What is money? Where does our money come from?

Ok, it didn't seem like you, but I can take it :)



YES! This is the reply I compiled before you wrote this with snipets from different sources.

What happens when we become a truly cashless society? People now don't understand the importance and significance of the link between money and a real commodity, but at least there is still representative money to physically handle and remind us that it used to be there. What happens when the representative money is gone?

Some key things to think about:

In defining sound money, we must go beyond the purely economic functions of money. It is also necessary to ensure that money cannot be used to expand government powers over a free society.

We must therefore deepen our understanding of sound money with these additional precepts:

∙Sound money ensures true economic outcomes; its integrity should be upheld as a vital element of free markets rather than corrupted as an instrument of government policy.

∙Sound money encourages responsible fiscal practices by restraining governments from using monetary policy to accommodate or disguise fiscal failures.


Only if government is prevented from abusing the privilege of issuing the nation’s money can it be trusted with this powerful authority.

The lesson is clear: To comply with the principles of democracy and free market capitalism, money must be sound. Otherwise, money all-too-easily becomes an instrument of government tyranny. Instead of providing a common point of reference for a free people, instead of serving as an honest measure – money that is not sound furnishes government with a convenient means of deceit.


Unfortunately too many people don't understand or don't care.
I would also add
"THEORY OF MONEY AND CREDIT" LUDVIG VON MISES and
"HUMAN ACTION"

We all coming back to sound money 100% reserve banking and gold standards sooner or later.
Current fiat bull**** is not going to last
 
It is, after all, the abuse we would wish to kill, not the system.

Jon

The system was completely broken in 1971 and has remained broken ever since. What we are experiencing and will continue to experience are the symptoms of a broken system and things will never get better until it is fixed. Only modern economists and Politicians can look at the state of things and think that the system is working. The rest of us are being slowly but surely impoverished...especially the middle class and the poor.
 
jon

the system was completely broken in 1971 and has remained broken ever since. What we are experiencing and will continue to experience are the symptoms of a broken system and things will never get better until it is fixed. Only modern economists and politicians can look at the state of things and think that the system is working. The rest of us are being slowly but surely impoverished...especially the middle class and the poor.

vote ron paul = if we lose freedom here there is no place to escape to this is the last stand on earth!
 
vote ron paul = if we lose freedom here there is no place to escape to this is the last stand on earth!

Ron Paul is The GOLD STANDARD in Politics & Economics(y)

Feb 2012 Ron Paul’s questions to the Fed Chairman.

Ron Paul To Bernanke: You've Destroyed "The Value Of Real Money" - YouTube

Ron Paul managed to succinctly (5 minutes) call total ‘BS’ on the inflation data, proved that petrol prices a lower when priced in silver, say that inflation is theft and he then topped it off with a compromise solution that is brilliant in its simplicity and impossible to legitimately refuse.

Moments of genius:

•Ron Paul kicks off by asking “do you do your own shopping at the grocery store”? Bernanke simply replies “yes” – to which Ron Paul flashes back “so you’re aware of the prices”. The manner in which this question was asked was genius because it implies that the price rises in shops are so obvious that if Bernanke does shop there is no way he would have failed to notice what everyone else has – that prices have risen dramatically. Also note that Paul doesn’t say ‘price rises’ he just says ‘prices’ – implying that everyone knows which way the prices have moved that he doesn’t even need to say it.

•Ron Paul goes on to say that “nobody believes the 2% CPI inflation number” and that by using the same methodology of just a few years back to calculate the CPI it is running somewhere nearer 9%.

•Ron Paul adds “the people on fixed income are really hurting, the middle class is really hurting” because their inflation rate is very much higher than what the government tells them.

•Paying back money with devalued money is ‘theft’ – “somebody is stealing wealth and its very upsetting”.

•Where do people put their money if they don’t want it to be stolen by inflation?

•Ron Paul then reaches into his pocket and pulls out a silver ounce – back in 2006 (when Bernanke took charge of the Fed) and said that it would buy 4 gallons of petrol. Today it will buy 11 gallons of petrol – that’s preservation of value – in others words petrol when measured in a currency that isn’t being printed into oblivion has actually gone down in cost.

•But rather than leave it there Ron Paul offers up a solution – one that is a compromise, something that Ron Paul has spent his entire political life avoiding. He asks “why don’t we just allow currencies to run parallel… why don’t we legalise competing currencies?”.

•He then warns Bernanke that if he continues his path the “Fed will self destruct” – meaning that they will not stop until the paper money stops working and they will “End the Fed” themselves.

•Bernanke’s come back? “Good to see you again too”!

•On the matter of CPI 2% inflation numbers he just says that their done in a “serious and thoughtful manner” – he simply ignores the point that other indicators show inflation at 9% – very telling that he didn’t challenge that important point.

•Bernanke then tries to say that nobody prevents you from using gold and silver – missing the entire point. Because of legal tender laws gold and silver is taxed (sales tax and capital gains) (Legal tender gold or silver coins are CGT free in U.K) and can’t be used to pay taxes. Simply put gold and silver are deliberately hindered from competing agains fiat money because their are not competing equally – Ron Paul simply calls for removing this impediment and letting people decide what to use
 
Actually, they aren't really my claims exactly. They are the claims of an expert in Constitutional money. I would ask you to watch this video but I know you will dismiss it as silly and ask me to express it in my own words. My only claim from the beginning is that the FREE market chose gold and silver as money and it emerged from barter.
I have watched the video and I am familiar with Dr Vieira's views. And yes, he's an expert on Constitutional issues. However, his views are just that, views. Why should his expert opinions be preferred to those of the actual US Supreme Court? If you argue that every other expert (including the actual Supreme Court justices) that disagrees with his views is somehow compromised, what possible objective evidence exists of that? Why should we give Dr Vieira's opinions more weight?
Your argument has ALWAYS been that paper fiat money is better than gold because Central banks have the ability to print it at will. That is your argument in a nutshell. My argument is that the very problem with fiat money is that Central Banks have the ability to print it at will. I say look at all the booms and busts since coming off the gold standard and especially the last 10 years...you, no doubt will conclude that there are other...esoteric reasons for these booms and busts and has nothing to do with unrestrained expansion of the money supply.
No, that has not been my argument. As I keep saying, you haven't been listening. My point has been that the ability to print money at will can be useful in certain circumstances and conveys a competitive advantage to whoever has this capability vs the one who doesn't. As any such competitive advantage, it doesn't come without a cost, as you correctly point out. However, if you bother to perform the same cost/benefit analysis for gold, it may become obvious to you (as it is to me) that a monetary system based on gold at best does nothing better than fiat. At worst it can make your economy dangerously vulnerable. So all I am suggesting is that you stop treating the idea of gold standard as a dogma and try to think about things rationally.
 
I think I'll have to row in with NT about the Gold Standard. Of course, the main reason money notes were backed by gold was to give people confidence and trust in the money notes.

It's far easier to "manage" the money supply without the encumbrance of gold in the background - which I guess was the main reason for coming off the GS - and with that done it's but a short step from judicious management of the money supply to injudicious manipulation of it. A factor all the more prevalent today when you don't even have to bother with creating money notes anymore and just create it by numbers in a computer.

I wouldn't go so far as to say that this is entirely responsible for the booms, busts, bubbles and whatnot, but where it's been on the injudicious side it can't have helped. Unless it's all creatively expunged from the accounts somehow, the vast QE money creation has to end up in inflation unless everyone QEs to the same degree which leaves the relativities unchanged.
I have no problem with you disagreeing. My point isn't that fiat money is perfect (it most certainly isn't and yes, it's quite obvious that the system can be abused). All I am suggesting is that we look at the possibilities objectively and try to understand the advantages and drawbacks of each. As I keep saying, the ability of a domestic Central Bank to print money is, effectively, an industrial policy tool. Yes, like all other policy tools it can be abused, but in normal circumstances it's extremely useful and you don't have to go far for contemporary examples. I have already mentioned how I think of the gold standard. So modern societies make a choice between the two and I am not surprised that, in an overwhelming number of modern global economies, fiat money is deemed superior.
 
et al,

Joining the discussion a bit late, but,

No, that has not been my argument. As I keep saying, you haven't been listening. My point has been that the ability to print money at will can be useful in certain circumstances and conveys a competitive advantage to whoever has this capability vs the one who doesn't. As any such competitive advantage, it doesn't come without a cost, as you correctly point out. However, if you bother to perform the same cost/benefit analysis for gold, it may become obvious to you (as it is to me) that a monetary system based on gold at best does nothing better than fiat. At worst it can make your economy dangerously vulnerable. So all I am suggesting is that you stop treating the idea of gold standard as a dogma and try to think about things rationally.

What it prevents is the government monopoly over the money supply, from continuously expropriating your property via the creation of new money/credit. Even if that was the only thing that it did, that would be enough.

I'll have to catch up on the thread first so as not to repeat arguments already presented.

jog on
duc
 
et al,

Joining the discussion a bit late, but,

What it prevents is the government monopoly over the money supply, from continuously expropriating your property via the creation of new money/credit. Even if that was the only thing that it did, that would be enough.

I'll have to catch up on the thread first so as not to repeat arguments already presented.

jog on
duc
Yes, we know that already... What is the cost of this advantage or are you suggesting that this is worth any price?

Moreover, doesn't the government already have the monopolistic power to expropriate your property (through taxation or straight confiscation) and, come to think of it, even your life (through draft, criminal law, etc)? Furthermore, how precisely do you envision the gold standard preventing the government from controlling money supply?
 
So modern societies make a choice between the two and I am not surprised that, in an overwhelming number of modern global economies, fiat money is deemed superior.

Modern societies don't make a choice it is Governments that deem fiat money superior, how else do you think it gets the name 'fiat' and why the need for legal tender laws? Fiat money allows GOVERNMENTS to do what gold prevents them from doing.

Repeal legal tender laws and let the free market decide which is superior.
 
Furthermore, how precisely do you envision the gold standard preventing the government from controlling money supply?

One way is to do what Ron Paul suggests. Repeal legal tender laws and allow people to write contracts in gold and silver. That would be a start.
 
Modern societies don't make a choice it is Governments that deem fiat money superior, how else do you think it gets the name 'fiat' and why the need for legal tender laws? Fiat money allows GOVERNMENTS to do what gold prevents them from doing.

Repeal legal tender laws and let the free market decide which is superior.
This doesn't really matter and we can argue this ad nauseam... Yet again you're not actually responding to my points.
 
This doesn't really matter and we can argue this ad nauseam... Yet again you're not actually responding to my points.

Of course I respond but you just don't want to agree and prefer circular arguments and ignoring historical facts, like your interpretation of the US constitution, which is wrong, dead wrong. Congress does not have the authority to print paper money as you implied. It was never given that authority by the US constitution. That's why it is a PRIVATE BANKING cartel that 'prints' the Federal Reserve note.

Markets did not choose fiat money, Ok? The gold specie standard was not designed, but rather arose out of a general acceptance that gold was useful as a universal currency. ie/ Markets chose gold and silver as money and it was Governments who intervened and monopolized money.

Your 'points' revolve around the invented notion of yours (and of Fascist Governments) that printing money is an advantage to economies without ever specifying exactly what the advantage is to anyone else except those in power who get the handouts while everyone else is impoverished. You strangely define it as some sort of a 'policy tool'...ignoring the fact that the industrial revolution occurred under a gold standard.
 
Of course I respond but you just don't want to agree and prefer circular arguments and ignoring historical facts, like your interpretation of the US constitution, which is wrong, dead wrong. Congress does not have the authority to print paper money as you implied. It was never given that authority by the US constitution. That's why it is a PRIVATE BANKING cartel that 'prints' the Federal Reserve note.
Oh no, why are we discussing this again? As I have told you already, this is not my interpretation of the US Constitution. It's the interpretation of the US Supreme Court and it's the only one that matters.
Markets did not choose fiat money, Ok? The gold specie standard was not designed, but rather arose out of a general acceptance that gold was useful as a universal currency. ie/ Markets chose gold and silver as money and it was Governments who intervened and monopolized money.
This isn't even worth discussing, because it's too misguided. Moreover, yet again, it's irrelevant to the point I am making.
Your 'points' revolve around the invented notion of yours (and of Fascist Governments) that printing money is an advantage to economies without ever specifying exactly what the advantage is to anyone else except those in power who get the handouts while everyone else is impoverished. You strangely define it as some sort of a 'policy tool'...ignoring the fact that the industrial revolution occurred under a gold standard.
Do you think there will come a time when you'll avoid using random labels? Is everything that every government out there does Fascist? Furthermore, I have specified a number of times what the advantage is. Again, there's no need to go too far for examples (which I have provided in the past a few times). Finally, yes, control over money supply is an industrial policy tool. Obviously, "Industrial" in this context doesn't have anything to do with the Industrial Revolution.
 
Yes, we know that already... What is the cost of this advantage or are you suggesting that this is worth any price?

Moreover, doesn't the government already have the monopolistic power to expropriate your property (through taxation or straight confiscation) and, come to think of it, even your life (through draft, criminal law, etc)? Furthermore, how precisely do you envision the gold standard preventing the government from controlling money supply?

The 'cost' is to individuals who rely upon government expenditures, or transfer payments, to support them, viz. the 'Welfare State'. In the short-term, like any addict, the removal of government transfer payments will cause those addicted pain and suffering.

Of course, this 'welfare' idea has been tried before: The first 'Poor Law' was enacted in 1536, the City of London imposing mandatory taxes for the support of the poor. In 1572, under Queen Elizabeth, these laws went national. The 'Statute' of 1601 provided for the supply of raw materials to be provided to the poor, so as to set them to work. In 1795 the first forms of 'minimum wage' laws were passed.

Riots, Parish bankruptcies, forced, in 1832 the Whig government to intervene via a Royal Commission. It sat for two years. The result ultimately were the 'Poor Law Amendments 1834'. These amendments essentially instigated the 'workhouse', which was essentially designed to separate the truly needy, from the truly lazy.

Of course the current Welfare State demonstrates that nothing was learned from history. Welfare is of course highly popular for politicians seeking election in a 'democracy' and their turn to control the levers of Power in which they can enrich themselves.

As to your second observation: government already possesses the monopoly power to tax etc. Indeed it does, and out of that list of 'control' does anything leap out at you that vaguely resembles something positive?

The gold standard removes from government one of it's most fundamental foundations of power - control over the money supply.

How?

Clearly when government either has to earn revenue, due to the gold standard and the inability to 'create gold', which it is incapable of, or raising revenue through taxation or debt, immediately it runs into two barriers to it's ability to raise revenue.

Taxes are deeply unpopular. Raising taxes in a 'democracy' is a guaranteed method to ensure that someone else is elected. Only in a Totalitarian State can taxes be raised indiscriminately, at the point of a gun.

Debt is of course self-limiting. The higher the debt, the higher the market rate of interest rises, prohibiting eventually contracting any further debt. Default simply ensures that no further credit will ever be forthcoming.

Only when the State can create, or print its own 'money' can these two problems be solved. Inflation is a taxation, but one that is hidden and less obvious to the average man-in-the-street, although even they are again starting to grumble.

Gold keeps the State [in money terms] honest. Their theft is clear for all to see. When it is clear for all to see, the Power of the State is vastly diminished.

jog on
duc
 
Well, for sure, the welfare idea has been tried before. It's not immediately obvious to me (as it appears to you) that social safety nets are necessarily bad. However, this is clearly a very different issue, so let's not discuss it here. If you wanna start a new thread, we can have a meaningful conversation about the pros and cons of "welfare" there.

As to the positives, if you happen to live in the West, you, as well as your forebears, have enjoyed a lot of benefits that have all translated to a pretty unprecedented rise in the quality of life (as measured by pretty much any indicator). So stuff like education, public health (which equates to life expectancy), public order etc which we all take for granted. Do you think all these would be possible in the West without governments and their power to tax?

Now as to your final point... As I have said a number of times, I completely agree that the full-on gold standard may impose a degree of discipline and prevent abuses. However, my question wasn't about the advantages of the gold standard, but rather the cost of these advantages. Or do you think they come for free?

Finally, let me point out that the argument yet again hinges on the ignorance and stupidity of the "average man-in-the-street" who is unable to recognize inflation as a tax. This is exactly how the idea of a paternalistic government arises. Surely if you start with the idea that your average man on the street is stupid and naive, taxation for the sake of lofty "social goals" imposed by the government makes a lot of sense.
 
Hi duc.
Its not the government that has control of our money supply, its the banks!
'The' Gold standard is presented as honest money etc etc, but as with fiat systems there are different 'gold standards'. Full or fractional reserve.
Also, amount of money in circulation (available to the public) can still be reduced or hoarded under a pure gold standard, simply by the lenders refusing to lend.
 
Finally, let me point out that the argument yet again hinges on the ignorance and stupidity of the "average man-in-the-street" who is unable to recognize inflation as a tax.
This is the point that i think is THE most important! The public is almost completely unaware of how our monetary sytem works yet alone the implications for joe bloggs.
Worse still is i think most dont want to know.
 
Well, for sure, the welfare idea has been tried before. It's not immediately obvious to me (as it appears to you) that social safety nets are necessarily bad. However, this is clearly a very different issue, so let's not discuss it here. If you wanna start a new thread, we can have a meaningful conversation about the pros and cons of "welfare" there.

I never made a value judgment on social safety nets, rather, one on the 'Welfare State' which is government redistribution under coercion, which is a very different kettle-of-fish.






As to the positives, if you happen to live in the West, you, as well as your forebears, have enjoyed a lot of benefits that have all translated to a pretty unprecedented rise in the quality of life (as measured by pretty much any indicator).

Certainly that is true. What was the causative agent for that? It was of course capitalism. Capitalism functions most efficiently with a free market money.



So stuff like education, public health (which equates to life expectancy), public order etc which we all take for granted. Do you think all these would be possible in the West without governments and their power to tax?

Definitely. Government is simply not required.

Now as to your final point... As I have said a number of times, I completely agree that the full-on gold standard may impose a degree of discipline and prevent abuses. However, my question wasn't about the advantages of the gold standard, but rather the cost of these advantages. Or do you think they come for free?

I haven't had time to peruse the entire thread, so if you have previously elucidated these 'costs' earlier in the thread, I have not yet read them: you will have to specify which costs in particular you are referring to.





Finally, let me point out that the argument yet again hinges on the ignorance and stupidity of the "average man-in-the-street" who is unable to recognize inflation as a tax.

First off, I didn't refer to the average man in the street as ignorant/stupid. What I actually said was: "Inflation is a taxation, but one that is hidden and less obvious to the average man-in-the-street,"

Inflation created by money & credit expansion doesn't flow proportionally to all prices. The prices that concern our average chap, may, or may not, show proportionally the extent of the inflation.



This is exactly how the idea of a paternalistic government arises.

You may see 'paternalism', that is not how I would describe government, or more accurately, 'The State'.


Surely if you start with the idea that your average man on the street is stupid and naive,

Which I don't.


taxation for the sake of lofty "social goals" imposed by the government makes a lot of sense.


Taxation never makes sense. Taxation alters time preferences, raising them higher, thus directly lowers production. Production is the driver of material wealth, thus in a material context, we are all becoming less wealthy as taxation rises. This of course impacts the actual revenues government can directly expropriate through taxation.

jog on
duc
 

Hello dt,



Its not the government that has control of our money supply, its the banks!

Incorrect.

Let's take the demand deposit as the primary example. The demand deposit is not a credit transaction, as the essential element, the exchange of present goods for future goods is not present. Therefore in a demand deposit, there is contractually no relinquishment of the ownership of the present value goods; viz. the money deposited, or 'tantundem'. As money is a fungible good, the exact money deposited is not explicit in the contract.

This contract violation by the banks through fractional reserve lending can only happen if there are two provisions: exemption from prosecution, granted by government, the coercive legislative power and [ii] the provision of a Central Bank that can provide new money if the commercial bank has a run on their demand deposit base and otherwise could not meet their contractual obligations.

Ultimate money & credit expansion is always a provision of the State. Commercial Banks are simply the transmission pathway.




'The' Gold standard is presented as honest money etc etc, but as with fiat systems there are different 'gold standards'.

Historically we have had gold money and we have had paper money exchangeable into gold. The first allows no government manipulation at all. The second allows some wiggle room. The second is of course the first step in replacing gold money with a purely fiat money.

This process was implemented at Bretton Woods in 1944, and completed by Nixon in August 1971.



Full or fractional reserve.

A function of Bank reserving.



Also, amount of money in circulation (available to the public) can still be reduced or hoarded under a pure gold standard, simply by the lenders refusing to lend.

Yes it can.

jog on
duc
 
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