me: > Besides pure commodity money, pure fiat money doesn't involve the > creation of debt. The state simply uses its power to restrict the > production of paper money, keeping it scarce. I guess you could say > that the state "owes a debt" to the people it dominates, but that's > stretching it. It's not a legally enforceable debt.
Nathan writes: > money is government liabilities. just because these liabilities can't > be exchanged for physical assets, doesn't mean they are not > liabilities. My impression is that Federal Reserve liabilities are simply an accounting fiction (unless they are to people outside of the U.S.) The fact that they can be an accounting fiction rather than an actual liability reflects the fact that the Fed is an agent of the state and relies on the state's power. Back in the 1950s, if I took a "silver certificate" bill to the bank, I could exchange it for silver dimes, which the bank got from the Fed: the Fed had to redeem its debt -- the silver certificate -- with actual silver (and it had a stash of silver produced by the U.S. treasury available to pay people like me). The value of the paper money (commodity-backed money) was limited by the scarcity-value of silver, though even in those days there were institutional barriers to make sure that those constraints weren't binding. Nowadays, if I take my "Federal Reserve Note" to the bank, all I can get is other Federal Reserve Notes (or coins from the Treasury, which are much the same). The Fed's debt to me is redeemed using other IOUs from the Fed (or Treasury) and nothing else. But these "IOUs" are more accounting fictions (based on state power) than they are IOUs in the normal sense of the word. I can't go to court to force the Fed to pay me silver, gold, or any other physical asset. Luckily for us (and because the Fed is ruled by financiers and their economist allies), the Fed keeps the US$ scarce, so that I don't mind having my Federal Reserve notes exchanged for similar "IOUs." > further, is it really the restriction of paper money > production (now electronic signals sent through a keyboard) that gives > money value? a government could issue 1 singular dollar, but that > money won't have any value if no one needs dollars to settle their > debts. Being scarce is necessary but not sufficient. If the government issued only one dollar, it wouldn't survive competition with other would-be moneys if it wasn't _easily divisible_ (and portable, non-toxic, etc.) People would use pure-credit money or commodity money instead; they might decide to use Canadian dollars. (my lord!) If the dollar _were_ divisible, a single mill (1/10 of a cent) would be worth a lot. Likely people would use mini-mills or nano-mills in order to do exchanges. > there. i just issued you 500 trillion Tankus's. as awesome as > it is for you that you have them, you are not able to acquire any > physical assets with them. they are still however, a liability to me. > they would have value however, if i promised to give you some physical > asset or a certain amount of labor hours if you went to redeem them. As noted in a previous missive, Tanki are debt instruments, not money. (Though much of actually-existing money is debt, e.g., checking account balances, not all debt is money.) In this case, they are debts backed by physical commodities or labor-time. Since (I assume) that you only have a limited amount of labor-time and physical assets to provide, that severely limits the ability of Tanki to circulate as an actual money. If, on the other hand, you started printing up a lot of them (so that they could be used in circulation, as money), getting way beyond the promised backing of physical assets of labor-time, the Tanki would lose their scarcity value and would no longer be useful as money. > they would also have value if i had a whole bunch of weapons and told > a whole bunch of people that i will do very bad things to them if they > don't go out and earn Tankus's. either way however, they are still a > liability to me and an asset to you. and very obviously, it is the > "taxes" i imposed through force that gave them value, not the > restriction of their supply. If you had the power to be the state, to force the circulation of the fiat Tanki (that is, to make them artificially scarce), then they would be money (assuming that they're divisible, etc.) Forcing people to pay taxes using Tanki is part of keeping them artificially scarce. Scarcity isn't simply a matter of supply; demand also plays a role: there's no way to keep the price of a money above its cost of production if no-one wants them. It's true that if I had Tanki, they would officially be your liability to me (and to other holders of Tanki). But all I could do with them is trade them for other Tanki -- unless they were truly backed by "some physical asset [e.g., gold] or a certain amount of labor hours." If that backing is genuine, we're talking about a commodity-backed money system rather than a pure fiat-money system. My impression is that the value of real-world commodity-backed moneys are typically based not only on the central bank's stash of gold (etc.) but also state power. That's why in the history of money, we so often see paper money circulating inside a country (where the state has its power) but gold being used as international money (if there's no world state); we also see the actual purchasing power of a "pound" of commodity-backed currency differing for awhile from a "pound" of the commodity backing it will buy -- until the currency has to be devalued (or less likely, revalued) in terms of the commodity money. Nowadays, the U.S. operates somewhat as a state on the world stage (or as close to be a world state as has ever existed), so that its fiat money can circulate internationally. Since it's not a true world state, the status of the US$ as a world money is hardly guaranteed. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
