Keith responds to
Arthur and Ed,
At 14:12 08/05/01 -0400, you wrote:
(AC)
>As an economist (Ph.D., many years ago) all I would like to add to this is
>what I used to teach in Economics 101. Money is what money does. Try
>giving your corner grocer zlotys, then try giving dollars. Dollars does
>something for you, zlotys does not.
Keith
Yes, indeed. But the very example you've chosen (wherever zlotys come
from!) shows that a particular currency or "token" depends on public
confidence only and not on real value. It is possible to imagine that the
dollar could be so badly issued at some stage in the future that it, too,
would become as questionable as the zloty. It's happened before -- in fact,
it's happened many times throughout history -- that major powers have
devalued their own currency until it's worth only a fraction of what it was
previously.
Arthur
Agree. Maintaining the integrity of the currency is key.
(EW)
>This raises a very interesting question, that of what comprises "real
>value". Paper money has "value" because of political authority and social
>convention. Despite the long pretense of Fort Knox, gold has "value"
>largely by social convention. I recall when, a few decades ago, the price
>of gold was at aprx. Cdn$800 and still going up. It is now far lower than
>that, about $200(?). The value of diamonds and other precious stones is
>based largely on market manipulation.
Keith
Yes, I agree about gold and diamonds though, in practice, there's a great
difference between them as regards perceived value. Gold has had perceived
value going back to at least 4,000BC and most of its production is still
hoarded by hundreds of millions of people. It's been de-throned by some
central banks but we can be certain that it would gain instant universal
value as a means of exchange if the major official currencies went down the
pan together.
The value of diamonds is an even more transparent scam because, as you say,
they are rationed out by a commercial monopoly in order to raise their
"value" above that of, say, rubies (a much rarer gemstone and much more
valuable 150 years ago). Diamond's value in extremis is questionable
because a substantial part of diamond production is withheld from the
market and, in any case, can now be made artificially at a fraction of the
cost of the present lot. (It's interesting as an aside that de Beers are
now going "sideways" into companies producing other luxury products -- in
my view because they realise they can't keep monopoly control over diamonds
for much longer.)
Arthur
Much gold and most diamonds are held as a store of value. They have value
only because other people think they have value. They have exchange value.
Since they cannot be reproduced or forged (although diamonds now seem to be
able to be produced industrially and difficult to tell from "the real
thing") they have a place in the range of money or "near" money products.
(EW)
>A well to do Canadian's view of "real
>value" would differ enormously from that of a Sub-Saharan refugee's.
>Another day of life would be very important to the latter; an SUV to the
>former. So, question, could there be a universal understanding of what
>comprises "real value"? Perhaps pure water, clean air, basic food and
>shelter, peace?
>
>I suppose we would all have to be stripped bare of everything we own to
find
>out. The refugee probably has a better understanding than the rest of us.
Keith
Yes, well, this is why "real value" economists say that any decent sort of
banking system ought to be able to exchange their paper money into a basket
of staple food on demand. The prospect of banks having vast warehouses is
impractical, of course, and that is why gold was such a useful material to
use for money.
Arthur
Actually gold was held as a reserve to prevent the central banks from
printing too much money.
And gold is "near money." If staple food is not available for dollars, it
is unlikely to be unavailable for gold. If dollars have lost value,
however, because of inflation then gold or some other currency could be
accepted.
Keith
But it doesn't need to come to that so long as any bank were able to
exchange a particular national currency into any other. In extremis
there'll always be some currency which is competently managed by
officialdom. But even this is impractical because any bank can't possibly
store enough currency of different varieties to satisfy demand in the case
of meltdown. But banks could do so if they were able to draw on currencies
by electronic means and instantly deliver a suitable document (or charge up
a customer's smartcard -- see below). But this would need a central
register or a bank of banks.
This line of thought leads me to think that a universal currency is
inevitable and there are, indeed, several pointers which are already
leading strongly in this direction, including:
1. In practice, many countries of substantial size (those of the former
Soviet Union, for example) have huge circulations of the US$ and could not
operate without it;
2. In actuality, some countries (mainly in South America so far) are
adopting the US$ as their official currency, and many more will probably
follow in the coming years;
3. Increasingly in the last decade or two, commercial investment is being
financed by equities and not by banks. This means that money is
increasingly not being created speculatively by banks (with very little
real asset value) but supplied by pension and investment funds and ordinary
people. The latter, of course, cannot create money by the stroke of a pen
as banks presently do, but can only supply money that's based on real value
(mostly property). This means that official control of money is declining;
4. Despite delays so far, the widespread use of smartcards is inevitable,
which will allow private transfer of funds between individuals. This will
add enormously to the already-large amount of money which flows around the
world (illegal drug money, for example, is already larger than the value of
food production). When smartcards come into use, this will mean that
transactions which escape governmental taxation will accelerate.
So, in a curious way it looks as though money is escaping the artificial
stranglehold that governments have had over it for the past 150 years or
so, and is re-establishing itself as possessing real and independent value.
Arthur
I guess the US dollar, the Deutschmark and the Yen are the three main
trading currencies.
The use of smartcards, electronic cash, or whatever still means denominating
the transaction somehow: it will be done by use of one currency or another.
The currency chosen will likely be one of the three above and it will be a
currency that is strong (convertible) and stable (so that transactions have
meaning for some period of time).
___________________________________________________________________
Keith Hudson, General Editor, Calus <http://www.calus.org>
6 Upper Camden Place, Bath BA1 5HX, England
Tel: +44 1225 312622; Fax: +44 1225 447727;
mailto:[EMAIL PROTECTED]
________________________________________________________________________
