"Backing" - what does this actually MEAN?

deisik

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Quote from: Nancarrow on December 19, 2013, 05:42:15 AM

Quote from: porc on December 18, 2013, 01:40:22 PM

Why do you guys have such difficulty with the term backing? As I said: The goal of backing is to ensure, that the media of exchange will retain its purchasing power. There is nothing more to discuss, unless you hold the opinion, that the goal of backing is something different.

Why do you have such difficulty with the term 'definition'?
I am not interested in the GOAL of backing. So don't keep telling me what the GOAL of backing is.
I am interested in the DEFINITION of backing. And no, not A definition or YOUR definition, THE definition. And if you want to keep telling me what the definition is, you'd better be prepared to support that. with. a. link!

Anyway, since I've already scooted off to the various dictionaries google provides, there's no need to belabour the point. And the metadiscussion is interesting, it just ain't answering the question I asked. I had been under the impression that the word was a term of art in economics, in the same way that "force" is a very specific term of art in physics, notwithstanding the careless use it may have in the real world.

I think you chose the wrong place to search for the definition. And I suppose as well that even if you went to some distinguished economists and their works on money theory, you would still find many different understandings and definitions of what backing actually is...

I have expressed my understanding of the term and am quite happy with it, so what are you waiting for?

Erdogan

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Quote from: Nancarrow on December 19, 2013, 05:42:15 AM

Quote from: porc on December 18, 2013, 01:40:22 PM

Why do you guys have such difficulty with the term backing? As I said: The goal of backing is to ensure, that the media of exchange will retain its purchasing power. There is nothing more to discuss, unless you hold the opinion, that the goal of backing is something different.

Why do you have such difficulty with the term 'definition'?
I am not interested in the GOAL of backing. So don't keep telling me what the GOAL of backing is.
I am interested in the DEFINITION of backing. And no, not A definition or YOUR definition, THE definition. And if you want to keep telling me what the definition is, you'd better be prepared to support that. with. a. link!

Anyway, since I've already scooted off to the various dictionaries google provides, there's no need to belabour the point. And the metadiscussion is interesting, it just ain't answering the question I asked. I had been under the impression that the word was a term of art in economics, in the same way that "force" is a very specific term of art in physics, notwithstanding the careless use it may have in the real world.

It is well defined, at least in the branch of economics called austrian. But that branch is not the main, and the whole area is infested with politics and newspeak. We need to have the discussion from time to time, and there will be no consensus.

Nancarrow

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Quote from: porc on December 18, 2013, 01:40:22 PM

Why do you guys have such difficulty with the term backing? As I said: The goal of backing is to ensure, that the media of exchange will retain its purchasing power. There is nothing more to discuss, unless you hold the opinion, that the goal of backing is something different.

Why do you have such difficulty with the term 'definition'?
I am not interested in the GOAL of backing. So don't keep telling me what the GOAL of backing is.
I am interested in the DEFINITION of backing. And no, not A definition or YOUR definition, THE definition. And if you want to keep telling me what the definition is, you'd better be prepared to support that. with. a. link!

Anyway, since I've already scooted off to the various dictionaries google provides, there's no need to belabour the point. And the metadiscussion is interesting, it just ain't answering the question I asked. I had been under the impression that the word was a term of art in economics, in the same way that "force" is a very specific term of art in physics, notwithstanding the careless use it may have in the real world.

Rassah

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Quote from: infinitybo on December 19, 2013, 02:11:11 AM

They are not backed by anything. ~~what~~ THAT is the point of BTC.

infinitybo

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They are not backed by anything what is the point of BTC.

Rassah

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Quote from: Erdogan on December 18, 2013, 10:22:37 PM

You could probably find a small use value also in bitcoin. I can only think of bragging rights for having mined a large number of coins.

I would posit that bitcoin's use value comes from it being the only token that is usable on the enormously valuable bitcoin network.

Erdogan

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Quote from: deisik on December 18, 2013, 04:04:10 PM

Quote from: Erdogan on December 18, 2013, 03:35:35 PM

Quote from: deisik on December 18, 2013, 05:17:37 AM

I can't accept your reasoning as convincing. We started with some abstract property of gold being purely subjective (i.e. prettiness to the eye) which you called its direct use, and now you turn to saying that we are concerned with what is the value of one dollar, one ounce of gold or one bitcoin. Then you say that the system itself, not the actual coins, is extremely valuable, but can't I say absolutely the same about gold, i.e. gold "system" being highly valuable for its properties, not actual coins? And now you implicitly suppose (not pronouncing it since it would sound too false) that security, anonymity and whatnot of actual bitcoins can't be direct use value for their owners. I am using you logic here, and nothing beyond it, and you suddenly stop using it in respect to bitcoins...

How come really?

The system, and the actual money, are two different things.

Actually, I want you to address the following points. Firstly, if you call gold's prettiness direct use value, I'd like to know how it concerns with what is the value of one ounce of gold.

The prettyness is useful for you the owner of the gold. Direct use. Even if you don't fancy it yourself, you wear it because others think it is pretty or otherwise awsome, it is still use value. For the baerer, the use value in that case is to have the admiration. (To clarify my ealier "fringe" comment).

Quote

Secondly, you say that it is the bitcoin system itself which is extremely valuable, but I was talking about properties that are related to individual bitcoins as well. If so, why we can't them consider as direct use value like we do in the case of gold's prettiness? If you disagree with that, please provide come convincing reasoning as to why they should be considered only on a system level, meaning they are inapplicable on a per coin basis.

You could probably find a small use value also in bitcoin. I can only think of bragging rights for having mined a large number of coins. I am not so sure about the Casascius coins. They have the looks, and are at the same time bitcoins. What do you think?

Quote

And thirdly, explain why then we can't consider gold properties in the same way as you propose we should do in the case of bitcoin properties?

I think we can. Bitcoins could be compared to gold, and the bitcoin system could be compared to the gold system.

So basically, I don't think we are very much in disagreement.

Rassah

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Quote from: porc on December 18, 2013, 03:07:29 AM

Quote from: Mike Christ on December 18, 2013, 02:56:10 AM

You back a money like you back a leader; neither count without believers, otherwise gold would just be shiny yellowish metal and a leader would be a regular Joe. In the case of money, a backing is a measure of how many people endorse that object as their choice of money.

I have already explained to this board what backing means. No need to make up your own definitions, just so that bitcoin fits in nicely.

Backing is a guarantee (strong or weak) that the medium of exchange will retain its purchasing power.

And as I said, that is not the generally accepted definition of backing, and is just another definition that you made up. I think what you said is typically called "guaranteed future purchasing power" (I don't think there is a word for it), and backing comes from a verb to back, meaning there is someone or something doing the backing. What you described is basically just everyone's hope about how things will be in the future, not actual backing by some entity or mechanism.

deisik

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Quote from: Erdogan on December 18, 2013, 03:35:35 PM

Quote from: deisik on December 18, 2013, 05:17:37 AM

I can't accept your reasoning as convincing. We started with some abstract property of gold being purely subjective (i.e. prettiness to the eye) which you called its direct use, and now you turn to saying that we are concerned with what is the value of one dollar, one ounce of gold or one bitcoin. Then you say that the system itself, not the actual coins, is extremely valuable, but can't I say absolutely the same about gold, i.e. gold "system" being highly valuable for its properties, not actual coins? And now you implicitly suppose (not pronouncing it since it would sound too false) that security, anonymity and whatnot of actual bitcoins can't be direct use value for their owners. I am using you logic here, and nothing beyond it, and you suddenly stop using it in respect to bitcoins...

How come really?

The system, and the actual money, are two different things.

Actually, I want you to address the following points. Firstly, if you call gold's prettiness direct use value, I'd like to know how it concerns with what is the value of one ounce of gold. Secondly, you say that it is the bitcoin system itself which is extremely valuable, but I was talking about properties that are related to individual bitcoins as well. If so, why we can't them consider as direct use value like we do in the case of gold's prettiness? If you disagree with that, please provide come convincing reasoning as to why they should be considered only on a system level, meaning they are inapplicable on a per coin basis. And thirdly, explain why then we can't consider gold properties in the same way as you propose we should do in the case of bitcoin properties?

IS

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"Fiat is backed by men with guns."

Bitcoin is backed by men with brains.

Erdogan

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Quote from: deisik on December 18, 2013, 05:17:37 AM

Quote from: Erdogan on December 17, 2013, 08:20:52 PM

Quote from: deisik on December 17, 2013, 05:47:32 PM

Quote from: Erdogan on December 17, 2013, 05:15:45 PM

Quote from: deisik on December 17, 2013, 04:02:33 PM

Quote from: Erdogan on December 17, 2013, 03:45:04 PM

Yes subjective. Both types of value is subjective. That is why everyone should decide what they want for themselves in the market, and what they are willing to sacrifice to achieve it. If you already have some of that what you want, that will change your values, also your total situation, and not least, your personal preferences. If you like fresh vegetables, you might want to trade some of your time in a job, to somebody who wants the work done, in stead of growing the vegetables yourself. Nobody has the knowledge, nor the right, to decide for others. This is why voluntary action is best: more freedom (by definition), and more wealth for everybody.

If so, do you agree that we could say that gold value is backed by its inherent objective properties through an individual's subjective valuation of them? If you don't like the word "backed" used here, what is, in your opinion, the best term describing the sustenance of value by objective properties?

Backed is a broad word, but in the realm of money it means that there is some entity that is willing and able to exchange the backed money for a specified amount of something else. So gold is unbacked. I prefer to use direct use value. That value is not dependent of what others think (well if you want it, because others think it is pretty, but not yourself, that is in the fringe). Also in the realm of money, intrinsic value is the same as value for direct use, but that word has the same definition problem, because it is used for other things. By the way, I can not think of anything that have absolutely no direct use value, absolutely in the mathematical sense, after someone has selected it and brought it to the market.

Gold is unbacked, bitcoin is unbacked. In history there has been gold-backed banknotes. We have Casascius coins, but that is really the bitcoins itself hidden inside the coin. I think it is inevitable that bitcoin-backed notes will appear in the market, and I welcome it. Bitcoin would be excellent for backing.

If it remains for an individual to decide what property should be considered as valuable (subjective valuation), therefore any subjective value would necessarily be direct use value (as you said before in respect to gold prettiness). If so, then, say, bitcoin security should by logical necessity be considered as direct use value too since there are many people who value bitcoin security high, right?

No, all value is subjective, but some things have an exchange value component in addition to use value, and some things have only exchange value (fiat and bitcoin).

As I said, most things have at least a miniscule use value, for bitcoin (I am talking of the actual bitcoins) that could be the bragging value that the first miners might see in their otherwise valueless coins. The system itself, not the actual coins but the totality of the system, the invention, the miners, the fact that the system can transform the society, is of course extremely valueable, but it is difficult to decide exactly how much. You could try to say that the bitcoin system is more valuable than the gold money system, or the fiat system, or some other system, like the internet or the sea transport system or the judicial system or the police force. But we are concerned with what is the value of one dollar, one ounce of gold or one bitcoin. That is the units of the money systems.

I can't accept your reasoning as convincing. We started with some abstract property of gold being purely subjective (i.e. prettiness to the eye) which you called its direct use, and now you turn to saying that we are concerned with what is the value of one dollar, one ounce of gold or one bitcoin. Then you say that the system itself, not the actual coins, is extremely valuable, but can't I say absolutely the same about gold, i.e. gold "system" being highly valuable for its properties, not actual coins? And now you implicitly suppose (not pronouncing it since it would sound too false) that security, anonymity and whatnot of actual bitcoins can't be direct use value for their owners. I am using you logic here, and nothing beyond it, and you suddenly stop using it in respect to bitcoins...

How come really?

The system, and the actual money, are two different things.

AdaptQuickly

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Short Run Model

Supply curve is composed of current supply of Bitcoins increasing at the current rate of mining (Slope)

Demand Curve is composed of people that demand Bitcoin.

Demand for Bitcoin is based on:

-Bitcoin's ability to act as a medium of exchange (Buy Stuff With it) .

-Bitcoins ability to store value (You can stash your Bitcoin away and it will remain intact)

-Bitcoin as an investment. (Buy it low and sell high)

Where these curves intersect that gives you the economic value of Bitcoin. Lucky for us this economic value is currently >0.

So to answer your question Bitcoin is "backed" by its current economic value (price) which is mostly derived from the demand for Bitcoin.

No demand= No economic value= No "Backing"

porc

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Quote from: Cryddit on December 18, 2013, 02:40:59 PM

Sigh. Yes, the goal of backing is to ensure that currency maintains some minimum amount of purchasing power.

But that isn't the definition of it.

The Method of backing a currency, or the means of achieving that goal, is what is meant.

Wikipedia page on currency:

Quote

...The advantages of paper currency were numerous: it reduced the need to transport gold and silver, which was risky; it facilitated loans of gold or silver at interest, since the underlying specie (gold or silver) never left the possession of the lender until someone else redeemed the note; ...

Wikipedia page on paper money:

Quote

... banks sought to ensure that they could always pay customers in coins when they presented banknotes for payment. This practice of "backing" notes with something of substance is the basis for the history of central banks backing their currencies in gold or silver. ...

I mean, geez, why are we still talking about this?

It is important to define the goal before you talk about the methods.

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Quote from: porc on December 18, 2013, 01:40:22 PM

Why do you guys have such difficulty with the term backing? As I said: The goal of backing is to ensure, that the media of exchange will retain its purchasing power. There is nothing more to discuss, unless you hold the opinion, that the goal of backing is something different.

I don't think many people dispute that the goal of laws against adultery is to protect the sanctity of marriage. However, a sensible discussion about laws against adultery would likely look very different form a sensible discussion about protecting the sanctity of marriage.

Cryddit

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Sigh. Yes, the goal of backing is to ensure that currency maintains some minimum amount of purchasing power.

But that isn't the definition of it.

The Method of backing a currency, or the means of achieving that goal, is what is meant.

Wikipedia page on currency:

Quote

...The advantages of paper currency were numerous: it reduced the need to transport gold and silver, which was risky; it facilitated loans of gold or silver at interest, since the underlying specie (gold or silver) never left the possession of the lender until someone else redeemed the note; ...

Wikipedia page on paper money:

Quote

... banks sought to ensure that they could always pay customers in coins when they presented banknotes for payment. This practice of "backing" notes with something of substance is the basis for the history of central banks backing their currencies in gold or silver. ...

I mean, geez, why are we still talking about this?

porc

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Quote from: Nancarrow on December 18, 2013, 09:20:05 AM

Quote from: Cryddit on December 17, 2013, 07:08:43 PM

No, that's pretty much the dictionary definition.

Aaaaaaand here we cut to the heart of the matter - or at least, the fundamental reason I made the OP.
If there IS a dictionary definition, please provide a link.
If there isn't, please don't imply that there IS.

(Wouldn't it be ironic, not only to invent a meaning of 'backing' for this thread, but also to invent a new meaning for 'dictionary definition'? Shocked

)

Why do you guys have such difficulty with the term backing? As I said: The goal of backing is to ensure, that the media of exchange will retain its purchasing power. There is nothing more to discuss, unless you hold the opinion, that the goal of backing is something different.

gooki

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The paper currency part I get. It's just paper (although backed by enforced tax collection of each country), but in the case of gold it think of the tangible uses for gold, as in electronics and other things (jewelry?). That sort of makes a thing useful in a deeper sense. This is what I understand as backing. I don't know, I'm just throwing this out there.

Nancarrow

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So now I've gone to all the trouble of formulating my google query a bit more sensibly ("backing definition" - doh!), I get:

http://www.thefreedictionary.com/backing

It seems here one could use the GENERAL meaning (1) or the more specific ECONOMICS meaning (6). Of course we should be using the latter:

"the support in gold or precious metals for a country's issue of money in notes".

I don't like it because then we have to say "support how exactly?", but at least with that definition we can absolutely say that Bitcoin has NO such backing (and neither of course has fiat money for some time).

Nancarrow

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Quote from: Cryddit on December 17, 2013, 07:08:43 PM

No, that's pretty much the dictionary definition.

Aaaaaaand here we cut to the heart of the matter - or at least, the fundamental reason I made the OP.
If there IS a dictionary definition, please provide a link.
If there isn't, please don't imply that there IS.

(Wouldn't it be ironic, not only to invent a meaning of 'backing' for this thread, but also to invent a new meaning for 'dictionary definition'? Shocked

)

deisik

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Quote from: Erdogan on December 17, 2013, 08:20:52 PM

Quote from: deisik on December 17, 2013, 05:47:32 PM

Quote from: Erdogan on December 17, 2013, 05:15:45 PM

Quote from: deisik on December 17, 2013, 04:02:33 PM

Quote from: Erdogan on December 17, 2013, 03:45:04 PM

Yes subjective. Both types of value is subjective. That is why everyone should decide what they want for themselves in the market, and what they are willing to sacrifice to achieve it. If you already have some of that what you want, that will change your values, also your total situation, and not least, your personal preferences. If you like fresh vegetables, you might want to trade some of your time in a job, to somebody who wants the work done, in stead of growing the vegetables yourself. Nobody has the knowledge, nor the right, to decide for others. This is why voluntary action is best: more freedom (by definition), and more wealth for everybody.

If so, do you agree that we could say that gold value is backed by its inherent objective properties through an individual's subjective valuation of them? If you don't like the word "backed" used here, what is, in your opinion, the best term describing the sustenance of value by objective properties?

Backed is a broad word, but in the realm of money it means that there is some entity that is willing and able to exchange the backed money for a specified amount of something else. So gold is unbacked. I prefer to use direct use value. That value is not dependent of what others think (well if you want it, because others think it is pretty, but not yourself, that is in the fringe). Also in the realm of money, intrinsic value is the same as value for direct use, but that word has the same definition problem, because it is used for other things. By the way, I can not think of anything that have absolutely no direct use value, absolutely in the mathematical sense, after someone has selected it and brought it to the market.

Gold is unbacked, bitcoin is unbacked. In history there has been gold-backed banknotes. We have Casascius coins, but that is really the bitcoins itself hidden inside the coin. I think it is inevitable that bitcoin-backed notes will appear in the market, and I welcome it. Bitcoin would be excellent for backing.

If it remains for an individual to decide what property should be considered as valuable (subjective valuation), therefore any subjective value would necessarily be direct use value (as you said before in respect to gold prettiness). If so, then, say, bitcoin security should by logical necessity be considered as direct use value too since there are many people who value bitcoin security high, right?

No, all value is subjective, but some things have an exchange value component in addition to use value, and some things have only exchange value (fiat and bitcoin).

As I said, most things have at least a miniscule use value, for bitcoin (I am talking of the actual bitcoins) that could be the bragging value that the first miners might see in their otherwise valueless coins. The system itself, not the actual coins but the totality of the system, the invention, the miners, the fact that the system can transform the society, is of course extremely valueable, but it is difficult to decide exactly how much. You could try to say that the bitcoin system is more valuable than the gold money system, or the fiat system, or some other system, like the internet or the sea transport system or the judicial system or the police force. But we are concerned with what is the value of one dollar, one ounce of gold or one bitcoin. That is the units of the money systems.

I can't accept your reasoning as convincing. We started with some abstract property of gold being purely subjective (i.e. prettiness to the eye) which you called its direct use, and now you turn to saying that we are concerned with what is the value of one dollar, one ounce of gold or one bitcoin. Then you say that the system itself, not the actual coins, is extremely valuable, but can't I say absolutely the same about gold, i.e. gold "system" being highly valuable for its properties, not actual coins? And now you implicitly suppose (not pronouncing it since it would sound too false) that security, anonymity and whatnot of actual bitcoins can't be direct use value for their owners. I am using you logic here, and nothing beyond it, and you suddenly stop using it in respect to bitcoins...

How come really?

Topic: "Backing" - what does this actually MEAN? (Read 8576 times)