A couple of basic questions

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ChrisGo's picture
ChrisGo
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A couple of basic questions

I've listened to the Crash Course and ended up with many questions.  Here are two.

 We invented money and the moentary system that governs it.  If there is a fatal flaw in the system, why wouldn't we redefine the system to something new that would work in a time of no growth or negative growth?  Money is too valuable a tool to be allowed to disappear.

 Why do folks think gold would hold its value?  Isn't gold, like money, worth only what people think it's worth?  I know it has some practical value but isn't most of its value imaginary?  If someone thinks the monetary system is about to collapse, wouldn't they be better off filling their garage with matches and sewing needles?

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Ray Hewitt
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Re: A couple of basic questions

Why do folks think gold would hold its value?

History.  History. History. As an example, the gold value of a Roman coin is worth today what it was worth them. In America, an ounce of gold will buy today about what it bought in 1913. Paper money always goes to zero. No exceptions.

If someone thinks the monetary system is about to collapse, wouldn't
they be better off filling their garage with matches and sewing
needles?

One has to decide if it can be traded for food in such a scenario. People are selling their belongings on Ebay to survive.

GDon's picture
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Re: A couple of basic questions
ChrisGo wrote:

We invented money and the moentary system that governs it.  If there is a fatal flaw in the system, why wouldn't we redefine the system to something new that would work in a time of no growth or negative growth?  Money is too valuable a tool to be allowed to disappear.

 Why do folks think gold would hold its value?  Isn't gold, like money, worth only what people think it's worth?  I know it has some practical value but isn't most of its value imaginary?  If someone thinks the monetary system is about to collapse, wouldn't they be better off filling their garage with matches and sewing needles?

The "something new" part would require "something new" in human nature, which (fortunately or unfortunately) hasn't changed much over the last 50,000 yrs.

Further, "money" is a concept "created" by humans, for the purpose of replacing direct barter of goods and services. 

All money requires some degree of trust and faith that the "intermediate barter entity", i.e., money, will be accepted.   All money is only what people believe it to be worth in material transactions,

However, the optimum physical versions of money, and their degree of acceptance, have been shown (to one degree or another), to fit the following "requirements" (as proven over human history):

  • Divisible,
  • Durable,
  • Portable, and
  • Difficult to "create" (i.e., defraud).

Gold is divisble down to the atomic level, because it is an element (it can't be divided further).  One ounce can be made into wire over 1 mile in length...

Gold is extremely durable, resistant to corrosion from almost all salts and chemicals

Gold is portable (trading in cows, wagons, teak logs, etc., is not...)

Gold is difficult to "create".   Despite the hundreds of thousands over millinea who attempted alchemy, gold takes energy and effort to find, extract, refine and coin.   As such, it's value, from this effort, is "prepaid", so it has inherent value, also in addition to it's industrial uses (gold has one of the highest electrical conductivities in nature).

Gold has been accepted as money and proven through 10,000 years of human behavior and history, with no equal.

The last requirement, or resistance to fraud (some would say "scarce"), is the problem with paper and "digital" currency - it can be created "at will", or "out of thin air".   That destroys the trust requirement (but this is also of HUGE financial benefit to the "creators").   Today, that power of "money creation" belongs to the Central Banks of the world (like the FED in the USA).   That power is protected by government force.

In fact, for paper currencies, under the defraudulent "generation" scheme, their "value" must be enforced by government coercion (i.e., through use of guns and weapons).    Note that the value of the $USD is "earned" only through the mandate of "legal tender" through law, and enforcement of that law.

Gold (and silver and to some extent platinum/palladium), requires NO government intervention to "coerce" the recipients into accepting it as true money, having proven itself over the last 10,000 years, as being the optimum world substance which best fits the requirements above.   It's value exists suprantionally - i.e., outside the realm of countries and governments.

If things get so bad that only direct barter exists (sewing needles and matches...) well.... NO "money" as a concept would exist.   If, instead, some level of barter is requried (which is a safer bet), then the most successful "money" man ever utilized would probably continue to hold value as the same.

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Brainless
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Small 'coins' make it easier to make gold a practical currency

I am 100% confinced gold will hold its value and will be used to pay for product/services directly or is changeable to some other kind of paper money. (It better be linked to gold otherwise it will be start of another boom/bust cycle)

One of the problems i have with gold at this moment is physicaly owning it. Particular the weighs that are sold.These weight are quickly 15, 30 or more grams and not very usable to pay with.

My personal 'quest' a this moment is to make gold pieces(coins) in sizes of 1, 2, 5 and maybe 10 gram. I have a jewelry goldsmith in the family that is now experimenting with the smalll weights as they are quickly very small or fragile.

When the price is around 800US$ for an ounce it would be around 25US$ for one gram. I really believe that when this happens and normal people can buy/own gold easily it will speed up the process tremendously to get a gold backed currency.

 And if i can add a question to this topic.

Would silver not be a more practical 'currency'? 

 

 

 

 

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mred
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Re: A couple of basic questions
ChrisGo wrote:

I've listened to the Crash Course and ended up with many questions.  Here are two.

We invented money and the moentary system that governs it.  If there is a fatal flaw in the system, why wouldn't we redefine the system to something new that would work in a time of no growth or negative growth?  Money is too valuable a tool to be allowed to disappear.

The original money wasn't so much invented, but it emerged naturally in the history of human trade, as people recognized that in their bartering some commodities were more marketable than others. Historically, gold and silver fulfilled the qualities that GDon accurately lists. Gold in particular was recognized as the most marketable commodity: it was sufficiently rare to be generally desirable and sufficiently abundant to be recognized and obtained. The money-based economy, in this sense, continues to be barter, it is just that one or two commodities became the most desired means of exchange. Note that in this context, the metals were traded by weight, not by their representing some politically defined monetary unit (dollar, euro, whatever).

The true invention came about with the abstraction of the concept of "money" from its underlying asset. This allowed kings to socialize their debts by debasing their coin through reduction of the precious metal content of the "coins of the realm". A bigger change occurred (as GDon points out again) with the invention of fiat currencies and "legal tender laws". These can only exist in an environment of coercion. People do not produce fiat currencies in their natural interactions; that involves the intervention of the State. A fiat currency can work if perfectly managed. Since that has never happened, fiat currencies have always failed, or attained a value equal to their "marginal cost of production": zero.

It is not quite true that "we" invented the present monetary system. It was invented by others with very well defined interests: their own. This is ultimately the reason why even if there is a fatal flaw in the system, it is not a matter of just changing it to a better one. There are powerful vested interests that will fight every attempt to change a system that is the ultimate source of power in a society. I am talking of course about the banking class and how they usurped the power to issue money from the people. The assumption that is implicit in ChrisGo's question is that the system was designed on the behalf of the interests of society, while in fact it was designed with the idea of centralized control to benefit the few. This seems to be one of the most difficult things for people to accept when first introduced to these topics.

I invite you to ponder on the amazing powers entailed in the control and issuing of a nation's currency. (Especially if you are a private central bank that charges the government (the society) for every monetary unit printed.

Quote:

Why do folks think gold would hold its value?  Isn't gold, like money, worth only what people think it's worth?  I know it has some practical value but isn't most of its value imaginary?  If someone thinks the monetary system is about to collapse, wouldn't they be better off filling their garage with matches and sewing needles?

Gold has held its value historically as hewittr said. The explanation is that if left to its own after a collapse, a society would eventually re-discover the precious metals as the optimal means of exchange. Precious metals were demonetized politically, but they are traded as money, gold in particular, and hoarded as such. The abundant stocks of gold, in contrast with the relative trickle that is mined every year, makes its perceived value to be very constant. This is a property that no "politically created money" could have. It is precisely because gold has relatively few practical uses that it is a monetary metal. Other precious metals, like platinum, are quite valuable, but are not monetary. So indeed, the assignment of value to gold or silver has arbitrary elements, but given that their abundance is not dependent on the whims of a ruler, they derive substantial value from that fact.

In total collapse, what would be the most useful assets would be those related with immediate needs of survival. Past that stage, and once some production and savings are generated, real, historical, constitutional money would emerge once again. That is, provided that people understand what money is all about and are not deceived by a gang of banksters that will want to usurp the control of money once again.

mred's picture
mred
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Re: A couple of basic questions

Brainless:

(Man, what a choice of name!) Historically, gold has been the money for "big ticket items" while silver was for more everyday use. Given that silver has had also substantial industrial use, the ratio of its value to gold might change from its historical value if it is ever used as a medium of exchange once again.

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Lemonyellowschwin
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Re: A couple of basic questions

I have to say that Mred's posts are always excellent.

mred's picture
mred
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Re: A couple of basic questions

... I'm blushing.

I'm glad that my posts resonate with you, Lemonyellowschwin. That is a hard thing to accomplish with anyone as I realize that the easiest thing is to write something that will inevitably rub someone the wrong way. I'm sure I've done that with other posts of mine. For what it is worth, in those cases, I didn't mean it that way.

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caroline_culbert
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Re: A couple of basic questions

If fiat money is in almost every nation if not all nations, then how can these nations (mainly gov.) reject this type of addiction without causing themselves to be left destitute and taken over by a country that "has" money (or holds fiat money and still trades paper with the rest of the world).  I mean, if countries jump off the fiat money grid, then are they more susceptible to attacks and other negative impacts?  Or will they just be "left alone" to trade and barter with their locals.  I have read/heard that some cities, in the U.S., have created their own fiat money and I haven't heard of any majoproblems.  Could we do this, or will it just end up becoming another type of currency trade in the end (where I trade goods, which I bought with my U.S. Dollars, for my neighbors newly created fiat moeny)?

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