The Monetary System

[Soapy Sam]

Anyone wishing to dispose of used money may send it to me.
I value it for itself, being both Scottish and a lifelong miser.

 

[Francesca R]

Not the whole story - if raw materials and labour are used to make more stereos then they are not used making other things (or less raw materials remain to make future things). Making more stereos may mean there are fewer phones, fewer computers or fewer light up, sing-alonga, santas.

So the enjoyment that other people get from having their stereo is traded for your reduced enjoyment as you can't afford to buy a light up, sing-alonga santa because the price increases due to reduced supply.

You seem to be basing your "more stereos would be a good thing" position on the grounds that this can be achieved with no cost. I don't think that is correct.

EVA accounting would deduct the opportunity cost of the capital required to get hold of the raw materials and labour, which involves competing them away from being applied to make something else. GAAP wouldn't. Note that the opportunity cost of using capital and factors of production for other things is an average (of computers and singing santas etc.)

 

[Jaggy Bunnet]

EVA accounting would deduct the opportunity cost of the capital required to get hold of the raw materials and labour, which involves competing them away from being applied to make something else. GAAP wouldn't. Note that the opportunity cost of using capital and factors of production for other things is an average (of computers and singing santas etc.)

Whether or not GAAP (which GAAP are you referring to?) would account for something is irrelevant. The claim was not that the accounting would be better but that there would be more things in the world. That is not true.

 

[Francesca R]

The claim was not that the accounting would be better but that there would be more things in the world. That is not true.

There would be more useful (valuable) things though.

 

[Jaggy Bunnet]

There would be more useful (valuable) things though.

Why? Making more stereos means making less of other (valuable) things or having less (valuable) resources to make future things from.

This is the cost of making more stereos and has to be included when considering the global view.

 

[UserGoogol]

Stereos would lose their value if people no longer found music entertaining, and money would lose its value if people no longer found it worth trading for. There is clearly a difference here, a different "layer of recursion" or whatever and this is why printing money is very different from making new stereos, but I'm not sure it's that meaningful. All value (except for things like "happiness," but those are not goods that can be bought and sold on the open market and therefore are irrelevant) is contingent upon various certain situations. That fiat currency is contingent upon the fact that "other people" value it, while stereos and gold are contingent upon social and biological situations does not, in my opinion, mean that fiat currency's value is "false." It's a strange loop of sorts, but those things are not so uncommon in my opinion.

Much of culture consists of things that are done not because they effect us "intrinsically," but that we value because other people value it, or that we do because other people do them. Although I already mentioned in a previous post that gold itself might be an example of this, some more overt examples of this are conspicuous consumption, fads, traditions, and so forth. Of course, some of those things can arguably be looked at as bad things, but that should be determined on a case by case basis by stepping back and seeing how they effect the "big picture" (for instance, how they effect people's net balance of pleasures). It seems plausible for instance that conspicious consumption is a rather pointless and somewhat harmful "strange loop," whereas the mechanisms of etiquette and doing stuff for Christmas might be an overall beneficial strange loop.

The question, therefore, is not whether fiat money is a "false valuation," but whether the consequences of having the money supply controlled by the Federal Reserve is a good thing or a bad thing.

 

[Francesca R]

Why? Making more stereos means making less of other (valuable) things or having less (valuable) resources to make future things from.

Because the market value of the stereo exceeds the value of the inputs that were expended to make it. You can speculate that those inputs could have been used to make something else even more valuable, but that never happened. In their pre-existing form, the resources and labour were less valuable than the stereo.

 

[Jaggy Bunnet]

Because the market value of the stereo exceeds the value of the inputs that were expended to make it. You can speculate that those inputs could have been used to make something else even more valuable, but that never happened. In their pre-existing form, the resources and labour were less valuable than the stereo.

If that were true then people would already be making the extra stereos mentioned.

In any event it is irrelevant to the argument - the claim was that making more stereos meant there were more things in the world. That is simply not true.

 

[69dodge]

If that were true then people would already be making the extra stereos mentioned.

In any event it is irrelevant to the argument - the claim was that making more stereos meant there were more things in the world. That is simply not true.

If you don't like comparing the number of currently existing stereos with some hypothetical greater number, compare instead a hypothetical smaller number with the current number. All the existing stereos were in fact made. I guess you'd agree that we're better off than if they hadn't been. (Because otherwise, why did we make them?)

But, on the other hand, if hypothetically there were half as many dollars in existence as in fact there are, and half as many pounds, etc., it wouldn't make the slightest difference to anyone's actual welfare. All prices and wages and bank account balances, etc., would likewise be half what they are, and everyone would be able to afford exactly what they currently can.

Isn't this obvious? What difference could the name of the unit of currency possibly make? If we decide that "a dollar" means 200 cents, or 100, or 50, how could this mere verbal convention affect at all anything real?

 

[stilicho]

I have been trying my best to research the Monetary system and fiat Money as of late. I am doing so because i see alot of discussion around the political scene about how much better a Monetary system is, and how a Gold standard is terrible and could never work.

I was wondering if anyone here would be able to link me to some really informative articles or videos that could clearly explain the benefits of this system and its advantages over a gold standared, or any other standard for that.

From what i have been able to read the system really isnt sound and the money holds value based on faith alone. I know this cannot be the case and wish to learn more on how this system works.

Take a course on Macroeconomics, available at your local technical school. Don't just trust the professor/lecturer or the textbook, though. You will find many references for further reading.

There are also some interesting articles on-line regarding the development of the fiat money "system" from bills of exchange and bill discounters--especially in the UK. I don't have all the links with me on this computer but Google ought to help. Stay away from the wikis, though, and look for "edu" domains--more likely to be credible.

You may also want to locate some histories of both banking and the development of the corporation. These will help you understand how the concentration of capital works (and is required to work) for technological progress and the things we take for granted in everyday life.

 

[stilicho]

besides coin collectors or people who want to burn it in their furnace, nobody subjectively values money. People want it because other people want it, nobody in the chain actually values it.

You are talking about one aspect of money--its value as a medium of exchange. Unless you are swapping foreign currency, you ordinarily want to change cash into another type of asset. Or employ it in reducing a liability of some type. Not much other "value" to it than that but fiat currency has proved to be much better in this role than its predecessors were.