What is money? Where does our money come from?

[new_trader]

What is money? - A widely accepted medium of exchange.

Exactly so, but you seem to have said that "widely accepted" doesn't imply confidence and trust to make it so accepted. I think it does, that's all.

cheers

jon

No Jon...you are putting the cart before the horse and that is why you are having difficulty with what I am saying.

In order to become money, a commodity must first be widely used in the market already, not necessarily as a medium of exchange but solely for its inherent qualities...do you see? Trust doesn't enter into the equation because people already know what it is, they already have a need and/or desire for it and they are already using it for whatever purpose. The wide usage, the wide recognition, the wide desirability, comes first. I'm sure that the person who discovered gold didn't immediately think "Hey, this would be great as money, but how will I get everyone to agree and trust it?"

Ok Jon, I hope that clears it up. Wide usage first, use as money later...Ok...please Jon...get it...restore my faith in you...

 

[barjon]

No Jon...you are putting the cart before the horse and that is why you are having difficulty with what I am saying.

In order to become money, a commodity must first be widely used in the market already, not necessarily as a medium of exchange but solely for its inherent qualities...do you see? Trust doesn't enter into the equation because people already know what it is, they already have a need and/or desire for it and they are already using it for whatever purpose. The wide usage, the wide recognition, the wide desirability, comes first. I'm sure that the person who discovered gold didn't immediately think "Hey, this would be great as money, but how will I get everyone to agree and trust it?"

Ok Jon, I hope that clears it up. Wide usage first, use as money later...Ok...please Jon...get it...restore my faith in you...

Alright then, they need to continue to trust it. And I'm sure the guy who dreamed up the euro DID think "Hey this would be great as money across Europe but how will I get everyone to agree and trust it". Easy,peasy - get the sovereign states to make it their legal tender.

 

[new_trader]

Alright then, they need to continue to trust it. And I'm sure the guy who dreamed up the euro DID think "Hey this would be great as money across Europe but how will I get everyone to agree and trust it". Easy,peasy - get the sovereign states to make it their legal tender.

You are jumping the gun, but yes, a fiat currency requires trust, I won't argue, and I said that legal tender laws are the lynchpin to fiat currency so there is no trust really, it is government force.

But at this stage of the conversation we are still at the dawn of a hard money stage, otherwise known as honest money or sound money.

'An honest days work for an honest days pay'
Imagine a good friend of yours has hurt his leg and asks you for a favour. He needs his house painted but can't pay you, instead he promises to return the favour. You spend 3 days of your time and labour painting his house. One month later, after his leg has healed, you find yourself in a similar situation and now ask him to return the favour. He comes over to your house, makes you a cup of coffee and says "Now we are even".

Would you be happy about that?

I don't know about you, but I wouldn't be. The simple reason is I know how much time and labour I put into painting his house and how much time and labour goes into making a cup of coffee. In other words, I set a value on my original favour priced in time and labour and now I feel I have been ripped off.

Next time someone gives you pieces of paper for your time and labour think about the above example. The current estimate is that it costs about US 4 cents to produce a Federal Reserve Note. Can't imagine it is different for Pounds. And remember, there is no limit to how many '0's can be added or even words, didn't Zimbabwe issue a 1 trillion note?

Next time you hold a 1 ounce gold coin in your hand, and you feel its weight, its texture and admire the detail representing both the artist’s passion and the minter’s art, think about the time and labour that went into making it. Think about how difficult it is to first find then mine gold. The energy and the cost to dig it out of the ground or pan for it, the amount of time and labour that goes into refining it. Current estimates are that is costs about US$600 to extract and refine 1 ounce of gold.

Now ask yourself, which of the two do you think represent an honest days pay for an honest days work, paper or gold?

 

[barjon]

...............Now ask yourself, which of the two do you think represent an honest days pay for an honest days work, paper or gold?.............

Well, if either the piece of paper or the gold enabled me to buy goods and services equivalent to to the value of my honest day's work, then the answer is that they are both the same.

Of course I might PREFER one or the other, but that's a different story.

 

[new_trader]

Well, if either the piece of paper or the gold enabled me to buy goods and services equivalent to to the value of my honest day's work, then the answer is that they are both the same.

Of course I might PREFER one or the other, but that's a different story.

But you are ignoring the approx 2500 years of history it took to arrive at the stage where you will exchange valuable goods and services for pieces of paper. It's difficult to have this conversation with you because all you keep referring to is the 'now' and not the 'how'. The answers you give seem to always be qualified by the 'if' which doesn't happen when something is truly money. Your answers would be very different if you limited the conversation of money to 1000 years B.C. or earlier.

The problem is that anyone under the age of 50 has pretty much grown up in an entirely fiat money system so they don't stop to think how we got there, they just take it for granted. It would be like a 10 year old child who only knows a telephone as something that fits in your pocket and can play games and surf the internet...and make calls.

If someone is selling you a car they don't have to first convince you that it actually is a car do they? You can see it with your eyes, feel it, test drive it. There are 1000's of them all around you, almost everyone has one. I don't believe you would question each and every car you come across (not for its road worthiness) but just to make sure that what you are getting isn't actually a horse or a bike or a boat or a house. You immediately recognize it as a car and that millions of people around you are using them.

That's why it baffles me when I talk about money you keep feeling the need to qualify your statements with 'if'...."If it is accepted....If I can exchange it...If you have doubts then it isn't money.

 

[new_trader]

The History of Money

Metals objects were introduced as money around 5000 B.C. By 700 BC, the Lydians became the first in the Western world to make coins. Countries were soon minting their own series of coins with specific values. Metal was used because it was readily available, easy to work with and could be recycled. Since coins were given a certain value, it became easier to compare the cost of items people wanted.

Cities and empires managed without coins for over 2000 years. Electrum (gold and silver mixture) was used for the first coins, but coinage gained popularity when gold and silver coins were introduced. Coinage probably developed in Lydia because it was a trading centre and possessed large gold supplies. Before coins, payments were made with metal bullion or by barter. To establish its value metal was checked for purity and weighed. The Lydians minted coins of consistent weight and purity to speed up transactions.

The Birth of Paper making

AD 105 is often cited as the year in which paper making was invented. In that year, historical records show that the invention of paper was reported to the Chinese Emperor by Ts'ai Lun, an official of the Imperial Court. Recent archaeological investigations, however, place the actual invention of paper making some 200 years earlier. Ancient paper pieces from the Xuanquanzhi ruins of Dunhuang in China's northwest Gansu province apparently were made during the period of Emperor Wu who reigned between 140 BC and 86 BC. Whether or not Ts'ai Lun was the actual inventor of paper, he deserves the place of honor he has been given in Chinese history for his role in developing a material that revolutionized his country.

 

[barjon]

That's why it baffles me when I talk about money you keep feeling the need to qualify your statements with 'if'...."If it is accepted....If I can exchange it...If you have doubts then it isn't money....

The "ifs" are not qualifications of doubt, but qualification of the assumption being made.

When I said this, for example, - "if" either the piece of paper or the gold enabled me to buy goods and services equivalent to to the value of my honest day's work, then the answer is that they are both the same. - the "if" is about the assumption that piece of paper = gold in terms of the what they will buy.

so IF that assumption is true then my answer is right
and IF that assumption is false then my answer is wrong

 

[new_trader]

The "ifs" are not qualifications of doubt, but qualification of the assumption being made.

When I said this, for example, - "if" either the piece of paper or the gold enabled me to buy goods and services equivalent to to the value of my honest day's work, then the answer is that they are both the same. - the "if" is about the assumption that piece of paper = gold in terms of the what they will buy.

so IF that assumption is true then my answer is right
and IF that assumption is false then my answer is wrong

Jon,

You are missing the bigger point though and that is the one of inflation. The pieces of paper you accept today were once redeemable in specie and that is why the notes had purchasing power equivalent to the commodity. That isn't the case today but people still accept paper notes as if they were.

Anyway I've done my best but it seems mainstream economists and Governments are winning the battle and as a result, people will continue to be robbed of their purchasing power right in front of their eyes.

 

[barjon]

nt

No, I haven't missed that point and I'm with you generally on it.

Nor do I part company that much of our monetary woes comes from releasing Governments from the encumbrance of needing to back their currency with ounces of gold/silver.

My main quarrel is the suggestion that "money" tokens used today (bits of paper etc) are somehow wildly different from those used in the past when, as tokens, they are doing precisely the same thing (to provide a medium of exchange and a measure of "value").

You keep talking about gold, fair enough, but how would you describe its worth if you did not have some widely accepted currency type "token" money system in place. You couldn't say well an ounce of gold is worth an ounce of gold because that would be futile. So you'd have to relate it to something else, an ounce of gold is worth five goats or something. Then, of course, you'd have to describe what five goats are worth in relation to something else and so on. You get fed up with the endless calculations so establish a standard monetary unit as a proxy and relate everything to that.

Once you've done that you don't have to stagger around under a weight of gold anymore since you can use your monetary units instead. In the monetary sense, gold has become redundant.

 

[darktone]

Jon,

You are missing the bigger point though and that is the one of inflation. The pieces of paper you accept today were once redeemable in specie and that is why the notes had purchasing power equivalent to the commodity. That isn't the case today but people still accept paper notes as if they were.

Anyway I've done my best but it seems mainstream economists and Governments are winning the battle and as a result, people will continue to be robbed of their purchasing power right in front of their eyes.

Paper money doesnt have to inflationary imo. Not if it isnt debt backed and responsibly managed.
Out of interest, what sort of gold standard would you like to see implemented? 100%?

 

[new_trader]

My main quarrel is the suggestion that "money" tokens used today (bits of paper etc) are somehow wildly different from those used in the past when, as tokens, they are doing precisely the same thing (to provide a medium of exchange and a measure of "value").

The difference is that paper money was once redeemable in gold/silver. How can I say it any clearer? Take out a £5 note and inspect it closely, it says "I promise to pay the bearer on demand the sum of five pounds". This means that paper money today is still just a promise to pay because it has no intrinisic value. But today you cannot redeem it in specie. This means the Government can now create as many 'promises to pay' but never has to fulfil them...Can you see what I mean? The ONLY reason people accept paper money today is because it was once more or less a coupon that you could redeem for something of real value ie/ gold and silver. The reason you could redeem it for gold and silver is because throughout history right back to Alexanders time and further, gold and silver coins were money.

You keep talking about gold, fair enough, but how would you describe its worth if you did not have some widely accepted currency type "token" money system in place. You couldn't say well an ounce of gold is worth an ounce of gold because that would be futile. So you'd have to relate it to something else, an ounce of gold is worth five goats or something. Then, of course, you'd have to describe what five goats are worth in relation to something else and so on. You get fed up with the endless calculations so establish a standard monetary unit as a proxy and relate everything to that.

You don't describe gold's worth in currency, you describe the worth of products and services by weight of gold...the currency, so to speak is ounces.

ie/

1 goat = 1/4 ounce gold
1 horse = 2 ounces gold
1 house = 100 ounces gold
1 loaf bread = 1/20 ounce silver
etc

The founding fathers of the USA understood this principle, however instead of using the word 'ounces' they adopted the term 'dollar' and defined it by a specific weight in silver that was fixed. They came up with the weight by taking a sample of coins being used by merchants in the market already. Do you understand Jon, it already had an established history of purchasing power for goods and services in the market!

From the 1792 coinage Act:

Dollars or Units DOLLARS OR UNITS--each to be of the value of

a Spanish milled dollar as the same is now

current, and to contain three hundred and

seventy-one grains and four sixteenth parts

of a grain of pure, or four hundred and

sixteen grains of standard silver.

Once you've done that you don't have to stagger around under a weight of gold anymore since you can use your monetary units instead. In the monetary sense, gold has become redundant.

No, wrong. Paper certificates of deposit with an entitlement to gold/silver were being used as a money substitute but they were always redeemable. Get this firmly impressed upon your mind - Redeemable in gold/silver.

 

[Triggerfish]

"What is money? Where does our money come from?"

Money is just a piece of paper.
It comes from the approved printers......and they can print as much as they want and for as long as they want.....and YOU cannot stop it!

It is there to CONTROL you!.....to blind YOU from the truth!.....and to make you into a SLAVE!

 

[darktone]

NT
Out of interest, what sort of gold standard would you like to see implemented? 100%? fractionl reserve backing?

 

[barjon]

The difference is that paper money was once redeemable in gold/silver. How can I say it any clearer? Take out a £5 note and inspect it closely, it says "I promise to pay the bearer on demand the sum of five pounds". This means that paper money today is still just a promise to pay because it has no intrinisic value. But today you cannot redeem it in specie. This means the Government can now create as many 'promises to pay' but never has to fulfil them...Can you see what I mean? The ONLY reason people accept paper money today is because it was once more or less a coupon that you could redeem for something of real value ie/ gold and silver. The reason you could redeem it for gold and silver is because throughout history right back to Alexanders time and further, gold and silver coins were money.



You don't describe gold's worth in currency, you describe the worth of products and services by weight of gold...the currency, so to speak is ounces.

ie/

1 goat = 1/4 ounce gold
1 horse = 2 ounces gold
1 house = 100 ounces gold
1 loaf bread = 1/20 ounce silver
etc

The founding fathers of the USA understood this principle, however instead of using the word 'ounces' they adopted the term 'dollar' and defined it by a specific weight in silver that was fixed. They came up with the weight by taking a sample of coins being used by merchants in the market already. Do you understand Jon, it already had an established history of purchasing power for goods and services in the market!

From the 1792 coinage Act:

Dollars or Units DOLLARS OR UNITS--each to be of the value of

a Spanish milled dollar as the same is now

current, and to contain three hundred and

seventy-one grains and four sixteenth parts

of a grain of pure, or four hundred and

sixteen grains of standard silver.





No, wrong. Paper certificates of deposit with an entitlement to gold/silver were being used as a money substitute but they were always redeemable. Get this firmly impressed upon your mind - Redeemable in gold/silver.

i couldn't really give a toss if they were redeemable for buckets of horse manure

Did I not say that an ounce of gold might = 4 goats or whatever and so on.

And what, pray, would you use to describe an ounce of golds value now if you don't use money substitutes not related to gold?

 

[darktone]

"What is money? Where does our money come from?"

Money is just a piece of paper.
It comes from the approved printers......and they can print as much as they want and for as long as they want.....and YOU cannot stop it!

It is there to CONTROL you!.....to blind YOU from the truth!.....and to make you into a SLAVE!

Its numbers in a computer now bud, those pieces of paper are essentially claims on those numbers in a computer. As NT said, check the "i promise to pay the bearer on demand" small print on the front of a BOE note.

 

[new_trader]

i couldn't really give a toss if they were redeemable for buckets of horse manure

Then I don't know why I'm bothering. You don't understand money unless you can provide some evidence where buckets of horse manure were used as a medium of exchange. All I can say is thank goodness the younger generation cares more about their money than you do. At least Ron Paul's message is getting through to them. You seem to be a lost cause.

Did I not say that an ounce of gold might = 4 goats or whatever and so on.

You said that gold needs to be ascribed a value in some token currency and implied that it would get all complicated without a reference. That didn't make sense at all.

And what, pray, would you use to describe an ounce of golds value now if you don't use money substitutes not related to gold?

I'm not sure what you are asking but I'll say that using the definition from the US constitution (Now that the US Federal Reserve note is the reserve currency)

$1 dollar weighed approx 24grams of pure silver and the current price of silver is35.58 Federal Reserve Notes per ounce. This means that a 1 dollar coin minted in 1792 has the same purchasing power as 27.45 Federal Reserve notes does today, 1 ounce of gold can currently be exchanged for 1775 Federal Reserve Notes. You can use these ratios to determine how much other things would cost in ounces of gold and silver or part thereof. Eventually you will find out how many buckets of horse manure you can get with your gold seeing that is what you prefer.

 

[barjon]

Then I don't know why I'm bothering. You don't understand money unless you can provide some evidence where buckets of horse manure were used as a medium of exchange. All I can say is thank goodness the younger generation cares more about their money than you do. At least Ron Paul's message is getting through to them. You seem to be a lost cause.




You said that gold needs to be ascribed a value in some token currency and implied that it would get all complicated without a reference. That didn't make sense at all.



I'm not sure what you are asking but I'll say that using the definition from the US constitution (Now that the US Federal Reserve note is the reserve currency)

$1 dollar weighed approx 24grams of pure silver and the current price of silver is35.58 Federal Reserve Notes per ounce. This means that a 1 dollar coin minted in 1792 has the same purchasing power as 27.45 Federal Reserve notes does today, 1 ounce of gold can currently be exchanged for 1775 Federal Reserve Notes. You can use these ratios to determine how much other things would cost in ounces of gold and silver or part thereof. Eventually you will find out how many buckets of horse manure you can get with your gold seeing that is what you prefer.

sorry, nt - i was in a bad mood

I think we'll have to agree to disagree around the edges

i suppose the more crucial question is whether or not we are stuck with what we've got however imperfect that might be. I can't see the basis of it all changing, can you?

 

[new_trader]

sorry, nt - i was in a bad mood

Ok, it didn't seem like you, but I can take it

I can't see the basis of it all changing, can you?

YES! This is the reply I compiled before you wrote this with snipets from different sources.

What happens when we become a truly cashless society? People now don't understand the importance and significance of the link between money and a real commodity, but at least there is still representative money to physically handle and remind us that it used to be there. What happens when the representative money is gone?

Some key things to think about:

In defining sound money, we must go beyond the purely economic functions of money. It is also necessary to ensure that money cannot be used to expand government powers over a free society.

We must therefore deepen our understanding of sound money with these additional precepts:

∙Sound money ensures true economic outcomes; its integrity should be upheld as a vital element of free markets rather than corrupted as an instrument of government policy.

∙Sound money encourages responsible fiscal practices by restraining governments from using monetary policy to accommodate or disguise fiscal failures.

Only if government is prevented from abusing the privilege of issuing the nation’s money can it be trusted with this powerful authority.

The lesson is clear: To comply with the principles of democracy and free market capitalism, money must be sound. Otherwise, money all-too-easily becomes an instrument of government tyranny. Instead of providing a common point of reference for a free people, instead of serving as an honest measure – money that is not sound furnishes government with a convenient means of deceit.


Unfortunately too many people don't understand or don't care.

 

[YouAreNotFree]

''BoC's Carney says consistent strength of CAD is a long term concern, and will treat CAD level as an input for monetary policy.''

Who is not in this epic race to the bottom?

I despair.

 

[barjon]

Ok, it didn't seem like you, but I can take it



YES! This is the reply I compiled before you wrote this with snipets from different sources.

What happens when we become a truly cashless society? People now don't understand the importance and significance of the link between money and a real commodity, but at least there is still representative money to physically handle and remind us that it used to be there. What happens when the representative money is gone?

Some key things to think about:

In defining sound money, we must go beyond the purely economic functions of money. It is also necessary to ensure that money cannot be used to expand government powers over a free society.

We must therefore deepen our understanding of sound money with these additional precepts:

∙Sound money ensures true economic outcomes; its integrity should be upheld as a vital element of free markets rather than corrupted as an instrument of government policy.

∙Sound money encourages responsible fiscal practices by restraining governments from using monetary policy to accommodate or disguise fiscal failures.

Only if government is prevented from abusing the privilege of issuing the nation’s money can it be trusted with this powerful authority.

The lesson is clear: To comply with the principles of democracy and free market capitalism, money must be sound. Otherwise, money all-too-easily becomes an instrument of government tyranny. Instead of providing a common point of reference for a free people, instead of serving as an honest measure – money that is not sound furnishes government with a convenient means of deceit.


Unfortunately too many people don't understand or don't care.

nt

Well I'd go along with all that except your initial YES!

You have advanced a solution which I think is now beyond most governments to adopt, even if they wanted to - which, imo, they don't.

There will have to be some other way found of preventing government from abusing the privilege of issuing the nation’s money

It is, after all, the abuse we would wish to kill, not the system.