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What is Money?

ks.234

ks.234

Half way to Infinity
What is Money? Where does it come from? How is it valued. Who does it belong to?

PS, David Graeber pretty much demolished the idea that money comes from barter in his book Debt, the First 5000 Years
 
Sonority said:
Trust.
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worth expanding upon. As pure credit it has a level of 'trust', but in what? We can't bother too much about different monetary constraints over time, the base concern throughout is: the promise to pay. The modern concern is: the ability to fulfil payment. You accept it as payment because ultimately the government accepts it as payment for tax. Which is why other people accept it. The acceptance between users is second-tier 'trust' which has nothing to do with the ultimate value and nature of currency acceptance.
 
Le Baron said:
worth expanding upon. As pure credit it has a level of 'trust', but in what? We can't bother too much about different monetary constraints over time, the base concern throughout is: the promise to pay. The modern concern is: the ability to fulfil payment. You accept it as payment because ultimately the government accepts it as payment for tax. Which is why other people accept it. The acceptance between users is second-tier 'trust' which has nothing to do with the ultimate value and nature of currency acceptance.
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Trust that it exists. When in fact it doesn't really. Yet we all act as if it does.

That's the bit that keeps me awake.
 
richardg said:
Trust that it exists. When in fact it doesn't really. Yet we all act as if it does.

That's the bit that keeps me awake.
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It does exist, but as a representation of credit/debt. We can't really say it doesn't exist, as intangible as it is, because if as a mechanism it were to disappear, commerce as we know it becomes impossible.
 
However the question asks: 'What is Money?' A multi-pronged question really. 'What is the nature of money?' Of what does it consist? (wealth? Adam Smith said no; life seems to suggest otherwise to us); why is one money different to another? If it is at all; from where does it originate? There are more questions.

We could start with a basic definition. This one is Mitchell-Innes (A Credit Theory Of Money, 1914):
[T]he value of credit or money does not depend on the value of any metal or metals, but on the right which the creditor acquires to "payment," that is to say, to satisfaction for the credit, and on the obligation of the debtor to "pay" his debt and conversely on the right of the debtor to release himself from his debt by the tender of an equivalent debt owed by the creditor, and the obligation of the creditor to accept this tender in satisfaction of his credit.
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When I was born in 1957, the US dollar came in two forms, a note and a silver coin. As a kid, I much preferred the coin and could not understand why it had the same value as the note! After all, the note could catch fire and disappear while the coin was made from silver. Were it not illegal, the coin could be melted down and I would still have a lump of something valuable. I asked my father, and he said the value of notes was the government’s promise that they were “backed” by precious metals, silver and gold. The coin was backed by its own silver content, whereas the note was backed by silver and gold held at Fort Knox. In fact, notes were redeemable into gold until 1933 and into silver until 1968.

The back of dollar bill used to say:

This note is legal tender for all debts, public and private, and is redeemable in lawful money at the United States Treasury or at any Federal Reserve Bank.

If you look at a dollar bill now, it simply says:

This note is legal tender for all debts, public and private.

The world got more complicated in 1971 when we moved away from the gold standard. Notes became merely a promise by the US government. Backed solely by its GDP, the government said that notes could be used for purchasing goods and services. Notes held value so long as everyone believed the promise was still good.

We have now fully entered the computer age of money. Can not recall the last time I used a note or coin, but it has been several years. My money is now just ethereal bits of data on a bank’s computer. For an old timer, this might seem scary when compared to keeping piles of notes in a safe. But I think it was a great advancement, enabling much easier transactions. Ditto for crypto and blockchain. I like the idea of storing value outside the world of major fiat currencies, and I hope to see it used more widely in the future for secure transactions.
 
MikeMA said:
^^^^^ It's the reason I like gold coins :)
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Gold is a good hedge against inflation, but there are disadvantages too. Gold, unlike stocks and bonds, doesn’t generate interest or dividends. Also, history shows that investors in gold had to wait many years for increases in value. I hope yours are kept in a very safe place!
 
Hook said:
The world got more complicated in 1971 when we moved away from the gold standard. Notes became merely a promise by the US government. Backed solely by its GDP
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Not on GDP, but redemption. The same redemption as before the gold standard was ended. If it was backed by GDP it would be fluctuating all over the place all the time. No-one really turned up at a bank and asked for the value of a note in 'gold' or 'silver'.

In any case coins and paper tokens are just handy representation of credit for small purchases. So you don't have to go through a process of having a credit created. They aren't 'money'.
 
Hook said:
Ditto for crypto and blockchain. I like the idea of storing value outside the world of major fiat currencies, and I hope to see it used more widely in the future for secure transactions.
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This should really be another discussion, but cryptocurrencies are not really currencies. They have issue limitation built into them, so are more like collector's items. As something for running a real economy they are useless because of that limitation. Their entire mainspring is based around antithetical notions of that sort of money, so: limited and difficult issue; only for limited transaction; no real credit/debt system. Also a notion of 'wealth store'. It seems to chiefly excite aspiring tax dodgers who don't really understand the universal functions of money as a tool. They're also pegged to actual currencies in the end, people talk about how much 'wealth' they have by positing how much they can transform into real dollars/pounds....
 
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