What is money? Where does our money come from?

[ducati998]

mg

I have absolutely no idea what this has to do with anything that I have actually asked about. Why so many words when all I asked you for is some support for the categorical statement you have made? Empirical evidence or stuff of that sort, rather than words.

Simply, externalities are the commonly leveled criticism of capitalism, I have simply pre-empted your objections via other criticisms of capitalism by addressing them altogether.

Simple.

Firstly, no, the issues of externalities aren't necessarily related to property rights.

Actually, yes they are.

However if you have a specific example that proves my assertion incorrect, please post it.

Furthermore, even if we were talking about porperty rights only, I don't really understand this argument at all. Do you propose that the State give up its monopoly on "law"?

Yes. Along with the money monopoly, the legislative monopoly is the second great foundation of State power. There is no requirement for 'Statutory Law' at all, the Common Law, based and derived from Natural Law is more than sufficient.

If so, are you suggesting that the newly-minted, gloriously capitalist entity which will pick up the responsibility is not going to face the very same issue?

Because capitalism is based upon a free market where supply and demand meet. It would be quite easy to allow competition within the legal system. There are only three real ways that the laws can either be discovered or created:

From custom and tradition
[ii] From arbitrary ad hoc pronouncements from those who control the apparatus of the State
[iii] From reason and logic, deducing from axioms, the natural law.

It was Lord Acton who clearly the deep flaw in the Greek and their later followers conception of natural law political philosophy was to identify politics and morals, and then to place as the supreme moral agent – The State.

From Plato and Aristotle, the State’s proclaimed authority or supremacy was founded in their view that morality was undistinguished from religion and politics from morals, and in religion, politics and morality there was only one authority.

Acton saw that any philosophy of natural law would come into direct conflict with custom and positive law , this Acton urged was the essential attribute of classical liberalism. For Acton then, the individual, cognizant of natural law principals and morals, was in a strong position to analyse and criticise positive law and by direct association, the State.

After the fall of the Roman Empire, the Church emerged as the power that through religion, controlled the moral base of individuals, seeking to centralise that control to the Church via the Papacy. With the re-emergence of Kings, via Charlemagne, the Church retained its power, only really being challenged through Henry VIII many hundreds of years later.

Of course the modern State has assumed total power, sidelining the Church in the Western world and economies, which has broken the religious – moral – political nexus that existed prior to the monopoly of the State in assuming all moral authority.

Why? Finally, I really don't get where this whole "apologists for socialism" is coming from.

Because if you advocate for fiat money, you are an advocate for increasing government & State intervention into the liberty of individuals.

jog on
duc

 

[ducati998]

mg

Oh, I am sooooo confused now. Are you suggesting that free markets will limit the size of firms and that will stop wars, because people will be confined to smaller social units? Am I to understand that you're proposing that free entry and competition will allow us to, effectively, go back to the good old days of the Ancient Greeks or Medieval Europe?

Free markets will limit the size and power of the State. With smaller and weaker States, their ability to wage war is reduced. In a perfect world, the State would not exist at all, in which case capitalism would promote peace.

The reason is for two primary reasons: firms are limited in their size by the 'Law of Diminishing Returns' only firms that operate with government protection can grow past this point and [ii] to succeed in a competitive environment, a free market absent coercion, you have to rely upon demonstrated demand, which rules out coercion.

jog on
duc

 

[ducati998]

mg

Last one for the moment;

Erm, you have me very confused here. Are you suggesting that you can't think of an example of a war where the government is defending is citizenry from an external aggressor? I live in the UK and I seem to recall that there was something that went on arnd mid-20th century. Does everything you have said above apply to World War II? I don't know about you, but, living in the UK, I rather enjoy the fact that I get to speak English, rather than German.

Ignoring for the moment the causative factors of WWII, let's for a moment assume no government existed in the British Isles at the time, all that we had was the free market.

Assuming further that the population of Britain, shared your patriotic ideology, and wanted to defend themselves against a German invasion. Simply a militia would need to self-organise, assuming no prior provision had already been made. Weapons, if none were already owned, or in existence, would need to be either purchased or, manufacturing capacity shifted to weapon production for self-defense.

I envision a guerrilla type of war would be waged, assuming Hitler had decided to progress with Operation Sea Lion in 1940.

Of course, interestingly, the free market may have found another solution: under comparative advantage, a country may have decided that provisioning a private army of mercenaries for hire, is their export of choice.

Simply then, Britain would have contracted this professional army/airforce/navy to undertake a purely defensive action against Hitler and Naziism.

jog on
duc

 

[new_trader]

I haven't suggested it would be crippled by gold standard, nor that it is fiat money that facilitates.

All I was doing was refuting the suggestion that governments' objective (by the use of fiat money) is to dun its citizens and rob them of what is rightfully theirs. On the contrary, I believe that all governments seek to facilitate the economic well-being of their citizens, albeit that some governments only go as far as necessary to protect their own elite and to avoid being overthrown by revolution.

It may be right that it is capitalism that is the driver and deliverer of economic growth, but it is governments that have facilitated that capitalism balanced by protecting its citizens from its (capitalism's) worst excesses.

Jon,

That is because you are ignoring the essential point of what gold represents, which is production or an amount of land, labour & capital.

You cannot have one ounce of gold unless you have panned for it or dug it out of the ground. This requires the use of land, labour and capital (shovels, pans etc).

If we are on a gold specie standard and I earn £100 by either selling my labour or employing my own labour, land and capital, and pay £20 tax, then the Government has £20 to spend and I have £80 left of purchasing power to spend. This is simple arithmetic.

If the Government wants to spend more than the £20 it taxed it either has to tax me more OR it has to dig/pan more gold out of the ground itself. In other words, the Government has to employ an equal amount of land, labour and capital as I did to get the extra money. That keeps things honest.

Because there is work required to get the extra gold, money retains its purchasing power, in fact, on a gold standard, money gains purchasing power and this can be observed throughout history. This is what good economists call 'good' deflation, whereas modern economists would have you think deflation is bad.

Why do prices fall in a growing economy on a gold standard? This is simple to explain. It is because the growth of the gold supply, ie money, is much slower than the growth in the supply of goods and services. This is because gold is hard to find and difficult to mine.

The phenomena of falling prices is observable on a fiat money system with consumer electronics however they would still be much, much cheaper on a gold standard.

On a fiat money system the Government does not have to do any extra work to get extra money. The effort to put an extra '0' on a £10 note to turn it into £100 is not 10 times more even though the government gains 10 times more purchasing power. You or I would have to do 10 times more work if we wanted to earn more. So what is the result of this excessive monetary inflation? It is the very opposite of deflation.

If I earn £100 in fiat money and pay £20 tax, the Government has £20 to spend. If the Government now debases money through inflation and creates out of thin air another £100, the Government now has £120 to spend but my money has lost value. I no longer have £80, I have less. This is how Governments dun its citizens and rob them of what is rightfully theirs.

Henry Hazlitt explains:

An increased quantity of money comes into existence in a specific way. Let us say that it comes into existence because the government makes larger expenditures than it can or wishes to meet out of the proceeds of taxes (or from the sale of bonds paid for by the people out of real savings). Suppose, for example, that the government prints money to pay war contractors. Then the first effect of these expenditures will be to raise the prices of supplies used in war and to put additional money into the hands of the war contractors and their employees. (As, in our chapter on price-fixing, we deferred for the sake of simplicity some complications introduced by an inflation, so, in now considering inflation, we may pass over the complications introduced by an attempt at government price-fixing. When these are considered it will be found that they do not change the essential analysis. They lead merely to a sort of backed-up inflation that reduces or conceals some of the earlier consequences at the expense of aggravating the later ones.)

The war contractors and their employees, then, will have higher money incomes. They will spend them for the particular goods and services they want. The sellers of these goods and services will be able to raise their prices because of this increased demand. Those who have the increased money income will be willing to pay these higher prices rather than do without the goods; for they will have more money, and a dollar will have a smaller subjective value in the eyes of each of them.

Let us call the war contractors and their employees group A, and those from whom they directly buy their added goods and services group B. Group B, as a result of higher sales and prices, will now in turn buy more goods and services from a still further group, C. Group C in turn will be able to raise its prices and will have more income to spend on group D, and so on, until the rise in prices and money incomes has covered virtually the whole nation. When the process has been completed, nearly everybody will have a higher income measured in terms of money. But (assuming that production of goods and services has not increased) prices of goods and services will have increased correspondingly; and the nation will be no richer than before.

In summary:

We may clarify the process further by a hypothetical set of figures. Suppose we divide the community arbitrarily into four main groups of producers, A, B, C, and D, who get the money-income benefit of the inflation in that order. Then when money incomes of group A have already increased 30 percent, the prices of the things they purchase have not yet increased at all. By the time money incomes of group B have increased 20 percent, prices have still increased an average of only 10 percent. When money incomes of group C have increased only 10 percent, however, prices have already gone up 15 percent.And when money incomes of group D have not yet increased at all, the average prices they have to pay for the things they buy have gone up 20 percent. In other words, the gains of the first groups of producers to benefit by higher prices or wages from the inflation are necessarily at the expense of the losses suffered (as consumers) by the last groups of producers that are able to raise their prices or wages.

 

[new_trader]

No, it isn't... But kudos for being so glib.

Yes, it is.

 

[new_trader]

Specifically, no domestic agency will have the ability to control money supply at the time of stress, when this ability is normally most needed. We should all choose what tail we want to be short. To me, the choice is relatively clear. This is the sole point I have been repeatedly making in this thread.

Explain what "time of stress" you are referring to mg...You'll be hard pressed to find one that isn't actually caused by fiat money ie/ over expansion of money and credit. In other words, I am saying that your argument is fiat money is needed to solve the problems that fiat money causes.

The gold standard would have prevented those problems in the first place.

Now, don't deflect my question with your usual "Are you serious?" because I am serious. Give us a specific example in history where fiat money saved a day it did not cause.

 

[Pat494]

All very interesting points raised about where money comes from BUT I would venture to ask where are all these extra billions of QE are going ?
Not in my direction it seems. More into the pockets of bankers and their friends by circuitous routes - same old story then of the few pocketing most of it leaving just enough crumbs to have a workforce that is not revolting.

 

[new_trader]

All very interesting points raised about where money comes from BUT I would venture to ask where are all these extra billions of QE are going ?
Not in my direction it seems. More into the pockets of bankers and their friends by circuitous routes - same old story then of the few pocketing most of it leaving just enough crumbs to have a workforce that is not revolting.

Exactly, Group A in the example by H.H. We are Group Z and some people think fiat money is fantastic.

 

[barjon]

Jon,

That is because you are ignoring the essential point of what gold represents, which is production or an amount of land, labour & capital.

You cannot have one ounce of gold unless you have panned for it or dug it out of the ground. This requires the use of land, labour and capital (shovels, pans etc).

If we are on a gold specie standard and I earn £100 by either selling my labour or employing my own labour, land and capital, and pay £20 tax, then the Government has £20 to spend and I have £80 left of purchasing power to spend. This is simple arithmetic.

If the Government wants to spend more than the £20 it taxed it either has to tax me more OR it has to dig/pan more gold out of the ground itself. In other words, the Government has to employ an equal amount of land, labour and capital as I did to get the extra money. That keeps things honest.

Because there is work required to get the extra gold, money retains its purchasing power, in fact, on a gold standard, money gains purchasing power and this can be observed throughout history. This is what good economists call 'good' deflation, whereas modern economists would have you think deflation is bad.

Why do prices fall in a growing economy on a gold standard? This is simple to explain. It is because the growth of the gold supply, ie money, is much slower than the growth in the supply of goods and services. This is because gold is hard to find and difficult to mine.

The phenomena of falling prices is observable on a fiat money system with consumer electronics however they would still be much, much cheaper on a gold standard.

On a fiat money system the Government does not have to do any extra work to get extra money. The effort to put an extra '0' on a £10 note to turn it into £100 is not 10 times more even though the government gains 10 times more purchasing power. You or I would have to do 10 times more work if we wanted to earn more. So what is the result of this excessive monetary inflation? It is the very opposite of deflation.

If I earn £100 in fiat money and pay £20 tax, the Government has £20 to spend. If the Government now debases money through inflation and creates out of thin air another £100, the Government now has £120 to spend but my money has lost value. I no longer have £80, I have less. This is how Governments dun its citizens and rob them of what is rightfully theirs.

Henry Hazlitt explains:

An increased quantity of money comes into existence in a specific way. Let us say that it comes into existence because the government makes larger expenditures than it can or wishes to meet out of the proceeds of taxes (or from the sale of bonds paid for by the people out of real savings). Suppose, for example, that the government prints money to pay war contractors. Then the first effect of these expenditures will be to raise the prices of supplies used in war and to put additional money into the hands of the war contractors and their employees. (As, in our chapter on price-fixing, we deferred for the sake of simplicity some complications introduced by an inflation, so, in now considering inflation, we may pass over the complications introduced by an attempt at government price-fixing. When these are considered it will be found that they do not change the essential analysis. They lead merely to a sort of backed-up inflation that reduces or conceals some of the earlier consequences at the expense of aggravating the later ones.)

The war contractors and their employees, then, will have higher money incomes. They will spend them for the particular goods and services they want. The sellers of these goods and services will be able to raise their prices because of this increased demand. Those who have the increased money income will be willing to pay these higher prices rather than do without the goods; for they will have more money, and a dollar will have a smaller subjective value in the eyes of each of them.

Let us call the war contractors and their employees group A, and those from whom they directly buy their added goods and services group B. Group B, as a result of higher sales and prices, will now in turn buy more goods and services from a still further group, C. Group C in turn will be able to raise its prices and will have more income to spend on group D, and so on, until the rise in prices and money incomes has covered virtually the whole nation. When the process has been completed, nearly everybody will have a higher income measured in terms of money. But (assuming that production of goods and services has not increased) prices of goods and services will have increased correspondingly; and the nation will be no richer than before.

In summary:

We may clarify the process further by a hypothetical set of figures. Suppose we divide the community arbitrarily into four main groups of producers, A, B, C, and D, who get the money-income benefit of the inflation in that order. Then when money incomes of group A have already increased 30 percent, the prices of the things they purchase have not yet increased at all. By the time money incomes of group B have increased 20 percent, prices have still increased an average of only 10 percent. When money incomes of group C have increased only 10 percent, however, prices have already gone up 15 percent.And when money incomes of group D have not yet increased at all, the average prices they have to pay for the things they buy have gone up 20 percent. In other words, the gains of the first groups of producers to benefit by higher prices or wages from the inflation are necessarily at the expense of the losses suffered (as consumers) by the last groups of producers that are able to raise their prices or wages.

nt

Whilst I could argue with much that you say - for example, inflation was very good for me in my early life because it enabled me to cope with an oppressive mortgage with ease after a couple of years - none of it addresses my main objection that the purpose of fiat money is to rob me. You can play with figures and theory as much as you like in an attempt to demonstrate that it is all a Machiavellian plot by government to do me and my fellow citizens down, but I will never believe it.

The facts of life are against you. For all the figures and the theory I know one thing for absolute certain. My tangible economic well-being, standard of living, "wealth" (call it what you will) is incomparably better than that enjoyed by my parents and has got better and better throughout my adult life. If that's the result of "robbery" then bring it on

jon

 

[new_trader]

nt

Whilst I could argue with much that you say - for example, inflation was very good for me in my early life because it enabled me to cope with an oppressive mortgage with ease after a couple of years - none of it addresses my main objection that the purpose of fiat money is to rob me. You can play with figures and theory as much as you like in an attempt to demonstrate that it is all a Machiavellian plot by government to do me and my fellow citizens down, but I will never believe it.

The facts of life are against you. For all the figures and the theory I know one thing for absolute certain. My tangible economic well-being, standard of living, "wealth" (call it what you will) is incomparably better than that enjoyed by my parents and has got better and better throughout my adult life. If that's the result of "robbery" then bring it on

jon

Honest money would do the same, only everything would be cheaper. ie/ You wouldn't have needed to take on an oppressive mortgage in the first place because houses would not have been as expensive relative to wages. You conveniently choose to ignore this fact.

Your tangible well being has got better because of Capitalism and not fiat money. The difference is that nominal wages have risen. Under a gold standard, prices would have fallen. What is better?

Wages going up by 10% per year but prices go up 15% OR Wages falling by 5% per year but prices dropping by 15% per year.

 

[new_trader]

All very interesting points raised about where money comes from BUT I would venture to ask where are all these extra billions of QE are going ?
Not in my direction it seems. More into the pockets of bankers and their friends by circuitous routes - same old story then of the few pocketing most of it leaving just enough crumbs to have a workforce that is not revolting.

You can see where all that Q.E is going...rising prices. Unless you measure it in Real money!

The S&P GSCI contains as many commodities as possible, with rules excluding certain commodities to maintain liquidity and investability in the underlying futures markets. The index currently comprises 24 commodities from all commodity sectors - energy products, industrial metals, agricultural products, livestock products and precious metals. The wide range of constituent commodities provides the S&P GSCI with a high level of diversification, across subsectors and within each subsector. This diversity mutes the impact of highly idiosyncratic events, which have large implications for the individual commodity markets, but are minimised when aggregated to the level of the S&P GSCI.

 

[new_trader]

Honest money would do the same, only everything would be cheaper. ie/ You wouldn't have needed to take on an oppressive mortgage in the first place because houses would not have been as expensive relative to wages. You conveniently choose to ignore this fact.

BTW, There is no way, no how and no why you can refute this because I have done the research and got facts and figures to back this up. If you had saved in REAL money you could have bought a house without a mortgage within around 15 years.

 

[barjon]

Honest money would do the same, only everything would be cheaper. ie/ You wouldn't have needed to take on an oppressive mortgage in the first place because houses would not have been as expensive relative to wages. You conveniently choose to ignore this fact.

Your tangible well being has got better because of Capitalism and not fiat money. The difference is that nominal wages have risen. Under a gold standard, prices would have fallen. What is better?

Wages going up by 10% per year but prices go up 15% OR Wages falling by 5% per year but prices dropping by 15% per year.

nt

You do draw inferences where none were intended

I do not " conveniently choose to ignore this fact" - I reported what was the fact, not what might have been.

I did not suggest that my tangible well being has got better because of fiat money. I merely reported that it has. This is fact. You, on the other hand, parade supposition as to what might have been the case under "honest" money. Just a guess on your part then

jon

 

[new_trader]

nt

You do draw inferences where none were intended

I do not " conveniently choose to ignore this fact" - I reported what was the fact, not what might have been.

I did not suggest that my tangible well being has got better because of fiat money. I merely reported that it has. This is fact. You, on the other hand, parade supposition as to what might have been the case under "honest" money. Just a guess on your part then

jon

Jon,

This debate is about fiat money Vs free market money. If you aren't trying to make an argument in favour of one or the other then I will make inferences.

You are inferring that your tangible well being has got better BECAUSE of a fiat money system, I am saying that your tangible well being has got better DESPITE a fiat money system.

Under a fiat money system:

-The facts are that the purchasing power of your money has been diminished over time. In 1975 you could buy an average house for £10,388, now an average house costs around £165,000. Would you argue that the UK population has grown by 15 times what it was in 1975?

-The trade deficit of the U.K is growing

-The U.K Government debt is huge and still growing, surpassing £1 trillion

-The U.K is a net importer and so the above problems can only get worse.

I suppose you want to blame all of this on China but attribute your tangible well being to fiat money...yes, an inference

 

[barjon]

nt

Well, this latest exchange resulted from you objecting to a couple of one-liners in my response to duc. Remember that I was objecting to the suggestion that the purpose of fiat money was for government to rob its citizens.

Whatever you are talking about they are just monetary systems - gold based provides checks and balances of itself (assuming no-one cheats and just "pretends" the money they print is truly backed by gold in the vaults) whereas fiat money requires other checks and balances - and it is those checks and balances that have been lacking.

I do not know whether the increase in my tangible well being - a true fact and not a theoretical assumption - has been despite fiat money or because of it. Nor, from a personal and blinkered perspective, do I care.

jon

 

[new_trader]

nt

Well, this latest exchange resulted from you objecting to a couple of one-liners in my response to duc. Remember that I was objecting to the suggestion that the purpose of fiat money was for government to rob its citizens.

Jon, I'm not sure who used the word 'purpose', but I didn't. I would say fiat money 'allows' or 'facilitates' government to rob its citizens of their purchasing power. I know you will never get this, no matter how much it is explained. Your argument is akin to saying that you don't believe in Burglar alarms because you've never been robbed...in fact, you don't even believe burglars exist.

Whatever you are talking about they are just monetary systems - gold based provides checks and balances of itself (assuming no-one cheats and just "pretends" the money they print is truly backed by gold in the vaults) whereas fiat money requires other checks and balances - and it is those checks and balances that have been lacking.

We are not just talking about a monetary system per se...at least, I am not. I am arguing the fact that money was not invented, it arose from the free market for very good reasons but those reasons cease to exist once a Government monopolizes it and creates fiat money.

I do not know whether the increase in my tangible well being - a true fact and not a theoretical assumption - has been despite fiat money or because of it. Nor, from a personal and blinkered perspective, do I care.

jon

I know you don't Jon, just like I'm sure the Queen doesn't care because from her perspective, things couldn't be any better. If you don't mind Jon, please refrain from posting if you don't care, because I do care.

 

[barjon]

Oh, don't be so pompous, nt

I don't care because I don't know and nor can you. You can pontificate all you like about "honest" money, but you can only guess that everyone's economic standard of life would be so much better if we'd had it.

The incontrovertible fact is that people's standard of economic life has improved significantly since gold standard money bit the dust. For as far as the money system has contributed to that, the fiat system has certainly not been disastrous in that respect.

You point to doom ahead without "honest" money but, again, that can only be a guess on your part.

Jon

 

[new_trader]

Oh, don't be so pompous, nt

I don't care because I don't know and nor can you. You can pontificate all you like about "honest" money, but you can only guess that everyone's economic standard of life would be so much better if we'd had it.

The incontrovertible fact is that people's standard of economic life has improved significantly since gold standard money bit the dust. For as far as the money system has contributed to that, the fiat system has certainly not been disastrous in that respect.

You point to doom ahead without "honest" money but, again, that can only be a guess on your part.

Jon

How do you define standard of living Jon?

I am not guessing anything, I am stating an incontrovertible fact that the BOE is expanding the money supply much, much faster than is warranted by the UK's productivity. This is evidenced by the trade deficit.

The Government is spending much more than it takes in through taxes and it is being financed by money printing, how else do you explain the ever increasing Government debt? All of this debt monetization is reducing the average person's purchasing power through debasement, how else do you explain rising petrol prices, gas prices, electricity prices, food prices...etc...etc. How do you think the UK Government is financing the wars in Iraq and Afghanistan, how do you think it is financing the generous welfare it hands out to all and sundry?

I think the following are portents of what is to come.

Changes to State Pension age
Under current legislation, State Pension age is planned to increase to:

•66 between November 2018 and October 2020
•67 between 2034 and 2036
•68 between 2044 and 2046

•The increase of the standard rate of VAT (Value Added Tax) to 20 per cent from 17.5 per cent.

•Capital gains tax increase to 28% from 18%

What world do you live in Jon? I am now earning double what I was when I first came here but there is no way my standard of living has doubled...no way. I'd say it is about 20% better...if that. Luckily I am smart enough to have seen what was coming and moved the greatest majority of my money out of this country, otherwise I'd be poorer. I wish you the best of luck Jon, because you can't see wot is wot.

 

[ducati998]

nt

Whilst I could argue with much that you say - for example, inflation was very good for me in my early life because it enabled me to cope with an oppressive mortgage with ease after a couple of years - none of it addresses my main objection that the purpose of fiat money is to rob me. You can play with figures and theory as much as you like in an attempt to demonstrate that it is all a Machiavellian plot by government to do me and my fellow citizens down, but I will never believe it.

The facts of life are against you. For all the figures and the theory I know one thing for absolute certain. My tangible economic well-being, standard of living, "wealth" (call it what you will) is incomparably better than that enjoyed by my parents and has got better and better throughout my adult life. If that's the result of "robbery" then bring it on

jon

Really there are two issues here: that the 'purpose' of fiat is to expropriate private property and [ii] that fiat is 'causative' of material progress.

Dealing with [ii] first.

First remove the abstraction of money. To improve life materially, the volume of goods and services have to increase, and the quality of those goods and services have to increase. To that I think everyone can agree.

The next condition is that the price of those goods and services has to lower, making them more affordable. This is accomplished by increasing the supply, relative to demand. An increasing supply, in the face of a static demand, results in a lower market price. Again, I think we can all agree on that.

So now the question becomes: what is causative of the above conditions? Let's start with the non-controversial element first: improving technology. As most will agree that this is a factor, I think we can continue.

Now we start to enter the more controversial areas. To increase the volume of production, with increasingly complex goods, viz. those that are more technologically advanced, there is an increase in the amount of time required. This time element will include sourcing of materials, building fixed capital plant, tooling up [capital goods] hiring and training workforce, etc. While the increasing time element is slightly more involved, again, I think most will accept this as true.

Now we enter the area of 'capital'. I will purposefully refrain from abstracting in money terms, as this is the question under discussion.

If an entrepreneur wishes to manufacture iPads, and the manufacturing process from start to finish takes 1yr. Then the following must take place.

He must have enough capital goods available to 'pay' his workforce, who require payment in present value, as they have no, or only very limited savings of food, clothing, electricity, etc.

They, unlike our entrepreneur, have no 'capital' in which to live off during the manufacturing process. Our entrepreneur has managed to save [or borrow] the capital goods, food, clothing, etc, to 'pay' his workforce for their present value labour.

At the conclusion of the manufacturing process, our entrepreneur, exchanges iPads for food, clothing, etc, and starts the entire process again, assuming that he earns the 'profit' from his operation. If he incurred losses, he will have to reduce his costs in capital goods, if he wishes to continue.

Money of course facilitates this process through removing the necessity of the co-incidence of wants. That is the primary function of money. Due to this function, the division of labour is promoted, as without money manufacture of more advanced technological goods would be severely restricted.

The point is this: the improvement in material living standards is due to the increased production of goods & services. Money is not a necessary variable: thus it is not 'money' that improved your lifestyle and conditions, it is improved manufacture in volume & quality that did so.

Now don't mistake me by thinking that I am saying that money is not important. I simply wished to remove the abstraction of money from the discussion to illustrate that it needs to be considered separately. That money is not 'causative'.

Money replaces 'direct exchange' for 'indirect exchange'. This eliminates the requirement for the co-incidence of wants. Now our intrepid employee can be paid in present value, via money, that is exchangeable against anything, and can also be hoarded, or saved [invested].

As 'money' can only be obtained through exchange, viz. I exchange my labour for money, or I exchange 10 pigs for money, or whatever. We now come to the question of fiat money, that can be 'created' by government, without any exchange at all.

When government create money, and exchange that printed money against my 10 pigs - what has just happened? Government has essentially taken my property, and replaced it with nothing. Had they 'earned' that money, then they would have completed an exchange, as the following example demonstrates.

Government provides a good or service to exchange on the free market. For that service/good they receive money. Money represents an incomplete exchange: money in of itself is not a good/service, which is what all market participants trade for. It is a resting place, while government decides what good/service it wishes to consume.

Money while resting in governments possession needs to maintain its exchange value. It will do so while the supply or quantity of money remains constant. Then, government sees my pigs, and exchanges their money for my pigs. The exchange between government and the first market participant is now complete, a new incomplete exchange is opened with me. It will complete when I exchange my money with someone else for goods/services.

So what is the purpose of fiat money?

Simply it is to obtain goods/services without actually earning the money through an exchange of legally owned property by oneself. What is that called? It is called theft.

Government arrogated to itself the money monopoly, for the simple reason, government grossly exceeds the revenues that it can directly and nakedly steal through taxation. By creating new money it can practice its theft under cover of darkness.

jog on
duc

 

[new_trader]

Really there are two issues here: that the 'purpose' of fiat is to expropriate private property and [ii] that fiat is 'causative' of material progress.

Dealing with [ii] first.

First remove the abstraction of money. To improve life materially, the volume of goods and services have to increase, and the quality of those goods and services have to increase. To that I think everyone can agree.

The next condition is that the price of those goods and services has to lower, making them more affordable. This is accomplished by increasing the supply, relative to demand. An increasing supply, in the face of a static demand, results in a lower market price. Again, I think we can all agree on that.

So now the question becomes: what is causative of the above conditions? Let's start with the non-controversial element first: improving technology. As most will agree that this is a factor, I think we can continue.

Now we start to enter the more controversial areas. To increase the volume of production, with increasingly complex goods, viz. those that are more technologically advanced, there is an increase in the amount of time required. This time element will include sourcing of materials, building fixed capital plant, tooling up [capital goods] hiring and training workforce, etc. While the increasing time element is slightly more involved, again, I think most will accept this as true.

Now we enter the area of 'capital'. I will purposefully refrain from abstracting in money terms, as this is the question under discussion.

If an entrepreneur wishes to manufacture iPads, and the manufacturing process from start to finish takes 1yr. Then the following must take place.

He must have enough capital goods available to 'pay' his workforce, who require payment in present value, as they have no, or only very limited savings of food, clothing, electricity, etc.

They, unlike our entrepreneur, have no 'capital' in which to live off during the manufacturing process. Our entrepreneur has managed to save [or borrow] the capital goods, food, clothing, etc, to 'pay' his workforce for their present value labour.

At the conclusion of the manufacturing process, our entrepreneur, exchanges iPads for food, clothing, etc, and starts the entire process again, assuming that he earns the 'profit' from his operation. If he incurred losses, he will have to reduce his costs in capital goods, if he wishes to continue.

Money of course facilitates this process through removing the necessity of the co-incidence of wants. That is the primary function of money. Due to this function, the division of labour is promoted, as without money manufacture of more advanced technological goods would be severely restricted.

The point is this: the improvement in material living standards is due to the increased production of goods & services. Money is not a necessary variable: thus it is not 'money' that improved your lifestyle and conditions, it is improved manufacture in volume & quality that did so.

Now don't mistake me by thinking that I am saying that money is not important. I simply wished to remove the abstraction of money from the discussion to illustrate that it needs to be considered separately. That money is not 'causative'.

Money replaces 'direct exchange' for 'indirect exchange'. This eliminates the requirement for the co-incidence of wants. Now our intrepid employee can be paid in present value, via money, that is exchangeable against anything, and can also be hoarded, or saved [invested].

As 'money' can only be obtained through exchange, viz. I exchange my labour for money, or I exchange 10 pigs for money, or whatever. We now come to the question of fiat money, that can be 'created' by government, without any exchange at all.

When government create money, and exchange that printed money against my 10 pigs - what has just happened? Government has essentially taken my property, and replaced it with nothing. Had they 'earned' that money, then they would have completed an exchange, as the following example demonstrates.

Government provides a good or service to exchange on the free market. For that service/good they receive money. Money represents an incomplete exchange: money in of itself is not a good/service, which is what all market participants trade for. It is a resting place, while government decides what good/service it wishes to consume.

Money while resting in governments possession needs to maintain its exchange value. It will do so while the supply or quantity of money remains constant. Then, government sees my pigs, and exchanges their money for my pigs. The exchange between government and the first market participant is now complete, a new incomplete exchange is opened with me. It will complete when I exchange my money with someone else for goods/services.

So what is the purpose of fiat money?

Simply it is to obtain goods/services without actually earning the money through an exchange of legally owned property by oneself. What is that called? It is called theft.

Government arrogated to itself the money monopoly, for the simple reason, government grossly exceeds the revenues that it can directly and nakedly steal through taxation. By creating new money it can practice its theft under cover of darkness.

jog on
duc

duc,

Another excellent post. But I get the feeling your time and labour will be a dead investment here. People will focus on the fact that they have an iPad and conclude that fiat money made it possible, not a gold standard. It's a circular argument that you will never win.