What is Money? (Note: potentially wonkish)

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Frost
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Re: What is Money? (Note: potentially wonkish)

Post by Frost » March 13th, 2018, 11:54 am

Londoner wrote:
March 13th, 2018, 6:44 am
You miss my point that nothing has value in isolation, just 'in itself'. The value of gold is only in what it can be exchanged for. That value is not stable, prices change, depending on the supply and demand for commodities.
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.
Londoner wrote:
March 13th, 2018, 6:44 am
And 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.?
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.

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.
Londoner wrote:
March 13th, 2018, 6:44 am
If 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.
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.

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.
Londoner wrote:
March 13th, 2018, 6:44 am
I disagree. I do not think your description of the situation of the UK after WW1 or your explanation for the Great Depression are correct.
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.
Londoner wrote:
March 13th, 2018, 6:44 am
I 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.
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 am
If it is only about an exchange of property title then you might as well leave money out of it entirely. No need for money to do that.
That is just silly. Without money there can be no monetary calculation and no market economy. Period.
Londoner wrote:
March 13th, 2018, 6:44 am
To conclude with the sentence saying that money is a medium of exchange is fine, but this thread is a discussion of how it performs that function, now and historically.
The title of this thread is “what is money?” I am also describing how it functions and its history.
Londoner wrote:
March 13th, 2018, 6:44 am
The 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).
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.

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.
Londoner wrote:
March 13th, 2018, 6:44 am
So 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?
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.

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Re: What is Money? (Note: potentially wonkish)

Post by SimpleGuy » March 13th, 2018, 12:18 pm

Perhaps we should somehow direct the true value of money on the average goods normally consumed by a worker in an industrial society and not in gold or other valuable metals. This would somehow more represent the thought that money seems to be some kind of "condensed state" of the average worker no matter if this person is a white-collar or a blue-collar worker. This would somehow bring some kind of realism into this discussions , due to the fact that the commodity and their values have to have a basis on real world interpretation and not on pareto optimality on some kind of utility function or on an equivalence basis of trade subsystems, but simply on the consumption of the average blue and white collar workers around the globe.

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Re: What is Money? (Note: potentially wonkish)

Post by Frost » March 13th, 2018, 12:51 pm

SimpleGuy wrote:
March 13th, 2018, 12:18 pm
Perhaps we should somehow direct the true value of money on the average goods normally consumed by a worker in an industrial society and not in gold or other valuable metals. This would somehow more represent the thought that money seems to be some kind of "condensed state" of the average worker no matter if this person is a white-collar or a blue-collar worker. This would somehow bring some kind of realism into this discussions , due to the fact that the commodity and their values have to have a basis on real world interpretation and not on pareto optimality on some kind of utility function or on an equivalence basis of trade subsystems, but simply on the consumption of the average blue and white collar workers around the globe.
There is no “true value of money.” The value of money in any given transaction is determined by individual subjective valuations in the framework of past transactions.

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Re: What is Money? (Note: potentially wonkish)

Post by Londoner » March 13th, 2018, 1:45 pm

Frost wrote:
March 13th, 2018, 11:54 am
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.
I think our basic difference is that I do not think anything has value just in itself. The value of anything is only relative to what you exchange it for, so the value of a gold piece can rise relative to some items and fall relative to others. Gold obviously has some use value, but as a medium of exchange I do not think the physical quantity is significant. If there is a demand for a unit of account that exceeds the physical supply then it is easy to substitute some other commodity, or trade promissory notes. After all, I do not think the average person ever saw a gold coin, but they managed to function perfectly well.
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.
Leaving aside the suggested role of the Catholic Church, surely you confirm my point. It was necessary for some authority to replace Rome in order for trade to be re-established. When you say that in areas where there was the least intervention trade flourished I have no idea where you can mean. In the period we are talking about, it wasn't the case that an anarchic Europe prospered while other places were left behind. On the contrary, Europe was a backwater.
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.
Those legal structures are not neutral. We might get used to a certain set and so cease to notice them, or think they are 'natural', but they aren't. What can or can't count as property and the way it can or can't be traded is what forms an economy. When you say government control hampers prosperity, you mean it hampers the prosperity of those who happen to benefit from the existing system of government control and so are naturally against 'interference'.
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.
The relevance was as a reply to the idea that government never need interfere in the market.
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:
I'm afraid I disagreed with that idea too.
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.
It would take too long to disentangle. Two points; I notice it makes no mention of the economic effects of WW1 or the post war settlement, something I think most accounts would mention. Second, I think the idea that changes in the money supply are 'the only way to create the boom/bust cycles seen in the business cycle' is absurd. You get such cycles just in particular areas of a single economy. You got such cycles before paper money.

I get the impression you want to see everything it terms of simple cause-effect. But I think reality is not like that, it is holistic. Effects are also causes. You can measure corn relative to gold, but also gold relative to corn; neither way round is correct. Similarly you can take any account of an event like the Great Depression and call one aspect 'the cause' ...but you could do the same with anything else and declare the cause was 'debt' or 'unregulated banking' or 'post war reparations'.
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.
Seriously, when I described money as being a commodity you thought I meant 'as bits of paper'? Not a commodity in the sense of something for which the value is determined by supply and demand? If that is really the case, then I hope you understand me now.
The title of this thread is “what is money?” I am also describing how it functions and its history.
Me too. It is just that we seem to differ on certain points.
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.
We do not have that system. It is going to make for misunderstandings if when discussing 'money' we flit from historical examples to modern examples to hypothetical examples.
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.
I do not think you can have a theory of interest separate from loans, i.e. real life examples of people lending and borrowing money. Nor do I think there is such a thing as a natural rate of interest; the rate of interest is determined in the marketplace, by demand for capital. The demand for capital is determined by productive opportunities.

I think you overate the role of central banks. They can (to some extent) choke off credit, but it isn't so easy to expand it. At the moment, interest rates in my country are very low, but people are still not borrowing because they are uncertain about the near future and pessimistic about longer term prospects. In other words, although I say interest rates are low, relative to the demand for credit they are still too high. Maybe next year, the rates will be unchanged, but the same rate will now be too low because the demand for credit has changed..
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.
I do not understand that last sentence.

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Re: What is Money? (Note: potentially wonkish)

Post by Belindi » March 13th, 2018, 2:46 pm

Money, and gold, are significant symbols of control. A symbol of control orders a society.It's not true that each person values their culture's symbols differently. When this happens anomie happens with rise in crime and mental illness.

The symbolic control system does evolve however money and gold have been stable symbols for a long time. Some other people prefer cowrie shells.

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Re: What is Money? (Note: potentially wonkish)

Post by Frost » March 13th, 2018, 5:16 pm

Londoner wrote:
March 13th, 2018, 1:45 pm
I think our basic difference is that I do not think anything has value just in itself. The value of anything is only relative to what you exchange it for, so the value of a gold piece can rise relative to some items and fall relative to others. Gold obviously has some use value, but as a medium of exchange I do not think the physical quantity is significant. If there is a demand for a unit of account that exceeds the physical supply then it is easy to substitute some other commodity, or trade promissory notes. After all, I do not think the average person ever saw a gold coin, but they managed to function perfectly well.
I am not saying gold has any intrinsic value. Valuation is a subjective process of preferring one state of affairs over another. That is the basis of all economic transactions. A person values a quantity of money compared to a consumer’s good and decides what he prefers.

The quantity of money is absolutely critical. That is why gold is an excellent basis for money, since it is quite stable in quantity. If you just add in promissory notes, then you run into the same problems that plagued banking throughout the history of the U.S. This results in inflation, and particularly if lent to businesses, results in the business cycles of boom and bust. Additionally, such inflation is fraudulent, because any kind of money substitute is essentially a property title for a certain quantity of gold. Just adding in promissory notes as money fraudulently presents property title for money that does not exist.
Londoner wrote:
March 13th, 2018, 1:45 pm
Leaving aside the suggested role of the Catholic Church, surely you confirm my point. It was necessary for some authority to replace Rome in order for trade to be re-established. When you say that in areas where there was the least intervention trade flourished I have no idea where you can mean. In the period we are talking about, it wasn't the case that an anarchic Europe prospered while other places were left behind. On the contrary, Europe was a backwater.
Europe broke into countless kingdoms after the fall of Rome. There was a gradual period of progress that occurred, in particular the economic and philosophical developments in the monasteries of the Catholic church. When Belgium or Venice did well economically, it is because they had no central authority dictating economic transactions and confiscating property. Interventions into the market distort the market system and result in a decrease in progress. While all this occurred, Europe developed far in advance of empires that were far more advanced in terms of technology and population. Economic progress is what is behind technological and scientific progress, and it is this element of European history that led to its dominance.
Londoner wrote:
March 13th, 2018, 1:45 pm
Those legal structures are not neutral. We might get used to a certain set and so cease to notice them, or think they are 'natural', but they aren't. What can or can't count as property and the way it can or can't be traded is what forms an economy.
It is perfectly natural. In fact, Locke did a pretty darn good job of defining the basis of property. Not only is it natural, property rights help market economies to flourish. They are the most fundamental rights other than self-ownership.
Londoner wrote:
March 13th, 2018, 1:45 pm
When you say government control hampers prosperity, you mean it hampers the prosperity of those who happen to benefit from the existing system of government control and so are naturally against 'interference'.
No, that’s completely wrong. An unhampered market economy benefits all in the long run. It is a system of voluntary exchanges. The government can only distort this structure, and intervention reduces the standard of living of all in the long run.
Londoner wrote:
March 13th, 2018, 1:45 pm
I'm afraid I disagreed with that idea too.
Well you need to offer a reason why. I provided the link to all the arguments why not only is a monopoly theoretically not possible, it has never occurred historically.
Londoner wrote:
March 13th, 2018, 1:45 pm
It would take too long to disentangle. Two points; I notice it makes no mention of the economic effects of WW1 or the post war settlement, something I think most accounts would mention. Second, I think the idea that changes in the money supply are 'the only way to create the boom/bust cycles seen in the business cycle' is absurd. You get such cycles just in particular areas of a single economy. You got such cycles before paper money.
This is utter nonsense. Fluctuations in a single area of the economy do not occur in isolation and cannot result in a general boom and bust as seen in the business cycle. Of course the war had an economic impact, but the point is that it is business credit expansion which creates the business cycle. This is the only theory out there that accounts for all the factors, such as the general increase and decrease, and the disproportionate decrease in producer’s goods compared to consumer’s good, and in particular higher order capital good industries. If you want to disagree, you really need to make some sort of argument.

What specific periods are you referring to as business cycles before paper money? I need to know exactly what you are referring to in order to determine its validity.
Londoner wrote:
March 13th, 2018, 1:45 pm
I get the impression you want to see everything it terms of simple cause-effect. But I think reality is not like that, it is holistic. Effects are also causes. You can measure corn relative to gold, but also gold relative to corn; neither way round is correct. Similarly you can take any account of an event like the Great Depression and call one aspect 'the cause' ...but you could do the same with anything else and declare the cause was 'debt' or 'unregulated banking' or 'post war reparations'.
Praxeological economic theory is holistic. It is what allows causation to be established. It is prior to interpretation of history. In and of itself, economic history is irrelevant to economic theory.
Londoner wrote:
March 13th, 2018, 1:45 pm
Seriously, when I described money as being a commodity you thought I meant 'as bits of paper'? Not a commodity in the sense of something for which the value is determined by supply and demand? If that is really the case, then I hope you understand me now.
A commodity currency is a currency that has a non-monetary use. That’s the economic definition. Tell me, what is the non-money use for bits of paper?

Money is a medium of exchange, not in and of itself a commodity. Only a money that has a non-monetary use can be considered a commodity currency. It is both a commodity and a common medium of exchange.
Londoner wrote:
March 13th, 2018, 1:45 pm
We do not have that system. It is going to make for misunderstandings if when discussing 'money' we flit from historical examples to modern examples to hypothetical examples.
You’re not going to understand our current system if you do not understand the fundamental economics first.
Londoner wrote:
March 13th, 2018, 1:45 pm
I do not think you can have a theory of interest separate from loans, i.e. real life examples of people lending and borrowing money. Nor do I think there is such a thing as a natural rate of interest; the rate of interest is determined in the marketplace, by demand for capital. The demand for capital is determined by productive opportunities.
The natural rate of interest is purely a matter of time preference. A person prefers money sooner rather than later, and the degree of that preference dictates how much people are willing to pay for that money based on his individual subjective valuation. The going interest rates in a market are the social average of time preference. Other factors then modify this natural interest rate.
Londoner wrote:
March 13th, 2018, 1:45 pm
I think you overate the role of central banks. They can (to some extent) choke off credit, but it isn't so easy to expand it. At the moment, interest rates in my country are very low, but people are still not borrowing because they are uncertain about the near future and pessimistic about longer term prospects. In other words, although I say interest rates are low, relative to the demand for credit they are still too high. Maybe next year, the rates will be unchanged, but the same rate will now be too low because the demand for credit has changed..
That doesn’t change the praxeological analysis that occurs with credit expansion. They are quite literally the cause of boom and bust cycles. The central banks are also not completely stupid, since they do not continually inflate and eventually restrict, which is what results in the depression which is necessary to liquidate the malinvestment which results from the distortion of market factors. If they continued to inflate they would result in a crack up boom and a complete collapse of the monetary system.
Londoner wrote:
March 13th, 2018, 1:45 pm
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.
I do not understand that last sentence.
Price does not measure value. The prices seen in markets are the result of social averages of individual valuations. A person will go into a store, for example, and see a price that is the social average. He then considers how much he values that amount of money compared to the services he gets from the consumers good, and based upon what he prefers more, the decision is made either to purchase or not to purchase.

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Re: What is Money? (Note: potentially wonkish)

Post by Belindi » March 14th, 2018, 5:11 am

If gold, which has scarcity value, is a symbol of social control, are copper coins, promissory notes on paper or electronic records signals of symbols of social control?

BTW by 'symbols of social control' I mean concrete things such as gold ingots, coins, school and university buildings and personel, Westminster and MPs, the local general hospital its decor and personel, clothing, the homestead, human body parts, and so on. The symbolic values of all of those do change sometimes as results of natural accidents and sometimes because of deliberate machinations by people with powers to work changes.

A signal of a symbol of social control, besides promissory notes, might be a letter of demand from a tax collector , or a notification of a surgical operation, or in olden days a demand from a minister of religion that one attend divine service.

A sign of a symbol of social control might be the actual building process of a new hospital, talk in the media of doing away with pennies and tuppences, or students striking to support their lecturers.

Londoner wrote (Jan 15) :
I think there is only a problem if we insist on seeing money as if it was all just one thing. There is no hard line to be drawn between money and property generally. If we treat something as a store of value, then it is a form of money.
I agree. Gold is an arbitrary symbol. Promissory notes , coins, and so on signal trading values.Trade is one of the necessities that make individuals cohere into a society and trade probably has been done since men concurrently developed brains/minds/cultures.

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Re: What is Money? (Note: potentially wonkish)

Post by Londoner » March 14th, 2018, 6:45 am

Frost wrote:
March 13th, 2018, 5:16 pm
The quantity of money is absolutely critical. That is why gold is an excellent basis for money, since it is quite stable in quantity. If you just add in promissory notes, then you run into the same problems that plagued banking throughout the history of the U.S. This results in inflation, and particularly if lent to businesses, results in the business cycles of boom and bust. Additionally, such inflation is fraudulent, because any kind of money substitute is essentially a property title for a certain quantity of gold. Just adding in promissory notes as money fraudulently presents property title for money that does not exist.
I am gathering that this is your theory and I recognise it as one appealing to a number of Americans. But for countries with a longer economic history would point to cycles of boom and bust that happened even when a currency was linked to gold.

I do not agree that 'any kind of money substitute is essentially a property title for a certain quantity of gold'. If we attempted to make it so then people will just find their way round it. For example, I have shares in companies. These shares give me rights over profits that do not yet exist (and perhaps never will), the assets of the companies may be material but they may also be services or intellectual rights. I could instead buy physical gold, which would be a solid material asset, and sometimes I might prefer to do that. But we cannot pretend that only the gold has value; I would readily have swapped any amount of gold for a share in young Mr Gates' start-up.
Europe broke into countless kingdoms after the fall of Rome. There was a gradual period of progress that occurred, in particular the economic and philosophical developments in the monasteries of the Catholic church. When Belgium or Venice did well economically, it is because they had no central authority dictating economic transactions and confiscating property...
And while there were countless kingdoms trade more or less disappeared. When Belgium was doing well economically trade was closely regulated; only certain places were allowed fairs, how those fairs were run was strictly policed, taxes were charged - even the trades that processed the goods were organised. You could not just decide to be a weaver, or goldsmith. When Venice was doing well it was because it was powerful enough to do the regulating. It monopolised the trade on particular routes and for particular commodities. If you tried to trade with Constantinople outside their system a sleek Venetian galley would have taken your ship and you would find yourself chained to one of the oars.

It is a long, long time before Adam Smith! Nobody believed in 'free markets'. I think you have the idea that if anywhere in the past was prosperous or civilised it could only be because the people had the mindset of modern Americans! (Modern Americans with a thing for a gold backed currency).
It is perfectly natural. In fact, Locke did a pretty darn good job of defining the basis of property. Not only is it natural, property rights help market economies to flourish. They are the most fundamental rights other than self-ownership.
Yes, but which property rights? At one stage the USA did not respect intellectual property, so it did very well making pirated copies of books. That was good for the USA at the time but bad for European authors. Now the USA fiercely protects intellectual property, which is good for the USA as it is now, but bad for the third world. The USA no longer sees patents as a wicked government restraint on market freedom. The same is true of all property rights; they are natural and justified - if they protect my interests. They are a wicked interference in the market - if they get in my way.
What specific periods are you referring to as business cycles before paper money? I need to know exactly what you are referring to in order to determine its validity.
Where to start? Surely you are aware of all the speculative bubbles that occurred then, just as they do today. Banks overextended themselves and failed, going back to the Medicis. Any farmer in the world will explain the cycle of underproduction and overproduction, boom and bust.

But I see where this is going. You are going to insist that the meaning of the words 'business cycle' is limited to examples that fit your theories. You like to restrict arguments by insisting on 'economic definitions' that only allow others to use words in the way you want.
A commodity currency is a currency that has a non-monetary use. That’s the economic definition. Tell me, what is the non-money use for bits of paper?
Look back at my previous response. If you do not understand it, I cannot help you.
You’re not going to understand our current system if you do not understand the fundamental economics first.
I agree!
The natural rate of interest is purely a matter of time preference. A person prefers money sooner rather than later, and the degree of that preference dictates how much people are willing to pay for that money based on his individual subjective valuation. The going interest rates in a market are the social average of time preference. Other factors then modify this natural interest rate.
That is an elaborate way of saying that we can take an average of a lot of different subjective decisions and give it the rather misleading label of the 'natural' interest rate. What is the point? I could take an average of everyone's earnings and label it the 'natural' wage. But what would that have achieved?
That doesn’t change the praxeological analysis that occurs with credit expansion. They are quite literally the cause of boom and bust cycles. The central banks are also not completely stupid, since they do not continually inflate and eventually restrict, which is what results in the depression which is necessary to liquidate the malinvestment which results from the distortion of market factors. If they continued to inflate they would result in a crack up boom and a complete collapse of the monetary system.
In a modern economy central banks play their part along with everything else but they are not the cause to the exclusion of War, Famine, Irrational Exuberance and life generally.

I think you have got this theory and are determined to make the economic history of the world fit it. I will just say that I am not convinced.

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Re: What is Money? (Note: potentially wonkish)

Post by Frost » March 14th, 2018, 11:36 am

Londoner wrote:
March 14th, 2018, 6:45 am
I am gathering that this is your theory and I recognise it as one appealing to a number of Americans. But for countries with a longer economic history would point to cycles of boom and bust that happened even when a currency was linked to gold.
This isn’t “my theory,” it is economic theory. You do realize that the Great Depression in the U.S. occurred while on the gold standard, right? It was able to occur because of the Federal Reserve inflating the money supply with various money substitutes that led to malinvestment which eventually had to be liquidated in the depression.
Londoner wrote:
March 14th, 2018, 6:45 am
I do not agree that 'any kind of money substitute is essentially a property title for a certain quantity of gold'. If we attempted to make it so then people will just find their way round it. For example, I have shares in companies. These shares give me rights over profits that do not yet exist (and perhaps never will), the assets of the companies may be material but they may also be services or intellectual rights. I could instead buy physical gold, which would be a solid material asset, and sometimes I might prefer to do that. But we cannot pretend that only the gold has value; I would readily have swapped any amount of gold for a share in young Mr Gates' start-up.
Money is a common medium of exchange and does not have to be gold. The way I wrote that was not good. I have property title to all the dollar bills in my wallet right now and I can exchange that property title for property title of whatever consumers goods I decide to purchase. If people try to “find their way round it” that is called counterfeiting which is fraud. On a 100% reserve gold standard stocks would be an investment since you have partial property title in the business and have the right to the proportional profits.
Londoner wrote:
March 14th, 2018, 6:45 am
And while there were countless kingdoms trade more or less disappeared. When Belgium was doing well economically trade was closely regulated; only certain places were allowed fairs, how those fairs were run was strictly policed, taxes were charged - even the trades that processed the goods were organised. You could not just decide to be a weaver, or goldsmith. When Venice was doing well it was because it was powerful enough to do the regulating. It monopolised the trade on particular routes and for particular commodities. If you tried to trade with Constantinople outside their system a sleek Venetian galley would have taken your ship and you would find yourself chained to one of the oars.
I never claimed to be a true laissez fare economy, but they were the freest. None of them were controlled by a central empire, and Venice had guilds that were involved in government. They had property rights and a lack of central control that permitted relatively free trade.
Londoner wrote:
March 14th, 2018, 6:45 am
(Modern Americans with a thing for a gold backed currency).
Gold as money originated in Europe.
Londoner wrote:
March 14th, 2018, 6:45 am
Yes, but which property rights? At one stage the USA did not respect intellectual property, so it did very well making pirated copies of books. That was good for the USA at the time but bad for European authors. Now the USA fiercely protects intellectual property, which is good for the USA as it is now, but bad for the third world. The USA no longer sees patents as a wicked government restraint on market freedom. The same is true of all property rights; they are natural and justified - if they protect my interests. They are a wicked interference in the market - if they get in my way.
That there is controversy over some forms of property does not change that when a person labors to produce goods that it is both natural and right that they have property rights in that good. That a person homesteads and develops a piece of land or buys it from someone that did is both natural and right. Nor does it change that it is both natural and right that a person sell his labor for property title in an exact sum of money, and it is both natural and right that he uses that money property title in voluntary exchanges for goods more highly desired.
Londoner wrote:
March 14th, 2018, 6:45 am
Where to start? Surely you are aware of all the speculative bubbles that occurred then, just as they do today. Banks overextended themselves and failed, going back to the Medicis. Any farmer in the world will explain the cycle of underproduction and overproduction, boom and bust.
Banks have fraudulently lent out more money than they have in reserve for a long time, and this has existed for the entire history of the U.S. This could produce some small general ups and downs in more local economies due to travel restrictions that impose limitations on redemptions from other banks. However, with limited economic development and no central control of banks, the extent of this effect was rather limited. Furthermore, the independent banks also severely limited the ability to inflate the money supply, because even with the limitations of transportation, banks would still redeem deposits from the banks that issued the fudiciary media.

With a national bank the ability to inflate the money supply becomes compounded and permits enormously larger inflation of the money supply, in particular through business credit expansion. This is what creates the broad general boom and bust, rather than fluctuations in certain sectors. It has a specific character in malinvestment in industries heavy in capital goods due to the manipulation of the interest rate which distorts the normal signals of the market that would otherwise indicate that savings was sufficient to pursue higher order capital goods necessary for longer periods of production. Eventually the lower order goods run out since there was a false signal that the higher order goods should be invested in, and industries find themselves without sufficient goods to produce the higher order goods, and this malinvestment must be liquidated in the depression.
Londoner wrote:
March 14th, 2018, 6:45 am
But I see where this is going. You are going to insist that the meaning of the words 'business cycle' is limited to examples that fit your theories. You like to restrict arguments by insisting on 'economic definitions' that only allow others to use words in the way you want.
There is a distinct praxeological difference between fluctuations in a free-market and the general boom/bust that characterizes the business cycle. When you’re discussing economics you need to use economic terms properly instead of using them however you want which muddles your reasoning.
Londoner wrote:
March 14th, 2018, 6:45 am
A commodity currency is a currency that has a non-monetary use. That’s the economic definition. Tell me, what is the non-money use for bits of paper?
Look back at my previous response. If you do not understand it, I cannot help you.
You’re attempting to change the accepted economic definitions here. That money is a medium of exchange whose value fluctuates in no way makes it a commodity. A commodity money is a money that has non-monetary use. The non-monetary use of bits of paper we use as money are practically worthless as a commodity.
Londoner wrote:
March 14th, 2018, 6:45 am
That is an elaborate way of saying that we can take an average of a lot of different subjective decisions and give it the rather misleading label of the 'natural' interest rate. What is the point? I could take an average of everyone's earnings and label it the 'natural' wage. But what would that have achieved?
The social average of time preference manifested as interest rates has no relationship to a calculation of a national average of wages. Interest is fundamentally a matter of time preference, while wages are specific amounts of money paid for specific labor services. There is absolutely no relationship.
Londoner wrote:
March 14th, 2018, 6:45 am
In a modern economy central banks play their part along with everything else but they are not the cause to the exclusion of War, Famine, Irrational Exuberance and life generally.
Yes, quite literally they are the cause. The business cycle has specific characteristics, and while war and famine can have devastating impact on the economy, it is not what occurs in the boom/bust cycles of the business cycle. “Irrational exuberance” cannot alone cause a general boom/bust, although it certainly contributed to the Great Depression that was made possible through the credit expansion of the Federal Reserve.
Londoner wrote:
March 14th, 2018, 6:45 am
I think you have got this theory and are determined to make the economic history of the world fit it. I will just say that I am not convinced.
This is based on economic theory. Economic history is irrelevant to economic theory. You cannot use history to support economic theory since it is a complex phenomena in which causation cannot be established but through understanding of economic theory. If you are trying to figure out economics through history you are totally on the wrong track.

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Re: What is Money? (Note: potentially wonkish)

Post by Londoner » March 14th, 2018, 2:33 pm

Frost wrote:
March 14th, 2018, 11:36 am
I never claimed to be a true laissez fare economy, but they were the freest. None of them were controlled by a central empire, and Venice had guilds that were involved in government. They had property rights and a lack of central control that permitted relatively free trade.
In the case of Belgium we are talking of a Europe in which most people did not even own themselves, where if not quite slaves you were tied to your land and your occupation. You have shifted to talk of 'central control' and a 'central empire' but this is the middle ages. Nobody has simple title to anything , especially land. Your property rights are feudal; they depend on service to your overlord, not money purchase. Who your lord held from, and whether the ultimate authority was the Emperor, the Pope or someone else made no difference to the average person. True, sometimes the town itself had a council with some feudal authority, but it was not interested in abstractions like free trade. It was interested in protecting its own economic interests at the expense of all its rivals; if Amsterdam could strangle Antwerp it would (and eventually it did). The object was always to have a monopoly on trade (just like Venice).

But this isn't just ancient history. The idea that free trade is beneficial is very modern - even now it is preached more than it is practiced. The American Revolution was provoked by a mindset that said the purpose of trade was as something that can be taxed; the advantage of having colonies was that they would be obliged to trade through the mother country, using their ships. There were literal walls built withing countries, so that goods moving from one region to another could be inspected and taxed. Or if not taxed, then the right to trade was something to be sold. You payed to have a monopoly over trade in particular commodities or with particular countries.

And to bring us up to date, we see Mr Trump is not entirely sold on free trade either!

I do not think I will pursue the other strands to our exchange as I think we are repeating ourselves. I can only say that you have many more people to convince than me before your ideas are going to be adopted.

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Re: What is Money? (Note: potentially wonkish)

Post by Frost » March 14th, 2018, 3:04 pm

Londoner wrote:
March 14th, 2018, 2:33 pm
In the case of Belgium we are talking of a Europe in which most people did not even own themselves, where if not quite slaves you were tied to your land and your occupation. You have shifted to talk of 'central control' and a 'central empire' but this is the middle ages.
No, I am not “shifting to talk of ‘central control,’ because YOU are the one that brought up central control:
Londoner wrote:
March 11th, 2018, 6:23 am
Those sorts of societies have central authorities who organise things, ensuring that the system keeps running.
I disagreed, and then you again responded:
Londoner wrote:
March 11th, 2018, 2:51 pm
I would not agree that you can have a division of labour, or markets, without central authorities.
Clearly you brought up central authority and continued to reiterate the point. The point is that there was no central authority in Europe in the middle ages. In terms of economics, central authorities cannot control markets, but rather only distort and hamper them.

Venice was not a city of feudal lords. They were a dukedom whose income was not from taxes or rents but involvement in commerce. They had guilds and the beginnings of modern banking with their double entry book keeping. They had the beginnings of democracy since the guilds had involvement and influence in the councils. They were one of the freest areas of trade, which is why the city flourished. They had no central Byzantine control in that time period.

However, it must be stressed that economic and monetary history is irrelevant to theory. That theory dictates that money is a common medium of exchange and its value cannot be regulated by any authorities.

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Re: What is Money? (Note: potentially wonkish)

Post by Londoner » March 15th, 2018, 6:35 am

Frost wrote:
March 14th, 2018, 3:04 pm
No, I am not “shifting to talk of ‘central control,’ because YOU are the one that brought up central control:
Yes, meaning:

Me: Those sorts of societies have central authorities who organise things, ensuring that the system keeps running.
Clearly you brought up central authority and continued to reiterate the point. The point is that there was no central authority in Europe in the middle ages. In terms of economics, central authorities cannot control markets, but rather only distort and hamper them.
You were not free to leave the lord's estate, you were not free to choose your profession, you could not set up a market without a charter...you are trying to create a quibble about whether this level of control can be called 'central' or not but it is entirely beside the point. The market was controlled. Whether that distorted or hampered it is another question, but the point is that their prosperity was not down to an anachronistic belief in laissez faire economics.
Venice was not a city of feudal lords. They were a dukedom whose income was not from taxes or rents but involvement in commerce. They had guilds and the beginnings of modern banking with their double entry book keeping. They had the beginnings of democracy since the guilds had involvement and influence in the councils. They were one of the freest areas of trade, which is why the city flourished. They had no central Byzantine control in that time period.
I am pleased you are making some effort to read some history, rather than just repeating 'there was no central authority'.

I have explained that the point about Venice was Venice did the controlling; Venice was the central authority. Venice had colonies that became protected markets, it made war on rivals and eliminated them. If you wanted to trade with Constantinople you had to go through them or Genoa. Once again, their objective was never 'free trade', it was to establish a monopoly. Genoa and Venice did not accept each other as friendly competitors, they sought to eliminate each other. And not just any Venetian was free to trade; just like elsewhere certain routes were reserved for certain families. If a foreign merchant was in Venice they had to live in a special area where they could be controlled. As an ordinary Venetian, If you were lucky you were in a guild; again the whole purpose of a guild is to prevent competition, to create a 'closed shop'. So on every level, everyone had the same aim, to eliminate competition and establish a monopoly.

I have listed many, many examples to show that this idea that in earlier ages people believed in the virtues of free trade is totally mistaken. And as I say, even today the belief in open markets is more theoretical than actual, witness Trump.

But again, this is just getting repetitive, so I will leave it at that.
However, it must be stressed that economic and monetary history is irrelevant to theory. That theory dictates that money is a common medium of exchange and its value cannot be regulated by any authorities.
To say economic and monetary history is irrelevant to your theory would be my view. It is an interesting theory, but one that does not relate to reality. In other words, it is metaphysical.

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Re: What is Money? (Note: potentially wonkish)

Post by Frost » March 15th, 2018, 1:40 pm

Londoner wrote:
March 15th, 2018, 6:35 am
Me: Those sorts of societies have central authorities who organise things, ensuring that the system keeps running.

You were not free to leave the lord's estate, you were not free to choose your profession, you could not set up a market without a charter...you are trying to create a quibble about whether this level of control can be called 'central' or not but it is entirely beside the point. The market was controlled. Whether that distorted or hampered it is another question, but the point is that their prosperity was not down to an anachronistic belief in laissez faire economics.

I have explained that the point about Venice was Venice did the controlling; Venice was the central authority. Venice had colonies that became protected markets, it made war on rivals and eliminated them. If you wanted to trade with Constantinople you had to go through them or Genoa. Once again, their objective was never 'free trade', it was to establish a monopoly. Genoa and Venice did not accept each other as friendly competitors, they sought to eliminate each other. And not just any Venetian was free to trade; just like elsewhere certain routes were reserved for certain families. If a foreign merchant was in Venice they had to live in a special area where they could be controlled. As an ordinary Venetian, If you were lucky you were in a guild; again the whole purpose of a guild is to prevent competition, to create a 'closed shop'. So on every level, everyone had the same aim, to eliminate competition and establish a monopoly.
The whole point was that with the collapse of the Roman empire there was not a central authority dictating the market within the empire. With the collapse of the central authority of the empire, the various cities and kingdoms could much more openly trade. Which each would attempt to control their area, there is only such much that can be done without a central authority and no monopoly can be established, and Venice was one city that emerged as one of the most free and trade and wealth flourished as a result compared to many other areas. This is why the fall of the Roman Empire ultimately ended up being beneficial for Europe while other areas, particularly economically backward China, languished economically and therefore technologically under autarkic empire. The Catholic church was critical in making trade permissible, especially Thomas Aquinas, and the church continued to shift toward permitting trade. This sort of thing never occurred in China, and they continued to be victim of economic superstition and backwardness.

And relating to money and its value, I have to reiterate the attempt by the British government after WW1 to re-establish the pre-war gold standard value even though the value had dropped due to an inflation of the money supply during war. It didn’t work because that is not how the value of money is established. They attempted to manipulate other European countries into gold-exchange standards while they maintained a gold-bullion standard (instead of a true gold standard with circulating gold currency). They found their biggest ally in the U.S. through the Federal Reserve to inflate the money supply of the U.S. through various credit expansion policies. This works in spurts to reduce the outflow of gold from Britain to the U.S. only to slow down and reverse and conditions adjusted. This went up and down only to lead to disastrous policy in 1928-29 to help Britain and ultimately lead to a massive economic collapse that ended up harming Britain anyway. Governments cannot manipulate the value of money because it is a result of subjective valuation of individuals.
Londoner wrote:
March 15th, 2018, 6:35 am
To say economic and monetary history is irrelevant to your theory would be my view. It is an interesting theory, but one that does not relate to reality. In other words, it is metaphysical.
It’s not “my theory,” it’s economic theory. To say it doesn’t related to reality is complete nonsense, and to call it metaphysical is a non-sequitur. To say that money is a common medium of exchange has nothing to do with ontology. The ontology of money as a common medium of exchange is an Intentionalistic phenomenon with a subjective ontology that depends on collective recognition (collective Intentionality) of status function declarations. That’s the difference between economic theory and the ontology of the social institutions involved in the theory.

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Re: What is Money? (Note: potentially wonkish)

Post by Jan Sand » May 25th, 2018, 3:50 am

Money is valuable to civilization as a lubricant to economic activity. It has no inherent value as anyone isolated on an island with a billion dollars is aware. The fundamental difficulty currently is that when money accumulation is regarded as a prime value and is removed from its dynamic of energizing the creation of real value such as food or housing or education or health, the whole of civilization fails in its possibilities to create a better life for humans and preserving the fertility of the entire planet. That gross error is now destroying the entire planet.

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Re: What is Money? (Note: potentially wonkish)

Post by LuckyR » May 25th, 2018, 12:43 pm

Jan Sand wrote:
May 25th, 2018, 3:50 am
Money is valuable to civilization as a lubricant to economic activity. It has no inherent value as anyone isolated on an island with a billion dollars is aware. The fundamental difficulty currently is that when money accumulation is regarded as a prime value and is removed from its dynamic of energizing the creation of real value such as food or housing or education or health, the whole of civilization fails in its possibilities to create a better life for humans and preserving the fertility of the entire planet. That gross error is now destroying the entire planet.
I don't believe that those who are (perhaps overly) driven to accumulate money have a distorted understanding of the relationship between the placeholder (money) and the tangible assets that it represents.
"As usual... it depends."

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