Talk:Money

There's a lot in here that needs attention. The "Essential characteristics" section, under "unit of account", talks about money being an "equivalent of value" and a "measure of value"; this is nonsense: a trade takes place when the seller values the money more than the thing he's selling and the buyer simultaneously values the money less than the thing -- there's no equivalence or any possibility of measurement. But I'm leaving this alone pending better wording. The idea of intrinsic value is also rubbish.

I am deleting this:

Its quantity should be closely controllable by the monetary authority. This makes it difficult to use commercially used commodities like gold. If there are no significant new discoveries of gold the economy will stagnate and fall into depression due to a relative shrinkage of the money supply. Likewise if there is an increased industrial demand for gold. On the other hand, if there is a massive new discovery of gold this could lead to an inflation of commodity prices.

as it's almost entirely nonsense, and what isn't nonsense is politically biased. And this:

Occasionally, governments also by simple decree changed the amount of gold they would supply in exchange for their notes, and this also often had less effect on what could be bought with the money than the change in the amount of gold should have implied.

since it's meaningless (of course it doesn't affect what you can buy, in the short term, if the government effectively tells people not to adjust prices, on threat of being shot!)

The section about a bank lending out your gold coins as "credit money" is not how the system actually works. When you deposit your coins, the bank adds them to its reserve account; if it has, say, a 10% reserve requirement, that means it can lend out 10 times what you deposited!! This is, obviously, fraudulent, and couldn't happen without government support (i.e., the threat of, ultimately, lethal force)

I removed this whole section as blatant nonsense:

== What is its effect ? ==

Money serves as a command to the economy as a whole - either to speed up (that is to employ more people and to produce more commodities) in the case of an increase that is greater than the increase in the population and existing replacement needs; or to slow down (lay off workers and produce less) in the event of a contraction of the money supply relative to the population.

What happens when there is too much of it? We get a rise in the price indexes. :What happens when there is too little of it? We get a recession or a depression.

For instance, if you have to sell your services for money then clearly the amount of money in the system that will keep everyone, who wants to, working at the equivalent of a living wage is at least close to being enough. When the amount of money in the economy contracts to the point that large numbers of people are unable to find work that is not demeaning or will not pay a living wage there would clearly be too little.

If you had a business idea and needed capital to translate it into a functioning operation or a small business that had an opportunity to expand you would also clearly need the money/credit situation to be reasonably loose and the money supply to be sufficiently large to support new and expanding businesses.

If, on the other hand, you had a large interest in a bank or other unrestricted credit-granting/money-creation institution you might want to see the contraction of the money supply from other sources to enhance your own institution's powers in this area as well as increasing the relative value of financial instruments of all kinds. If you had a lot of money and were primarily interested in hiring labour, the large supply of desperate and hungry people that high unemployment brings might seem to be an advantage.

User:Tacitus Prime, 2004-05-02

The first paragraph was simply wrong, most money today is credit money backed by a military fiat which is only used to back money directly in a few nations (Cuba, North Korea, other embargoed nations who can't participate in markets).

there's no debate about what are the four functions of money or the three forms it takes (commodity, credit, fiat) - although perhaps there should be.

The term "money" is the most general, and I think a detailed current treatment of how it works belongs in "currency" - what belongs here is the historical description of the evolution of empires from commodity traders to fiat holders (for colonies) to credit backers (for a commonwealth etc.), to the present global empire of monetization.

Americans may not like this description, as it basically implies that the US has become a security guard for the real empire, which is still very British. Tough for them, it's true. London rules the financial world.

I'd have to disagree with this comment about London. Obviously London is an important financial centre, but "rules the financial world"?? I think New York would claim that mantle (and I'm australian, so no US bias here). London would be on the 2nd rung, along with Hong Kong and Tokyo - User:MMGB - 2002-04-08

New York claims it, and London shuts up, because London has it. Although it handles less total dollar volume, London is the center of accounting standards, of the insurance industry, and most importantly the laundering of tax-free global contractor money. It also educates the elite of much of the developing world, and has far better relations with the Arab business world than the US (which stakes its claim on political leaders who are easier to overturn). Also most British educated financial people speak several languages, have been to Hong Kong a few times, and are generally a lot more socially acceptable in developing nations than the "hired gun" Americans they use to blow up regimes they dont' like. Remember, the British invented the idea of military intelligence, and what they want the Americans to believe, the Americans believe. If America thinks it runs everything, so much the better, but realistically, given the volatility of American markets and leadership, and belief in bizarre propaganda, they are puppets on a string globally.

another key issue is that London trains its economists in the Marxist as well as classical traditions so they are never surprised in China or Russia or anywhere. This is a huge advantage in knowing when to stop trying to apply neoclassical economics. :-0

I kept religious arguments about usury and money being evil out of this. I think the green economists are the most rational bunch of critics of the money system, so I cited them. If you want the religious arguments mentioned separately, add them, but they are ultimately the same argument. An article on usury (i.e. interest) is in order, but I don't want to write that right now, as I'm sure it'll be hacked by zealots on all sides. Let's let this one settle down first.

The main purpose of this article is to show that there is nothing mysterious or new about money, and that it works the same now as it always, ever, did, and is still driven by utility and beauty, and still doesn't care what it destroys on the way through. it's an expression of human perceptions of beauty and their desires for "Stuff" or "power", and really not much else - an abstraction of lust or greed, maybe, although I wouldn't say that here.

This comment smacks of tired leftist dogma (but hey it's a comment so you are free to be non-NPOV). To my perpective, money is the tangible and denumerative representation of value.

yes, it expresses a theory of value, certainly, usually via some shared political economy which sets those values culture-wide.

It is not simply an expression of my desire for "stuff" - I work and deliver value, and this value is measured and rewarded accordingly.

measured and rewarded BY WHO? someone issues money - it isn't "earned" in the abstract, which many people seemingly and wrongly believed.

Measured and rewarded by those who perceive the service/product as valuable, obviously.

However, the value scales can be completely screwed - A football player might get paid more than a heart surgeon for instance, though it is much less beneficial to humanity. Money itself is inherently neutral, like fire which can cook a meal or burn a child to death, the end to which it is put is the choice of the user.

agreed, although the neutrality itself becomes non-morally-neutral when a political economy makes weapons easier to buy than gardening tools, for instance.

Aren't you confusing the tool with the user? This is like saying the axe caused the murder, not the person swinging it. How people use money is certainly something open to moral scrutiny, but the money itself is entirely abstract and morally neutral. The morality in your example relates to the political economy, not the medium of value exchange. - User:MMGB

Money is not neutral! How it is issued, by whom, and for what purpose(s) all have profound effects.

While it can be an expression of the value one places on lust or greed, it can also be an expression of love, compassion, or anything else in a person's personal value system. - User:MMGB 2002-04-08

true enough, thus the theory of moral purchasing which holds that people express themselves by what they buy. I'm quite pleased to have this point of view in the article as well, but the more of it we have, the more we face the risk that money-hating anti-usury forces start hacking it up. So I think it's tough to balance. BTW you might like this article on expressing onself via money.

When you say that the "main purpose of this article is to show that there is nothing mysterious or new about money, and that it works the same now as it always, ever, did, and is still driven by utility and beauty, and still doesn't care what it destroys on the way through", I'm inclined to disagree. Isn't the main purpose of an article entitled "money" to tell about money?

yes, the main purpose is to tell about money. And, historically, there have been two stories to tell - one, on how much "more efficient" money makes barter. And two, on how much damage is done by systems where efficiency in this narrow sense is the only or overwhelmingly dominant goal. So I see no disagreement at all. The question is only how much will be said about the damage, and how much about the efficiency or history.

And of course money "doesn't care what it destroys"; it's inanimate. When you write this way, and when you equate interest with usury, and when

that equating of all interest with usury is fundamental to historical Islam and to Christianity - I didn't invent it.

you make flat unsupported assertions that contradict popular belief, you sound like you're trying to drive a point of view. Can you phrase your text in NPoV terms, and provide proof for some of your claims? - Rootbeer 2002-04-07

I do have a point of view, and to enable NPOV I admit that here in talk, but it shouldn't alter the article much except to attract proponents of other views.

if you can find "flat unsupported assertions that contradict popular belief," in the article itself, I want to hear about it, so I can remove them and address whatever popular misconceptions or other beliefs are involved. Or I'd like you to add balancing statements. I don't consider this a very controversial topic - all theories of economics are inclined to agree that money is *ONLY* an efficiency mechanism and that separating its various functions may be sometimes required to enable goals other than efficiency.

there are certainly controversial notions here, like gold being popular not only for its workability and beauty, but also for its utility in trading for weapons. However, I don't think those notions are disputed by modern scholars, it's demonstrable that military power depended on backing of gold up until modern times.

I'm not an economist, but it seems to me that the idea that money must be backed by either a commodity (gold, for instance) or military fiat is incorrect.

that's right, it is incorrect, there's also credit money, which is backed by assurance only. The dividing line between fiat and credit money is obscure largely because it pays off immensely to keep it obscure, i.e. to have more credit circulating than you have power to enforce all those deals by force. Likewise, the dividing line between fiat and commodity is also obscure for the same reason - it pays off immensely if everyone thinks there's gold in or a Swiss Bank or Fort Knox and there isn't - they defend you or at least do not invade you, while you laugh at them and spend their money on weapons, hookers and blow to sabotage their own attempts to become world powers. The moral hazards are extreme.

so, it's *SUPPOSED* to seem to you that money must not have to be backed by those things, that's what creates its power over your behavior, and makes it acceptable as legal tender universally.

What makes an commodity-unbacked currency worthwhile is, to my understanding, a collective belief that somebody else will be prepared to exchange that money for something else you want. That may be that a military force is prepared to enforce its use, it may not.

if not, then it's credit money - you have given your labor as credit to a system that gave you money, and you expect to be able to get it back later in a transformed form. That goes right back to Ricardo and the original political economy.

In any case, the article currently gives the impression that monetary systems are always enforced by generals without the participation or consent of the the populace and their democratically-elected representatives, which is patent nonsense. -- Robert Merkel

I dont' recall EVER being asked how Alan Greenspan should conduct himself, and governments gave up most of their fiat money powers to central banks who agreed not to use them, some time ago. There are no major world powers where the politicians decide when to print money. So, "without the participation or consent of the the populace and their democratically-elected representatives," is true, except to the degree that you consider the appointment of Fed Chairman to be consented. And in about half the world, there is no control even to that level. China's yuan is certainly run that way, without consultation, wouldn't you agree? And Europe has only indirect control over its currency now.

so, you might be saying that AMERICANS get to vote on who controls the US Dollar, and I might agree, but the default is as I put it, "enforced by generals without the participation or consent of the the populace", and the democratic controls you mention are recent innovations of the 20th century.

I wouldn't call it "military fiat", but most monetary systems nowadays (including that of the US and Europe) is valued on what economists call "the float". All this means is that the money has no "real" value other than it being an accepted form of exchange for goods and services. This money is, however, backed up by the perceived strength of the country or countries from where it originates. Of course, part of this perception of "strength" comes from the quality of physical security for that market - and that is where the "military fiat" comment came from.

that *perception* of strength obviously minimizes the need to use military force, but the fiat is still *there*, albeit cushioned by a credit "float".

If fact, just after the events of September 11th there was some worry in ecomomic markets that the US was no longer a safe place for investment - the "value" of our money went sharply down as a result. After a bit of time

yes, proving that military vulnerability is still a driver of value.

went by the markets readjusted themselves and cooler heads realized that most of the strength and monetary security of the US was due to many other factors beyond physical security. Since that time the US has regained much of that lost sense of physical security - restoring confidence in the US market and its dollar. So it is a biased oversimplification to say that "military fiat" does not really play any direct role in the monetary system - it is just an important member of the supporting cast.

the dip and recovery proves the point - in the short term the US looked very vulnerable... who knew if LA would be nuked, Chicago plagued, or if there was radiation in that dust spreading through Manhattan? But once it became clear that there wasn't, and that the only followup was some dinky anthrax attacks, and that the world wasn't turning on the US but backing it, the US looked relatively strong.

Totally off-topic, but while I agree with your assessment that "the world wasn't turning on the US but backing it", I think that tide is starting to turn. - User:MMGB

Likely, it will interesting to watch the US Dollar as the US and Israel become increasingly isolated with this "war on terrorism" nonsense rhetoric. It was doomed from day one - to declare an unwinnable "war" on an abstract noun rather than an easily winnable "War on Al Qaeda" was a serious mistake, and it's humiliating for Bush to be forced to back Arafat against Sharon, but that's what happens when you pick the wrong horse. Top-down force is nothing more than a stopgap against these problems of biowar or "terrorism" - and long term the world will line up as low-tech powers versus high-tech. I honestly think Blair pushed Bush into it for his own reasons, because Blair wanted to cut the 90% of British heroin that came from Afghanistan to keep the socially conservative Labour old boys on his side.

I don't know if Blair pushed Bush into it as such, but there was certainly mutual desire. Speaking of nonsense rhetoric, we have to include the famous "axis of evil". Did you see the classic "axis of just as evil/not quite as evil" post that toured the net afterwards? - User:MMGB

yes, it's been widely ridiculed. However, there is a legitimacy to it, in that the ONLY thing those nations named have in common is "capacity" for weapons of mass destruction and willingness to proliferate technologies useful in asymmetric warfare in particular. So this "axis" is actually technological - and must be said to include the US, Israel, France, the UK, Japan and Russia, who maintain active research programs into such stuff as anthrax and AI. I view AI as by far the most dangerous of these, since the perfecting of scripts for "whispering in the ear of suicide bombers" pretty much ends all of what we know as civilization. We don't have to wait for the gollums to make robots work - "the precious" AI can use human bodies in the meantime... now *that* makes me shudder.

Only in times of crisis does this come into play in developed nations. However, in developing nations and totalitarian states, "military fiat" does play some direct role that varies from example to example. --maveric149, Sunday, April 7, 2002

Cuba and North Korea are the best examples of pure military fiat states. But the less democratic a country is, the more role the fiat plays one way or another - whether private banks proxy for central banks or not. The issuance of the money isn't hte question - it's what backs it. Read the article on the Bank for International Settlements which outlines how it works in the global clearing system today. Clearly military fiat plays the key role in the setting of policy, as states enjoy a "risk free rate" and land is the preferred reserve.

A chronology that could be incorporated Joe Cetina 03:40, 22 Mar 2004 (UTC)

Material removed

I removed the following material because the history of inflation in Canada is not very relevent to this article:

What has happened in recent history ?

In the last (20th) century the 3 years when inflation hit it's highest rates and the main period when the money supply contracted and prices fell make an interesting study.

A. The inflation years: The year that saw the highest year over year rate of inflation in Canada was 1947. The second highest came in 1981 and the third in 1951. The first spike in 1947 came about when the war time economic controls were lifted. The third highest bout came near the end of the Korean War. The 1981 episode was quite different from the first two and deserves close study for the contrast with the other two episodes. The functioning and control of the central bank (Bank of Canada) and the banking system as a whole were central to all three.

In 1947 the Governor of the BoC threatened to raise the reserve ratios if the banks didn't stop making new loans or at least severly courtail them. Something similar happened in 1951 or 2. In both cases the growth of the money supply and the resulting inflationary pressures were brought into line without crippling business with massive interest rate hikes.

The 1981 episode, on the other hand, saw interest rates driven through the roof by US Fed Chairman Paul Volker and B of C Governor G. Bouey. The new prime rate (something in the order of 23%) in 1981 had been illegal a short time before. While an even higher rate of inflation was brought under control in 1947 with out touching interest rates. A number of social ills can be traced to this high interest rate regime: from ballooning government, corporate, and personal debt rates, to high unemployment to homelessnes, to failed businesses, to.... It's a long dismal list.

B. The deflation years: The years that saw the greatest deflation were 1930 to 1933. For the vast majority of Canadians these depression years were a far greater disaster than anything that has happened since the Second World War ended in 1945. An increasing number of economists claim that we are now heading into another deflation. Japan already has. The lessons of the past need to be relearned and reapplied. No one in their right minds wants to see the country go through another full scale depression.
mydogategodshat 05:56, 22 Mar 2004 (UTC)

I found this confusing:

Wealth can be accumulated through the accumulation of money without having to store various goods. When an object is purchased primarily to store commercial value for future trade then it is being used as a store of value. For example, a sawmill might maintain an inventory of lumber or it may keep a cash box full of currency. Both would represent a store of value because through trade they can be reliably converted to other goods at some future date

It says *without* having to store various goods, then it gives an example of storing goods (the inventory of lumber). If 'store of value' is an important property of money, this seems contradictory - it seems to be saying that an 'inventory of lumber' both does count as money (because it is a store of value) and doesn't (because it isn't a store of value because it requires storing various goods). I am sure I am confused, but I'm not sure about what exactly. Sorry this is so vague, I hope someone can see what I'm getting at. -- S

Return of the TOC

First, to all who came before me -- great article! I do think it looks better with a TOC, but the TOC needed to be positioned well. I rearranged the order of sentences in the first paragraph and created a new heading. This allows the first paragraph to introduce the concept and still present the reader with a TOC immediately after.

Paper Money in China

IIRC Marco Polo reported the use of paper money in china, which predates the 19th century first use as mentioned here. Kim Bruning 09:42, 21 Jun 2004 (UTC)

Checking Banknote gives the first use of paper money as the 7th century CE, in china. Kim Bruning 09:46, 21 Jun 2004 (UTC)

" Sweden's becoming the first European country to issue paper currency, in 1661." Probably not; Washington Irving's "Conquest of Granada" gives an account of paper money being used in a siege situation in a captured city, and suggests that this was actually the first occasion (of course, that was a temporary expedient).

Also, bank notes did not have to bear interest (see British financial history of the late 19th and early 20th centuries).

The article omits the role of taxes supporting the value and introduction of fiat money (not only paper, but also token coins). This happened a lot in colonial history, using hut and poll taxes etc. or cash composition of labour duties to introduce or enlarge cash sectors of formerly subsistence economies.

Maybe the article should be upgraded to reflect this, once anyone has the references immediately at his fingertips (I would have to look mine up). PML.

Commment moved from article

I (Hadal) moved the following anon comment from the main article here:

  Comment: Having a stable value is a joint product of being difficult to counterfeit and (some wag
  took this out) being under the control of a responsible monetary authority, i.e. the national
  government - hopefully and elected authority.  The other problem is that if it's value is too
  stable i.e. static, we will end up in another depression.  Even the Bank for International 
  Settlements has declared that 2, 3 or sometimes 4% inflation is "good inflation", a sharp reversal
  of their position in the 80 and most of the 90's.  It has to do with something Keynes talked about
  back in the 1930's - "the liquidity trap".   ---SAS Toronto