>From Buffalo, but not in da midst, Paul Zarembka wrote: > The think my deepest problem is that I have never truly understood money. > Thus, I don't really understand gold as money or a $20 Fed piece of paper > as money.
I think a lot of professional economists don't understand money. To my mind, money is fundamentally social, representing an agreement and consensus among traders. In a modern capitalist society, with billions of traders, such a social agreement cannot be created among individuals (except on a small scale, like those Ithaca HOURS). Instead, it has to be done _by the state_. Thus, money ends up being fundamentally political. People talk about paper money being valued because of a general agreement among people (I accept money because everyone else does). But in a global market economy, the state has to be the backbone of the monetary system, maintaining its scarcity. Usually this job is delegated to a central bank, which specializes in keeping money scarce (with the price of money > 0, so that the average price of commodities < infinity). When the political system -- and thus the central bank -- falls apart (as with Germany in the early 1920s) you see the scarcity of money go away (and hyperinflation). Gold (or specie) money is based on the natural scarcity of the metal (and the behavior of the gold-supplying countries). But in practice, it only works in the gaps between governments, and in the gaps between intergovernmental agreements. No state will give up the power it gets from being able to use fiat money. And no-one likes the deflation that typically results because the supply of gold is so inelastic. In any event, the government gets involved with even gold money, preventing counterfeiting, the shaving of coins, etc. It can also abuse the gold standard, by adding lead to the coins, etc. It also gets involved when we see various kinds of credit built upon the monetary based formed by the gold supply. If money is political, it must be controlled ultimately in a democratic way: we must gain control over those who run our lives. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante.
