It still functions as a medium of exchange even though its value can change as a result of a change in the demand for money. The point is to not have the value fluctuate wildly from the quantity of that medium changing in any appreciable amount. That is why gold is such a good medium of exchange.
Of course when you have an entire empire collapse you get a severe depression in economic transactions. Trade began to return as a result of the Catholic churches which helped to establish essentially a monetary and banking system, and the areas with the least intervention in those transactions were areas in which trade flourished. There was no central European authority controlling the trade between all the kingdoms, and that was actually part of why Europe prospered while empires around the world languished and were left behind.Londoner wrote: ↑March 13th, 2018, 6:44 amAnd after the Roman Empire collapsed trade suffered. Later, Europe had Kings and with stability trade returned. If at any time an area of Europe lacked any sort of central authority to maintain order then trade collapsed.
How would you feel about setting up your market stall in the badlands of Afghanistan? Nobody controlling the market there, so is the economy flourishing? Or would you prefer London or New York, where you have policemen, courts, trading standards etc.?
You have to differentiate between having a government that provides a legal structure of property rights and one that is controlling economic transactions. The former permits free trade to flourish while the latter increasingly hampers prosperity.
I don’t see the relevance here. Sure, if you’re starving and all you have is enough food to feed yourself you’re not going to sell the food. So what? That doesn’t change the fact of money being a medium of exchange or the form of economic transactions.Londoner wrote: ↑March 13th, 2018, 6:44 amIf you think you are going to starve this winter, would you exchange your stock of food for bits of paper or bits of shiny metal? You only sell your product if you have a surplus - and (more important) if you can exchange it for something better. In a famine, there is no store of value better than food, so the incentive is to hoard.
Even without natural events like famines, there is often a good reason for producers not selling their goods in the market. If you can corner the market, then you can create a scarcity and drive up prices and profits and also establish a stability of income. Again, you need governments to prevent this.
Second, monopolies are not possible on the free market. They are only possible through government intervention that use the coercive power of law. I have covered this in another thread specifically on monopolies:
http://onlinephilosophyclub.com/forums/ ... =5&t=15356
This is supported both theoretically and historically. Governments are the source of monopolies and cartels.
The Great Depression in the U.S. was caused by inflation of the money supply, in particular business credit expansion. From 1921 to 1929 the money supply was increased by $28 billion, which is a 61.8% increase and amounts to a 7.7% per year inflation of the money supply. That’s very large. That is the only way to create the boom/bust cycles seen in the business cycle, and this was accomplished through business credit expansion by the Federal Reserve. There was pressure from Britain through Morgan affiliations to inflate our money supply in order to prop up the inflated value of the British pound post-WW1, was possible through the Federal Reserve and worked to an extent until it inevitably failed. The depression resulted from a leveling off of the inflation and the necessity of liquidation of malinvestment that was a result of the distortions that resulted from the business credit expansion, particularly in the capital goods industries. The depression was artificially prolonged as a result of various government interventions such as tariffs, artificially propping up wages, and a variety of others. If you disagree, please provide an alternate explanation.
You said “On the contrary, I am saying it is a commodity like any other.” A commodity is a non-monetary use. That is the economic use of the term. There is little non-monetary use for the pieces of paper that make up yours or my money. That’s why it is a non-commodity money.Londoner wrote: ↑March 13th, 2018, 6:44 amI do not see how that reply is connected to what I wrote.
As for money, you are using 'commodity' in a very restricted way. The value of paper money is (a) that it is a claim on the goods and services of the nation that issues it and (b) it is a very liquid instrument. So, the value of that piece of paper money is a function of the economic health of the nation that printed it (and thus changes) and also you are paying a price for the liquidity in that you are not getting any interest.
That is just silly. Without money there can be no monetary calculation and no market economy. Period.
The title of this thread is “what is money?” I am also describing how it functions and its history.
No. This is just wrong across the board. In a 100% reserve gold standard money earns interest just by sitting under your mattress, because the value of money increases. In this sense, quite literally savings equals investment.Londoner wrote: ↑March 13th, 2018, 6:44 amThe dollar earns interest because it is no longer your property; you have lent it to somebody else. The interest is the rent they pay for use of your dollar. The longer you lend it for, and the ease with which you can ask for it back, determines the amount of interest you will get. The interest will also be determined by the future risk that you won't get paid back at all, also by the anticipated future purchasing power of the dollar, and by the anticipated return on whatever the borrowed dollar is invested in (so also based on expectations of the economic future).
Interest primarily a function of time preference. All things equal, people prefer goods sooner vs. later. This is the natural rate of interest. This is why it cannot be manipulated through credit expansion by central banks and why it results in distortions that create malinvestment that leads to the inevitable bust and depression. While things you mentioned are factors in loans, that is not the nature of interest.
You fail to make the distinction between price and value. Each person values everything differently, including money. The social average of individual evaluations manifests in money prices. This is not a measure of value, but that is what permits economic calculation and permits each individual to make their individual valuations of both money and the consumers good in question.Londoner wrote: ↑March 13th, 2018, 6:44 amSo I do not see what 'the value of money' could mean. Because the lender has different expectations to the borrower, and because the lender is in a different situation to the borrower, the value of the dollar is different for each of them, (just as the value of a sack of coffee beans or a flat in Hong Kong or anything else is different to different people.) If the value was the same for everyone there would be no trade. We could do a sum of what everyone was willing to pay for a commodity and take the average, but how would that be useful?