I like the next fool theory. You should trademark that.
Topic: Were the Keynesians wrong? - page 3. (Read 5582 times)
“[T]he ‘next fool’ hypothesis” (dinofelis) does not account for the use of money between particular trading partners. (E.g., two “market participants” could utilize a money with each other exclusively.)
Yes but the only ultimate demand is the legal requirement to pay taxes. Imagine a casino town where all the citizens just use casino chips to buy stuff because they know some there is always demand for these casino chips. But if on the federal level the tax agency doesn't accept casino chips, they'd be forced to convert to the federal money. Private money does exist but they rarely become the standard
Absolutely. Taxes required in a certain asset is a strong incentive to create a demand for that asset as a monetary item, and hence to "kick in the monetary speculation cycle" for that asset as a monetary item (that is, to turn something into money).
After all, something is money because there is an "infinite Ponzi scheme" behind it:
you accept it in exchange for something of value, because you think that Joe will accept it in exchange for something of value because you think that Joe thinks that Bill wil accept it in exchange for something of value because you think that Joe thinks that Bill thinks that Jack will....
It is the "next fool" hypothesis (a real bubble or a Ponzi is based on a "greater fool" hypothesis). In contrast to the "greater fool" hypothesis of which you end up running out of, the next fool hypothesis is indefinitely sustainable. That's money.
Taxes are a strong way to make you believe that Joe, Bill and Jack will accept it, because you know they have an ENFORCED demand for it.
However, I'm not sure that taxes are the sole generator of demand for money. After all, once the cycle is kicked in, the monetary usage is started, and unless a "better" kind of money comes along, I don't see why people should stop use it as money.
There is namely also the opposite. The state collects taxes to be able to obtain (unless it is a very dictatorial state and can force you into slavery) stuff from people for the state to enjoy (after all, the state is for a part just the state to be able to profit from people's production). Now, in as much as people would value their casino chips much more than the state issued fiat, you could imagine that the state cannot obtain much *value* for its collected taxes. It depends how taxes are collected.
Imagine that the tax rate is 1/3. That is, you (and everybody else) owe 1/3 of your value production to the state as a form of taxes. You have to pay them into state money. All the rest, you prefer to buy with chips - especially foreign stuff where people don't accept state money.
In principle, you could then trade stuff that is paid 1/3 in state money, and 2/3 in casino chips.
Now, if the state wants to BUY stuff at your place, you may require the state to pay you in casino chips for 2/3, otherwise you don't do the deal with the state. But the state doesn't have any casino chips !
So the state is obliged to exchange state money for casino chips. It has to exchange 2/3 of the collected taxes into casino chips (so only 1/2 of the original collected taxes go directly into buying stuff for the state to enjoy). Otherwise it cannot buy your production (you refuse).
So in the end, the circulation of state money will carry 1/3 of the economic value, and the casino chips, the 2/3.
That would be the normal issue if the sole demand for state money is to satisfy the obliged tax paying duty in state money: the state money would then ONLY be used to pay taxes, and can then ONLY carry the value that is taken by taxes.
I don't know why they didn't use paper at the time. Probably because printing presses weren't invented till a much later time. No you misunderstand, I didn't say coinage gave value to gold. I said coinage transformed gold from commodity to money. Coinage allowed gold to evolve from a bartering commodity to become a money commodity. But money existed before coinage. Both commodity money (grains) and credit money (IOUs)
Money gets its monetary value by the demand for it for monetary usage. It can already have other value for consumption usage or for capital usage, but if it is also used as a monetary asset, there's an extra demand for it, and hence extra price.
Yes but the only ultimate demand is the legal requirement to pay taxes. Imagine a casino town where all the citizens just use casino chips to buy stuff because they know some there is always demand for these casino chips. But if on the federal level the tax agency doesn't accept casino chips, they'd be forced to convert to the federal money. Private money does exist but they rarely become the standard
I don't know why they didn't use paper at the time. Probably because printing presses weren't invented till a much later time. No you misunderstand, I didn't say coinage gave value to gold. I said coinage transformed gold from commodity to money. Coinage allowed gold to evolve from a bartering commodity to become a money commodity. But money existed before coinage. Both commodity money (grains) and credit money (IOUs)
I think we are just having a discussion about semantics, about exactly what we assign the word "money" to.
To me, money is an asset (not necessarily a commodity - it can be an abstract asset), with the particular property that you mainly want the asset, and use the asset, to exchange it against things, and that you are not interested in the asset for its consumption usage or its capital (production) usage. Anything you hence want to acquire with the sole or main purpose to exchange it again later against something else, is to me a monetary asset.
It is, in other words, a "store of value", in the short term (you do something for Joe and you get it, and you want to buy groceries with it tomorrow), or in the long term (you buy houses with the sole idea of selling them later when you retire: houses are money then).
Money gets its monetary value by the demand for it for monetary usage. It can already have other value for consumption usage or for capital usage, but if it is also used as a monetary asset, there's an extra demand for it, and hence extra price.
State-issued assets can also have this monetary function. If of course you only consider the state-issued coins as "money" then you mustn't be surprised to find that money is state-issued.
On the other hand, debt is in my book not "money". Debt is a contract, an agreement, of which the debtor is obliged to honor it. If there is no obligation and precision, I don't call it a debt. Money is by definition not an agreement, but it is a speculation on the behavior of others in the future. If it is an agreement, then it is not money, by definition. However, IOUs by themselves are of course also assets that can have a monetary usage. But not because they are debt assets.
But that's a matter of definition. If you call IOU's which have no strict obligation, debt (so that they are in fact speculative items such as money), and if you call strict obligations which are debt, money, then of course we can confuse the discussion enough so as to equal them.
But as I said, I'll buy Graeber's book and give it a read if I have time.
No that has nothing to do with debt and I never claimed it did. My argument is this; if first gold was only accessible to the rich and kings. Then coinage came later when the king needed something to pay his armies. In order for the farmers to accept the soldiers gold coins as payment, the king could just demand taxes in gold coins. So it follows that the state didn't choose gold coins because there was already a market there. The state created a market by issuing gold coins and demanding taxes be paid with the same coin
Now then my question to you: why would the state make its own life difficult, and issue a fiat money with a hard-to-obtain metal of which its own supply was limited ? Why not just issue copper coins ? Or paper banknotes ? (like now ?)
Because if gold didn't have any mercantile value except for a few jewel makers and if gold wasn't seen as something with a monetary function at all, why go through the hassle to make golden coins and limit yourself in your abilities to issue them ?
If the value of the fiat money came from the tax collection, then ANY fiat would have been good enough. Papyrus "banknotes" would do. Why would they use gold and silver and make their own way of doing difficult ? And why was gold and silver used by so many states ?
After all, if it was just a matter of issuing a state-specific token which gets value from tax collection, how could it turn out that:
- most if not all states chose gold and silver ?
- most if not all coined pieces of money had an AMOUNT OF GOLD OR SILVER that corresponded to their value ?
- the exchange rates of coins between different coins is determined by their alloy composition ? (in other words, the value carriers are the metals themselves, and not the stamps).
No, the theory that fiat money was issued first, got its value from tax collection, and that kings happened to have gold lying around, and decided to make their fiat money out of gold, and that it was THIS that started giving value to gold seems to me untenable.
I don't know why they didn't use paper at the time. Probably because printing presses weren't invented till a much later time. No you misunderstand, I didn't say coinage gave value to gold. I said coinage transformed gold from commodity to money. Coinage allowed gold to evolve from a bartering commodity to become a money commodity. But money existed before coinage. Both commodity money (grains) and credit money (IOUs)
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https://en.wikipedia.org/wiki/History_of_money
Anatolian obsidian as a raw material for stone-age tools was distributed as early as 12,000 B.C., with organized trade occurring in the 9th millennium.(Cauvin;Chataigner 1998)[10] In Sardinia, one of the four main sites for sourcing the material deposits of obsidian within the Mediterranean, trade in this was replaced in the 3rd millennium by trade in copper and silver.[11][12][13][14]
As early as 9000 BC both grain and cattle were used as money or as barter (Davies) (the first grain remains found, considered to be evidence of pre-agricultural practice date to 17,000 BC).[15][16][17] The importance of grain with respect to the value of money is inherent in language where the term for a small quantity of gold was "grain of gold".[18][19]
Anatolian obsidian as a raw material for stone-age tools was distributed as early as 12,000 B.C., with organized trade occurring in the 9th millennium.(Cauvin;Chataigner 1998)[10] In Sardinia, one of the four main sites for sourcing the material deposits of obsidian within the Mediterranean, trade in this was replaced in the 3rd millennium by trade in copper and silver.[11][12][13][14]
As early as 9000 BC both grain and cattle were used as money or as barter (Davies) (the first grain remains found, considered to be evidence of pre-agricultural practice date to 17,000 BC).[15][16][17] The importance of grain with respect to the value of money is inherent in language where the term for a small quantity of gold was "grain of gold".[18][19]
No that has nothing to do with debt and I never claimed it did. My argument is this; if first gold was only accessible to the rich and kings. Then coinage came later when the king needed something to pay his armies. In order for the farmers to accept the soldiers gold coins as payment, the king could just demand taxes in gold coins. So it follows that the state didn't choose gold coins because there was already a market there. The state created a market by issuing gold coins and demanding taxes be paid with the same coin
Now then my question to you: why would the state make its own life difficult, and issue a fiat money with a hard-to-obtain metal of which its own supply was limited ? Why not just issue copper coins ? Or paper banknotes ? (like now ?)
Because if gold didn't have any mercantile value except for a few jewel makers and if gold wasn't seen as something with a monetary function at all, why go through the hassle to make golden coins and limit yourself in your abilities to issue them ?
If the value of the fiat money came from the tax collection, then ANY fiat would have been good enough. Papyrus "banknotes" would do. Why would they use gold and silver and make their own way of doing difficult ? And why was gold and silver used by so many states ?
After all, if it was just a matter of issuing a state-specific token which gets value from tax collection, how could it turn out that:
- most if not all states chose gold and silver ?
- most if not all coined pieces of money had an AMOUNT OF GOLD OR SILVER that corresponded to their value ?
- the exchange rates of coins between different coins is determined by their alloy composition ? (in other words, the value carriers are the metals themselves, and not the stamps).
No, the theory that fiat money was issued first, got its value from tax collection, and that kings happened to have gold lying around, and decided to make their fiat money out of gold, and that it was THIS that started giving value to gold seems to me untenable.
Standard economic vision does NOT claim (on the contrary) that money came before barter. On the contrary. Standard economic vision makes precious goods with a monetary function emerge FROM barter.
Of course debt is also very old.
Of course debt is also very old.
Graeber is saying there is no archeological record of this. The record says the evolution is credit > money > barter
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As you say, in your quote: money emerges essentially in international trade, because there, honouring debt cannot be enforced, trust is absent and you need to have something you expect to be of value.
The Egyptians already used gold bars in the same way as the Sumerians used silver bars for international trade. *that* is a monetary function that has nothing to do with IOU or with debt. We are 3000 years BC here.
The Egyptians already used gold bars in the same way as the Sumerians used silver bars for international trade. *that* is a monetary function that has nothing to do with IOU or with debt. We are 3000 years BC here.
No that has nothing to do with debt and I never claimed it did. My argument is this; if first gold was only accessible to the rich and kings. Then coinage came later when the king needed something to pay his armies. In order for the farmers to accept the soldiers gold coins as payment, the king could just demand taxes in gold coins. So it follows that the state didn't choose gold coins because there was already a market there. The state created a market by issuing gold coins and demanding taxes be paid with the same coin
Standard economic vision does NOT claim (on the contrary) that money came before barter. On the contrary. Standard economic vision makes precious goods with a monetary function emerge FROM barter.
Of course debt is also very old.
In fact, debt and money are *two different ways* to trade indirectly over time and to "get the balance right".
The fundamental problem is this:
In the interaction between agents A, B and C, A does something for B at time t0 with the idea of getting something back from agent C at time t1. In order to get this right, B will have to do something for C at time t2.
It is the principle of indirect trade in its most elementary form.
The simplest way of doing that is with trust. That's what you get in close social circles (within a family, say).
If trust isn't that high, you need a more formal way to do so. The most obvious system is with debt:
When A does something for B at time t0, B gives an IOU(B) to A. The IOU(B) is a token, or a written piece of paper, where B *engages himself* to do something against the token. If A wants C to do something for him at time t1, he could write an IOU(A) and give it to C, but he can also negociate with C that he gives him his IOU(B) instead. Now C can require from B to do whatever B engaged himself to.
Nothing stops you from "standardising" these IOU(X) tokens: if the IOU(B) consisted in "I owe you 10 amphora of wine" and the standard is "one bag of grain" then nothing stops B from issuing an "equivalent" IOU(B) in 50 bags of grain. These tokens are DEBT ASSETS.
The point is that they are FORCIBLY exchangeable against whatever the debt is. If you hold an IOU(B) for 50 bags of grain, then B has no choice but to give 50 bags of grain against the IOU(B), which he can then destroy. You have to trust B that he will honor his engagement when he took on the debt.
If there is still less trust, then you go for money. Money is any asset of which you EXPECT (speculate) that others will be WILLING to exchange stuff against. That asset must hence be a very tradable asset that many people want. This desire can come initially from something that has important use (such as food), or something that is trusted to be an intermediate medium of exchange.
In this case, when A does something for B, he TRADES it against another asset of which he speculates that C will want it too. A does something for B, and B gives an amount of monetary asset to A. A can forget B now, and whether B is trustworthy or not, doesn't matter: A now possesses something of which he thinks that *C* will value it. Whatever B does, now.
When A goes to C, he can PERHAPS obtain that C does something for him, against this monetary asset, simply because C now believes he will get stuff from B (or from anyone else). A makes a bet that C will accept it, and C makes a bet that B will accept it.
This is money.
As you say, in your quote: money emerges essentially in international trade, because there, honouring debt cannot be enforced, trust is absent and you need to have something you expect to be of value.
The Egyptians already used gold bars in the same way as the Sumerians used silver bars for international trade. *that* is a monetary function that has nothing to do with IOU or with debt. We are 3000 years BC here.
Money is used when tight social bands are absent (such as in a family or a tribe) where everybody works according to social rules, for one another, and when trust or enforcement of trust is absent to be able to count on the honouring of debt.
Of course debt is also very old.
In fact, debt and money are *two different ways* to trade indirectly over time and to "get the balance right".
The fundamental problem is this:
In the interaction between agents A, B and C, A does something for B at time t0 with the idea of getting something back from agent C at time t1. In order to get this right, B will have to do something for C at time t2.
It is the principle of indirect trade in its most elementary form.
The simplest way of doing that is with trust. That's what you get in close social circles (within a family, say).
If trust isn't that high, you need a more formal way to do so. The most obvious system is with debt:
When A does something for B at time t0, B gives an IOU(B) to A. The IOU(B) is a token, or a written piece of paper, where B *engages himself* to do something against the token. If A wants C to do something for him at time t1, he could write an IOU(A) and give it to C, but he can also negociate with C that he gives him his IOU(B) instead. Now C can require from B to do whatever B engaged himself to.
Nothing stops you from "standardising" these IOU(X) tokens: if the IOU(B) consisted in "I owe you 10 amphora of wine" and the standard is "one bag of grain" then nothing stops B from issuing an "equivalent" IOU(B) in 50 bags of grain. These tokens are DEBT ASSETS.
The point is that they are FORCIBLY exchangeable against whatever the debt is. If you hold an IOU(B) for 50 bags of grain, then B has no choice but to give 50 bags of grain against the IOU(B), which he can then destroy. You have to trust B that he will honor his engagement when he took on the debt.
If there is still less trust, then you go for money. Money is any asset of which you EXPECT (speculate) that others will be WILLING to exchange stuff against. That asset must hence be a very tradable asset that many people want. This desire can come initially from something that has important use (such as food), or something that is trusted to be an intermediate medium of exchange.
In this case, when A does something for B, he TRADES it against another asset of which he speculates that C will want it too. A does something for B, and B gives an amount of monetary asset to A. A can forget B now, and whether B is trustworthy or not, doesn't matter: A now possesses something of which he thinks that *C* will value it. Whatever B does, now.
When A goes to C, he can PERHAPS obtain that C does something for him, against this monetary asset, simply because C now believes he will get stuff from B (or from anyone else). A makes a bet that C will accept it, and C makes a bet that B will accept it.
This is money.
As you say, in your quote: money emerges essentially in international trade, because there, honouring debt cannot be enforced, trust is absent and you need to have something you expect to be of value.
The Egyptians already used gold bars in the same way as the Sumerians used silver bars for international trade. *that* is a monetary function that has nothing to do with IOU or with debt. We are 3000 years BC here.
Money is used when tight social bands are absent (such as in a family or a tribe) where everybody works according to social rules, for one another, and when trust or enforcement of trust is absent to be able to count on the honouring of debt.
Because this historical vision is the standard vision in economy. So even if you put von Mises and Hayek on doubt, even Keynes, who is all in for state control and state money and so on, acknowledges this vision, it is a proof that this is not the product of an "emotional mind". It is standard economic theory.
What vision is that?
Its known that credit money systems existed first, then coinage began roughly between 500-600 BC. Before that all the precious metals were collected in temples and only held by the rich and royalty. Its not known why they stared to produce coins. Prior to this the gold was only used for international trade in the form of ingots.
But it happened during the Axial Age so an explanation is that when the "Great Civilizations" sent their armies out to conquer and loot new territories they gave coins to their soldiers to they can buy food on their campaigns. Then they loot and plunder and bring home slaves and precious metals to the king so he can mint the into coins and pay for more soldiers.
So
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https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years
Graeber lays out the historical development of the idea of debt starting from the first recorded debt systems, in the Sumer civilization around 3500 BC. In this early form of borrowing and lending, farmers would often become so mired in debt that their children would be forced into debt peonage. Kings periodically canceled all debts. In ancient Israel, the resulting amnesty came to be known as the Law of Jubilee.
The author claims that debt and credit historically appeared before money, which itself appeared before barter. This is the opposite of the narrative given in standard economics texts dating back to Adam Smith. To support this, he cites numerous historical, ethnographic and archaeological studies. He also claims that the standard economics texts cite no evidence for suggesting that money came before barter, credit and debt, and he has seen no credible reports suggesting such.
The primary theme of the book is that excessive popular indebtedness has sometimes led to unrest, insurrection, and revolt.
He argues that credit systems originally developed as means of account long before the advent of coinage, which appeared around 600 BC. Credit can still be seen operating in non-monetary economies. Barter, on the other hand, seems primarily to have been used for limited exchanges between different societies that had infrequent contact and often were in a context of ritualized warfare.
Graeber suggests that economic life originally related to social currencies. These were closely related to routine non-market interactions within a community. This created an "everyday communism" based on mutual expectations and responsibilities among individuals. This type of economy is contrasted with exchange based on formal equality and reciprocity (but not necessarily leading to market relations) and hierarchy. The hierarchies in turn tended to institutionalize inequalities in customs and castes.
The great Axial Age civilizations (800–200 BC) began to use coins to quantify the economic values of portions of what Graeber calls "human economies". Graeber says these civilizations held a radically different conception of debt and social relations. These were based on the radical incalculability of human life and the constant creation and recreation of social bonds through gifts, marriages, and general sociability. The author postulates the growth of a "military–coinage–slave complex" around this time. These were enforced by mercenary armies that looted cities and cut human beings from their social context to work as slaves in Greece, Rome, and elsewhere. The extreme violence of the period marked by the rise of great empires in China, India, and the Mediterranean was, in this way, connected with the advent of large-scale slavery and the use of coins to pay soldiers. This was combined with obligations to pay taxes in currency: The obligation to pay taxes with money required people to engage in monetary transactions, often with very disadvantageous terms of trade. This typically increased debt and slavery.
At this time, great religions also spread, and the general questions of philosophical inquiry emerged on world history. These included discussions of debt and its relation to ethics (e.g., Plato's Republic).
When the great empires in Rome and India collapsed, the resulting checkerboard of small kingdoms and republics saw the gradual decline in standing armies and cities. This included the creation of hierarchical caste systems, the retreat of gold and silver to the temples and the abolition of slavery. Although hard currency was no longer used in everyday life, its use as a unit of account and credit continued in medieval Europe. Graeber insists that people in the Middle Ages in Europe continued to use the concept of money, even thought they no longer had the physical symbols. This contradicts the popular claims of economists that the Middle Ages saw the economy "revert to barter". During the Middle Ages more sophisticated financial instruments appeared. These included promissory notes and paper money (in China, where the empire managed to survive the collapse observed elsewhere), letters of credit, and cheques (in the Islamic world).[2]
Im not saying money and debt are the same thing. I'm saying that money system arose out of credit systems. Economies only need a ledger to keep track of what anyone owes to anyone else. Early societies operated on gift economies. Barter was something that happened with outside tribes akin to international trade.
But within the tribe they could just remember who owed who something using a ledger like system. If tribes got too big to keep track of IOUs then token money would be the technological breakthrough. When there were rulers/ kings, the king collected taxes so whatever the medium the taxes were that's what's people used as money.
But within the tribe they could just remember who owed who something using a ledger like system. If tribes got too big to keep track of IOUs then token money would be the technological breakthrough. When there were rulers/ kings, the king collected taxes so whatever the medium the taxes were that's what's people used as money.
I know that that is a vision. It is as old as John Law's vision in the 17th-18th century. It is the erroneous view of "stable money". Every century, there is an economist independently "discovering" that idea. Keynes was one of them up to a point, but Keynes is actually much less stupid than the neo-Keynesians and also made a lot of sense.
You are perfectly right that IOU is the way to work together in *tight social cercles* and then *money is not necessary*. Money is necessary when the other is an unknown, indirect trade is wanted, and the other and his tribe is essentially untrusted.
You must not confuse the state (the king) wanting to exercise control, and the state (the king) wanting to invent something.
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I agree that in the past gold solved the problem of international trade because there was a global market for gold. So holding gold you could always find a buyer somewhere.
Exactly. And when you were holding gold, not to use it as a consumption good, or as a capital good, but for the sheer reason to trade it for something else, *by definition* gold got a monetary function AND the demand for gold (and hence its price) was higher than the demand for gold for usage. That EXTRA price is exactly its "money" price. Things can get value because they are in demand for indirect trade. THAT value is their monetary value. Monetary value comes from the demand to hold (for a while) an asset for the sole reason to trade it again against something else. Whether there are competing demands for usage is in fact not necessary (but it makes it easier to kick in the speculative cycle).
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Keynes is wrong in that quote about kings put their faces on coin for vanity. Perhaps it's part of the reason but not the primary one. The main reason is so people knew it came from the Kings mint. However, Keynes was no gold bug. Quite the opposite. I really don't know why you posted that quote from Keynes
Because this historical vision is the standard vision in economy. So even if you put von Mises and Hayek on doubt, even Keynes, who is all in for state control and state money and so on, acknowledges this vision, it is a proof that this is not the product of an "emotional mind". It is standard economic theory.
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I don't even remember what your argument is. You think money needs to be commodity to work? Or do you think that economies don't run on credit?
The nice thing about threads in a forum is that you can scroll back :-)
The simple reason is they used metals because it had the properties they needed. But the money aspect came from the Kings issuance so he can collect taxes. Kings use gold for coins so gold became a valuable commodity.
I guess this is why paper is expensive these days :-)
Taxes were very often collected not as money, but as commodities. 1/10 of the harvest and things like that.
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Keynes is wrong about this one.
Keynes was wrong, von Mises was wrong, Hayek was wrong, Rothbard was wrong, but one contested book writer is of course right :-)
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Before money existed people used credit. Then they used tokens. Coins just happen to be a shiny metal token. Just read Graebers book on 5000 years of debt.
You have to understand that debt and money are two different concepts. Thinking they are the same is a fundamental error in reasoning.
The fact that debt existed (which is most probably right, I have never studied that, but it sounds perfectly reasonable) is no proof that money rose from debt.
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Your understanding is based on outdated knowledge. It came from economists making assumptions without empirical evidence. Graeber is an anthropologist and his theories come from archeological records not assumptions
Sure :-)
But OK, if I have time I will give it a read.
The point is however, that in "international" trade, the concept of "IOU" doesn't mean much. IOU is perfect in tight social circles. Social control balances informal IOU. But if you come with a ship full of amphora of wine for more than 1000 miles, you don't care about any IOU from the guy buying the wine. You'll maybe never see him or his countrymen again. You want something in return that is also accepted by people that have nothing to do with the countrymen of the wine merchant. So his country, his king, his state, you don't care about. You want something of value independent of that king and country, that you can trade for something in *your* country. An IOU from a distant king and country, your fellow countrymen don't care about !
Im not saying money and debt are the same thing. I'm saying that money system arose out of credit systems. Economies only need a ledger to keep track of what anyone owes to anyone else. Early societies operated on gift economies. Barter was something that happened with outside tribes akin to international trade.
But within the tribe they could just remember who owed who something using a ledger like system. If tribes got too big to keep track of IOUs then token money would be the technological breakthrough. When there were rulers/ kings, the king collected taxes so whatever the medium the taxes were that's what's people used as money.
I agree that in the past gold solved the problem of international trade because there was a global market for gold. So holding gold you could always find a buyer somewhere.
Keynes is wrong in that quote about kings put their faces on coin for vanity. Perhaps it's part of the reason but not the primary one. The main reason is so people knew it came from the Kings mint. However, Keynes was no gold bug. Quite the opposite. I really don't know why you posted that quote from Keynes
I don't even remember what your argument is. You think money needs to be commodity to work? Or do you think that economies don't run on credit?
The simple reason is they used metals because it had the properties they needed. But the money aspect came from the Kings issuance so he can collect taxes. Kings use gold for coins so gold became a valuable commodity.
I guess this is why paper is expensive these days :-)
Taxes were very often collected not as money, but as commodities. 1/10 of the harvest and things like that.
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Keynes is wrong about this one.
Keynes was wrong, von Mises was wrong, Hayek was wrong, Rothbard was wrong, but one contested book writer is of course right :-)
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Before money existed people used credit. Then they used tokens. Coins just happen to be a shiny metal token. Just read Graebers book on 5000 years of debt.
You have to understand that debt and money are two different concepts. Thinking they are the same is a fundamental error in reasoning.
The fact that debt existed (which is most probably right, I have never studied that, but it sounds perfectly reasonable) is no proof that money rose from debt.
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Your understanding is based on outdated knowledge. It came from economists making assumptions without empirical evidence. Graeber is an anthropologist and his theories come from archeological records not assumptions
Sure :-)
But OK, if I have time I will give it a read.
The point is however, that in "international" trade, the concept of "IOU" doesn't mean much. IOU is perfect in tight social circles. Social control balances informal IOU. But if you come with a ship full of amphora of wine for more than 1000 miles, you don't care about any IOU from the guy buying the wine. You'll maybe never see him or his countrymen again. You want something in return that is also accepted by people that have nothing to do with the countrymen of the wine merchant. So his country, his king, his state, you don't care about. You want something of value independent of that king and country, that you can trade for something in *your* country. An IOU from a distant king and country, your fellow countrymen don't care about !
Nothing you wrote supports the argument opposing the charts list view of money. Furthermore, your arguments are childish and emotional so it's not worth my time to debate you.
That's a way of saying that you've lost the argument I guess :-)
What I've shown you is some examples where states *used* the fact that precious metals were generally seen as value-carriers to base their state-decreed money on. There were two simple ways to do that:
- make coins of the precious metal, of which the denomination corresponded in fact to the amount of metal (such as the Joachimsthaler, and the Spanish dollar). The state stamp then simply certified the veracity of the amount and kind of metal.
- give out paper bills that are exchangeable for the precious metal (or at least are decreed to be potentially exchangeable).
MOST of the monetary history consists of *this* kind of state money. As such, the state doesn't "impose value by authority" but *uses* market-determined value to base its state-based money on.
My argument was simple and straight-forward: if it were true that money got its value *solely* from the authority of the state (which is your statement) then no state would have gone through the difficulty of issuing money which is based upon precious metals. They could have issued money by printing paper. But historically, that didn't happen. I was going to write, that never happened, but I'm in fact not sure that it didn't happen anywhere.
It is true that *today* fiat money is exactly that. But fiat money usually (again, I was going to write always, but there may be exceptions) started out as precious-metal backed money and derived its value from the precious metal value that was of course solely given by the market. It is after a century of "scam" that fiat lost his link to precious metals. In many cases, the states intervened to FORBID other money. The USA went as far as to forbid the holding of monetary gold !
But be careful to what I'm saying: I'm talking about the *historical* path, the one you claimed was mostly or always state-authority based.
I'm NOT saying that money HAS TO BE precious-metal based. It doesn't have to. State authority CAN introduce pure fiat money. Only, I'm not aware of any fiat money that was historically issued that way (historically is "more than a century ago"). I'm not excluding that there were examples. But all examples I know of, have an initial link to precious metals.
In fact, state money can indeed be issued, and can have value. The state simply has to guarantee scarcity of the money. Then it can, or cannot, be adopted by the market. If moreover, the state makes laws that make it difficult or illegal to use free market money, such as precious metals, this can kick in the speculative cycle which turns an asset into money.
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Many commodities or materials have been used as money such as rice, stones, shells, etc. The common link is that the state decreed these things to be money not the market. Money has always been a credit system.
I think you should get your historical facts right before claiming such statements.
BTW, here's an interesting piece of the Great Keynes himself about money:
http://encyclopedia-of-money.blogspot.fr/2012/10/phoenician-weight-standard.html
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John Maynard Keynes, the most famous economist of the twentieth century, observed in his Treatise on Money that coinage seemed to hold no charm for some of the societies of the ancient world, and held out the following suggestion:
The stamping of pieces of metal with a trade mark was just a piece of local vanity, patriotism, or advertisement with no far-reaching importance. It is a practice which has never caught on in some important commercial areas…. The Semitic races, whose instincts are keenest for the essential qualities of money, have never paid much attention to the deceptive signatures of mints, which content the financial amateurs of the North, and have cared only for the touch and weight of the metal. It was not necessary, therefore, that talents or shekels should be minted.
The stamping of pieces of metal with a trade mark was just a piece of local vanity, patriotism, or advertisement with no far-reaching importance. It is a practice which has never caught on in some important commercial areas…. The Semitic races, whose instincts are keenest for the essential qualities of money, have never paid much attention to the deceptive signatures of mints, which content the financial amateurs of the North, and have cared only for the touch and weight of the metal. It was not necessary, therefore, that talents or shekels should be minted.
Like I said money, comes from the authority of the state not the metal used to make coins. There's only been brief periods in History like the Free Banking Period where we had wide spread use of private money. Most of the time money has been a creature of law
Money doesn't come from the authority of the state, but the state wants to limit the use of money on its territory to the legally allowed tender in order to be able to control and profit from it (mainly through seigniorage).
The authority of the state was "used" some times to "certify" the metallic contents of the coins (as were some *private* certifications like the Joachimsthaler). It turns out that states often scammed people with fake certifications, while private certifications were usually more trustworthy.
The best proof of the error in your proposition is that most state fiat money has been (fakely because the states scam people) backed by metallic amounts for a long time. If it were true that it was the state's authority that was solely sufficient to give value to state-controlled money, then non-backed fiat money would have been the norm. After all, the state's authority wouldn't need any backing-up by any metallic or whatever commodity according to your claims. Pieces of paper with a stamp from the state would do.
It took more than a century to get loose from metal-backed fiat money (and from the moment it did, fiat money plummeted in value like a stone).
Fiat money has been possible because of a century-long scam, where people were made to believe that they were *actually* handling a state-certified amount of metal with the fiat. When the habit of not handling the physical value carrier which was the metal was so generalized, and people got used to pay with pieces of state-stamped paper (believing it was worth metal), only then the state scam of fiat money could be carried through.
So much for "state authority gives value".
The historical dollar was the Spanish dollar which was nothing else but a calibrated piece of silver, to be identical to the very trustworthy Joachimsthaler pieces of silver:
http://en.wikipedia.org/wiki/Spanish_dollar
The first US dollar was supposed to be a state-issued equivalent of the Spanish piece of silver.
http://en.wikipedia.org/wiki/History_of_the_United_States_dollar
The continental currency, which was an attempt at "fiat" which was not backed but "declared equivalent" to a piece of silver (which is by itself ridiculous) failed miserably.
The US money was saved for a while with the Contract Clause, allowing only gold and silver as legal tender.
http://en.wikipedia.org/wiki/Contract_Clause
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No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
I could go on...
Most inflation nowadays happens because it's easier to raise prices than it is to lower wages. These higher prices, in turn, prompt workers to demand higher wages, which in turn causes firms to increase their prices, and you get the idea. Yes, the value of money goes down by 2% each year, but as long as wages and business grow faster than that, no one gives a damn about it. And governments figure that letting this happen is easier than trying to put a lid on prices and wages.
Oh, and there actually were inflationary currencies in ancient times. Go look up what happened to Roman coins over time.
Oh, and there actually were inflationary currencies in ancient times. Go look up what happened to Roman coins over time.
von Mises? Hahaha. Is that a joke? Nobody in economics takes him seriously
It's not about his "authority", but about his arguments.
I guess that Nobel Prize Hayek is also not taken seriously then ?
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So is sterling pound. So what? What does that prove? That Silver was used for coins once? You think you can walk into a shop in London back the old days and pay with a silver dollar? The money aspect doesn't come from the metal it comes from the authority of the issuer
Of course gold and silver was used as money !
The "authority" you talk about was just a certification of the amount and purity of the coins.
http://www.jmbullion.com/guide/history/
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From 1785 until 1861, in the relatively early years of the country, the US based their financial structure on currency that utilized gold and silver. Instead of the paper that is used today, coins made of pure gold and silver were traded in the free market. If it was not for financial crises in 1857, it is more than likely that this system would have endured for much longer than it did.
Executive Order 6102 is a case that many mistake as being the Gold Standard itself. In 1933, Franklin D. Roosevelt enacted Executive Order 6102, which stated that citizens were not to own their own stock piles of monetary gold. All gold was to be turned into the government, with the owners receiving $20.67 per ounce in compensation. The primary outcome of this event was a sharp increase in the price of gold, as it would rise to $35 per ounce shortly thereafter.
Executive Order 6102 is a case that many mistake as being the Gold Standard itself. In 1933, Franklin D. Roosevelt enacted Executive Order 6102, which stated that citizens were not to own their own stock piles of monetary gold. All gold was to be turned into the government, with the owners receiving $20.67 per ounce in compensation. The primary outcome of this event was a sharp increase in the price of gold, as it would rise to $35 per ounce shortly thereafter.
Like I said money, comes from the authority of the state not the metal used to make coins. There's only been brief periods in History like the Free Banking Period where we had wide spread use of private money. Most of the time money has been a creature of law
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