If hyperinflation happened, what good what being able to pay taxes do? I don’t understand this preoccupation with taxation at all.
Gold has some intrinsic value characteristics and some other characteristics – separate from those that give it intrinsic value – that make it useful for being used as money. Look at it as a historical accident that gold went through these two phases. This was merely the story of how gold became money. It’s not the story of why gold was useful for money. Paper money superseded gold because it satisfied the requirements of money even more than gold did.
Yes.
Gold became used as currency in spite of its intrinsic value, not because of it. Except insofar as through beating out gold for jewelery people found out that it could also be beaten out into coins.
I’m not sure which came first: gold currency or gold jewelery. But I do know that money that has value outside of what it can buy is inferior to money that is worthless otherwise.
I’m saying that your first point is true but completely irrelevant. Everything that has ever been used at any time in history by anyone in any culture was sort [sic] after because of what you call its intrinsic properties. Gold is merely one of the millions of physical instruments of barter. It has no special value or meaning for this.
Your second point is also true, at least until the last sentence, but what the rest of us are saying is that the acceptance of gold as a fungible token for barter is fundamentally identical to the acceptance of credit money as a fungible token for barter. This is the basis for modern economic theory. It is what puts the goldbugs into the category of crackpot fringe science.
Why do people accept paper money? For exactly the same reasons they accepted gold. And silver. And jewels. And food. And sheep. And, even at times, people. This is not circular reasoning. It is the identical process played out over and over again in history.
Wrong.
Gold rose to be accepted as money through a process of natural feedback loops within a market.
Imagine a theoretical primitive marketplace with 1000 traders, where only bartering exists (just like the real first marketplaces). The only people in this market who are trying to acquire gold want it only for its intrinsic properties (just like the real first marketplaces). Let’s imagine the number of people wanting gold for its intrinsic properties only (which is everyone who wants gold) is some segment of the market, say 50 out of the 1000. One of these particular merchants is selling goats, and will only take gold as payment (he wants the gold for himself, not for trading with). What will happen when the apple merchant attempts to buy a goat? He’ll get told, “Sorry, I only accept gold”. What now happens in this market place? You guessed it, you now have 50 people wanting to acquire gold for its intrinsic value +1 person wanting to acquire it merely as a means of trade (a positive feedback loop). What happens when the apple merchant gets approached by someone wanting apples? He’ll tell the person “I’ll accept gold as payment”. Now what happens? You have 50 people looking to acquire gold for its intrinsic value, +2 people wanting to acquire it for its trading value.
Well, guess where this ends up? Yep, as was observed with virtually every single marketplace in the history of civilisation, one commodity rises to the top to be accepted as a common money - history has taught us that this strange quirk occurred in almost every organised marketplace, a quirk repeated in markets all over the world, right through history. In most places it was gold or silver, in a few places it was salt and grain. In all places, it was a durable commodity that retains proportionate value when divided in to smaller and smaller portions.
This is not how commodity-less money came to be accepted by everyone. Commodity-less money did not begin as a commodity sort after for its intrinsic value, and then evolve through a series of positive feedback loops to be accepted by everyone.
But dollars are scarce too! That’s why the U.S. dollar can buy me a candy bar, and the Zimbwabean dollar cannot.
Why is gold scarce? Because, people say, there’s only so much. But we can dig up more----but, they’ll say, 1) that process is limited in volume, and 2) we know how much is being dug up (and if, for example, lots is being mined, gold will get less scarce and less valuable).
But, I point out, the EXACT SAME ARGUMENT applies to dollars. Are they scarce? Yup. Can’t make dollar bills. Can’t pick them up from trees. Have to work hard for them. But, you say, the government can print more–surely, but 1) there are limits on that process too (either the sec. of treas or governor of fed, let’s say), and 2) we’ll all know if they do make more, and then adjust the price of things we buy or sell respectively.
In fact, you could argue that the scarcity (including public knowledge of changes in the supply) and distinctiveness of dollar bills are better than those of gold-- we don’t know how much gold is mined, and I, at least, can’t tell the difference between 95% and 96% pure gold coins.
CalD, respectfully, I cannot understand why, now me being the 5th poster, you can’t accept the reason that’s been repeated over and over again. First of all, it’s not “commodity-less money.” That term doesn’t even really make sense. Early money were backed by promises, too, for services or customized products, a sort of bond/debt exchange, so “commodity-less money” is not apt. The correct term is fiat money. But, in the real world, government fiat actually plays less a role, depending on the circumstances, the most recent being Zimbabwe.
You’re also somewhat wrong about proportional value of durable commodity-backed currency. Usurers (or some form of money changer) charged interest to offset fluctuations in inflation (though, granted, some outside observers would call this making a profit, I call it capitalizing on risk). What’s interesting about this type of currency is that no matter what proportion was used, it could not offset a run on a bank.
At some point in time, after trial and error, and depending on how one looks at it, it goes as far back as the 4th century, fiat money became the norm. Why? Because people believed in it for its transactions. There are other factors, but that is the main one. Technology increases, stability of governments, persistence of trade, etc. are all other factors, but far from the main one.
And of course, the same rationale applies to the argument that dollars are valuable because courts will order you to pay judgments in them–that argument is irrespective of how many dollars a court will order you to pay.
The amount a court will order you to pay will be determined (say, in a contract case where you refused to buy something that had gone down in price), by the market price for the thing you promised to buy (the other guy would get the difference between the price you promised and the price he can sell his thing for now).
so really, enforcability is nice, but it doesn’t say why dollar bills are valuable-a court in zimbabwe would give you billions of their dollar bills if you won a lawsuit-but most people wouldn’t want them, as they’d go down in value before you could get them to the bank–you’d much rather get a judgment paid in grain, or wine, or something else.
Over here, on the other hand, dollar bills are just fine.
Again, the bottom line–if anyone really believes the arguments that dollar bills are worthless, send me all those “worthless” dollar bills. I’ll even pay postage. Dollar bills have value to me because I can go down to the store and buy things with them. That’s the reason–because they’re generally accepted as having value. Circular, maybe, but it is the reason that I have dollars in my wallet today, rather than a sack of grain.
Again this is a misunderstanding.
Barter always flows to the most convenient token. Paper money was issued many times by fiat but never took hold, usually inflating until it became worthless. After the Civil War, however, the industrial economy took hold. In this economy, paper money did become more convenient, because people learned that it would be accepted and that its backing, especially after most banks issuing paper money gave way to the U.S. government, was sufficiently sound to remove worries. This eliminated the risk you keep falsely imputing to paper money, or at least minimized the risk to the same levels as any other backing.
This is exactly the feedback loop you keep harping on. Paper money had to prove its value as a stable currency over time and experience, just as gold and silver did in earlier eras. And the proof of its worth is that all economies have accepted it. If the market considered a gold-backed currency to be superior, countries would adopt it because it would make their paper money stronger. They don’t. Just the opposite. Russia liquidated its gold reserves as recently as the 1990s. Even the Swiss removed gold from backing its franc.
“as was observed with virtually every single marketplace in the history of civilisation, one commodity rises to the top to be accepted as a common money”
Yes. And today that is credit money rather than gold. And for exactly the same reasons. Your own logic supports my case over yours.
The Bretton Woods agreement collapsed around the end of the Great Depression (you can Wiki the specifics yourself). Each country came off the gold standard independently. It should also be noted that each country recovered from the Great Depression in roughly the same order it withdrew from the gold standard.
sigh Why do people set up these elaborate hypotheticals?
Gold has no “intrinsic value”. It produces no energy. You can’t eat it. You can’t wear it as clothing. It doesn’t provide shelter. It’s price must be negotiated with each transaction.
One barrel of oil provides x Joules of energy.
One bushel of grain will feed y cows for z days.
One cow will feed v villagers for d days.
And so on.
It has a value as a currency because of it’s “intrinsic properties”:
A) it’s uncommon (compared to using, say, small pebbles).
B) it’s uniform (can be divided over and over with no change in it’s inherent properties
C) it can’t be duplicated
D) it looks nice
I would suspect that early societies used gold to make jewelry and fancy dinnerware before they used it as coinage. Items made with gold were probably then used as trade (I’ll give you this nice neckless in exchange for that goat) because they were rare and pretty. Eventually people traded the objects more for the gold than the object and soon someone had the idea of just trading bits of gold.
So in other words, there is no property “intrinsic” to gold that gives it a quantifyable value.
So you’re saying that gold has no intrinsic value, but does have intrinsic properties that people found desirable, enough that it came to be used as a currency? That seems like a fine distinction.
And just to play off of this further, again I might argue that dollar bills are better than gold on a) and b) (each are relatively uncommon, but dollar bills give you more notice of new supply). C) is a wash-gold can be alloyed/coins can be messed with, and dollar bills can be counterfeited. Each is hard to do, detectable, and (at least with dollars), hardly worth the cost of setting up.
d), IMHO, doesn’t matter much today. My credit card is ugly.
O/t, yes you can. Gold leaf - Wikipedia
http://www.ediblegold.com/
It’s just not very tasty.
Value can never be intrinsic - it’s a property assigned by people. If you tried to sell gold to someone who happened to prefer silver jewelry, you wouldn’t make the sale because he doesn’t feel gold has value. CalD is wrong when he says gold has intrinsic value because there’s no such thing.
Intrinsic properties of gold are that it has a melting point of 1064 degrees celsius, has a density of 19 grams per cubic centimeter, is extremely malleable and ductile, readily alloys with other metals, conducts electricity, and resists corrosion. These are intrinsic to gold - they aren’t matters of personal opinion that can vary from day to day and person to person.
I’m sorry, but you are not only wrong, but historically ignorant.
You don’t seem to want to understand the simple historical fact that this assumption on which you base your argument on is a mirage. It doesn’t exist. Period.
Maybe you should get one of those Capital One cards you can put pictures of your puppy on?
Because it isn’t the police or military power of a country that backs up its currency. Its value is not enforced. It’s value stems from the fact that other people believe the note will be honored by the issuing bank in the assets of that bank (from the ‘assets’ side of the central bank’s balance sheet).
It’s as if you borrow money from a friend and write out a note for it. He or she can discount the note to a third person, and so on; the eventual holder comes to you on the due date to redeem it. If you pay out per the note, and do this a few more times, then everyone around knows your notes are good, and they can even circulate as currency. We don’t do this in informal lending and borrowing among friends, but that’s what the central bank of a country does when it gives a commercial bank its notes in exchange for a deposit. All the commercial banks know that the FRB will redeem their notes, so they circulate for years among numerous parties before ever being redeemed. They are “payable to the bearer on demand”, but only in terms of other financial assets of equal value. Since modern banknotes have no due date or expiration date, the “promise to pay” language is omitted from the currency of many countries. But it’s still specified by statute.
You’re just reducing the word “intrinsic” to a very literal meaning which has no place in a discussion about matters of economics, where it is understood that we are concerned with what people think rather than the mere physical properties of things. In this context, “intrinsic value” means an attribute of something that people find valuable. Such as looking pretty, or being useful in the manufacture of pretty things.
I have explained what I mean when I say “gold has intrinsic value”, I won’t be repeating it again. EDIT Thank you, Usram.
paperbackwriter -> I suggest you go and educate yourself about how common money first emerged. Here’s a good article to get you started. It talks about all the great things you keep shouting me down on. Positive feedback loops, how money evolved in the world’s first marketplaces, etc.
Not circular reasoning at all - the “intrinsic” value of money is its utility as a medium of exchange, commonly agreed on and accepted by all. That governments instist on taxes being paid to them in their own currency is perhaps merely the method of setting social standard, but it is not necessary. “Scripts” issued by companies have in the past worked, backed by nothing more than the representation of exchange value by said company. (And it is odd to assert intrinsic value in some ancient painting, it is merely a convention, and in a society hostile to painting, it would have no “intrinsic” value at all).
I don’t consider Chris to be much much of an expert source to cite. Some of his other writings on that site, like on jury nullification, is beyond loopy.
And all he has to say on the subject we’ve been talking about, the modern non-commodity-backed credit money, is one sentence:
It’s a true sentence, i.e. it is the next stage in the evolution of money, which is exactly what we’ve all been saying, but without any additional context for it, I wouldn’t cite it one way or another.
Do you have anything serious to say or is Chris’ undergraduate maundlings as far as you can go?