But throughout the whole range of history, not only is there no evidence of the existence of a metallic standard of value to which the commercial monetary denomination, the “money of account” as it is usually called, corresponds, but there is overwhelming evidence that there never was, a monetary unit which depended on the value of coin or on a weight of metal; that there never was, until quite modern days, any fixed relationship between the monetary unit and any metal; that, in fact, there never was such a thing as a metallic standard of value.
This is a very slippery argument. The overall point of the essay is to show that basing one's currency on a metallic standard is silly and destructive. In this quote, the author is correct in that rarely in history has the monetary unit been permanently and inalterably fixed to an exact weight of metal. But -- it has been the norm in history to have a substantial precious metal content in money, with that content being fixed in the short term, and any lessening of the amount leading to charges of debasement, and possibly even the refusal to accept the currency.
The reason why precious metals have been an important part of money is trust -- an issue which the author fails to address. It takes a very strong government to make its subjects accept fiat currency. If the sovereign pays his soldiers in fiat currency, the soldiers know that the sovereign can infinitely dilute the currency, making the currency worthless. Whereas if the sovereign pays in coin containing precious metal, the soldier knows the precious metal is likely to be of value in many markets, no matter what the sovereign does. And by requiring money to be made from previous metals, it slows down the rate at which the sovereign can debase the currency (although of course the sovereign can and does slowly reduce the metal content).
If you trust your a particular government (or organization, or corporation) completely, then the author's arguments make sense, and you can accept the scrip of that government as currency. But if you don't trust that government completely... then you need a more complete assessment of the pros and cons of different monetary arrangements.
Yes, and the fact that we have successfully used fiat money for several decades is a testament to how well trusted modern governments are. It's a sign that things are going well. Though we can argue about what to expect in the future.
While governments back the base currency, most of the money in the monetary
system is created by private banks as "money on account". A bank uses neither
government issued money nor deposits from other costumers when writing up an
account. Money on account is purely a promise of future payment, and in many
countries these privately made money make up ~95 % of the monetary system
(there are multiple definitions of money). Note that as long as the money on
account are transferred to other costumers in the same bank, or can be cleared
with other transactions when transferred between banks, the promise of future
payment is deferred in perpetuity.
The main limits to how much money private banks can create are certain legal
requirements and costumer trust that the bank is healthy. The legal
requirements can be reserve requirements or capital requirements. Neither
directly put an upper limit on money creation. A healthy bank will always be
able to obtain more reserves. Capital requirements basically restrict how much
banks can gear their capital, and when the banking sector grows in worth over
time, it can add an equal amount of money into the system multiplied by that
factor. In Denmark (where I am from) the is no reserve requirement and the
banks are geared at ~20x.
There's also all the relentless propaganda saying that inflation is a good thing, and if it isn't, it's caused by speculators & greed, not the government.
I don't invest in anything denoted in dollars (such as bonds).
Some have successfully used fiat money for several decades. Some haven't (Venezuela and Zimbabwe recently, Germany before World War II, probably others).
>The reason why precious metals have been an important part of money is trust -- an issue which the author fails to address.
The author does not fail to address this:
>We find, however, the same pride of accuracy with the Roman mints; and also in later days when the coinage was of base metal, the directions to the masters of the mints as to the weight, alloy and design were just as careful, although the value of the coin could not thereby be affected. Accuracy was important more to enable the public to distinguish between a true and a counterfeit coin than for any other reason.
The need for a strong government to make its subjects accept coins is also talked about in detail, e.g.:
>There can be no profit from minting coins of their full value in metal, but rather a loss, and it is impossible to think that such disagreeable punishments would have been necessary to force the public to accept such coins, so that it is practically certain that they must have been below their face value and therefore were tokens, just as were those of earlier days.
To be a sovereign you have a loyal gang around you. That allows you to impose a liability on any mere individual in your realm, then offer a token to settle that liability in return for some of the individual's time.
If they refuse you execute them and confiscate their property. A total loss of time.
Or perhaps just remove their liberty - which is still a significant loss of time.
As the individual do you take the deal or stand the consequences?
Nothing to do with trust. Everything to do with power.
The author of this piece mentions classical political economy, but not Marx, its most trenchant critic.
Marx's most interesting and compelling contribution - until recently seldom understood in the English-language literature - was his theory of the "value form" and money as the "necessary form of appearance of value". This contribution is further masked by the common practice of identifying "the labor theory of value" (there is no such singular theory) as Marx's principal contribution. In fact, he was a critic of the many (contradictory and inconsistent) "labor theor[ies] of value" in circulation at the time.
"According to Marx, value and money are inseparable yet not identical: without
money there can be no value, yet money is not value. Marx’s thesis of the inseparability
of value and money overturns the classical theories of value and money and establishes
new concepts governing the theory of price. These new concepts rule out the ordinary
assumption of price theory, namely, that value is the independent variable that explains
the behavior of price, which is conceived to be the dependent variable." - Patrick Murray (https://www.mtholyoke.edu/courses/fmoseley/conference/murray...)
"The fundamental theories on which the modern science of political economy is based are these:
That under primitive conditions men lived and live by barter"
The basic premise, that barter was (and is) by which 'primitive' (whatever that is) live, has been thoroughly debunked by contemporary anthropologists of money. David Graeber's 'Debt: The first 5000 years" is a must read for anyone interested in the topic of theory of money from the anthroological (i.e., empirical) perspective:
I read "Debt" as well, so I had the same reaction. But it should hearten you that the author agrees! Two paragraphs down, he argues:
"But modern research in the domain of commercial history and numismatics, and especially recent discoveries in Babylonia, have brought to light a mass of evidence which was not available to the earlier economists, and in the light of which it may be positively stated that none of these theories rest on a solid basis of historical proof—that in fact they are false."
A few paragraphs later, he even says:
"In both these instances in which Adam Smith believes that he has discovered a tangible currency, he has, in fact, merely found—credit."
In other words, the author who wrote this piece, A. Mitchell Innes in 1913, is one of those "contemporary anthropologists of money."
That's actually quite a poor book. It essentially defines debt as any, absolutely any, sense of liability towards another being. When you define it like that, it isn't only true that debt predate money, it's obvious.
Besides that, the book is a collection of anecdotes carefully selected to try to paint a coherent picture. It is clearly written by someone who doesn't understand economics, to a public that doesn't understand economics.
It is so full of basic mistakes that it is hard to decide if the problem is ignorance, laziness or malice.
We all create money all the time. We exchange a debt we owe for a debt we own. That's it.
And underlying it all is a simple 'proof of burn' concept. Every person has a finite amount of time available to them. When you put some of that 'out of use' by serving others you gain credit from others.
The monetary system is essentially a notarised system of time credits which we exchange between ourselves.
I think this comment can be taken as a brief summary of the long article.
The article includes this passage, which mirrors this idea:
>It is by selling, I repeat, and by selling alone—whether it be by the sale of property or the sale of the use of our talents or of our land—that we acquire the credits by which we liberate ourselves from debt, and it is by his selling power that a prudent banker estimates his client’s value as a debtor.
Isn't this just describing variable attributed value exchange with a ledger that isn't inherently reconciled? Maybe I'm mistaken but I thought that was the point of fiat adoption based the realities of physical location?
Readit News
This is a very slippery argument. The overall point of the essay is to show that basing one's currency on a metallic standard is silly and destructive. In this quote, the author is correct in that rarely in history has the monetary unit been permanently and inalterably fixed to an exact weight of metal. But -- it has been the norm in history to have a substantial precious metal content in money, with that content being fixed in the short term, and any lessening of the amount leading to charges of debasement, and possibly even the refusal to accept the currency.
The reason why precious metals have been an important part of money is trust -- an issue which the author fails to address. It takes a very strong government to make its subjects accept fiat currency. If the sovereign pays his soldiers in fiat currency, the soldiers know that the sovereign can infinitely dilute the currency, making the currency worthless. Whereas if the sovereign pays in coin containing precious metal, the soldier knows the precious metal is likely to be of value in many markets, no matter what the sovereign does. And by requiring money to be made from previous metals, it slows down the rate at which the sovereign can debase the currency (although of course the sovereign can and does slowly reduce the metal content).
If you trust your a particular government (or organization, or corporation) completely, then the author's arguments make sense, and you can accept the scrip of that government as currency. But if you don't trust that government completely... then you need a more complete assessment of the pros and cons of different monetary arrangements.
The main limits to how much money private banks can create are certain legal requirements and costumer trust that the bank is healthy. The legal requirements can be reserve requirements or capital requirements. Neither directly put an upper limit on money creation. A healthy bank will always be able to obtain more reserves. Capital requirements basically restrict how much banks can gear their capital, and when the banking sector grows in worth over time, it can add an equal amount of money into the system multiplied by that factor. In Denmark (where I am from) the is no reserve requirement and the banks are geared at ~20x.
http://www.usinflationcalculator.com/
There's also all the relentless propaganda saying that inflation is a good thing, and if it isn't, it's caused by speculators & greed, not the government.
I don't invest in anything denoted in dollars (such as bonds).
The author does not fail to address this:
>We find, however, the same pride of accuracy with the Roman mints; and also in later days when the coinage was of base metal, the directions to the masters of the mints as to the weight, alloy and design were just as careful, although the value of the coin could not thereby be affected. Accuracy was important more to enable the public to distinguish between a true and a counterfeit coin than for any other reason.
The need for a strong government to make its subjects accept coins is also talked about in detail, e.g.:
>There can be no profit from minting coins of their full value in metal, but rather a loss, and it is impossible to think that such disagreeable punishments would have been necessary to force the public to accept such coins, so that it is practically certain that they must have been below their face value and therefore were tokens, just as were those of earlier days.
What you said is mirrored in the article.
If they refuse you execute them and confiscate their property. A total loss of time.
Or perhaps just remove their liberty - which is still a significant loss of time.
As the individual do you take the deal or stand the consequences?
Nothing to do with trust. Everything to do with power.
Deleted Comment
Marx's most interesting and compelling contribution - until recently seldom understood in the English-language literature - was his theory of the "value form" and money as the "necessary form of appearance of value". This contribution is further masked by the common practice of identifying "the labor theory of value" (there is no such singular theory) as Marx's principal contribution. In fact, he was a critic of the many (contradictory and inconsistent) "labor theor[ies] of value" in circulation at the time.
"According to Marx, value and money are inseparable yet not identical: without money there can be no value, yet money is not value. Marx’s thesis of the inseparability of value and money overturns the classical theories of value and money and establishes new concepts governing the theory of price. These new concepts rule out the ordinary assumption of price theory, namely, that value is the independent variable that explains the behavior of price, which is conceived to be the dependent variable." - Patrick Murray (https://www.mtholyoke.edu/courses/fmoseley/conference/murray...)
"The fundamental theories on which the modern science of political economy is based are these:
The basic premise, that barter was (and is) by which 'primitive' (whatever that is) live, has been thoroughly debunked by contemporary anthropologists of money. David Graeber's 'Debt: The first 5000 years" is a must read for anyone interested in the topic of theory of money from the anthroological (i.e., empirical) perspective:https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years
"But modern research in the domain of commercial history and numismatics, and especially recent discoveries in Babylonia, have brought to light a mass of evidence which was not available to the earlier economists, and in the light of which it may be positively stated that none of these theories rest on a solid basis of historical proof—that in fact they are false."
A few paragraphs later, he even says:
"In both these instances in which Adam Smith believes that he has discovered a tangible currency, he has, in fact, merely found—credit."
In other words, the author who wrote this piece, A. Mitchell Innes in 1913, is one of those "contemporary anthropologists of money."
Besides that, the book is a collection of anecdotes carefully selected to try to paint a coherent picture. It is clearly written by someone who doesn't understand economics, to a public that doesn't understand economics.
It is so full of basic mistakes that it is hard to decide if the problem is ignorance, laziness or malice.
But it sells well!
And underlying it all is a simple 'proof of burn' concept. Every person has a finite amount of time available to them. When you put some of that 'out of use' by serving others you gain credit from others.
The monetary system is essentially a notarised system of time credits which we exchange between ourselves.
The article includes this passage, which mirrors this idea:
>It is by selling, I repeat, and by selling alone—whether it be by the sale of property or the sale of the use of our talents or of our land—that we acquire the credits by which we liberate ourselves from debt, and it is by his selling power that a prudent banker estimates his client’s value as a debtor.
In fact, you can see money as a credit towards an extremely trustworthy debtor.
So trustworthy that everybody will accept that credit on its face value in exchange for any sort of goods.
What's the characteristic of a risky loan, it comes with a very high interest rate right?
So what happened when the risk is the lowest possible? The interest rates goes to zero or even negative.
That's money, a government-bond of a very stable country with little debt is quasi-money. The difference is only quantitative, makes sense?