the greatest liquidity

Combining these statements, we arrive at their intersection, which is:

"Money is the commodity that has the greatest liquidity that people choose to be their voluntary means of exchange, not the one the government forces on them"

Does this mean that if the government forced people to use gold as money when they didn't want to (perhaps they preferred silver or platinum), gold would actually not be a legitimate form of money?

Actually, what I was answering was the question as to whether I thought people should choose money voluntarily rather than having it forced on them. That doesn't mean that gold would not be money if forced on people: assuming that it has the greatest liquidity of any commodity, then it is money.

By the way, even today, gold has the greatest liquidity of any commodity. The spread on wholesale transactions is $1/oz., or a small fraction of 1%.

[Gumby]

even in the middle ages most coins were borrowed into existence

"Borrowed" into existance?

Anything that must be "borrowed" into existance, surely is not money.

But, that's what happened. The king would borrow the gold from a goldsmith (or a guild of goldsmiths) and the king would pay people with those gold coins and then demand a tax that could only be payable with one of those coins with his picture on it. It was just a scheme. He would devalue the coins over time in terms of how much tax they could extinguish.

Goldsmiths were the first bankers. They held the gold in their vaults and created promissory notes that became the first paper currency — even though they were just fractions of a reserve (i.e. credit)!

[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?

[Libertarian666]

Does this mean that if the government forced people to use gold as money when they didn't want to (perhaps they preferred silver or platinum), gold would actually not be a legitimate form of money?

Yes. Same as peanuts. Or slips of paper with dead presidents on them.

But for other economic discussions reffering to gold as money would be fine.

So this actually raises the question: what would people use as money absent government?

I think there's a lot of historical weight pointing to fiat substitutes of whatever commodity gets chosen. I mean, back in the days of gold money, people eventually started trading gold certificates because lugging all the coins around was a pain in the neck. In today's world of instantaneous electronic commerce and finance, it's unimaginable to me that we'd revert to a purely physical currency--there would have to be some kind of easily transmissible paper or electronic version of it that was backed by the underlying commodity.

But then you get right back to the dangerous game of the paper/electronic money supply expanding faster than the commodity backing it all over again…

As long as anyone who issues warehouse certificates for money ("money substitutes") is held to the same legal standard as people who issue warehouse certificates for other goods, there is no problem. It's only when counterfeiting of money substitutes is made legal that these issues arise.