Topic: Inflation and Deflation of Price and Money Supply - page 47. (Read 1424849 times)

I think I understand perfectly well what you are saying, I even think I know where it comes from, and I'm trying to explain you that it is essentially a useless and confusing idea, and the only way to make it not even wrong is by undoing the concept you are trying to use from its basic meaning.


No, I'm rather the one saying that cars are a means of transportation.  You are saying something of the kind like "cars are friendship" or something, and you base your argument for that on the fact that in some cases, people use cars to go and see friends.
When it is pointed out to you that cars are not always used in the name of friendship, you start re-defining the concept of friendship.  And when asked how it comes that cars are used in bank robberies and how friendship can explain police cars running after cars with criminals in and so on, you start saying that sometimes policemen abuse of the concept of friendship.

My conclusion of that is that the statement "cars are friendship" is at best a useless concept to explain cars, most probably a wrong statement if one wants to keep the essential aspects of the definition of "friendship" and has no explanatory power to understand the behavior of cars in all its aspects.  While the statement "cars are a means of transport" can do that much better.


I know that that is the basic idea on which you base the statement "money is debt".  Like "tonight I'm going to see my friends with my car".

There's no point in repeating that there's no debt because nobody feels obliged I guess.

You see money as a kind of ticket "good for a loaf of bread".  The point is that a ticket "good for a loaf of bread" is a liability, and the one issuing it is supposed to make you a loaf of bread.   He's not going to give you that loaf of bread because he wants to get hold of the ticket, but because he needs to honor his liability when issuing the ticket, and will destroy the ticket upon receipt.
On the other hand, nobody is feeling obliged to do something against a dollar bill, and is certainly not going to destroy the bill after having "earned" it.

On the other hand, if you see a dollar bill as a token people desire to have, then all these behaviors become quite clear.  People are willing to do stuff because they desire to hold dollar bills.  They desire to hold dollar bills, because they hope/think/know/speculate that other people will also desire to hold dollar bills, and will, as such, also be willing to do stuff in order to obtain then.  Nobody's feeling guilty or liable.  Just greedy.  Much clearer.

Money is a commodity because every unit is interchangeable with any other unit of the same type. Gold can be money because every coin is interchangeable with every other coin of the same type of size/weight.


When you say "money is what people accept as money" you are right, but beg the question "what does people accept as money?"
Individuals could accept anything as money one time, but what will they continue, in the long run, to accept as money?
What is the fitness function of money?
What people will accept as money in the long run is what have the best features to be money.

Being debt and relying on a third party is not a good feature for any form of money.
Fiat money have some features making up for this problem, albeit not completely.



In fact, fiat money could not exist without being linked to something from the start.
Fiat money, initially, was linked to gold and/or silver.
When the link was removed (after the possibility to return to gold and silver coins was removed too) people had some past experience of the value of fiat money (E.G. how much 1 $ bill could buy). So it continued to work. Every other fiat currency created is always linked to something else at the time of its creation (E.G. the € was linked to a fixed exchange rate with the previous national currencies).

Any counterfactual example of a fiat currency established without any link to a previous currency or form of money?

You keep responding with words that suggest that you've read what I wrote about abstracting away the specific who and what, but your brain appears to be winning what must be a mighty struggle to prevent itself from understanding the concept.

You also keep inexplicably imagining that I'm calling your theory wrong, when I'm not.  If someone says that car are transportation, do you also create endless, pointless paragraphs explaining how cars can't be transportation because you can prove that cars are assets?  Do you have equations showing how the price of cars vary with the demand to store transportation?

If you trade something for an IOU for one loaf of bread, you'll (maybe) get one loaf of bread back later.  If you get an IOU for "One dollar's worth of value", you'll (maybe) get "One dollar's worth of value" back later, whatever that is.

You may notice that an IOU for a purely abstract value functions, in practice, exactly like an asset.  You trade it for however much wealth you can get for it, from whoever you can find that wants it.

Inflation is caused by people abusing privileged positions that allows them to game the system by creating new IOUs without doing anything to earn them.  Deflation is caused by human progress (I think I explained this in detail earlier in the thread).  Neither really needs a theory of "what money is" to explain.  What makes you think otherwise?

In what way can the theory "money is a debt" explain inflation and deflation ?

You would think that if I sold you a loaf of bread today, and the money I receive is "a debt of society towards me good for a loaf of bread which I'll be able to claim", that there would be fixed way to tell me how that claim can be executed later.
Trivially, I would then think that my claim is good for a loaf of bread.  Why is my claim then 10 years later worth maybe only half a loaf of bread while economy has grown ?

In what way is the "debt society has towards me for a loaf of bread for 10 years" then only worth half a loaf ?

The theory "money is a speculative asset" can explain that very well (essentially through debasement which alters the meetingpoint between demand and offer, with rising offer).

Absolutely not, and this is an essential point in understanding monetary value.  There is no handwaving in the demand for store of value.

People find it hugely practical to use intermediate exchange: it allows you not only to split the barter trade into two steps (if I want eggs for apples, I do not have to find a single partner who is simultaneously interested in apples, and willing to offer eggs, but I can find a first partner interested in apples, and another partner interested in offering eggs) which reduces a N-square problem into an N-problem (N being the number of different kinds of commodities and services traded).  But it allows for two additional aspects:
1) the trade can be separated in time *without having to resort to an explicit debt* (which is what you still call "a debt" I start to figure).
2) very important: I don't have to decide already right away what I will be wanting in the future.  I can delay my choice for the second part of the trade to later.

These practical advantages of indirect trade make that people are having a DEMAND for storage of value, once the notion exists, and an asset allows one to do so (once money exists, in other ways).  That demand didn't exist before, but like i-phones, there was no demand for i-phones as long as they didn't exist.

That extra demand for the commodity that became money makes that the price of the commodity rises.  THAT is that premium value of money: the demand for storage of value.  

There's no more handwaving in that than in the demand for i-phones once they exist.  

The commodity working as an intermediate asset has a NEW USAGE, and that new usage goes with a new demand, and that demand engenders a price (especially against "sound money" where there is no or very small offer).

It is exactly what you find in the monetary formula:

P x Q = M x V when you re-write T as 1/V and B (the value of the monetary asset) as 1/P:

B = Q x T / M

The price of the monetary asset is determined by "the value one wants to store" (Q - the stuff one wants to buy) and "the time one wants to store that value" (T, the harmonic average holding time), divided by the amount of monetary assets that are in circulation.

In other words: the demand for storage of value is nothing else but Q x T: the amount of value one wants to store, and the time one wants to store it.  That demand has to be satisfied with a finite amount of circulating monetary assets M.

I don't see what is so handwaving about that.  It is crystal-clear.

Now, I can see what you will say: you will say that this is a "debt" Q over a time T.   The point is: it is a GAMBLE.  The *demand* for storage in a monetary asset is not related to what *really* be bought with it, but with what the demander THINKS he will be able to buy with it.

If it turns out that his money will not be accepted anymore next year, but he doesn't know this right away, and he still *speculates* onto the idea that people are going to be *willing* to accept his money, then he bases his DEMAND for money right now on that idea.  
So that money now is going to be in demand, and will have a certain price right now, if those wanting the money speculate on being able to exchange it for goods in the future.

The demand is hence based upon the *desire to store value* and not on the actual value they will obtain when they will finally exchange it.

The important point is that the "price of money" is depending on this demand for store of value (in that particular monetary asset).  That demand will vary according to the mood of people, and also according to the kind of monetary asset that is mostly "in" (that is, what people speculate that others will still want to accept, and at what price, later when they will want to get the value back).
As such, the value stored in a monetary asset is normally fluctuating.  One day there may be a high demand for money, and money will be worth a lot ; the next day, there may be a much lower demand for that kind of money, and it may become almost worthless.
In a fiat system, this is mainly stabilized, essentially by imposing monetary monopoly (merchants are obliged to accept that type of money against their goods and services), and by introducing feedback mechanisms with the central bank, buffering the money offer against the money demand.

In a "sound money" system with open competition between monetary assets, one can expect much higher volatility in the value of money, especially if the competition is very open between different kinds of money. 

Very well said.

In my opinion you perfectly illustrate the difficulty and the strange ways of thinking one has to go through to try to see money "as debt" ; while it is in fact such a simple notion if you just consider it as "an asset you essentially or solely acquire with the idea of trading it again later against something else".

One could add something.  What you describe here is the Menger view on the emergence of a monetary asset: it has to start out as a "normal useful commodity", but is then adopted as an intermediate good (and that's exactly what money is: a generally accepted intermediate asset).

This makes the final value mostly resulting from the demand for store of value, and has not much to do anymore with the initial market value of the commodity which was determined by its use as a normal commodity.  

But this allows in principle also to have money that has no initial use value.  Menger couldn't consider how such a non-existing commodity could become money through the process you described.  But once there are other monetary assets (which arrose probably in the way Menger, and you, decribed), such "value-less" commodities can just as well serve as store of value, and take over part or whole of the market of "demand for store of value".
This is what allows "value-less" assets such as fiat money or bitcoins to become money too, in principle.

Probably they cannot arise from scratch, and have to "eat" into the market of an existing "valued commodity money" first: like fiat did with gold.

I've been sitting out because reading dinofelis attempt to repeat himself to victory is extremely boring.  But ZephramC is asking a question based on flawed assumptions, and I feel it is worth addressing.  His scenario only makes sense under the extremely literal view espoused by (among others) dinofelis.  ZephramC, if you are less committed to this view than dinofelis is, I hope that this adds to your understanding:

In my view, once the peanuts start being used as money, they behave in a very debt-like manner.*  Before money, barter is the exchange of wealth for wealth.  Once money shows up, the same barter transaction is virtualized in time and space.  One party gives wealth in exchange for a token that they expect to be able to redeem for wealth later.  When they actually get around to redeeming it, the barter is completed.

One key to this system is the value of the money.  In this hypothetical, peanuts-used-as-money are much more valuable than peanuts-used-as-food.  This is a general result throughout history, by the way.  If you don't see the peanut as a token representing a claim on wealth** you have to resort to silly handwaving to explain this premium in value.  (Note that I said "explain", not "name".)

I'm not saying that all money is literal representations of debt, though some such representations can be (and are) used as money.  And I'm not saying that money isn't an asset.  I'm saying that the moneyness of money is the expectation that it can be traded for wealth, and that the essence of debt is that expectation on the holder's part, rather than the specificity on the borrower's part.

At the platonic ideal of money, people are just swapping abstract IOUs around.

Not that it matters, but what you describe in 1) could not possibly work without debt.  I don't believe it is possible for more than one couple/family to live together without some notion of debt.  Way back in history, debt existed long before money was invented, and money was actually invented not to facilitate trade, but to normalize debt.

* Yes, dinofelis, I'm aware that you disagree.  I don't care, and I certainly don't need you to repeat your narrow definition.

** Not a specific claim to a specific thing from a specific person, but a claim still.

OK. Let's try different angle. Imagine this situation:
0.) We have an island with small community (~30 people). There is no money, there are no debts.
1.) People exchange things for things,  services for things, services for services ... maybe even such abstract concepts like "personal free time", "respect", "friendship", "self-confidence", "conscience" are exchanged one for other. ... This is (generalized) barter system.
2.) Someone finds good and tasty peanuts in small isolated (unexplored, unclaimed, difficult to access) place within the island. Peanuts are nutritious and tasty, therefore they are useful, they are beneficial. No debt was needed to create them or bring them to people.
3.) Most of the people (not all of them, not always, not immediately) start to accept the peanuts as means of exchange. So they accept them not because they want to eat them, but because they believe that someone in the future will also accept them.

Now... If you say that all money is debt or that creation of money requires debt then you either:
- do not consider above-mentioned peanuts as money
- can not imagine system in step 1) working without debts
- believe that there have to be (political) system that guarantees and enforces (at least partial) acceptance of peanuts and call peoples responsibility and duty to abide such claims as "being in debt".

Am I right?

I don't know what you mean by "human symbolic system".  Maybe you can give a clear definition of that notion.  

If you just mean that it is generally accepted, then what I define as money is just as good: that is the speculative aspect of money.


But I'm not talking at all about "inner value" and in that respect I also think the Austrians (*) were too restrictive.  Assets which have no intrinsic (that is, usage) value can be money, such as fiat, or bitcoin.  The monetary aspect of an asset has nothing to do with its intrinsic value.  If you would have read my posts here, you would know that I say that too.

But I've given sufficient examples that indicate that the monetary aspect of an asset is separate from its eventual debt aspect, and the case of doing the dishes and the girlfriend was a perfect illustration of that.



Here, you are arguing that money mustn't be assets that have any intrinsic value.  But I agree with that.  In fact, it even goes AGAINST "money is debt", because debt has an intrinsic value, namely the goods and services due, which are clearly defined.

Which is obviously historically wrong, as several kinds of money have existed (cows, shells, gold....) which were not debt, and as base money is not debt in several cases.


Which is quite obvious, and has nothing to do with money or economics.


As long as your arguments do not make logical sense, and your definitions are not clearly stated, and your starting hypotheses are not clearly stated using the first two elements, your arguments are not going to make much impression on me.
As I think I have a quite clear view on what is money, a view which doesn't seem to pose any particular problem, the only way to influence my view is to confront me with an argument that makes logical sense.  Until now it doesn't seem to be.

You state that the implication "money is debt implies that all money is debt" is nonsense, why it is a tautology.  You give yourself examples of (base) money that is not debt while maintaining that all money is debt.  And you seem not to want to define clearly what you understand under the word "debt" as different from the concept of "property". 
You seem to use as argument against "not all money is debt" a statement that proves that not all debt is money, which has no logical relationship to the former statement.

So I'm at loss trying to find any argumentation in your posts that stands any test of logic.

Again: debt can be money in some circumstances.  I do not deny this.  But I maintain that money is is an asset (which can be a debt certificate).  And what makes that asset "money" has nothing particularly to do with the concept of debt, for two reasons:

- not all debt is money
- not all money is debt.

Nor did I.  But you seemed to argue against it with your phrase:
"E.g. you write "the claim "money is debt" implies that every kind of money must be debt" -> pure nonsense. Only debt that is accepted as money is money."


The second phrase "Only debt that is accepted as money is money." only makes sense as a counter argument if the statement "all debt is money" would have been made, which I never made (nor did you I think).

The first phrase "money is debt" LOGICALLY means "all money is debt" which is obviously wrong.

Now if not all money is debt (and not all money is), then debt and money are separate notions.

I fully agree that debt proofs are assets which in some cases can become money.  
But there are also assets which are, or have been, money, and which are not debt.

And we have gone in a circle.

I have never said (or meant) all debt is money. I mean all money is debt and debt is necessary for money to exist. All I can see is that you do not understand me, because you keep drawing me some simple models of logic which you believe I fail to pass. Problem is that your indoctrination does not allow you to read what I am saying. I keep saying to you I was at the same situation so I undrstand your point when I am going back in time (I would like to tell back in time when I was total idiot, but it would be offensive for you, but I really feel ashamed how stupid and arrogant I was the 15+ yrs ago, while I was telling the same things you tell me now to few patient people who maybe commited suicide from desperation

Yes, debts in some cases, can become money. And if money has to emerge in human symbolic system, debt must happen always first. The debt is necessary condition. The sufficent condition when debt becomes money is that any debt is widely accepted (this is why BTC is nt money yet).

The whole fiat money is in a way much more right than a system with precious metals for example, because it confuses people like you. Money has nothing to do with inner value. Money is just a symol that emerges from debt and mutual trust that debt will be paid off.

People have such nature that they need to create from mental symbols some real, concrete, materialistic symbols. This is why gold was good. But fiat money were proof that such symbol is notnecessary. Even when goverments were really fucking up monetary system, because the temptation for them is too high, we can easily see that the most successful economies of last decades were on full fiat. Yes, professional conspirators and Hayek will say, that the economies were the best in spite of the monetary system. I do not buy that. Fiat money was evolution in right way away from golden standard etc, because the concrete symbol is not necessary and economy pays for it too much.

You can take it as analogy of some believers in God or philosophy. If they fall into temptation to create something which symbolises the God or philosophyin this world, they can be well building churches whole their life and they do not have time to live. Other groups of people, who do not need such material symbols, can use resources in other way. This is an analogy that should be used.

Almost all economists are materialists rough as Marx. But human perception of reality is more complex. We impose symbolic values on things and one of the symbols is symbol of money, which are used to pay off the debts. Gold is just a gold, like iron is iron, sulphur is sulphur and salt is salt. Until we decide from some reason in very lengthy process that we all can observe with BTC now, that something (that can not be couterfeited) is money. But that "thing" is just a gunsmoke. It is not real even when there is some gold or whatever.

By the time Mises was born, there was unregulated supply of money at least in UK and US. Based on precious metal standards banks were emitting money. Was it a gold? No way. It were notes like we know until now, only there was some promise that those notes are backed by gold etc. Were all the money circulating by that era backed by the gold? No way. It was the same "ponzi scheme" as by now. Money were created by debt and money was the debt and promise, that for every note there will be some golden bullion. But it was not true even 150 yrs ago. Banks were creating loans based on economic cycles. Everyone was told he can go to bank and get his golden nugget for the notes, but only small fraction was covered. And it was not needed of course, because almost nobody went to the bank.

What came after golden standard was evolution, where even monetary base was freed from the golden nonsense. Even the core does not need to be materialised and it can be trust in government or now trust in algo. But it has nothing to do with money, which need the debt to exist, so the money as symbol, has some justification to exist as well. If there is no economy, if there is no inter-time exchange, there is no need for money and money does not exist. Golden bullion is there useless and Satoshi is autistic idiot instead of genius.

Everyone hates Keynes and every austrian follower thinks that Keynes was retarded, because what he said and did to money was obvious nonsense. I was sure in late teens and early 20's about it. Keynes was brilliant because he saw more than economists; he really understood human behavior with all mistakes we do and can not help ourselves. Bretton-Wood was huge step forward. Bitcoin will be next step to even higher degree of virtualisation of the symbol of debt, while the money will have even better technical qualities than fiat money (which still were great invention).

It is a strange statement to refuse quite a clear concept and definition of something, with the desire to mystify it somehow.
I have no problems with the concept of money, it has nothing mysterious about it, and the austrian inspired view on it is quite crystal clear and simple.  It can explain all aspects of money without difficulty.  That is not an huge claim: money is actually a rather simple concept.
When you try to interpret it in the wrong way, such as "money is debt" many things become obscure and you have to redefine concepts in order even to make the strange claims one comes then about even to make sense.  
You could just as well mystify something else, by saying something like "wood is food", and then go off on a tangent to try to keep that strange statement somehow meaningful.

No: if you take it that money is a speculative asset that is highly universally tradable, then you have your concept of money.  It can explain all economic properties of it without problems (the demand and offer, with its price setting, the fact that prices change and all that).  It doesn't mean that you can make good predictions, because of human action, which influences demand and offer in potentially untracable ways - like all demand and offer.  But there's no mystery left.

Proofs of debt are also assets, and in some cases, they can also become money.  The whole fiat system is based upon that kind of assets to make up money.  But gold for instance, isn't such an asset.  The claim "money is debt" (which is the kind of asset making up money in the fiat system) would be equivalently silly in the following: "money is metal".

If on top of that one confuses inclusion and equivalence, one would then argue that money is not metal because iron is not money :-)

This has nothing to do with money, economics, or Austrians.

This has to do with logic. 

If you write: humans are mammals, that statement means: all humans are mammals.  It would be sufficient to find one human being that is actually a bird, to prove the statement "humans are mammals" wrong.  This is not pure nonsense but pure logic.

Also you make another error.   When it is said that "money is debt"  it never implies that all debt is money.  Indeed "humans are mammals" doesn't  imply that all mammals are humans.

Logically, there is an equivalent between the following sets:

A)
humans, mammals, males
the statement "humans are males" (no, there are females too)
the statement "males are humans" (no, there are male monkeys which are not humans)
the statement "humans are mammals" (yes)

B)
money, assets, debt
the statement "money is debt" (no, there is money which is not debt)
the statement "debt is money" (no, there is debt which is not accepted as money)
the statement "money are assets" (yes)

If logic is failing at such elementary level discussion is going to be difficult.

Part of my family is from Austria, I studied economy at Austrian border. I read Austrians, I am well aware what you are telling to me and you pointed that out: Austrian school is full of weird freaks as the other schools.

It is totally one sided point of view on economy or money. If you were socialist, I would maybe take some parts of austrians to argue against you, but you have chosen another flag and you want to die for it. E.g. you write "the claim "money is debt" implies that every kind of money must be debt" -> pure nonsense. Only debt that is accepted as money is money. And in our economy all money aggregates above mB (->m1, m2, m3...), which are indeed debt, are accepted as money. Nothing changes with the fact that nobody knows what exactly the money is and how they behave.

Money is - above all - the symbol. If something can act as money, it becomes money.

From psychoanalytical point of view I take your notion of money as projection of your deep wish to win a battle over the ontological uncertainity. I understand that fear, because money and whole symbolic universe is something fascinating a causes fear. When I was in early 20's I was big fan of Austrians as well of course. I saw solution to every question, world finally made sense etc. Then this illusion started to crumble. I did not listen until then, so I know you will not as well.

I'm indeed mostly a follower of the Austrian School.  But I follow a school because a reasoning is sound, not as a religion.

The point is that you are exactly giving the argument that I use to show that money is not debt (but that debt is a form of money).
You seem to agree that what you call "base money" is NOT debt but a commodity.  That is sufficient to prove that money is not debt, given that there exists money that is not debt.
(the claim "money is debt" implies that every kind of money must be debt.  It is sufficient to find one counter example to that, to prove the claimn wrong, and you give it yourself).

However, and I underlined this: proofs of debt are also assets that can act as money.  It is true that the fiat system is largely, or almost solely, based upon such kinds of assets as monetary assets.  But their "money" function doesn't come from their "debt" type of asset.

I explained all this in this thread if you'd mind to read.

The point is that it is not the debt aspect that makes something money.  That's all.

You don't get far with that degree here.

I am aware of your point 2. With no central bank, with no government insurance of deposits, banks will be held in check by the market, and debt creation will be lower. How low - nobody knows.

The problem is not inherently the fiat money, but the central banks, mainly the fed, the deposit insurance, the spoils to the cronies and to the public.

Jesus f***** Christ.

Here it seems everyone is doing his own definitions. I have MA in macroeconomics btw. No, money is NOT commodity. Money is what people accept as money, period.

What you are talking about is monetary base and you have some false assumptions about it as well. If everything what you write was true, fiat money would never existed, yet they exist based on thin air.

So far BTC monetary base = BTC protocurrency [that is not yet currency]. In future, as Bitcoin will be more and more accepted it will look and behave more like fiat money, with some exceptions:

1. Monetary base would not be falsified, because it is impossible

2. The money that will be indeed created by debt again, will not be affected by central banks, but they will be issued by private Bitcoin banks and supply and demand of those "debt" money will determine the price of BTC. Of course there will be much more BTC than the 21 M in future, because it will be those debt money.

Guys, even when you hate recent currency system, you should really read something about it, before you comment about it.

Money, real money, is a commodity. A good like others. Not debt. Even bitcoins are a commodity, just a different type of commodity from gold or salt.
What made gold and silver a better form of money than salt or furs is a set of specific intrinsic properties (not value): divisibility, fungibility, high value/weight value/volume ratio, durability, etc.
Currencies are SUBSTITUTES of real money. Currencies are debt, because they are created linked to a fixed/specific debt: 1 $ bill is convertible at any time for 1 $ gold coin.
Then, when the convertibility was eliminated (defaulting on the previous obligations), bills started to be created creating new debts: I give you some collateral valued X and you give me X bills and I give you back X+interests some time later. But the privilege of creating money is monopolized by a single entity called Central Bank. Any other entity doing the same is called forger.

The value of the bills is strictly linked to the restrain the Central bank have in printing new bills (and preventing other forgers from printing imitations).
In this way, the Central Bank is able to move wealth around giving the news debt/credit to selected friendly entities (other banks and governments) at low cost where the others can only obtain credit at high cost or can not at all.

Bitcoin is not credit or debt, when you exchange bitcoin for goods or services, you receive the bitcoins and the other party receive the goods or services. The exchange end there. There are no other obligations for both of you or other third parties. The expectation of the other party to be able, in the future, to exchange his bitcoins for other goods and services he want is not a debt or a credit of anyone. A motor car industry can have expectation to sell his goods in the future in exchange for a specific sum of $, but the public is not bound by this expectation.