Topic: Real money vs debt, and the value of bitcoin. (Mitchell-Innes credit theory) - page 6. (Read 7088 times)

Not just commodities can be bought and sold, money can be bought and sold too. That's why there's a giant market of currency exchange. You're creating another false dichotomy that money and commodities are always entirely separate things (sometimes they are, but not always). The other false dichotomy is that money and credit are separate things. In reality, its blended together on a spectrum: pure credit/currency on one end, and commodities with no exchange-value on the other.


Its having a future exchange-value based on trust which makes something a currency. Not "future exchange-value based on use", which is a total misuse of the term exchange-value. future exchange-value (the gold) is a separate thing from future use-value (the knife).

But we do agree, having a use-value does not preclude something from also functioning as money. Commodities can have a dual-function as both currency and as commodity (again, in the real world, its a complex blend). The point is that, as a currency, its exchange-value is derived separately from its use-value. The exchange-value comes from the network of trust among people who will accept it as payment, even if have absolutely no intention of using it themselves (just an intention to exchange it again in the future).


No, its ceremonially-precious quality would give it exchange-value (derived from the trust and agreement that it is precious). That is entirely separate from its utility as a cutting tool (its use-value).



Okay, credit/IOUs have value based on trust, that should be obvious (an untrusted IOU is worthless). Money/currency have value based on exchange. And that exchange-value is always in flux, clearly, the price of gold and bitcoin are constantly changing. Changing based on what? Based on the trust that it can be taken to the market and exchanged at x price in the future, in other words, that it can serve as a "good-as-gold" "buyer-owes-u" x in the future. If that trust collapses, the price collapses.

Physical gold is just a token which measures the credit backing by the gold market. So instead of an "i-owe-u" its a "gold-market-owes-u". And obviously a "gold-market-owes-u" is only as valuable as the collective trust in the gold market.

Money does not necessarily (and should not) represent its own exchange value: rather, it necessarily represents the exchange value of all commodities it can buy.

Credit is always risky, since there is always a risk of future. You can promise me to make a $1M house to back the value of your issued $1M money, but what if that house's market price drops to $500K after it is constructed? It means that the value of all your issued money will be cut by half

If merely having an exchange value in the future made anything money, then we could only buy or sell things that lacked future exchange value: otherwise, those things would be the money with which we buy them or for which we sell them, rather than what we buy with money or sell for it. Many things have once represented money, but not only because of their future exchange value (otherwise, almost anything would always be money, leaving us just a few, quite uninteresting things to buy - and serious problems in choosing the money to buy them with).


It was you to say that merely having a future exchange value made anything money.

Still, gold also has a use value independently of being money, as does cattle, silver, and salt. They are also useful "regardless of whether or not I trust you," and even so they can be - as once were - money.


So its metallic utilities would make it useless, then credit, hence money?


It is not a matter of just "presuming" things, but rather of explaining how things are the way we "presumed" them to be: the circularity arises from trying to explain, by using your own argument, how money and credit could be the same.

True, to be more precisely, a paper note or a piece of gold are both used to present the valuable things that back them, e.g. you can always exchange them for such amount of goods. It means, if you have valuable things, you could always issue money of equivalent value

However, you can just write a paper note, while you must work a lot to produce a piece of gold. This is the fundamental difference between paper notes and gold

Overtime, the valuable things that back the paper note/gold will be consumed or depreciated and eventually disappear from the economy. So, those issued money will lose their value, since there is no corresponding valuable thing behind these money now

But this is not true for gold, since the gold itself is a result of work, thus itself contains value

The counter argument is that work does not decide value, supply and demand do. But it is the same, if nothing is backing the paper note and gold, the demand for paper note will be 0 and the demand for gold still exists, as industry material and jewelry(a significant demand in certain countries like India)

And you would be absolutely correct. Otherwise, how can you explain that throughout history, everything from sea-shells to tally sticks to little green pieces paper, have all been able to act as a currency.


No, because the knife actually has a use-value. The knife has use-value regardless of whether or not I trust you, because I can use it to kill and skin animals, etc.. The knife's value (in this scenario) does not derive from our trust relationship whatsoever. So the knife is not credit (in this scenario).

(if it were a ceremonial knife made of precious metal, then we could assume it would have additional exchange value above and beyond its cutting utility, and the scenario would be different).


See, presuming that money and credit are different things gets you into a circular paradox. It is resolved quite elegantly when you realize that money and credit are the very same thing.

(It was me to accept an ounce of gold for half the exchange value of my pair of shoes, but never mind: taking your slightly modified example instead...) If the "only reason" for you to accept my ounce of gold in return for your knife were your trusting me, than you would be just as willing to accept anything else instead. Anything else would be as good as gold: your trust in me would enable me to declare anything as money. Clearly, that trust is not the only reason for you to accept my gold (as you pointed out yourself right after saying this): trust cannot constitute a motivation for you to accept my gold but rather is just a requirement for it.


According to this logic, the prospect of having exchange value in the future would turn anything into credit.

Just like gold, my knife will also have an exchange value in the future. Does that make it credit? Perhaps only money becomes credit just for having an exchange value in the future. Yet if so, then what makes it money? Let us assume it must be credit in order to be money. Then, how can money be the only thing to become credit for having an exchange value in the future (if it must already be credit)?

All this mess vanishes once we remember that credit is merely the promise of repaying someone else's money after some time, so money must already exist in order for credit even to be possible (this requires a whole new level of trust going far beyond not being killed: it requires trusting the borrower to repay the loan).

To simplify, let's also assume that we're the last two people on earth.

The only reason I'm willing to accept an ounce from you, in exchange for my knife, is because I trust that you won't kill me with the knife and take back your shoes. If I thought that you would use the knife to kill me, I would never trade it for gold, and therefore the gold would be worthless (there's nobody else on earth we can use it to trade with).

So let's assume I trust you, first and foremost that you won't kill me. But I also trust that in the future, I can use the gold to haggle with you and trade it for something else you might have. If I didn't expect that I could use it to pay you in the future (say for some of the meat you hunted with your new knife), it would have no value and I would never have accepted it from you as payment for the knife.

So the gold is only credit, and its value is strictly limited by how much we trust each other to use it for trades.

If I have an ounce of gold and a pair of shoes worth two ounces of gold and you have two ounces of gold and a knife worth an ounce of gold, I can give you my pair of shoes while you give me an ounce of gold and your knife. In the end, we still own three ounces of gold each, both in monetary (golden) and commodity form.

How could money (gold) be credit in this example?

tldr: The value of bitcoin comes most directly from trust in exchanges (or trust in the ability to sell bitcoin at a certain price).

What would Mitchell-Innes think? This excerpt from "Debt: the first 5,000 years" by David Graeber, is enlightening: