And The Power of Gold: The History of an Obsession by Bernstein:
> In this exciting book, the late Peter L. Bernstein tells the story of history's most coveted, celebrated, and inglorious asset: gold. From the ancient fascinations of Moses and Midas through the modern convulsions caused by the gold standard and its aftermath, gold has led many of its most eager and proud possessors to a bad end. And while the same cycle of obsession and desperation may reverberate in today's fast-moving, electronically-driven markets, the role of gold in shaping human history is the striking feature of this tumultuous tale. Such is the power of gold.
Graber misinterprets the history and ideas of mainstream economics, calls the safest securities on the planet a debt that will never be paid and spins bizarre conspiracy theories about the Iraq invasion. You might learn about the quaint cultural practices of remote tribes but I strongly disagree that it is a good book to understand money in the real world.
Graeber is a poor economist but a good anthropologist. Debt: The First 5000 years deserves props for debunking the myth of barter coming before credit and for its observations on how small economies of mutually known & trusting people operate. It doesn't make sense to scale these up to society-wide systems; indeed, the reason we can have societies on the scale of nation-states comes from financial innovations that replaced mutual trust & credit with ledgers and double-entry bookkeeping.
Interestingly, you can see the emergence of small-scale credit forming with things like how a group of mutual friends splits the tab when going out to meals. "I'll get mine, you get yours" doesn't usually survive as people get to know each other and start interacting more regularly, rather it's "I'll get this time, you get the next time", and it all works out as long as everything feels fair, because everybody has a pretty good memory for when they get shafted.
>calls the safest securities on the planet a debt that will never be paid
This isn't the contradiction you think it is.
The US has been in debt permanently since the civil war. When exactly did you think it was going to be paid off in its entirety? Why would it even make sense to do so while there is a permanent demand for high quality securities?
Did you think Graeber was saying that treasuries weren't the safest security for you or me? He didn't. This is a gross misinterpretation of the book.
I can totally get down for this interpretation. When you think of Humanity (collectively-singular) as an entity destined to invent everything, we will obviously eventually invent the concepts of money, interest, debt, etc. The money can reproduce faster than Humanity can, so we're effectively in debt to ourself and have spent so many years trying to pay it off that we've forgotten we're truly One.
Graeber book was super annoying - it's fine to come up with a version of reality but to the degree your version is different from other people's you need to engage with them.
can't thank you enough for calling Graeber and his psuedointellectual bullshit adherents out for what they are (you do it far better than I have the patience for)
I found the historical context made it much easier to understand, and while I'm not a fan of Ferguson's politics - he is an excellent historian of finance.
The Nature of Money, Geoffrey Ingham, predates Bitcoin and the financial crisis, but it is still the most incisive theoretical discussion of money I've read. If Debt: The First 5000 Years is undergrad, The Nature of Money is grad.
+1. You beat me to posting it. As you rightly pointed out it’s not an easy read.
I also recommend “The Invention of Coinage and the Monetization of Ancient Greece”. It succinctly covers second order effects of money. I got a good understanding of histories of phenomena that we take for granted such as salary. It’s fascinating to read about the transition.
As a meta, I’ve been fortunate to witness a similar momentous transition computers and internet/communication. I wonder what other transition we are going through right now.
Nice recommendation, I've added to my reading list.
I have read Graeber's Debt and it's a great book but always thought that it left out many so questions unanswered. His anthropological treatment of money is quite nice until feudalism, but when he starts explaining the start of the Enlightenment and the gold standard in Europe things seemed very rushed and inadequately explained. Also it only touches upon our current system (post-Bretton Woods neoliberalism) briefly in the last chapter, which was a letdown since I though Graeber would have many comments about our current configuration of society.
Big ups for Bernstein, Against The Gods was a fantastic read and I can’t wait to read Power of Gold.
Another book I’d like to throw into the mix here: Central Banking 101 [0]
Fantastic overview of how the current central banking system works, written post-Covid so it has some context for the extensive QE that’s been happening over the last 2 years. Author worked on the Fed’s trading desk for over a decade in various capacities so he has a deep experiential knowledge of the plumbing in action.
I know why you get downvoted. People tend to forget, so, that Marx actually was a pretty good, and respected, economist. And when he came up with "Das Kapital" it was one way of interpreting the nascent, unlimited capitalism of the industrial revolution. It's a pitty he was co-opted by people like Lenin or Trotzky. Less for what these two were or did, but more for the fact that they led to unlimited communism and Stalinism. Because of that, Western society tends to discard Marx. Looking around, seeing VC capital burning start-ups unhinging industries through capital alone, seeing a raising gig industry, I think Marx is as relevant as he ever was.
You are better off with anything Proudhon or Silvio Gesell wrote. The problem with Silvio Gesell is that some of the Marxist criticism only applies to the brain dead ideas and people forget that there are four volumes of Das Kapital which means some of it is actually not complete garbage. The problem is that nobody has time to read the books.
Ironically, the first volume is the most popular and yet the worst of them all.
This looks to be a potentially interesting article. I started scrolling. I kept scrolling. It is long. 23,000 words long. wordstotime.com says it will take roughly 3 hours to read.
Distrust any comment on the content that appears before the post is at least 3 hours old. Similarly how can we upvote it fast enough for the algorithm to not bury it before anyone has a chance to read it.
As someone who's read Lyn for a while, there wasn't too much "new" here. Strangely for it's length it felt like a cliff notes of some of her other pieces on bitcoin and petrodollars.
That said there is plenty here that people can engage with in good faith without reading it all word for word.
I've read Lyn a couple times - I can't quite figure out their general position. Seems somewhat pro crypto and also all for deep dive in the financial markets / some kind of contrarian position. You think that's fairly accurate?
I can't also tell if it's all somewhat promo for members area. As an economist, trying to understand the incentives.
Read it beginning to end first time I clicked the link. Yeah, it took a while. She summarizes several fascinating concepts in a fairly approachable manner.
Knew a lot of this already, picked up some new examples I hadn't heard of before. Feel like it's a good article for sharing with older-generation family etc.
I didn't read the article, but I scrolled through it until I found the place where he answers the question in the headline:
What is money?
Well, the answer to that question ties into the difference between currency and money. Currency is some other entity’s liability, and they can choose whether or not to honor that particular liability. Money is something that is intrinsically valuable in its own right to other entities, and that has no counterparty risk if you custody it yourself (although it may have pricing risk related to supply and demand). In other words, Russia’s gold is money; their FX reserves are currency. The same is true for other countries.
> Distrust any comment on the content that appears before the post is at least 3 hours old
people who've studied economics formally already have a good grasp of what money is; as they read through the first few paragraphs of this they can see by its meandering where it may be headed. I don't plan to finish it.
Imagine trying to comment on an academic research paper with a very clear abstract, just to be locked for 5 hours because of the 50 pages of the actual paper.
As a data scientist, perhaps this is a case of a hammer looking for a nail, but personal finance made a lot more sense when I started treating “money” as: 1) a collection of arbitrary rules invented by humans, 2) probability distributions over the ability to exchange certain assets at different points in time, 3) a giant optimization program.
So, the terms “U.S. dollar”, “fixed rate mortgage”, “401k”, “capital gains”, etc. don’t really have any inherent meaning beyond the set of rules that govern their interactions. This rule system itself can change over time depending on politics and human emotions, so you have to try to model the dynamics of this meta-system as well, even though that’s pretty difficult.
Once you’ve gathered all the different rules into some programmatic representation, then you decide what it is you want out of life and at what points in your life, then you start optimizing. For example, would you rather have a 10% chance of having $1,000 on some future date, or a 1% chance of having $10,000? The expected return is the same in both cases, so your optimization should really consist of targeting a specific shape for the entire distribution of outcomes rather than a single number (or specific assets).
Not surprisingly, the average person (including me) does not have the right combination of 1) detailed knowledge of the global financial system and its rules, 2) how all these rules are likely to change, or 3) the technical background to implement the advanced mathematics required to optimize all of this in an accurate way that actually makes valid predictions.
So most people instead just guess and base their financial plans on their hunches about how “money” works, and large organizations that have the time to do all of this modeling in a more rigorous way come out much further ahead.
I still think simplifying the “rules” of finance would be one of the best things we could do to reduce wealth inequality, as inequality seems to largely be hidden in the highly volatile landscape of the cost function for the optimization problem I described.
Thank you for giving me this perspective. I think it's hard to see it this way because of the emotional load money has due to its necessity for ones survival these days.
"1) a collection of arbitrary rules invented by humans, 2) probability distributions over the ability to exchange certain assets at different points in time, 3) a giant optimization program."
That's a pretty good and succinct way of explaining the function of public markets. Their whole purpose is optimizing capital allocation by translating disparate assets across time into a single common metric.
Money isn't complicated. Save money, invest it into index funds long term, don't spend more than you earn, make sure you purchase a property, and never rent. We got through COVID due to monetary policies the Federal Reserver, White House, and Congress enacted, all levers that would disappear in this "paradise" crypto nerds/enthusiasts sell where our government loses all control over money.
Further, Venture Capitalists borrow money from Investment Banks who borrow money from the FED, how do we all envision this process working if our government can no longer issue money? A nebulous "DAO" with smart contracts? I'm not sure I'm comfortable with that.
I like this idea, but I wonder... if the rules were transparent would it inflate bubbles in areas that would be more likely to have the expected outcome, therefore making them less of a guarantee.
It's kind of amazing to think that the system that underpins an awful lot of human activity is a collective delusion.
This is one problem gold bugs seem to gloss over: sure your currency might technically be backed by gold (or whatever) but that's only the case because there's an enforcement mechanism on the humans involved (ie the government). And that government only exists because the people collectively will it. So there's really no difference between this and a fiat currency.
It gets even funnier when Crypto Bros start proselytizing about blockchains. Here one tiny part of the system has been replaced a simple consensus by computers. But that's where it ends. As soon as crypto (including NFTs) meets the real world, meaning if you use your Bitcoin (for example) to purchase something (weird concept I know) that isn't on the blockchain as well then you've just added a trust requirement where collective delusion has to act as an enforcement mechanism.
The bread I can buy to satisfy hunger is certainly not a delusion. Currency is an abstraction for negotiating and prioritizing satisfaction of needs. Yes, it's very blurry, but delusion seems to be quite a stretch if you ask me. Of course, many hold this view these days because we can print money et cetera, but there are still fundamentals at play such as needs, wants, resources, surplus, production, means of production, the harvest, and so forth. These are not delusional things, these are non-negotiable aspects of any civilization and any human collective as an inextricable part of the surrounding environment and availability of and access to resources. What do you reckon
What surprises me is how society gradually centered on currency and exchange of things instead of spreading knowledge. Maybe long ago, it was an obvious equilibrium, people didn't have time to learn, no means to teach fast and far. But now it makes us dependent. Each wants to ensure his survival by being a requirement for others to the point of obfuscation. And it degrades social links.
>It's kind of amazing to think that the system that underpins an awful lot of human activity is a collective delusion.
It not a delusion it's an agreement. Dollars are a form of ledger. They just keep track of who owns how much of a big liquidity pool. We had to pick something or we'd have to manage liquidity for a cartesian product of commodities(e.g. "Whats the price ratio of Chickens to Ford Taurus's today? Is anyone even in a position to exchange?"). Crypto is just an extension of this idea. Its has value because it facilitates exchange. I can turn dollars into bitcoin, bitcoin into ETH, ETH into yen, and yen into sushi. As long as those currencies are liquid they have utility.
> This is one problem gold bugs seem to gloss over: sure your currency might technically be backed by gold (or whatever) but that's only the case because there's an enforcement mechanism on the humans involved (ie the government). And that government only exists because the people collectively will it. So there's really no difference between this and a fiat currency.
How do they gloss over it? This is like one of the primary grievances most of them seem to talk about -- that currencies which used to be backed by gold are no longer, so clearly there was no supernatural force that was inextricably linking a dollar and an amount of gold. They're openly and explicitly unhappy with the government's change of currency. I don't think I've encountered any who thought that gold backing could transcend the government. Although that being said I'm talking about the traditional Ron Paul style "gold bugs" here -- I haven't really followed the lunatic fringe of crypto culture so maybe that's what you're referring to?
You're saying gold bugs complain that the currency is no longer backed by gold. As an aside, the US dollar has never been 100% gold-backed in its history. Ever. Not once. Anyway, my point is that even if it was gold-backed (even to 100%) there is still trust required that that's actually the case and you're reliant on the government to actually enforce that.
My point is that a gold-backed currency is no better than a fiat currency because you're still reliant on a government and collective delusion either way.
> It's kind of amazing to think that the system that underpins an awful lot of human activity is a collective delusion.
This could apply to religion, politics, nation hood, loyalty, or money. A few other things as well. Arguably, sexual monogamy. And marriage. Also, all mass panics and hysterias. I could go on.
> So there's really no difference between this and a fiat currency.
Exactly. Gold is a currency just like the dollar or euro. If you are a gold bug, you believe that no other currency in the world is trustworthy. If this is true, good luck figuring out what to do with your gold after the collapse of civilization, because I find it isn’t a particularly good dinner option.
> If you are a gold bug, you believe that no other currency in the world is trustworthy
False dichotomy. Gold is valuable when some but not all currencies (especially your own country) goes to shit. This is as plausible of a scenario as EVERY currency in the world becoming untrustworthy.
Shoving gold up your ass and crossing a border is a hell of a lot easier than shoving a wheelbarrow of inflated cash, or even a small stack of 100s (USD), up there. There are very few materials with as much value density as gold that are readily tradeable in most large cities as a commodity. To some extent crypto can serve a similar, but not identical, purpose.
The only thing I would slightly disagree with is that gold is a real thing, that people do consider as valuable regardless of the governance system. You can physically hold gold, it is portable, it is rare (doesn't grow on trees) you can make something with it (jewellery).
First of all you're missing how middlemen eat away at your money's value in the legacy banking system. This means that there's a lot more room for corruption within the fiat system, because it's top-lead and opaque. And that's also why the banks and political leaders cling to it, because just imagine the unfathomable wealth you can accrue by controlling all that! It's your secret ticket to covert taxation of the people, after all!
Meanwhile Bitcoin can only be influenced through transparent, though anonymized ownership (it isn't totally anonymous per se), and so no one party has monopoly over what should happen next. This is great, because it makes ownership and stewardship of it a matter of national security, since you cannot deny other parties, organizations or even nations from also owning a share of it, and so it also forces diligent cooperation across borders.
The same thing is true for gold, to an extent, but the handling and ownership of gold requires a ton more resources and security to be done safely, and it's also far less transparent.
And I haven't even started to discuss the other great properties of crypto, such as corruption, crime and extortion resistance. If you want to do either of the aforementioned crimes, then cash is simply a much better choice. At the same time it's also regulation resistant.
The fact that it's also inflation-proof is really just a bonus after all that. So all in all I think you should do more research and rethink your position on the many great alternatives to fiat.
> It’s also worth understanding Gresham’s law, which proposes that “bad money drives out good”. Given the choice between two currencies, most people spend the weaker one and hoard the stronger one.
Eh, that's not really Gresham's law, which applies when there is a fixed (by law) exchange rate between two currencies.
Quoting Hayek’s Denationalization of Money, “What Jevons, as so many others, seems to have overlooked,
or regarded as irrelevant, is that Gresham's law will apply only
to different kinds of money between which a fixed rate of
exchange is enforced by law.” (Emphasis his)
True. What actually happens, is the opposite, known as Thier's law[0]: "Good money drives out bad". When given free choice (free competition between currencies), people prefer to accept the good money, which eventually drives out the bad money from circulation. Or more clearly, the bad money loses demand and therefore its value.
You dont disagree with the author. The key phrase is "given the choice" from the consumer perspective. That people who sell will demand the stronger if they have the option isnt surprising.
With a free-floating exchange rate, the buyer wants to use the weaker currency and the seller wants to accept the stronger one. The seller can set prices in each according to his preference, and the buyer can decide which to pay vs. which to save according to hers. The market will discover an exchange rate between the two currencies accordingly, but no economic law dictates that one will drive out the other.
Gresham’s law applies when the seller is bound to a certain rate of exchange between the two currencies. The buyer will therefore pay in the currency she has the least desire to hold for the long term. As a result of everyone doing this, over time all trading will be done in the less-desirable currency.
I found this a thoughtful and informative read, and I especially like the term “proof of force” to describe fiat currency, which I hadn’t heard before.
I don’t think this is going to significantly change the way most people on hacker news think about bitcoin, but I will say that it changed my perspective on the problem of network scalability.
If you think of Bitcoin not as competing against Visa, but as competing against the bank settlement network, then it makes a lot more sense.
As someone who's into economics and finance (as well as cryptocurrencies), I'm less concerned with what everyone thinks about Bitcoin and a lot more with what they know about money in general. It's scary when you first realize most people have no clue how our civilization works and what holds it all together. This is a very fragile system, it benefits those with money/power, but it's also ripe for disruption because it's not consciously supported by the majority of the world's population.
How can someone go through life and never ask themself what money is, where it comes from, why their paper bills keep getting worth less year over year... Most of us consume things on a daily basis, but never stop to think what actually happens there, where the value of the money comes from, what determines the price of the product, etc.
> If you think of Bitcoin not as competing against Visa, but as competing against the bank settlement network, then it makes a lot more sense.
Yes, this is Bitcoin precisely. If you then lock your bitcoins in different schemes with different security models or transaction amortization tradeoffs, you carry the risk of the scheme, not the settlement layer and unit of account. You can experiment with different forms of commodity money, fiat money, and all the monetary policy therein and the proof will be in the pudding of who ends up with more of the underlying, finitely scarce coin, but you can never risk anyone's coin that doesn't join the scheme.
There are many ways to think about it, but one I find amusing is that a national currency is a federated system of many smaller currencies that trade at par.
Paper money is clearly not the same thing as an electronic record in a bank account. Paper can't be stored in a database. They are kept equivalent because banks (and people) trade them at par, for example using ATM's.
Each bank (including central banks) has its own computer system for its accounts. Bank account money never leaves a bank's computers. There's no way to get it out of the computer, any more than you can remove your virtual treasure from an online role playing game.
So this seems like a good way of thinking about what happens when a bank creates money. They can create virtual currency in their own computer system, not in anyone else's. It doesn't make them richer, any more than a game company creating virtual gold pieces makes them richer. The money is either meaningless (if held by the bank itself) or a liability (if it belongs to a bank customer). To a bank, only outside money counts as wealth.
Transfers happen via trades. To pay anyone not using the same computer system, a bank needs outside money of some form.
So inside money and outside money are clearly different. To a customer, money in Bank A might seem equivalent to money in Bank B, but to Bank A, only dollars in Bank B are assets, and to Bank B, only dollars in Bank A are assets.
So, one way to approach the "what is money" question might be to look at payment systems. How is it that all these different sub-currencies are made to trade at par?
Realising this is what made money a lot easier to understand for me, and simplified the difference between different kinds of money. In the end its easier just to think of them as different currencies with stable pegs. It answers questions like - how can the banks issue money? Of course some of them are easier to exchange with (e.g. bank credit over notes) and this makes them more useful in trades.
For example (bank money = real money) only because the bank is willing to keep the peg at (1.00 bank credit = 1.00 real currency) as you state whenever you use an ATM, take money out at the counter, etc. When the bank runs out of real money to maintain this peg it can and has deviated in the past (e.g. people selling their bank accounts at say 30c to the dollar in the great depression). In normal times however their much smaller money stock is enough to keep the peg going against the usual net deposit/withdrawal flow.
Of course if a central bank comes in and can lend that bank unlimited real money the peg could be maintained. Indeed that can and has happened.
There are some ideas to implement negative interest rates on bank accounts only but keeping cash by introducing a second cash currency that explicitly does not follow a stable peg. I.e. inflation targeting only has to be done on cash not bank accounts. Bank accounts will get price level targeting which means no inflation.
> Kind of like how we don’t use Fedwire transfers to buy coffee, bitcoin base layer transactions are not well-suited to buying coffee. Visa transactions that run on top of Fedwire, or lightning transactions that run on top of bitcoin, can be used to efficiently buy coffee.
That is in interesting perspective. I always wondered how can BTC scale if the average folks cant use it to make instant payments.
Bitcoiners have been banging that drum for a long time, since the block size war and the inception of the Lightning Network. Takes a long time for the message to spread outside the Bitcoin bubble because Bitcoiners are largely ignored by the wider community.
Readit News
* https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years
Money: The True Story of a Made-Up Thing by Goldstein (also of NPR's Planet Money):
* https://www.goodreads.com/book/show/50358103-money
* https://en.wikipedia.org/wiki/Jacob_Goldstein
And The Power of Gold: The History of an Obsession by Bernstein:
> In this exciting book, the late Peter L. Bernstein tells the story of history's most coveted, celebrated, and inglorious asset: gold. From the ancient fascinations of Moses and Midas through the modern convulsions caused by the gold standard and its aftermath, gold has led many of its most eager and proud possessors to a bad end. And while the same cycle of obsession and desperation may reverberate in today's fast-moving, electronically-driven markets, the role of gold in shaping human history is the striking feature of this tumultuous tale. Such is the power of gold.
* https://www.wiley.com/en-us/The+Power+of+Gold:+The+History+o...
* https://en.wikipedia.org/wiki/Peter_L._Bernstein
Bernstein was also the author of Against The Gods: The Remarkable Story of Risk.
Graber misinterprets the history and ideas of mainstream economics, calls the safest securities on the planet a debt that will never be paid and spins bizarre conspiracy theories about the Iraq invasion. You might learn about the quaint cultural practices of remote tribes but I strongly disagree that it is a good book to understand money in the real world.
A far better resource is Perry Mehrling's Economics of Money and Banking course: https://www.ineteconomics.org/education/courses/the-economic...
Interestingly, you can see the emergence of small-scale credit forming with things like how a group of mutual friends splits the tab when going out to meals. "I'll get mine, you get yours" doesn't usually survive as people get to know each other and start interacting more regularly, rather it's "I'll get this time, you get the next time", and it all works out as long as everything feels fair, because everybody has a pretty good memory for when they get shafted.
This isn't the contradiction you think it is.
The US has been in debt permanently since the civil war. When exactly did you think it was going to be paid off in its entirety? Why would it even make sense to do so while there is a permanent demand for high quality securities?
Did you think Graeber was saying that treasuries weren't the safest security for you or me? He didn't. This is a gross misinterpretation of the book.
I can totally get down for this interpretation. When you think of Humanity (collectively-singular) as an entity destined to invent everything, we will obviously eventually invent the concepts of money, interest, debt, etc. The money can reproduce faster than Humanity can, so we're effectively in debt to ourself and have spent so many years trying to pay it off that we've forgotten we're truly One.
* https://www.goodreads.com/book/show/2714607-the-ascent-of-mo...
I found the historical context made it much easier to understand, and while I'm not a fan of Ferguson's politics - he is an excellent historian of finance.
If so, I'm gonna stay very far away from that book - there's enough authors out there that second chances in a case like this really are not required.
I also recommend “The Invention of Coinage and the Monetization of Ancient Greece”. It succinctly covers second order effects of money. I got a good understanding of histories of phenomena that we take for granted such as salary. It’s fascinating to read about the transition.
As a meta, I’ve been fortunate to witness a similar momentous transition computers and internet/communication. I wonder what other transition we are going through right now.
I have read Graeber's Debt and it's a great book but always thought that it left out many so questions unanswered. His anthropological treatment of money is quite nice until feudalism, but when he starts explaining the start of the Enlightenment and the gold standard in Europe things seemed very rushed and inadequately explained. Also it only touches upon our current system (post-Bretton Woods neoliberalism) briefly in the last chapter, which was a letdown since I though Graeber would have many comments about our current configuration of society.
Another book I’d like to throw into the mix here: Central Banking 101 [0]
Fantastic overview of how the current central banking system works, written post-Covid so it has some context for the extensive QE that’s been happening over the last 2 years. Author worked on the Fed’s trading desk for over a decade in various capacities so he has a deep experiential knowledge of the plumbing in action.
[0] https://www.amazon.com/Central-Banking-101-Joseph-Wang/dp/09...
If anyone wants a quick '101' primer on monetary systems, Cullen Roche has a good paper:
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625
As does the Bank of England:
* https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
Ironically, the first volume is the most popular and yet the worst of them all.
Dead Comment
Dead Comment
Distrust any comment on the content that appears before the post is at least 3 hours old. Similarly how can we upvote it fast enough for the algorithm to not bury it before anyone has a chance to read it.
That said there is plenty here that people can engage with in good faith without reading it all word for word.
I can't also tell if it's all somewhat promo for members area. As an economist, trying to understand the incentives.
FWIW I like the research.
I have followed this writer for some time, always pretty good and VERY detailed.
If you don't know about bitcoin / historic currency, it's a great read. Covers the basis.
Knew a lot of this already, picked up some new examples I hadn't heard of before. Feel like it's a good article for sharing with older-generation family etc.
What is money?
Well, the answer to that question ties into the difference between currency and money. Currency is some other entity’s liability, and they can choose whether or not to honor that particular liability. Money is something that is intrinsically valuable in its own right to other entities, and that has no counterparty risk if you custody it yourself (although it may have pricing risk related to supply and demand). In other words, Russia’s gold is money; their FX reserves are currency. The same is true for other countries.
The author is a woman.
people who've studied economics formally already have a good grasp of what money is; as they read through the first few paragraphs of this they can see by its meandering where it may be headed. I don't plan to finish it.
That's if you read out loud (23,000 @ 140wpm = 2:45 hours). If you silent read, you can get around 240wpm (1:36 hours).
So, the terms “U.S. dollar”, “fixed rate mortgage”, “401k”, “capital gains”, etc. don’t really have any inherent meaning beyond the set of rules that govern their interactions. This rule system itself can change over time depending on politics and human emotions, so you have to try to model the dynamics of this meta-system as well, even though that’s pretty difficult.
Once you’ve gathered all the different rules into some programmatic representation, then you decide what it is you want out of life and at what points in your life, then you start optimizing. For example, would you rather have a 10% chance of having $1,000 on some future date, or a 1% chance of having $10,000? The expected return is the same in both cases, so your optimization should really consist of targeting a specific shape for the entire distribution of outcomes rather than a single number (or specific assets).
Not surprisingly, the average person (including me) does not have the right combination of 1) detailed knowledge of the global financial system and its rules, 2) how all these rules are likely to change, or 3) the technical background to implement the advanced mathematics required to optimize all of this in an accurate way that actually makes valid predictions.
So most people instead just guess and base their financial plans on their hunches about how “money” works, and large organizations that have the time to do all of this modeling in a more rigorous way come out much further ahead.
I still think simplifying the “rules” of finance would be one of the best things we could do to reduce wealth inequality, as inequality seems to largely be hidden in the highly volatile landscape of the cost function for the optimization problem I described.
That's a pretty good and succinct way of explaining the function of public markets. Their whole purpose is optimizing capital allocation by translating disparate assets across time into a single common metric.
Further, Venture Capitalists borrow money from Investment Banks who borrow money from the FED, how do we all envision this process working if our government can no longer issue money? A nebulous "DAO" with smart contracts? I'm not sure I'm comfortable with that.
This is one problem gold bugs seem to gloss over: sure your currency might technically be backed by gold (or whatever) but that's only the case because there's an enforcement mechanism on the humans involved (ie the government). And that government only exists because the people collectively will it. So there's really no difference between this and a fiat currency.
It gets even funnier when Crypto Bros start proselytizing about blockchains. Here one tiny part of the system has been replaced a simple consensus by computers. But that's where it ends. As soon as crypto (including NFTs) meets the real world, meaning if you use your Bitcoin (for example) to purchase something (weird concept I know) that isn't on the blockchain as well then you've just added a trust requirement where collective delusion has to act as an enforcement mechanism.
It not a delusion it's an agreement. Dollars are a form of ledger. They just keep track of who owns how much of a big liquidity pool. We had to pick something or we'd have to manage liquidity for a cartesian product of commodities(e.g. "Whats the price ratio of Chickens to Ford Taurus's today? Is anyone even in a position to exchange?"). Crypto is just an extension of this idea. Its has value because it facilitates exchange. I can turn dollars into bitcoin, bitcoin into ETH, ETH into yen, and yen into sushi. As long as those currencies are liquid they have utility.
Or, did you simply find that this was the system in place, and you went along with it?
Re your point about crypto - did you see how you turned your crypto into yen (fiat) to get your sushi?
How do they gloss over it? This is like one of the primary grievances most of them seem to talk about -- that currencies which used to be backed by gold are no longer, so clearly there was no supernatural force that was inextricably linking a dollar and an amount of gold. They're openly and explicitly unhappy with the government's change of currency. I don't think I've encountered any who thought that gold backing could transcend the government. Although that being said I'm talking about the traditional Ron Paul style "gold bugs" here -- I haven't really followed the lunatic fringe of crypto culture so maybe that's what you're referring to?
You're saying gold bugs complain that the currency is no longer backed by gold. As an aside, the US dollar has never been 100% gold-backed in its history. Ever. Not once. Anyway, my point is that even if it was gold-backed (even to 100%) there is still trust required that that's actually the case and you're reliant on the government to actually enforce that.
My point is that a gold-backed currency is no better than a fiat currency because you're still reliant on a government and collective delusion either way.
One can be printed into infinity, one cant. Gold is manifested mistrust in governments ability to manage a currency.
You just argue that "gold backed" is a scam that falls apart the moment people actually try that.
This could apply to religion, politics, nation hood, loyalty, or money. A few other things as well. Arguably, sexual monogamy. And marriage. Also, all mass panics and hysterias. I could go on.
How about sub-cultures in programming and technology?
Exactly. Gold is a currency just like the dollar or euro. If you are a gold bug, you believe that no other currency in the world is trustworthy. If this is true, good luck figuring out what to do with your gold after the collapse of civilization, because I find it isn’t a particularly good dinner option.
False dichotomy. Gold is valuable when some but not all currencies (especially your own country) goes to shit. This is as plausible of a scenario as EVERY currency in the world becoming untrustworthy.
Shoving gold up your ass and crossing a border is a hell of a lot easier than shoving a wheelbarrow of inflated cash, or even a small stack of 100s (USD), up there. There are very few materials with as much value density as gold that are readily tradeable in most large cities as a commodity. To some extent crypto can serve a similar, but not identical, purpose.
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The only thing I would slightly disagree with is that gold is a real thing, that people do consider as valuable regardless of the governance system. You can physically hold gold, it is portable, it is rare (doesn't grow on trees) you can make something with it (jewellery).
What is a "Crypto Bro"?
Meanwhile Bitcoin can only be influenced through transparent, though anonymized ownership (it isn't totally anonymous per se), and so no one party has monopoly over what should happen next. This is great, because it makes ownership and stewardship of it a matter of national security, since you cannot deny other parties, organizations or even nations from also owning a share of it, and so it also forces diligent cooperation across borders.
The same thing is true for gold, to an extent, but the handling and ownership of gold requires a ton more resources and security to be done safely, and it's also far less transparent.
And I haven't even started to discuss the other great properties of crypto, such as corruption, crime and extortion resistance. If you want to do either of the aforementioned crimes, then cash is simply a much better choice. At the same time it's also regulation resistant.
The fact that it's also inflation-proof is really just a bonus after all that. So all in all I think you should do more research and rethink your position on the many great alternatives to fiat.
Eh, that's not really Gresham's law, which applies when there is a fixed (by law) exchange rate between two currencies.
Quoting Hayek’s Denationalization of Money, “What Jevons, as so many others, seems to have overlooked, or regarded as irrelevant, is that Gresham's law will apply only to different kinds of money between which a fixed rate of exchange is enforced by law.” (Emphasis his)
[0] https://en.wikipedia.org/wiki/Gresham%27s_law#Reverse_of_Gre...)
Gresham’s law applies when the seller is bound to a certain rate of exchange between the two currencies. The buyer will therefore pay in the currency she has the least desire to hold for the long term. As a result of everyone doing this, over time all trading will be done in the less-desirable currency.
I don’t think this is going to significantly change the way most people on hacker news think about bitcoin, but I will say that it changed my perspective on the problem of network scalability.
If you think of Bitcoin not as competing against Visa, but as competing against the bank settlement network, then it makes a lot more sense.
How can someone go through life and never ask themself what money is, where it comes from, why their paper bills keep getting worth less year over year... Most of us consume things on a daily basis, but never stop to think what actually happens there, where the value of the money comes from, what determines the price of the product, etc.
Yes, this is Bitcoin precisely. If you then lock your bitcoins in different schemes with different security models or transaction amortization tradeoffs, you carry the risk of the scheme, not the settlement layer and unit of account. You can experiment with different forms of commodity money, fiat money, and all the monetary policy therein and the proof will be in the pudding of who ends up with more of the underlying, finitely scarce coin, but you can never risk anyone's coin that doesn't join the scheme.
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Paper money is clearly not the same thing as an electronic record in a bank account. Paper can't be stored in a database. They are kept equivalent because banks (and people) trade them at par, for example using ATM's.
Each bank (including central banks) has its own computer system for its accounts. Bank account money never leaves a bank's computers. There's no way to get it out of the computer, any more than you can remove your virtual treasure from an online role playing game.
So this seems like a good way of thinking about what happens when a bank creates money. They can create virtual currency in their own computer system, not in anyone else's. It doesn't make them richer, any more than a game company creating virtual gold pieces makes them richer. The money is either meaningless (if held by the bank itself) or a liability (if it belongs to a bank customer). To a bank, only outside money counts as wealth.
Transfers happen via trades. To pay anyone not using the same computer system, a bank needs outside money of some form.
So inside money and outside money are clearly different. To a customer, money in Bank A might seem equivalent to money in Bank B, but to Bank A, only dollars in Bank B are assets, and to Bank B, only dollars in Bank A are assets.
So, one way to approach the "what is money" question might be to look at payment systems. How is it that all these different sub-currencies are made to trade at par?
For example (bank money = real money) only because the bank is willing to keep the peg at (1.00 bank credit = 1.00 real currency) as you state whenever you use an ATM, take money out at the counter, etc. When the bank runs out of real money to maintain this peg it can and has deviated in the past (e.g. people selling their bank accounts at say 30c to the dollar in the great depression). In normal times however their much smaller money stock is enough to keep the peg going against the usual net deposit/withdrawal flow.
Of course if a central bank comes in and can lend that bank unlimited real money the peg could be maintained. Indeed that can and has happened.
https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-nega...
That is in interesting perspective. I always wondered how can BTC scale if the average folks cant use it to make instant payments.