On Money

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Smack MacDougal's picture
Smack MacDougal
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On Money

Chris claims that U.S. money is "fiat" money, which has value because the U.S. Government decrees that it does.

Yet, what Chris says isn't quite right.

U.S. money is Legal Tender money and thus gets its value not from set decree of price, but rather from force. Simply, everyone who wants to transact in the U.S. and earn income must pay taxes to the U.S. government and anyone who has taxes due must pay them in the Legal Tender money.

The definitive writers on money are William Brough, Henry Dunning MacLeod, and Richard Cantillon. You won't find three greater writers on the subject of money than these men. Brough writes on money. MacLeod and Cantillon write on Money as well as Economics.

Brough is the greatest mind of all-time on the subject of money. MacLeod is the greatest economist of all-time, albeit unknown to many. Cantillon comes in a close second and his one and only book is short!

You can download their works free from Google Books (http://books.google.com).

Here are some of their thoughts paraphrased:

MacLeod:

Money is good only in so far as things of goods exist that holders of money want to buy.

When no goods exist that others want, the money becomes worthless as it loses its power of being titles to wanted goods. 

Things of goods wanted must exist for money to have worth.

Money rests upon the belief that any man will take it in a swap.

Money becomes wealth only where folks will swap for it.

where money from one folk cannot buy swapped things of another folk, money is not wealth.

Money is the highest form of credit.

Credit is an order for money and money is an order for goods.

Money represents debts owned by another and credit given to all for uneven swaps.

Money is a right or title to call for wanted goods from another in any future.

Money shows that a man has given service to his folk without taking from them in return, a sacrifice that shows his trust in others.

Money gets accepted because men believe that money represents the universal merchandise for swaps.

Brough:

Money is a commodity.

Money arises because of fitness for medium of swaps.

Money exchange takes place trhough individuals acting naturally -- separately and independently
each man to his own wants.

Money must render most efficient service.

Money of superior efficiency is money that keeps intrinsic value, has highest degree of steadiness and has swap factor.

Money is a never a thing other than medium of exchange and store of time spent getting it.

False legislation leads to government regulating the value thereof and lessens the efficiency of money.

Debasement arises from the legal tender quality of money only.

Read some quotes from Brough. They'll amaze you.

"...but having adopted one commodity as the measure (the money) for all other commodities, we become accustomed to regard that measure as constant and unvarying in value, and to the common mind it seems to be only the other commodities that rise and fall in price. This being the case, it is obviously of first importance that money should have a steady value, for if it lack this quality, such persons as do not perceive its fluctuations (and they are the great mass of producers) are constantly exposed in their trading to loss of property and to consequent discouragement; the ultimate effect of these fluctuations being to aggregate into few hands an undue proportion of wealth produced."

"Cease to make coin a legal tender at a value which it does not posses intrinsically, and the chance for profit making by "shoving" our bad money on our neighbors will cease also."

"Search history, and it will be found that the people are always the first to protest against a deterioration of the currency, while it is generally the Sovereign or the Government that causes the deterioration either by direct spoliation or by false monetary legislation."

Ray Hewitt's picture
Ray Hewitt
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Re: On Money
Yet, what Chris says isn't quite right.
U.S. money is Legal Tender money and thus gets its value not from set decree of price, but rather from force. Simply, everyone who wants to transact in the U.S. and earn income must pay taxes to the U.S. government and anyone who has taxes due must pay them in the Legal Tender money.
That's what fiat  money is. It's irrelevent whether the value is fixed or floating.
The definitive writers on money are William Brough, Henry Dunning MacLeod, and Richard Cantillon. You won't find three greater writers on the subject of money than these men. Brough writes on money. MacLeod and Cantillon write on Money as well as Economics.
I'd put Mises, Rothbard, Hayek and Hazlitt above the pack. I've never heard of those authors, so I'll reserve my praise. Some quotes are disturbing.
Money becomes wealth only where folks will swap for it.
Money is not wealth; real money is a medium of exchange and a store of value. Wealth is composed of the tools of production and the end product of things that are valued. If money was wealth, the Federal Reserve could make us all wealthy by merely creating a lot of  money and drop it from B-1bombers.
Money represents debts owned by another and credit given to all for uneven swaps.
By creating money out of debt, one runs into the exponential function so ably discussed in Chris's Crash Course.
Money is a commodity.

That is true as long as we realize that fiat money is not commodity based, thus not money in the strict sense of the word.

Debasement arises from the legal tender quality of money only.

Fiat money is the lowest quality form of money for the reason that there is no limit to how much government can create. Inflation is a direct result of debasement.

This being the case, it is obviously of first importance that money should have a steady value, ...

Incorrect. Money should have a steady supply. If the supply is steady, the base commodity becomes more valuable as the market expands. The fluctuations that make calculation so difficult are an effect of debasement - undue expansion of the supply. It is inflation due to debasement that leads to a concentration of wealth and power. Which is why this country has that problem now.

"Search history, and it will be found that the people are always the first to protest against a deterioration of the currency, while it is generally the Sovereign or the Government that causes the deterioration either by direct spoliation or by false monetary legislation."

We can agree there. Chris was right from the beginning.

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srbarbour
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Re: On Money

Here's my thoughts on currency  

[quote]
U.S. money is Legal Tender money and thus gets its value not from set decree of price, but rather from force. Simply, everyone who wants to transact in the U.S. and earn income must pay taxes to the U.S. government and anyone who has taxes due must pay them in the Legal Tender money.[/quote]

No, currency/money gets its value for what it can be traded for.   If it gained its value from legal force, Germany wouldn't have had its hyperinflation problem.   Nor, in recent times, would Zimbabwe.

Treasury Bonds gain their value from the governments ability to use force and collect taxes, however. 

 

 

hewittr

[quote] Money is not wealth; real money is a medium of exchange and a store of value. Wealth is composed of the tools of production and the end product of things that are valued. If money was wealth, the Federal Reserve could make us all wealthy by merely creating a lot of  money and drop it from B-1bombers.[/quote]

Close but not quite.

Currency is a symbolic representation of a incomplete exchange.   The dollar, hence, goes away the moment you buy something from the Fed -- and hence, gets created whenever the Fed buys something.   It can be used as a storage point of value... but, is a horrible tool for it.   It is, however, a convenient one.

You are correct in the separation of wealth.   Wealth is ownership of actual physical things. 

[quote] Incorrect. Money should have a steady supply. If the supply is steady, the base commodity becomes more valuable as the market expands. [/quote] 

I disagree voraciously with this hewittr.  This is essentially the same as saying:  As an economy expands, the asset on which currency is based should be distorted in value as so to create a bubble.

I'd rather say that the ratio of exchange of 'Currency' to 'asset' should remain static.   The exception being were the asset has a permanent loss of value:  e.g. An oil based currency in a post oil world.

[quote]The fluctuations that make calculation so difficult are an effect of debasement - undue expansion of the supply. It is inflation due to debasement that leads to a concentration of wealth and power. Which is why this country has that problem now.[/quote]

...Yes, hewittr, because there was no concentration of wealth and power in pre-currency and early currency worlds...

The concepts of ownership and control have more to do with the concentration of wealth and power than anything else.  I see little way to get away from these however, except in an alternate Utopian world where humans never need labor.

Next revaluation of currency occurs when:

1) The ratio of currency to asset is broken.  

2) When the backing asset itself changes in value.

3) When demand for the currency (as a medium of exchange) increases, or decreases.

Hence, all currencies are subject to revaluation.  Including commodity currencies (though, only through number 2 and 3).

--

Steve 

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Re: On Money
I disagree voraciously with this hewittr.  This is essentially the same as saying:  As an economy expands, the asset on which currency is based should be distorted in value as so to create a bubble.

On the contrary. (general price level = supply of money / goods and productivity) A bubble is a product of an expanding money supply.  When the supply of money is reasonably constant, capital for investment comes from savings and profits. Money gets more valuable as prices go down and the incentive to save is improved - no bubble.

When the supply of money expands, capital comes from debt at the expense of savings. Cheap debt encourages consumption and discourages consumption - bubbles.

...Yes, hewittr, because there was no concentration of wealth and power in pre-currency and early currency worlds... 

I don't see that ever changing, but there are degrees and types of concentration of wealth and power. I have no issue with wealth and power per se when they are acquired honestly. I take issue when they are used to rob from the masses through politics.

Currency is a symbolic representation of a incomplete exchange. The dollar, hence, goes away the moment you buy something from the Fed -- and hence, gets created whenever the Fed buys something.   It can be used as a storage point of value... but, is a horrible tool for it.   It is, however, a convenient one. 

I take "buy something from the Fed" to mean borrow. Under the current system, borrowing increases the money supply. If say everyone could go to their local bank and borrow at zero interest, I could imagine an explosion in spending and a drop in the value of money.

No, currency/money gets its value for what it can be traded for. If it gained its value from legal force, Germany wouldn't have had its hyperinflation problem.   Nor, in recent times, would Zimbabwe. 

That definition confuses value with price. More correctly, as the general price level increases, money loses value. When it loses value, people don't want to save it, the want to spend it, get rid of it - hyperinflaion.

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Re: On Money
[quote=hewittr]
That's what fiat  money is. It's irrelevent whether the value is fixed or floating.

[/quote]


fiat 
1384, from fiat lux "let there be light" in the Book of Genesis, from L. fiat "let it be done" (also used in the opening of M.L. proclamations and commands), third pers. sing. pres. subjunctive of fieri, used as passive of facere "to make, do" (see factitious).

Fiat means by decree. In relation to money, it means VALUE BY DECREE.

The U.S. Dollar is not a value by decree currency since it is paper inexchangeable, that is not exchangeable for another store like gold or platinum.

The U.S. Dollar is Legal Tender money. It's money by force, which you must use to transact and to pay taxes. It's a shame that I must explain this again so soon in a thread.

[quote=hewittr]
I'd put Mises, Rothbard, Hayek and Hazlitt above the pack. I've never heard of those authors, so I'll reserve my praise.

[/quote]

 

Rothbard was a great writer who could express what he called Libertarian Science in superb manner. I have yet to come across a work of Murray's that I find troubling or which I can find disagreement. The man had bulletproof logic.

von Mises seems brilliant, if not muddled with bad writing skills, yet Brough, MacLeod and Cantillon came long before von Mises. Brough wrote in the late 1800s, MacLeod from the 1850s to the 1870s, Cantillon wrote in 1730s but became published in 1755.

And unlike you, I know the works of Rothbard, Mises, Hayek, as well as Brough, MacLeod, Cantillon.

von Mises deserves paise for his Crack Up Boom Theory, which Rothbard tells better. 

The Road To Serfdom by Hayek makes for a worthy read.

Yet others would serve themselves better to read  Anne-Robert-Jacques Turgot and François Quesnay of the Physiocrats.


[quote=hewittr]

Money is not wealth; real money is a medium of exchange and a store of value. Wealth is composed of the tools of production and the end product of things that are valued.

[/quote]

 

 

Wealth is anything that has worth for which someone else shows willingness to swap to get it.

If no one bids on your house, your house has USE but not worth. Houses have worth in the USA only that governments decree a set taxable value on them, which gives the lucky deed holder the right to pay rent to government (property taxes) for its use.

On Money (Again)
------------------------------

Money is the highest form of credit. Credit is another name for debt. 

Money is a commodity like coffee that you had for breakfast, wheat, which is used to make bread, pork bellies, which is used to make bacon, which you might find in a bacon, lettuce and tomato sandwich. Then there are other commodities like frozen orange juice and gold. Though, of course, gold doesn't grow on trees like oranges.

Money is a commodity and nothing more. It's the thing you trade for another thing, say wheat for money. The difference only between wheat and money is that man must depend on the graces of nature to deliver wheat, even with his science of farming, while he can wily print as much money as he thinks he can scam others with until credit relationships break down.

Men swap one commodity for another. Examples would be wheat for corn, oil for steel, good times (admittance into an amusement park) for money.

All swaps must have one commodity exchanged for another. When one thing gets calculated in terms of another, we call this a ratio. The result of the ratio, we call it a value. When we use money as one of the swap commodities, we give another name to the word value -- PRICE.

In the past, men have found that silver and gold serve well as money. Yet money is natural as it is a concept of men and men are natural.

Money systems of the past have been market based and interfered with by governments, especially those where decrees by fiat or debasement have happened. Always, it is the State that does such acts and never private men.


On Chris Martenson
-----------------------------

What Chris says isn't quite right.

Money is not a claim on (human) labor.

Money gives the holder the right to claim the right to own something being sold right now, the next minute, tommorrow, five years from now, as long as there are others who accept such money because they too believe they can swap it for other things in some future.

All things contain mixes of energy, matter, time, and wit.

On Government and Credit
--------------------------------------

Government is the source of problems folks. Government bureaucrats and intervention-seeking lazy producers push for laws, regulation, and interference that causes folks to make mistakes, to decide wrong. This happens more so when Propaganda is thrown into the mix.


Credit built the world folks. Credit is good. It's when credit for bad ideas happens, do circumstances become dire. Always, someone gets paid with money from bad credit bets. 

When bad credit collapses, that excess money must go somewhere and it does. Those winners holding money from collapsed faulty credit bets bid up prices on existing things, things which can become future production.




Ray Hewitt's picture
Ray Hewitt
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Re: On Money
Fiat means by decree. In relation to money, it means VALUE BY DECREE.
Incorrect. It's money by decree. From Encarta: " money decreed by government: money that a government declares to be legal tender although it is not based on or convertible into coin and therefore depends on government decree to determine its value"
The U.S. Dollar is not a value by decree currency since it is paper inexchangeable, that is not exchangeable for another store like gold or platinum.
Sure it is. Government controls the value of the dollar indirectly by regulating the supply.
The U.S. Dollar is Legal Tender money. It's money by force, which you must use to transact and to pay taxes. It's a shame that I must explain this again so soon in a thread.
That's not my argument. I argue that fiat money is an artificial form of money whose supply is subject to the whims of the state. In essence it's a fraudulent form of money.
And unlike you, I know the works of Rothbard, Mises, Hayek, as well as Brough, MacLeod, Cantillon.

Regardless of the author, the theory stands on its own or it doesn't. Judging by the time of your sources, it's a fair guess that their theories are outdated. You may know the works of the Austrians, but I get the sense that you don't understand the improvements over the sources you praise so highly.

Money is a commodity like coffee

Commodity money has a history going back to the Bible. Fiat currencies come and go. In America alone: Continental, Confederate Notes and the Greenback. The dollar is next.

Wealth is anything that has worth for which someone else shows willingness to swap to get it. 

Correct if one assumes barter. Again, money is a medium for exchanging thiings of value - wealth. Money solves the problem of direct exchange through barter. Again, money per se is not a form of wealth. If you were Robinson Crusoe on a deserted island and you see a chest floating to shore, you would be hoping it's tools and not gold.

Money is the highest form of credit. Credit is another name for debt. 

There is a critical difference about whether the credit comes from savings or created out of nothing. Our system of fiat money could alternately be described as credit money. The concept of credit money was not understood during Victorian days.

Government is the source of problems folks.

One cannot separate the problem of fiat money with the problem of its beneficiary: government.

When bad credit collapses, that excess money must go somewhere and it does. 

??? That is true when money is based on a real commodity. Under our fiat system, every dollar in circulation represents a dollar of debt. Thus when credit collapses, the money supply collapses and prices collapse. We can't see it in the Federal Reserve's confusing statistics, but that is what is happening now.

MacDougal - it looks to me like you are confusing fiat money with commodity money. It wasn't an issue in the 19th century as it is in the 21st  century.

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Ray Hewitt
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Re: On Money

As a footnote, I hadn't taken the Crash Course before I wrote the above, so I couldn't comment on your difference with Chris on money and labor.

In an otherwise excellent presention, I too have a quibble with the assertion in #6 that "money is a claim on human labor." That sounds too much like the discredited Labor Theory of Value. I agree with your correction. Said another way, it falls into the Fallacy of Composition - what is true of a part is not necessarily true of the whole, and it isn't in this case.

From Wikipedia: "Cantillon's careful description of a supply-and-demand mechanism for the determination of short-run market price (albeit not long-run natural price) also stand him as a progenitor of the Marginalist Revolution. In particular, his insightful notes on entrepreneurship (as a type of arbitrage) have made him a darling of the modern Austrian School. Cantillon was also one of the first (and among the clearest) articulators of the Quantity Theory of Money and attempted to provide much of the reasoning behind it."

Macleod's principal contribution to the study of economics consists in his work on the theory of credit, to which he was the first to give due prominence. A major feature of his work was to create a theory of money starting from a theory of credit instead of the usual reverse path. In "The Theory of Credit" he says: "Money and Credit are essentially of the same nature: Money being only the highest and most general form of Credit" (page 82).

As best I can see, this gets into the history of economic thought from which Austrian Theory evolved. If you prefer to stick with the earlier theories, be my guest.

 

 

 

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Smack MacDougal
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Re: On Money
[quote=hewittr]
Fiat means by decree. In relation to money, it means VALUE BY DECREE.
Incorrect. It's money by decree. From Encarta: " money decreed by government: money that a government declares to be legal tender although it is not based on or convertible into coin and therefore depends on government decree to determine its value"

[/quote]

You're right. You're "incorrect" as you are adept enough to point out to the world.

Oh, and Encarta is not a legitimate source of knowledge. It's a source for peasants, a work of propaganda.  Secularists run to dictionaries and encyclopedias like religionists run to bibles. Both excuse themselves of proper thinking by deferring to one kind of high priest or another.

For the third time, I shall explain this to you, since you're going through negative hallucination, fighting with all your brain might owing to your cognitive dissonance.

U.S. Money is money by force. It's LEGAL TENDER MONEY. The Government requires by law and backed by force for you to use U.S. money for all transaction and for payment of taxes. Also, it's illegal to transact without paying taxes.

FIAT MONEY, is money by value. When anyone could redeem thirty-five U.S. dollars for an ounce of gold from the government, the government DECREED the VALUE by FIAT, that is, $1 = 1/35 ounce of gold.

It's clear to the world, hewittr, that you don't get what money is. You see it as mere slips of paper. You have a childish rationalism understanding of money, same as Chris Martenson.

On Money (Yet, again)
--------------------------------
Money is the highest form of credit and credit is another way of saying debt. When someone accepts money, they hold a credit to claim future product (the unique combo of time, effort, wit, skill, energy, matter). Likewise, those who give money become in debt, giving an implicit promise to make stuff  in any future for offer for sale to others.

Both Legal Tender Money (what the U.S. has today) and Fiat Money (what the U.S. had under FDR through Nixon) are inferior forms of money as both kinds reduce the EFFICIENCY of Money.

On von Mises
--------------------
Outside of his Crack Up Boom (trade cycle theory of excess credit), von Mises was a rather run-of-the mill guy.

The true economists of all-time are Cantillon, MacLeod, Brough. Anyone can read their works from (http://books.google.com)


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Ray Hewitt
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Re: On Money

Mac

I've gone as far as I can go with you on this.

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Futuo
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Re: On Money

Mac, can you explain the dichotomy as you see it?

This discussion seems to pit Fiat Currency on one side vs. Force[d] Currency on the other. I really don't see what the huge difference is. All you seem to be saying is that dollars aren't fiat currency because they are inexchangable for gold or platinum or whatever. I don't understand how that makes a currency non-fiat.

Now, personally, my view is that dollars are forced fiat currency. Fiat means "let it be". Forced means you don't have another option. Dollars are both legal tender as declared by the government (fiat), as well as the only legal tender, inexchanageable for gold or anythign else (forced). That's my view, which is rather coarse and unedcuated. Now, I don't want you to tell me why i'm wrong, but i would really like an explanation as to what fiat currency is, an explanation as to what forced currency is, and some analytical reasoning as to why those concepts are inherently conflicting.

Thanks!

-Christopher

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