Frost wrote: ↑
March 12th, 2018, 12:23 pm
Yes, and the point is to have a medium of exchange that has a stable quantity in order to minimize fluctuations in value. This allows a pricing system and calculation method to arise which is necessary for a market economy. This cannot occur with something whose values fluctuate wildly due to frequent significant changes in quantity, and a market economy could not emerge with such a medium of exchange since economic calculation could not be possible.
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.
You said a “central authority.” There was no European empire after the fall of the Roman empire. Of course there was always some sort of authority, but you said central. While I agree that a government can help to secure stable market conditions, when they attempt to control the market, who gets to sell, etc., they will hamper and undermine the market system.
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.?
If there was a food scarcity do you really think that food producers are just sitting on food stores and not selling them? That makes no sense. Sellers sell their products, and they have even more incentive to sell them if they’re scarce because the price goes up. No government can help in this regard. However, if the government institutes a price control, you can bet there will be a shortage. The best bet is for the government to stay out.
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.
What is that even supposed to mean? That’s the economic and monetary history of that period.
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.
Me: I have not suggested that a government can 'just say the currency is worth what it wants it to be'. On the contrary, I am saying it is a commodity like any other
What is the commodity use of your current paper money? Kindling? Bedding for pet hamsters?
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.
A transaction is an explicit praxeological concept. There is either an exchange of property title or there is not. There is no partial exchange. This is determined by a double negative subjective valuation on the part of each party to the exchange. Money is the commonly accepted medium of exchange.
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.
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.
A dollar only earns no interest in a progressing economy due to inflation, but otherwise it would. The value is established in the subjective valuation of each individual person, but it is obviously influenced by the buying power established as the social average on the market which is based on past average social valuations. This value of money is described in Mises’ Regression Theorem as described earlier.
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).
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?