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A nation so ignorant and divided cannot stand. I am beginning to wonder if it should.
Why don’t you enlighten and unite, Sandi…
Yes, why don’t I. Afterall, I am the only problem.
3 – no, you’re the one complaining about it.
For those interested in all things economic I have two links that might be of interest. The first is from Larry Hamlin, the Barefoot Bum, who is an economic communist studying economics. He is, in my opinion, one of the clearest thinkers anywhere. I suggest you read his article closely. It’s about what money is.
The second link is from the Economic Policy Journal that presents a 30 day reading list to turn you into a knowledgeable libertarian. I of course think it’s bunk but know 89Hoo will like it.
5 – I would probably appreciate it more if I were a libertarian, Scott, but I appreciate your thinking of me.
5 – with regards to Hamlin, Scott, his musings on money appear to be just that. Musings. I can’t see where he drew any conclusions. So, to a communist, what is money?
@6 89Hoo, apologies about the Libertarian thing. I didn’t mean that you were a libertarian. The second link contains many links to the writings of Murray Rothbard and company from Mises.
@7 Thanks for taking the time to read Larry’s post. For various reasons here at work I wasn’t able to read the whole thing myself so perhaps didn’t realize he hadn’t drawn conclusions, but I don’t know that that was the point.
He points out, rightly to my thinking, that money is a funny thing. Being a chameleon of sorts, it means we need to be very careful when talking about the economy and studying economics to make sure we’re using terms the same way so we fully understand each other. If we don’t, we get people who say things like “we can pay for medicare because the government has no money”. That sentence makes sense only if money were a physical thing like water or grain. We can run out of water and grain but we can’t run out of money for example.
The article forces us to think about money in ways we may never have considered.
As for what do I think money is? I have to go with Larry. It is what we want it to be in a particular time and circumstance. It’s a very weird thing. Don’t know that I can answer it much better than that.
Scott, the definition of money is only so flexible when those who want to use it ways it is not meant to be used.
What is money? That green piece of paper in your pocket is nothing more than a promissory note, a promise to exchange something in the future for something now. Both parties see the exchange as mutually advantageous for reasons that are entirely their own, and that should remain that way. The exchange of currency is simply a convenience…but it is not as simple as merely writing “IOU” on a piece of paper. The parties have to be able to meet those obligations.
Let’s consider a simple economy, with a woodcutter, a dairy farmer and a seamstress. The woodcutter exchanges firewood and barn-building materials to the dairy farmer for milk and cheese. The farmer doesn’t need as much firewood in the summer, but in the winter would like to have a stockpile of wood ahead of time. The woodcutter doesn’t need – and further cannot store – a stockpile of milk and cheese ahead of time (even if the farmer were able to produce it), but he DOES need some really warm sturdy clothes for the winter. So he agrees to provide enough wood to the farmer to last him through the winter before winter sets in, in exchange for dairy products throughout the year, and the farmer also supplies dairy products to the seamstress and she provides winter clothes to the woodcutter.
Obviously, this gets more and more complex if the exchange is limited to the physical exchange of dairy, wood and clothes, particularly when the consumer perceives the value of something in the future to be greater than now (such as the stockpile of firewood), and becomes even more and more complicated as the economy grows with other trades, products and services.
As the economy and civilization grows the system of exchange evolves, and they begin to write promissory notes (or IOUs, or what have you), promising the future delivery of the product in exchange for something now. The IOUs are a medium of exchange.
But – and this is one of the key attributes of anything used as money – they cannot write IOUs for something they do not have, or that they cannot produce when promised. The woodcutter cannot promise a winter’s worth of firewood and then deliver enough to only get through December; the dairy farmer cannot take June and July off because he’s going to the Outer Banks for vacation. Otherwise the IOUs would be worthless pieces of paper.
Now, as the economy and civilization grows, the citizens settle on exchange media that have some crucial characteristics:
1 – the medium must be portable;
2 – the medium must be durable;
3 – the medium must be divisible, and replicable in smaller denominations;
4 – the medium must be homogeneous and uniform;
5 – the medium must retain value; the reason the woodcutter does not want a winter’s worth of milk at the beginning of the season is because it will spoil and be of less value when he needs it at the end of the winter (the same is not true of the stockpile of wood);
6 – the medium must be relatively scarce, or else it will not retain value. The seamstress could say, “Here is a pile of dirt that you can keep as promissory.” Dirt is not rare, it is therefore worthless. These essential attributes of money are what assures that we are able to meet the obligations of the promissory.
You provide your services (I believe you have said you are an engineer) to your employer in exchange for an agreed-upon amount of money, which you then pay the grocer for food, etc. You are, in essence, exchanging your services for food, but since your grocer doesn’t need (not directly, anyway) the engineering services you provide, and your employer is not a grocer, civilization and society has devised a system of IOUs and promissories to ensure that all the participants provide and receive what they need. The money, the currency, is the medium of that exchange, and it is only as valuable as the service provided.
So (and this is the point I am trying to make; I apologize for the circuitous route), if the quality of the work you promise your employer, or the quality of the food the grocer sells you, are deficient, than their value drops (they becomes worth less). Said differently, the value of the currency is dependent on the value produced. A grocer who sells spoiled meat can write an IOU, but if he sells spoiled meat, than that IOU is worthless because no one will accept it. If the grocer uses currency instead of a hand-written IOU, that too will eventually shows its lack of worth as the grocer goes out of business.
So, one says “we can pay for medicare because the government has no money”, what he is saying is that the money used, the promissory note promising something of value, cannot deliver because the money has no value. The currency used has lost one or more of the attributes that money must have to be an effective medium of exchange, to be an effective IOU. The simplest things to destroy are attributes 5 and 6 above; by removing the scarcity, the currency is unable to retain value. Scarcity is destroyed by removing that feature that made it scarce, and by cranking up the printing presses (ask yourself why a) counterfeiting is illegal; and b) the difference between someone cranking out bogus ten-dollar bills in his basement and the US mint cranking out ten-dollar bills (or even electronic money)).
But, and this is a critical component of statist economic systems, whether Keynesian, socialist or communist: the destruction of the value of the currency is necessary and therefore intentional. Whether to fund well-intended social programs or to fight stupid wars (they call it flexibility), statist economies are hand-cuffed by a currency that is backed by something of value, precisely because it limits their ability to spend beyond their means. So they remove the backing, crank up the printing presses and inflate the currency, bow to cronyist banksters, and destroy its value. It’s happened time and time again throughout history and is happening now.
So money is only confusing to those who want to spend beyond their means.
So essentially you are saying money is only “confusing” for 90-95% of the nation, if not the world.
@9 89Hoo, thank you for taking the time to write such a well written article. I mean that sincerely.
I actually knew all that though because I’ve taken the time to think about these things in some depth (with Larry’s help). But money isn’t limited to just the situation you describe. Like Larry said, it’s a political situation. You have your idea of how money should be used so you write from a perspective that enforces that.
But I’d like to ask you to think about it a few other ways.
1) Marx called money the universal equivalent for reasons you describe above. You trade goods and services for it so it may be used to be traded for something else in a convenient form. In this sense, you can think of money as a social lubricant that makes trade easier.
2) Money is a barrier. If you don’t have the money, you don’t get the product or service. Need nor effort nor anything else enters into it.
3) It’s a measure of trust.
4) It’s a promissory note for future consumption.
5) It is what allows markets to operate AND FAIL.
6) It can be hoarded. If this is the case, there is no money in circulation and the economy slows.
7) Money is a control system.
You and everyone should take the time to read some more of his writings on money. I’ve done the Google search so here’s a good starting point.
10 – certainly seems that way, doesn’t Sandi? Though I’m a little less cynical than that.
11 – Scott, with regards to Marx’s points:
1 – correct.
2 – no. Money represents production, it is the manifestation of what you produce and wish to exchange. A bermuda shorts salesman at the North Pole will likely have trouble exchanging his goods for food because no one at the North Pole wants bermuda shorts, irrespective of whether he uses the financial lubricant of money or not. Now, assuming he’s selling parkas, and still is unable to trade for food, there is something else at stake: the quality of his product, the quality of his competitors’ products, the amount of food he expects to receive in return, the amount of food his competitors expect to receive for their products…all of those are things he can change and/or influence, irrespective of whether he uses the financial lubricant of money.
3 – true; that’s the reason we see so many foreign countries refuse the dollar in favor of something with more value: they don’t trust the US government to be able to produce the future value of the good as promised.
4 – true, that’s exactly what I was saying.
5 – well, it’s not critical for a simple market (I have friend who trades hand-crafted left-handed electric guitars in exchange for an artist friend’s skills at making them look cool…no money exchanged), but certainly is need for markets as they grow in size and complexity.
6 – no, when something of value is hoarded, the value of what is left in circulation increases. If you hoard your engineering skills – let’s say you decide to work for an exclusive clientelle and refuse all new clients – the value of other engineers’ services increases…they get more for their services because you are not in the picture. Remember, money is goods and services.
7 – anything that is monopolized is a control system.
10 – Sandi, to circle back to your comment.
See the attached from zerohedge:
Guest Post: Presenting The Decline Of The West In Two Easy Infographics
1 – A first graphic is from a Brookings Institute study, which released an interactive map showing economic growth data for the largest 300 metropolitan areas in the world– from New York and London to Okayama, Japan and Wulumuqi, China.
The Brookings map ranks each of these cities based on economic performance over three distinct periods, measuring both GDP growth and employment trends.
The map then color codes each city by quintile. Dark blue represents the strongest economic growth over the three periods, orange and red represents the weakest.
Most of the orange and red is (weak economic growth) is in Europe, Japan, and North America (western economies). Most of the dark blue (strong economic growth) is in Asia, the Middle East, Eastern Europe… and Chile.
2 – Toshl Finance. Toshl develops software to help people track and manage their finances, so the company has direct access to their customers’ earning and spending habits.
According to Toshl’s data, users in Western Europe earn an average of $2,062 per month, but spend $2,396. This is an average monthly deficit of $334 per person, or roughly 16% of income. Toshl users in the United States are in even worse shape, earning on average $1,871 per month. But they spend $2,290 per month, an average monthly deficit of $419, or 22% of income.
So who in the world is living within their means? Australian, Brazilian, Russian, Canadian, Filipino, and Indian users all show positive surpluses each month. Chinese and Singaporeans are essentially at breakeven levels.
Conclusion: Those who live within their means drive stronger economies.
Really? What “so many foreign countries refuse the dollar in favor of something with more value“? Who are they?
14 – well, Iran for one (and if you want to know the REAL reason neo-cons and liberals alike are targeting Iran…has nothing to do with their nuke program):
It began in 2005, when Iran announced it would form its own International Oil Bourse (IOB), the first phase of which opened in 2008. The IOB is an international exchange that allows international oil, gas, and petroleum products to be traded using a basket of currencies other than the U.S. dollar. Then in November 2007 at a major OPEC meeting, Iran’s President Mahmoud Ahmadinejad called for a “credible and good currency to take over U.S. dollar’s role and to serve oil trades”. He also called the dollar “a worthless piece of paper.” The following month, Iran—consistently ranked as either the third or fourth biggest oil producer in the world—announced that it had requested all payments for its oil be made in currencies other than dollars.
This article goes on to mention how Iran …is successfully negotiating oil sales via accepting gold, individual national currencies like China’s renmimbi, and direct bartering.
China and India are by far the most significant players, with Russia playing a supporting role. China is Iran’s number one oil export market, followed by India. Both have been paying for at least part of their Iranian oil imports with gold, and according to the Financial Times, have also been paying in their own currencies, the Chinese renmimbi and Indian rupee.
14, 15 – why would we care, Sandi, what currency Iran uses? See Scott’s point number 7 in post 11, and my response.
No recession helps!
17 – certainly. A recession brought on by excessive government spending, inflationary monetary policy, and lack of a sound currency hurts everyone.
And what nation accepts Iran’s “currency”? 1 IRR = 0.0001 USD
A recession brought on by anything, hurts.
19 – really not the point, Sandi…Iran’s not trading their currency, they’re trading oil. Iran is starting to accept only other currencies, including gold. Their oil exchange has the potential to do serious damage to the standing of the dollar, because their insistence on value is something the US is unable to meet with a weakened dollar. Who wants a bunch of worthless IOUs when they can have gold, or assurances of trade, or other things, like fissionable material? Meaning if someone else can get their oil, that hurts US.
20 – true enough. Is it your position that the current recession is NOT brought about by excessive government spending, inflationary monetary policy, and lack of a sound currency? If not, then what?
Frankly, I think you are wrong about Iran on several fronts, but beat that horse and maybe it will run. IDK and IDC.
I also do not know frankly, what the debt should be for a nation that estimates “collection of approximately $2.45 trillion in tax revenue or 15.7% GDP” for 2012. I am not an economist. I do not think that the deficit is overbearing and I believe the debt to be sustainable and payable.
I do not believe other nations or the world’s wealthy have quit investing in us either. I think you have to believe the sky is falling to make your Austrian economic theories look better. But again, I am no economist, I am just a blogger.
IMO, our biggest problem is a damnably awful Congress and political climate, with lots of liars, opportunists and incompetents. How we overcome that, I also have no clue.
When Krugman, Baker, Bartlett, Stiglitz, Ritholtz, Sachs, Blinder and Robert Reich panic, I will join them. Till then, I believe this remains solvable without changing our entire economic system.
@ 21: I beg your pardon, you go to great lengths to decry the value of the dollar and claim that Iran is accepting other currency in some sort of undermining effort when in reality that is not the true picture. Considering the sanctions, blockades and isolation of Iran, by design, I think you are simply wrong about their ability to influence anything.
22, 23 – I’m really baffled as to your temper tantrum, Sandi. I merely answered your questions about other nations refusing the dollar (I answered accurately), and offered the notion that our deficit spending, inflationary monetary policy and lack of a sound currency are the causes of the current recession (and the things keeping us from a real recovery).
All of those are legitimate points; you are unable to refute them other than to insist that you don’t know and don’t care (so why are you here?), and that the mainstream economists who advocate deficit spending, inflationary monetary policy and a fiat currency disagree with me. I knew that….what I would like to see is a defense of their theories beyond their mainstream acceptance (remember, a flat earth was once accepted in the mainstream). You can’t offer that either (I know, you’re just a blogger, not an economist), or even a cogent defense of Keynesianism (the perfect economic system when you know the world will end in five years).
As to Iran, I would argue that a nation that produces a quarter of the world’s oil, and that has managed to invoke sanctions, blockades and isolation, that has created a competitor to OPEC, the oil cartel and the world-wide acceptance of the dollar, and that has the US-led western world thumping its chest and banging the war drum has not only already influenced much, but will continue to influence in the years to come.
At any rate, Scott, I enjoy your posts and your cogent defense of socialist economics (I disagree with you, but appreciate your passion and articulation), and am enjoying this dialog. Please don’t let the irritating distractions discourage you.
I am “baffled” that you take my replies and doubts as to your observations as a “temper tantrum”. You posed a notion that “other nations” are “refusing the dollar”, when queried you pointed to Iran (of all places!) and no one else as your “proof”. Sure it was “accurate” as that goes, but it was woefully inaccurate as any kind of observation on the place of the dollar, or the US.
You have repeatedly “offered the notion that our deficit spending, inflationary monetary policy and lack of a sound currency are the causes of the current recession (and the things keeping us from a real recovery)”. And I have repeatedly disagreed with you in the main. IMO, our lack of legislative knowledge, control, understanding and restraint lead to our economic collapse, which led to the recession and this soft, unsteady “recovery” from it. I have repeatedly shown why that happened and it is YOUR insistence that “deficit spending, inflationary monetary policy and lack of a sound currency” are the backbone of the problem, not mine and not that of people I respect.
I have repeatedly refuted your positions and your Austrian blame game, with expert analysis, not just my own opinion. The only thing I “insist” that I “don’t know and don’t care” about is your notion that Iran not accepting our dollar somehow matters. I was clear as can be on that. You are trying to conflate that to the whole discussion, which is wrong and unfair.
No doubt you “would like to see” my feeble attempts at defending the economic theories of experts drug out for you to parse. That is literally the game here. It is quite sufficient IMO for you, the “doubting Thomas” on the economic issues to prove yourself right, before you can prove them wrong. That I side with them is practically irrelevant.
What are experts for if not either “mainstream acceptance” or denial? Yes, “a flat earth was once accepted in the mainstream” until it was proved wrong. I believe we can tell a lot from the countries that are “sound” in your view. Which nation’s economies you think we should concern ourselves with, and why. I have asked repeatedly for you to list the nations who do not have deficit spending, inflationary monetary policy and lack of a sound currency in your opinion. Who is walking your Austrian “free-market” talk?
If I do not offer any “cogent defense”, you should have no trouble stopping me in my tracks and dispelling all of what any of the so called “Keynesianism” economists say. Where is this “perfect economic system” you say exists?
As to Iran, again, argue till your fingers bleed. IDK and IDC.
I am not here for you to “enjoy” my posts and decide how “cogent” my “defense” or offense is. Obviously, you are not here for that reason either. I do not merely disagree with your oft touted Austrian economics for this nation, I think you are wrong. I do not need to drag every post through the dirt to say so. If you do not want my responses, stop asking for them or responding to me.
Please Scott, do as the man requests and do not let my “irritating distractions discourage you” from your Socialist economic POV either. Worry about Iran too, if you like.
Sandi – how do “our lack of legislative knowledge, control, understanding and restraint” manifest themselves? Do they equal bad laws, more laws, fewer laws, more expense, more bureaucracy, less expense, less bureaucracy…what? How do they translate into a recession?
What additional legislative knowledge and understanding are needed and how do we acquire that knowledge?
What additional controls? Control over what? How do we achieve it?
Restraint from what?
First you castigate me and then you want me to elaborate? No thanks. I am just not worthy of your time, you as much as said so. There is no reason to try.
27 – so you don’t know huh? Well, I thought I’d ask.
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Wed, 22 May 2013 13:19:25 +0000