What is Money?

[Guest e Yer]

The talk about bitcoins motivates me to discuss money. What is money? When it comes to bitcoins, my opinion is with Mr. Peter Schiff...I believe it holds little or no value. When I evaluate what I get paid for my 50 hours or more a week on the job, I weigh the costs of items and services relative to that effort to earn that net fiat currency. Here I agree with Stefan that price stores a lot of information. For example, I priced a single microphone audio jacks in the U.S. at $12. A packet of 10, shipped from China via ebay is $22. The Chinese one is a good value. With that jack, I can wire an adapter that will make a proprietary mike port accept a standard mike input. This provides a lot of value. I needed a plumber wrench to fix a leaky facet. The U.S. made is $32, the China one is $14. The China made is a good value. If you deal with Chinese, you know they will shop for the rock bottom priced item or service. Having said that, you can understand why Chinese manufacturers need to manufacture to price on the cheap. My point is the service you provide, or the product you create is the basis from which you will gauge the value of an item you need relative to the price and the value you put on item you created. The roots of this is a bartering mentality which fractionalizes the value of things you need or want relative to the value of time, effort, ingenuity of the product or service that you bring to the marketplace. Fiat currency is collateralized debt that we as a nation theoretical are on the hock for. We therefore theoretical accept this claim voucher (paper money) since all of us collectively are responsible for the debt that is in the name of the nation we are part of and have a sake in maintaining the solvency of. When a man buys a house, the lending bank hocks his purchased home until the debt is repaid. The seller of the home is given fiat currency based on the buyer's financial integrity to repay the loan. The seller spends the newly acquired fiat currency the same way that the government workers and contractors spend their fiat currency after the government borrows from the federal reserve bank in exchange for its i.o.u.'s (i.e. treasury bonds, notes, or bills) and just in case it puts U.S. citizen's and the unborn's future earning power on the hock. (That's one major purpose of the census taking.) When it comes to global trade, it's a matter of each country evaluating the U.S. dollar priced item or service relative to what is offered worldwide. Each country has its own natural resources and human resources that can generate solutions and value in the global marketplace. For instance, Japan, Germany, and now Korea have engineering acumen in the designing of its car and products. This weighs into the value of its exports. China, I mentioned, produces low, low cost functional goods. Africa has many sought after minerals and metals. Canada has oil, shale and Stefan Molyneux. And the U.S....no comment. So you can see how money is a medium to assign a fractional value to things relative to an individual's or nation's productivity. The final point of this blog is: if you want to protect your wealth from the possible financial crash, then acquire marketable skills and knowledge. That's the most reliable currency that will always hold its value.

[dsayers]

When it comes to bitcoins, my opinion is with Mr. Peter Schiff...I believe it holds little or no value.

 

Bitcoins have been worth hundreds of dollars for many months. Whether you believe it holds value or not, it does.

[Mike Fleming]

I think of money as an abstract concept.  It is not Gold as many say it is, nor is it intrinsically linked to any particular commodity.

 

it is a way for people to easily and efficiently exchange things of value, because fundamentally in this world we all provide goods and services for each other and need to be able to trade them.  In order to be able to do this money has to do certain things like retain a certain value over time, be divisible, etc.

 

Gold was always used in the past because it was the only way people could be sure that the value could be held due to physical world constraints.  This is why Fiat works, at least to some degree, if it can be restricted in amount.  But fiat basically has the same problem as Gold when it's in government hands.  Both can be debased.

 

Now that we can devise a money which can be restricted in amount using technology and which is far easier to trade in a global world I believe that Gold (and fiat) has pretty much come to the end of it's run as a currency.  It will always have value as long as people want it but I personally think cryptocurrencies are superior money and will be the way forward.  Although, that's not to say even better solutions won't arise in the future.  As long as money is in the free market and out of government hands both directly and in regulatory terms it will continue to innovate and become more useful.

[Magnus]

Money is debt. It's not a good. It's a claim for goods. It's a debt that someone owes to the holder of the money.

 

I recommend a book -- Debt: The First 5,000 Years, by David Graeber. He's a total loon when it comes to the modern economy (typical academic leftoid), but his history on money is eye- opening.

 

Niall Ferguson's The Ascent of Money is very highly recommended.

 

And of course Rothbard's books on money.

 

The gist is that money is a symbolic token of a debt. When someone gives you some good or benefit, and you don't reciprocate, you owe a debt. It's an abstraction -- the obligation to reciprocate.

 

In a village where everyone knows everyone (and is related to most of them), these debts are just remembered. Or tracked as ledger notes. There's no need for money. People can get together at the Reckoning Festival and figure out that the mutual debts all cancel each other out, for the most part. If someone has been a mooch that year, and gotten more than he's given, then the net debtor can give someone a pig and square his accounts.

 

Money is just a token representing this debt. It's what you give to someone you don't trust or expect to see again, instead of just remembering and settling up later.

 

Money is a symbolic proxy for goods you have given, but you've not yet received reciprocal goods. It's a symbol of a debt you are owed.

 

Paper money is (was) just a proxy for metal money. It's lighter and more portable. The whole point of metal money is that its supply was fixed. When you were given a coin, it couldn't be given to someone else! That limitation on supply was a limit on how far into debt one could get before finally reciprocating.

 

That's why fractional reserve banking was so powerful (and fraudulent) -- it was pledging the same coin to ten different people.

 

The purpose and effect of making money out of paper, severing its connection to physical matter, and then having monopoly control over the issuance of that paper money, is to enable limitless money, and thus limitless debt.

[Guest e Yer]

Dear Responders:

All very good inputs. Thank you. I might add that money is a way to make claims against future assets. If you lived daily off of what nature provided, you wouldn't overproduce (as it wouldn't be consumed and just wasted) and therefore you wouldn't need money. The ancient Hawaiians, and other tribal cultures didn't use money. This absence of money affect them during poor seasonal periods as there were famines and wars to obtain resources from others. On the positive side, this taught them to share and not overproduce or hoard or exploit resources. Fishing grounds remained plentiful and the land remained clean and fertile. The bible scripture says: Money is the root of all evil. Judging from the response to this topic, many of you recognize how the concept of money affects man's nature and led to the problems we see in the world today. 

[Magnus]

I disagree with most of what you wrote here. I don't know much about ancient Hawaiians in particular, but the myth of the Noble Savage is just false.

 

Also, there's nothing wrong with money. It's an extraordinarily useful trading tool. It enables people to keep track of exchange ratios of an infinite variety of goods, rather than trying to assign trading rates for pigs to chickens, boots to pigs, hammers to chickens, and a million other trading pairs. A universal trading unit simplifies things immensely.

 

Money also enables people to trade with a much wider multi-party circle. In a moneyless system, you can trade among people you know, because the mutual debts of incomplete trades with people like your brother-in-law will be settled later. A larger society needs to use money as a universal proxy good, because it's tradable for anything with anyone.

 

The problem is not with money. It's with a small, self-interested corporation controlling the issuance of all money and commanding everyone's use of the official money and the value thereof.

 

It's an old problem. The Code of Hammurabi is just about the world's oldest written text, and about a third of it is devoted to price-fixing.

[cobra2411]

Money is a store of past productivity for future use. It should be universally accepted, durable, stable, unique, self authenticating and difficult to counterfeit. Credit, i.e. debt spends like money but is a promise on future labor.