On Sep 28, 2008, at 10:49 PM, Jim Devine wrote:
However, with fiat money (the current monetary system), the monetary base is no longer endogenously determined; it's determined by policy instead (the Central Banks's and indirectly, the government's). The positive price of these pieces of paper (their ability to buy commodities) is based almost completely on their scarcity. Put another way, a piece of paper money sells far above its value (the labor-time socially necessary to produce it) because its price is set by the CB's monopoly power. If the CB were to allow a supply more like that of a competitive market, the price of fiat money would fall toward its value, which is close to zero. That's severely rising prices.
I don't agree that it is "scarcity" that determines. The value of money is not based on its cost of production but on its essence--its function as "legal tender for all debts." When the quasi-monetary certificates that now constitute the monetary base are no longer acceptable as debt payment (when monetary swaps unravel) their price falls dramatically relative to the parts of the monetary base (aka cash) that continue to function as legal tender.
Shane Mage "This cosmos did none of gods or men make, but it always was and is and shall be: an everlasting fire, kindling in measures and going out in measures." Herakleitos of Ephesos, fr. 30 _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
