Harry's quote: The major problem with this thread - including Tom's thoughtful piece - is the persistent concentration on money. Of course it depends on what you mean in your definition of the concept of "money", but it is probably thought to be bits of paper which record claims on real wealth. The trouble is that when "money" enters the discussion substantive reasoning becomes mush. So, Tom says that money becomes capital. And that it makes more money. I don't blame Tom for saying this. It's pretty orthodox. But it means nothing. I thought the best way to make more money was to print some. 'Course there are problems doing that, but if it's desirable to make money it's worth it. My reply: Well Harry you've got me thinking - thanks. It's true that we get so fixated on money and then discussions turn to mush. What happens is we start arguing on viewpoints about money, not the deep structure of money. So let me take a flyer off the top of my head of some things I have been thinking about in my walks. Money was originally represented by something scarce, gold, silver or art or some specific manufactured good that had a value and everyone could accept the value like an iron sword. Then in the 15th century, Gutenberg invented the printing press and within a few hundred years of population growth and enhanced communications, the flaws of gold shaving, weight standards protection, etc. led to the bright idea of a representation of gold in the form of banknotes. Banknotes were originally designed to represent the gold held by the issuer. Human nature being what it is, a quick profit could be made for issuing more paper than you had gold. In fact governments soon found that to be a handy device and though the general public was not particularly aware, the first currency inflation started. Along come the learned academics who supplied the rational for the state to issue more money than they had gold and that eventually led to the re-adjustment known as the Bretton Woods Agreement in which a proper ratio was established between the gold and the dollar. This went along pretty well until Tricky Dick came along and said, gee, all you Europeans and Asiatics have been hoarding all your paper money and it is getting very uncomfortable to have to send our gold to your treasury. Not only will we not have as much gold, but these pieces of paper don't even make good toilet paper. Along came our helpful academics and said in our rapidly expanding universe which has real limits on gold and silver as a bottom basis for value, why not get real and use GDP and the market to determine the value of money. So Dick and his buddies called a press conference and said, "Our gold is our gold and we ain't gonna give it to you for those pieces of paper." And away we went into valueless currency. Since then the amount of paper currency hasn't really increased out of all proportion, note how much you actually have in your pocket. But a fancy new invention hit the scene and by the late 70's we started to have electronic money which is what is in your bank account. This is very similar to the transition from gold to paper money, now we have went from paper money to electronic money. There is now approximately 90 times more electronic money running around than there is paper money. Well, what happens if a significant number of people go down to their honest and trustworthy bank and ask for their electronic money to be converted into paper money. Well in depression times, this is what is known as a "run on the bank and bank presidents phone in sick and low wage tellers get their lives threatened." Remember, the value of all this money is based on a flawed standard, GDP which means prostitution, oil spills and hurricanes become productive measurements of value - boy talk about the tooth fairy. Now all this electronic money is great for math freaks like bond traders and stock markets and as long as a significant number of people keep their Monopoly money on the board, the game goes on. In fact for real people who get up at 6 AM and fight the morning traffic it will even buy real things like food and homes. However, what happens if someone yells closing time and a lot of the boys in the Monopoly game decide to take their chips and go home? Well, let's try massive deflation. Electronic money becomes valueless, no one has very much paper money and someone has to decide what we are gonna pay those farmers and alarm clock beaters with so everyone can have something to eat. Along will come our helpful academics to tell the government that their pensions have been wiped out and everyone is angry and they have to issue some script that can be redeemed at some ratio to all the electronic money that has disappeared. But what can the government use that will have enough confidence that people will start trusting enough to exchange the hours and minutes of their life for in that totalitarian place called a job? Good question. So now, I leave to the honourable members of the list, a question. What standard could the world use as a basis for the valuation of money other than GDP and the market that would be fair, policable, eliminate inflation and bring some reality to the exchange of goods and services and taxes? Respectfully Thomas Lunde
