Political Crossfire Forums

[LeopardPM]

Iriemon wrote: Atlas Bergeron wrote: Iriemon wrote:

How would a system where you have different monetary exchange units based on separate companies work?
There would probably be only one unit of exchange: gold

If not, everything could be equated to gold

That is the only way it could effectively work. A system based on Big Macs probably wouldn't hack it.
probably not, and if anyone attempted to push forth using Big Macs as money it would naturally fall flat... gold has historical backing, but, that doesn't mean that it would serve the needs of people today... only the market can sift through the immense variety of desires and relationships to filter out the 'best' commodity to use as money now.


Quote: So we are back on the gold standard, that didn't work so great the last time.
really? when was this? Gold standards worked for thousands of years in Rome, until the Senate and Ceasars started committing fraud by scraping the coins (a way to effect inflation with a commodity money, very limited though)

Quote: Why should our money supply be based upon a commodity that we cannot control.
the point is we DO control it, not someone else who dictates by force the determination of the money. I, as a free person without having been forced to use a particular money, could choose gold one day and if I did not like it, I could change to using silver the next - ultimate control.

Quote: Quote: Quote:
So we would have MS dollars? What is the advantage to having a corporation in control of the money supply over the Govt? A corporation is not acting in the best interest of the nation but its shareholders.
if you study the trends of supply and demand, you will see that acting in self interest often helps everyone else as well--as long as no force is used.

Often it doesn't.
much more often, it does.

Quote: Quote: Quote: The Fed is not beholden to its shareholders and as at least somewhat reactive to the politically system. What happens when MS has problems? What is to prevent MS from printing more assets and inflating the value of its money.
reputation? Firstly, the money they "printed" would either be made of gold or pegged to gold. If they just started printing money without pegging it, while at the same time claiming it was pegged, they would be subject to fraud.

Alright, you didn't say that before. So we expect MS to maintain gold bullion reserves to back up MS$?
well, think about it - you labor all day, what do you want to be paid in... something valued (or backed by something valued), or by something only partially backed or not at all? The market, if people wanted (or needed) the security of backing, would demand such a money and it would be provided.


Quote: Quote: Quote: Are MS moneyholders then just SOL? Do we want a corporation in control of our money supply? Why is that better than the fed?
This is not the question. The question is why consumers shouldn't be allowed to choose which money supply to use.

You can. Make a deal to pay in euros or pesos. If anyone here will accept them. Do I have to accept your offer to pay in MS$? I'll trade you a MS$5 for your $5Ford, I hear the latter isn't doing that hot.
I cannot make such a deal to pay my: taxes, permits, licenses, state tuitions, etc etc etc. Since the government invades all aspects of the economy in such a manner, there is little recourse to choose other types of money.

Quote: Quote: Inflation is increasing drastically. One of the reasons is becuase our monetary unit is not pegged to any actual commodity. There is one reason.

Last I heard was some mixed news inflation was down tho' mostly cuz of falling oil prices. "Drastically" I wouldn't agree with.
inflation can occur even without a corresponding rise in prices - it normally characterized as being recognized as a general rise in prices, but, if prices would have otherwise fallen, but then remained stable, inflation has still occured. The result being a sapping of the value of your money which has been redistributed unseen and towards political ends.


Quote: Quote: In fact, there is no reason to even use a common basis of commodity units - no need to denominate everything in only one universal commodity - technology allows for on-the-fly conversion from any commodity (or group thereof) to any other.

Why is a barter system a better means of exchange, even given we have more instanteous access to valuation. The benefit of a fixed universal currency is its universality -- it can be exchanged for any good or service.
barter is the only means of exchange - use of money (indirect exchange) is just another form of barter, abstracted one level.

Quote: Quote: We already live in a barter system, except this one uses a monetary unit which is meaningless. If we used gold, there would be much more trust in the value of the monetary unit.

If you think the dollar is meaningless, buy a bunch of gold. Despite the inflation of the dollar, gold is almost up to half of what it was worth the early 80s.
obviously the dollar (and most other fiat currencies) is not meaningless, but realizing that the meaning behind them is based entirely on force rather than voluntary market choices is key to understanding the problem. Is it correct (moral, ethical, 'right', etc) for a small group of people to exist or directly benefit from the theft of the labor and efforts of others through the use of force?

What is the difference between the Federal Reserve and a common counterfeiter? The actions of both effect the money supply the same, no one gets hurt (right??!!!)....

[Atlas Bergeron]

RueTheDay wrote: Atlas Bergeron wrote: RueTheDay wrote: Leopard is still making the mistake of thinking that money is no different than any other good or service.

In ancient history, people bartered using differnt goods (my leather jacket for your bone knife). Eventually, they progressed into a means of exchange which was viewed by all as valuable AND was extremly easy to separate (i.e. gold). Gold didn't have value becuase it was differnt from any other good, but becuase it WAS a good--a good which was easy to trade and had almost universal accepted value.

I understand that you are much more well versed in this area than me Rue, but please explain how such a commodity as "money" is any differnt from any other commodity--besides it being a better means of exchange than most other commodities? "Money" only becomes differnt when it no longer has intrinsic value (or, if you prefer, real market value). Your statement can only partially apply, in my humble opinion.

People do not desire money for it's own sake (as they do other commodities) but rather for what they can buy with it. Money serves as the mechanism by which exchange takes place in a modern economy, and when anything disturbs this mechanism, the effect ripples throughout the entire economy. Furthermore, money serves to break the link by which every buyer is a seller and every seller a buyer (which is why Say's Law applies to a barter economy but not a monetary economy).

Ok... so people don't desire to get just a big stack of money and keep it in that state. But the same can be said for gold, some of it can be used in art, electronics, jewlry, etc but there really is no point in stockpiling it (well there is a point, but the same point stands for other money in general).

Besides, I don't really see why it is important that people not desire to keep "money for its own sake." What about this makes it wrong?

I have read up a little on Says law, and it asks the question "what if there were an excess demand for money?"

My answere would be that money's value (in this case, gold's value) would go up and those hoarding it would have more reason to spend it (while at the same time encouraging more people to mine for gold, but this is not even necessary to this discussion). It, like everything else, is a basic investment tool. If people continued to hoard it, the people of the market would desire a differnt medium of exchange which wasn't being hoarded, they could use a differnt good as a means of exchange, such as copper, silver, or even oil (if it were done electronically). This would ease the demand for gold, and the person hoarding the gold would have the same principlas as a person hoarding stocks--he could have gained money, and if he doesn't sell high, he will be forced to sell lower.

This would encourage people to spend thier money when they think it is most valuable, to make investments when gold reaches (what they think is) its peaks and thus follow the basic market cycle for all goods. I still don't see the problem here.

[Free Thinkr]

Atlas Bergeron wrote: Ok... so people don't desire to get just a big stack of money and keep it in that state. But the same can be said for gold, some of it can be used in art, electronics, jewlry, etc but there really is no point in stockpiling it (well there is a point, but the same point stands for other money in general).
The difference here is that one has no use whatsoever, other than trading, whereas the other does have use, such as the uses you listed.

Quote: Besides, I don't really see why it is important that people not desire to keep "money for its own sake." What about this makes it wrong?
The distinguishing feature of money is not as a commodity, but as a means of exchange. Otherwise, why bother with money at all?

[Iriemon]

Atlas Bergeron wrote: RueTheDay wrote: Atlas Bergeron wrote: RueTheDay wrote: Leopard is still making the mistake of thinking that money is no different than any other good or service.

In ancient history, people bartered using differnt goods (my leather jacket for your bone knife). Eventually, they progressed into a means of exchange which was viewed by all as valuable AND was extremly easy to separate (i.e. gold). Gold didn't have value becuase it was differnt from any other good, but becuase it WAS a good--a good which was easy to trade and had almost universal accepted value.

I understand that you are much more well versed in this area than me Rue, but please explain how such a commodity as "money" is any differnt from any other commodity--besides it being a better means of exchange than most other commodities? "Money" only becomes differnt when it no longer has intrinsic value (or, if you prefer, real market value). Your statement can only partially apply, in my humble opinion.

People do not desire money for it's own sake (as they do other commodities) but rather for what they can buy with it. Money serves as the mechanism by which exchange takes place in a modern economy, and when anything disturbs this mechanism, the effect ripples throughout the entire economy. Furthermore, money serves to break the link by which every buyer is a seller and every seller a buyer (which is why Say's Law applies to a barter economy but not a monetary economy).

Ok... so people don't desire to get just a big stack of money and keep it in that state. But the same can be said for gold, some of it can be used in art, electronics, jewlry, etc but there really is no point in stockpiling it (well there is a point, but the same point stands for other money in general).

Besides, I don't really see why it is important that people not desire to keep "money for its own sake." What about this makes it wrong?

I have read up a little on Says law, and it asks the question "what if there were an excess demand for money?"

My answere would be that money's value (in this case, gold's value) would go up and those hoarding it would have more reason to spend it (while at the same time encouraging more people to mine for gold, but this is not even necessary to this discussion). It, like everything else, is a basic investment tool. If people continued to hoard it, the people of the market would desire a differnt medium of exchange which wasn't being hoarded, they could use a differnt good as a means of exchange, such as copper, silver, or even oil (if it were done electronically). This would ease the demand for gold, and the person hoarding the gold would have the same principlas as a person hoarding stocks--he could have gained money, and if he doesn't sell high, he will be forced to sell lower.

This would encourage people to spend thier money when they think it is most valuable, to make investments when gold reaches (what they think is) its peaks and thus follow the basic market cycle for all goods. I still don't see the problem here.

Sorry. I just don't see a return to the barter system as an efficient means to transact business in a modern economy. We moved beyond the barter system a couple millenium ago.

[LeopardPM]

Iriemon wrote:
Sorry. I just don't see a return to the barter system as an efficient means to transact business in a modern economy. We moved beyond the barter system a couple millenium ago.
really now, this is a strawman - no one is advocating returning to the barter system, only a seperation between government and money is all.

[RueTheDay]

LeopardPM wrote: RueTheDay wrote:
People do not desire money for it's own sake (as they do other commodities) but rather for what they can buy with it.
agreed, except that I allow that people MAY value whatever is being used for money for its own sake (obvious with gold, less obvious with fiat - perhaps as wallpaper sometimes, or for historical collectibility, etc).

People MAY value anything, but in general, the fundamental distinguishing property of money is that it is not valued for its own sake but rather for what it can purchase. Even Rothbard understood this key point, which is why he dismissed Hayek's plan for having a freely competitive market for money where anyone could issue their own currency in favor of a single national currency backed by gold. I disagree with his solution, but at least he understood the problem.

Quote:
Quote: Money serves as the mechanism by which exchange takes place in a modern economy, and when anything disturbs this mechanism, the effect ripples throughout the entire economy.
why do you specify 'modern' here? wasn't the same true in pre-modern (whenever that was) economies?

By modern, I mean a monetary economy rather than a barter economy.

Quote:
Quote: Furthermore, money serves to break the link by which every buyer is a seller and every seller a buyer (which is why Say's Law applies to a barter economy but not a monetary economy).
How does it break this link, I say it doesn't, just adds an additional layer of abstraction helping to hide the underlying actions.

Then you are making the same mistake Ricardo made when he called money nothing more than a "veil" over the real economy.

If such a position were correct, then think for a moment about what it would mean. It would mean that if we decreased the money supply by a factor of ten tomorrow, that prices would simply adjust downward by an equivalent amount with no other impact on the economy. Likewise, if we increased the money supply by a factor of ten, prices would simply adjust upward by an equivalent amount with no other impact on the economy. We know from historical evidence that this is false. Sudden changes in the money supply in either direction have enormous impacts on the real economy - production, employment, investment, trade, etc.; it doesn't just cause a simple price adjustment. Thus we cannot simply ignore money or treat it as an abstraction.

Quote:
Quote: Say's lawFrom Wikipedia, the free encyclopedia
In economics, Say’s Law or Say’s Law of Markets is a principle attributed to French businessman and economist Jean-Baptiste Say (1767-1832) stating that there can be no demand without supply. A central element of Say's Law is that recession does not occur because of failure in demand or lack of money. The more goods (for which there is demand) that are produced, the more those goods (supply) can constitute a demand for other goods. For this reason, prosperity should be increased by stimulating production, not consumption. In Say's view, creation of more money simply results in inflation; more money demanding the same quantity of goods does not represent an increase in real demand.

There are lot's of interpretations and misinterpretations of Say's Law out there. The most common misinterpretation is that "supply creates demand rather than vice versa". I believe that misinterpretation actually originated with Keynes.

What Say's Law actually says is that while there can be imbalances between supply and demand in individual markets, that at the aggregate level, supply and demand are always equal (because an excess supply in one market is always balanced out by the opposite in another market and vice versa) and thus, there can be no such thing as a general glut.

The rationale behind Say's Law is quite simple. Every buyer is a seller and every seller is a buyer. The laborer sells his labor so that he can buy food, clothing, and housing. The manufacturer sells finished goods so that he can purchase more inputs to make more finished goods. The butcher sells meat so that he can buy other goods he needs. So on and so forth. There are always two sides to any transaction, so in the aggregate, there can never be too little or too much in the way of overall goods and services. This is undoubtedly true in a barter economy. Introducing money changes everything. Now, instead of trading goods for goods, we trade goods for tokens (which unlike goods, have no capacity to satisfy needs and desires themselves, but do have a capacity to buy things that can). As long as people turn over the money to buy other goods and services relatively quickly, Say's Law roughly still applies. But what happens when people want to hold money rather than spend it (generally out of uncertainty for the future)? In other words, demand for money begins to exceed supply. Going back to Say's Law, that excess demand for money will be counterbalanced by an excess supply of real goods and services (including factors of production like capital and more importantly labor), in other words there will be a general glut, and it will likely include significant unemployment. Now, it's tempting to go back and simply assume that prices (not just of commodities, but also wages and interest rates) will simply fall to bring the excess demand for money back into balance with the excess supply of real goods and services. The problem is that this never actually happens in reality, and centuries of empirical data back that up. It goes to the point I made earlier - money is not just a veil over the real economy, and changes in the supply and demand for money have real impacts on the economy apart from simple adjustments in the price level.

[Iriemon]

LeopardPM wrote: Iriemon wrote:
Sorry. I just don't see a return to the barter system as an efficient means to transact business in a modern economy. We moved beyond the barter system a couple millenium ago.
really now, this is a strawman - no one is advocating returning to the barter system, only a seperation between government and money is all.

Then why are you talking about "they could use a differnt good as a means of exchange, such as copper, silver, or even oil"?

What determines what means of exchange will be used: gold copper silver or oil or some other commodity. It would have to be the parties in the transaction bartering.

How does Wal-mart quote a price for a battery? Oz of Gold? Oz of silver? Quarts of oil?

To me it adds unworkable complexities to the system. And in the end, the money supply is based upon the amount of the commodity that is produced, rather than based upon an assessment of the economic condition. If there is a huge gold find we have rampant inflation. If no gold is found or the new Gold cartel decides to hord it, deflation. The goal is to minimize those things, not exacerbate them.

[Atlas Bergeron]

Free Thinkr wrote: Otherwise, why bother with money at all?
why bother with a means of exchange?

Iremon wrote: Sorry. I just don't see a return to the barter system as an efficient means to transact business in a modern economy. We moved beyond the barter system a couple millenium ago.
we are still in the barter system. You have to realize that if you want to understand what I am saying.
And it wouldn't be a return to the barter system you are thinking about, so Leopard is right in claiming that this is a strawman. The romans used gold as a means of exchange, and it was not called a "barter system"--so you are being unfair.

RueTheDay wrote:
If such a position were correct, then think for a moment about what it would mean. It would mean that if we decreased the money supply by a factor of ten tomorrow, that prices would simply adjust downward by an equivalent amount with no other impact on the economy. Likewise, if we increased the money supply by a factor of ten, prices would simply adjust upward by an equivalent amount with no other impact on the economy. We know from historical evidence that this is false. Sudden changes in the money supply in either direction have enormous impacts on the real economy - production, employment, investment, trade, etc.; it doesn't just cause a simple price adjustment. Thus we cannot simply ignore money or treat it as an abstraction.
but to me this is exactly what you want to do. You want to have a monetary unit that is "abstracted," which has no value in and of itself--has no intrinsic value--but instead has an "abstract" value, which is only related to how the consumers view its consistency.

Thus I don't really see how this is supposed to support your point.

Quote: There are lot's of interpretations and misinterpretations of Say's Law out there. The most common misinterpretation is that "supply creates demand rather than vice versa". I believe that misinterpretation actually originated with Keynes.

What Say's Law actually says is that while there can be imbalances between supply and demand in individual markets, that at the aggregate level, supply and demand are always equal (because an excess supply in one market is always balanced out by the opposite in another market and vice versa) and thus, there can be no such thing as a general glut.

The rationale behind Say's Law is quite simple. Every buyer is a seller and every seller is a buyer. The laborer sells his labor so that he can buy food, clothing, and housing. The manufacturer sells finished goods so that he can purchase more inputs to make more finished goods. The butcher sells meat so that he can buy other goods he needs. So on and so forth. There are always two sides to any transaction, so in the aggregate, there can never be too little or too much in the way of overall goods and services. This is undoubtedly true in a barter economy. Introducing money changes everything. Now, instead of trading goods for goods, we trade goods for tokens (which unlike goods, have no capacity to satisfy needs and desires themselves, but do have a capacity to buy things that can). As long as people turn over the money to buy other goods and services relatively quickly, Say's Law roughly still applies. But what happens when people want to hold money rather than spend it (generally out of uncertainty for the future)? In other words, demand for money begins to exceed supply. Going back to Say's Law, that excess demand for money will be counterbalanced by an excess supply of real goods and services (including factors of production like capital and more importantly labor), in other words there will be a general glut, and it will likely include significant unemployment. Now, it's tempting to go back and simply assume that prices (not just of commodities, but also wages and interest rates) will simply fall to bring the excess demand for money back into balance with the excess supply of real goods and services. The problem is that this never actually happens in reality, and centuries of empirical data back that up. It goes to the point I made earlier - money is not just a veil over the real economy, and changes in the supply and demand for money have real impacts on the economy apart from simple adjustments in the price level.
ok... and where does this support your point? If a barter ecconomy roughly always follows supply and demand (by barter I assume you include such systems which use gold currency), then surely that would be more preferable than a system that "will likely include significant unemployment", right?

This would support the use of gold or other currency as apposed to the abstracted currency of "money". Or am I somehow reading this wrong?

Iremon wrote:
Then why are you talking about "they could use a differnt good as a means of exchange, such as copper, silver, or even oil"?
that was me, not him.

Quote: How does Wal-mart quote a price for a battery? Oz of Gold? Oz of silver? Quarts of oil?
they would probably use gold, becuase that would be the best understood. Although they might include others as well (just as they include canadian and mexican currencies sometimes now).

Quote: To me it adds unworkable complexities to the system. And in the end, the money supply is based upon the amount of the commodity that is produced, rather than based upon an assessment of the economic condition.
it is more dependent upon the amount of the good in circulation--which does include the amount produced. But the amount produced would only equal demand.

Verry little gold is produced, making it the ideal choice (as its quantity would not fluctuate). I was simply using oil as another example.

Quote: If there is a huge gold find we have rampant inflation. If no gold is found or the new Gold cartel decides to hord it, deflation. The goal is to minimize those things, not exacerbate them.

you're kidding right?
1. The amount of gold would have to be absolutely enourmous in order to influence the market significantly. It would more likely be found in several finds rather than one big one (if it were to influence it)
2. If that many people were looking, it would mean that there is a high demand for a currency. They would only be meeting that demand. Again, I don't see the problem.

[RueTheDay]

Atlas Bergeron wrote: RueTheDay wrote:
If such a position were correct, then think for a moment about what it would mean. It would mean that if we decreased the money supply by a factor of ten tomorrow, that prices would simply adjust downward by an equivalent amount with no other impact on the economy. Likewise, if we increased the money supply by a factor of ten, prices would simply adjust upward by an equivalent amount with no other impact on the economy. We know from historical evidence that this is false. Sudden changes in the money supply in either direction have enormous impacts on the real economy - production, employment, investment, trade, etc.; it doesn't just cause a simple price adjustment. Thus we cannot simply ignore money or treat it as an abstraction.
but to me this is exactly what you want to do. You want to have a monetary unit that is "abstracted," which has no value in and of itself--has no intrinsic value--but instead has an "abstract" value, which is only related to how the consumers view its consistency.

Thus I don't really see how this is supposed to support your point.

Did you even read what I wrote? The price level does NOT simply adjust to the quantity of money. When people all of a sudden start wanting to hold more money than is needed to conduct transactions, that excess demand for money will result in a corresponding excess supply of goods.

Quote:
Quote: There are lot's of interpretations and misinterpretations of Say's Law out there. The most common misinterpretation is that "supply creates demand rather than vice versa". I believe that misinterpretation actually originated with Keynes.

What Say's Law actually says is that while there can be imbalances between supply and demand in individual markets, that at the aggregate level, supply and demand are always equal (because an excess supply in one market is always balanced out by the opposite in another market and vice versa) and thus, there can be no such thing as a general glut.

The rationale behind Say's Law is quite simple. Every buyer is a seller and every seller is a buyer. The laborer sells his labor so that he can buy food, clothing, and housing. The manufacturer sells finished goods so that he can purchase more inputs to make more finished goods. The butcher sells meat so that he can buy other goods he needs. So on and so forth. There are always two sides to any transaction, so in the aggregate, there can never be too little or too much in the way of overall goods and services. This is undoubtedly true in a barter economy. Introducing money changes everything. Now, instead of trading goods for goods, we trade goods for tokens (which unlike goods, have no capacity to satisfy needs and desires themselves, but do have a capacity to buy things that can). As long as people turn over the money to buy other goods and services relatively quickly, Say's Law roughly still applies. But what happens when people want to hold money rather than spend it (generally out of uncertainty for the future)? In other words, demand for money begins to exceed supply. Going back to Say's Law, that excess demand for money will be counterbalanced by an excess supply of real goods and services (including factors of production like capital and more importantly labor), in other words there will be a general glut, and it will likely include significant unemployment. Now, it's tempting to go back and simply assume that prices (not just of commodities, but also wages and interest rates) will simply fall to bring the excess demand for money back into balance with the excess supply of real goods and services. The problem is that this never actually happens in reality, and centuries of empirical data back that up. It goes to the point I made earlier - money is not just a veil over the real economy, and changes in the supply and demand for money have real impacts on the economy apart from simple adjustments in the price level.
ok... and where does this support your point? If a barter ecconomy roughly always follows supply and demand (by barter I assume you include such systems which use gold currency), then surely that would be more preferable than a system that "will likely include significant unemployment", right?

A gold economy is not a barter economy, it is a monetary economy. Again, what happens to the goods market (and the factor markets) when people all of a sudden want to hold excess gold rather than purchasing goods?

Quote:
This would support the use of gold or other currency as apposed to the abstracted currency of "money". Or am I somehow reading this wrong?

You're reading it wrong.

Money (whether backed by a commodity or fiat) is not desired for its own sake but rather for what it can buy. If people suddenly desire to hold money rather than spending it, this creates an excess demand for money. The excess demand for money will be counterbalanced by an excess supply of goods, services, and labor. Prices (of goods and services as well as factors of production) do not quickly adjust to changes in the quantity of money (or excess supply or demand for money).

[Atlas Bergeron]

RueTheDay wrote: Atlas Bergeron wrote: RueTheDay wrote:
If such a position were correct, then think for a moment about what it would mean. It would mean that if we decreased the money supply by a factor of ten tomorrow, that prices would simply adjust downward by an equivalent amount with no other impact on the economy. Likewise, if we increased the money supply by a factor of ten, prices would simply adjust upward by an equivalent amount with no other impact on the economy. We know from historical evidence that this is false. Sudden changes in the money supply in either direction have enormous impacts on the real economy - production, employment, investment, trade, etc.; it doesn't just cause a simple price adjustment. Thus we cannot simply ignore money or treat it as an abstraction.
but to me this is exactly what you want to do. You want to have a monetary unit that is "abstracted," which has no value in and of itself--has no intrinsic value--but instead has an "abstract" value, which is only related to how the consumers view its consistency.

Thus I don't really see how this is supposed to support your point.

Did you even read what I wrote? The price level does NOT simply adjust to the quantity of money. When people all of a sudden start wanting to hold more money than is needed to conduct transactions, that excess demand for money will result in a corresponding excess supply of goods.
did you read what I wrote?

Quote: Quote:
Quote: There are lot's of interpretations and misinterpretations of Say's Law out there. The most common misinterpretation is that "supply creates demand rather than vice versa". I believe that misinterpretation actually originated with Keynes.

What Say's Law actually says is that while there can be imbalances between supply and demand in individual markets, that at the aggregate level, supply and demand are always equal (because an excess supply in one market is always balanced out by the opposite in another market and vice versa) and thus, there can be no such thing as a general glut.

The rationale behind Say's Law is quite simple. Every buyer is a seller and every seller is a buyer. The laborer sells his labor so that he can buy food, clothing, and housing. The manufacturer sells finished goods so that he can purchase more inputs to make more finished goods. The butcher sells meat so that he can buy other goods he needs. So on and so forth. There are always two sides to any transaction, so in the aggregate, there can never be too little or too much in the way of overall goods and services. This is undoubtedly true in a barter economy. Introducing money changes everything. Now, instead of trading goods for goods, we trade goods for tokens (which unlike goods, have no capacity to satisfy needs and desires themselves, but do have a capacity to buy things that can). As long as people turn over the money to buy other goods and services relatively quickly, Say's Law roughly still applies. But what happens when people want to hold money rather than spend it (generally out of uncertainty for the future)? In other words, demand for money begins to exceed supply. Going back to Say's Law, that excess demand for money will be counterbalanced by an excess supply of real goods and services (including factors of production like capital and more importantly labor), in other words there will be a general glut, and it will likely include significant unemployment. Now, it's tempting to go back and simply assume that prices (not just of commodities, but also wages and interest rates) will simply fall to bring the excess demand for money back into balance with the excess supply of real goods and services. The problem is that this never actually happens in reality, and centuries of empirical data back that up. It goes to the point I made earlier - money is not just a veil over the real economy, and changes in the supply and demand for money have real impacts on the economy apart from simple adjustments in the price level.
ok... and where does this support your point? If a barter ecconomy roughly always follows supply and demand (by barter I assume you include such systems which use gold currency), then surely that would be more preferable than a system that "will likely include significant unemployment", right?

A gold economy is not a barter economy, it is a monetary economy. Again, what happens to the goods market (and the factor markets) when people all of a sudden want to hold excess gold rather than purchasing goods?

Quote:
This would support the use of gold or other currency as apposed to the abstracted currency of "money". Or am I somehow reading this wrong?

You're reading it wrong.

Money (whether backed by a commodity or fiat) is not desired for its own sake but rather for what it can buy.
This definition of money seems erronious. In the past at least, you are wrong. or are you saying that Roman currency and the currency of the united states before the gold standard was not "money." It all seems like semantics to me.

Quote: If people suddenly desire to hold money rather than spending it, this creates an excess demand for money.
your right, and i previously adressed this. If this happened, then the market would tend to shift to a differnt standard of value. As I said, they could even use such goods as oil if it were necesssary. Read my post to see the full argument.

Quote: The excess demand for money will be counterbalanced by an excess supply of goods, services, and labor. Prices (of goods and services as well as factors of production) do not quickly adjust to changes in the quantity of money (or excess supply or demand for money).
But if the quantity of money is determine by the market, then it may adjust when there is a demand for it. You should read my other post.


here, to help you, here is my other post

Atlas wrote: I have read up a little on Says law, and it asks the question "what if there were an excess demand for money?"

My answere would be that money's value (in this case, gold's value) would go up and those hoarding it would have more reason to spend it (while at the same time encouraging more people to mine for gold, but this is not even necessary to this discussion). It, like everything else, is a basic investment tool. If people continued to hoard it, the people of the market would desire a differnt medium of exchange which wasn't being hoarded, they could use a differnt good as a means of exchange, such as copper, silver, or even oil (if it were done electronically). This would ease the demand for gold, and the person hoarding the gold would have the same principlas as a person hoarding stocks--he could have gained money, and if he doesn't sell high, he will be forced to sell lower.

This would encourage people to spend thier money when they think it is most valuable, to make investments when gold reaches (what they think is) its peaks and thus follow the basic market cycle for all goods. I still don't see the problem here.

[Free Thinkr]

Atlas Bergeron wrote: Free Thinkr wrote: Otherwise, why bother with money at all?
why bother with a means of exchange?
Right. If you simply wish to trade commodities, why bother with a medium? Like I said, money's distinguishing factor is as a means of trade; if you wish to use an actual commodity as money, it sort of defeats the purpose.

[Atlas Bergeron]

Free Thinkr wrote: Atlas Bergeron wrote: Free Thinkr wrote: Otherwise, why bother with money at all?
why bother with a means of exchange?
Right. If you simply wish to trade commodities, why bother with a medium? Like I said, money's distinguishing factor is as a means of trade;
gold can't be used as a means of trade?

Quote: if you wish to use an actual commodity as money, it sort of defeats the purpose.
which purpose? The purpose of trading? I don't see how using gold or any good which has a standard value defeats any purpose. I really have no idea what you are talking about anymore.

[Free Thinkr]

Atlas Bergeron wrote: Free Thinkr wrote: Atlas Bergeron wrote: Free Thinkr wrote: Otherwise, why bother with money at all?
why bother with a means of exchange?
Right. If you simply wish to trade commodities, why bother with a medium? Like I said, money's distinguishing factor is as a means of trade;
gold can't be used as a means of trade?
It can, but so can oil, or cigarettes, or cars. If you just want to trade stuff, why bother with money?

Quote: Quote: if you wish to use an actual commodity as money, it sort of defeats the purpose.
which purpose? The purpose of trading? I don't see how using gold or any good which has a standard value defeats any purpose. I really have no idea what you are talking about anymore.
It defeats the purpose of creating a specific medium for trade.

[LeopardPM]

RueTheDay wrote:

Did you even read what I wrote? The price level does NOT simply adjust to the quantity of money. When people all of a sudden start wanting to hold more money than is needed to conduct transactions, that excess demand for money will result in a corresponding excess supply of goods.
how do you define 'excess' here? If the demand for money (whether gold or otherwise, including fiat) increases, then the demand for goods decreases and prices drop until another pricing plateau is reached(actually is never reached due to constantly changing desires and values, but the vector is always towards this theorectical plateau) - there is no particular 'better' plateau compared to any other except that it reflects the current suppy/demand state of the economy.


Quote: A gold economy is not a barter economy, it is a monetary economy.
Every monetary economy IS a barter economy. The fact that a particuliar good (be it unbacked paper, gold, or seashells) has a portion of its value based on its useability as a means of exchange does not change the fact that its total value is determined through barter and subjectiveness.

Look, lets take a simple economy: 6 goods - hammers, cows, horses, pigs, housing, wine. People start out simply bartering goods directly. One particular commodity will end up be valued more than the others due to its overall acceptance and desireability, lets say hammers. As people decide to use hammers as a standard for exchange, then indirect exchange becomes more and more prevalent, people start exchanging for hammers even if they have no end consumer use for them but only as a means to exchange for other goods in the future. So, compared to before hammers were used as an indirect medium, the hammer 'money' has an additional value as money. BUT, so does EVERY other good, in some measure: housing has a portion of its value as a medium of exchange because of its longevity and the knowledge that it can be bartered again in the future for other goods, same with wine, less so much with each of the perishable goods.... much less so, BUT, there is still a component of their value which is related to their ability to be re-exchanged... which means 'money'. The fact that we classify the good most valued for indirect exchange as 'money' does not change the fact that every exchange with that good is STILL a barter, still an exchange, still subject to all the same fundamental economic 'laws' which apply to all the other goods.

Quote: Again, what happens to the goods market (and the factor markets) when people all of a sudden want to hold excess gold rather than purchasing goods?
the SAME exact thing when people 'all the sudden' want to hold ANY good more than before! All the other goods are slightly devalued which is reflected in a declining price.

Quote: Money (whether backed by a commodity or fiat) is not desired for its own sake but rather for what it can buy.
the less 'useable' value a money has, the more its exchange value is in respect to its total value - that is true. But every good (even fiat paper) does have a portion of its value which is determined by its physical properties (like being able to use paper money to fuel a fire, or wallpaper a house, for instance).... Take the example of having a bag of bills in the back seat of your car and being stuck in a freak blizzard.... the 'other' portion of the value of 'money' becomes much more apparent, right?

Quote: If people suddenly desire to hold money rather than spending it, this creates an excess demand for money.
again... 'excess' by who's standards? Definitely not by the standards of the people themselves, as they are the ones expressing the desire... so who is able to point a finger and say, "They are expressing TOO MUCH desire for money!"... sounds like someone trying to overlay their personal valuations upon the market, a complainer... perhaps someone with a God complex?! Who knows, except that there is no set 'perfect' desire for money, or any good - there is no such thing as equalibrium.

Quote: The excess demand for money will be counterbalanced by an excess supply of goods, services, and labor. Prices (of goods and services as well as factors of production) do not quickly adjust to changes in the quantity of money (or excess supply or demand for money).
Prices adjust as quickly as humanly possible, with whatever technology is currently available - this cannot be improved upon and is true for each price and every good (including money). There is ALWAYS an 'excess' (AND a derth) of goods and services as there can be no ultimate plateau in prices - prices are always chasing the current (and ever changing) values of the people in the market.

When it all breaks down, there is no real difference between fiat and a commodity money, EXCEPT a moral difference: one requires force and allows a small segment of the population to 'legally' steal from the rest, the other has built in constraints against such activity which is why people will always choose a commodity money if not being forced to accept fiat.

[LeopardPM]

RueTheDay wrote: Quote: Quote: Money serves as the mechanism by which exchange takes place in a modern economy, and when anything disturbs this mechanism, the effect ripples throughout the entire economy.
why do you specify 'modern' here? wasn't the same true in pre-modern (whenever that was) economies?

By modern, I mean a monetary economy rather than a barter economy.
so, by 'modern' you mean virtually all of recorded history, or at least the last 9000 years? But by using the word 'modern' you attempt to give the impression of something much more recent (like a couple hundred years at least), as if something has magically changed due to technological or intellectual achievements... what exactly are you trying to say?


Quote: If such a position were correct, then think for a moment about what it would mean. It would mean that if we decreased the money supply by a factor of ten tomorrow, that prices would simply adjust downward by an equivalent amount with no other impact on the economy.
absolutely true! IF you could do so immediately, and evenly (ie: everyone, overnight, losses 10% or whatever) - there might be a very short period of confusion as this information spreads, then prices adjust, but these are due to human limitations.

Quote: Likewise, if we increased the money supply by a factor of ten, prices would simply adjust upward by an equivalent amount with no other impact on the economy.
yup! Now you got it! See above...

Quote: We know from historical evidence that this is false. Sudden changes in the money supply in either direction have enormous impacts on the real economy - production, employment, investment, trade, etc.; it doesn't just cause a simple price adjustment. Thus we cannot simply ignore money or treat it as an abstraction.
what 'historical evidence'?! LOL! Whatever examples you might have ALSO have other, MORE INFLUENTIAL, components to them... such as: HOW the money supply was changed, WHO'S money was changed FIRST, and who's was chagned last, etc. Since it is impossible to evenly increase or decrease the supply of money across the board (magically doubling or halving each and every instance of money owned by every person with money), your 'historical' evidence is fundamentally flawed and the only way to determine the effects in such a theoretical instance is through logic... Welcome to the logical school, the Austrian School.


Quote: What Say's Law actually says is that while there can be imbalances between supply and demand in individual markets, that at the aggregate level, supply and demand are always equal (because an excess supply in one market is always balanced out by the opposite in another market and vice versa) and thus, there can be no such thing as a general glut.
makes sense, except that it does not account for non-material valuations which make this 'law' invalid. Imagine if people 'suddenly' became monk-like, desiring only minimal sustenance and no luxury... demand across the board would dissappear and the corresponding increase in demand would be in non-measurable, non-material 'goods'... the sense of 'well-being' or whatever.

Quote: The rationale behind Say's Law is quite simple. Every buyer is a seller and every seller is a buyer. The laborer sells his labor so that he can buy food, clothing, and housing. The manufacturer sells finished goods so that he can purchase more inputs to make more finished goods. The butcher sells meat so that he can buy other goods he needs. So on and so forth. There are always two sides to any transaction, so in the aggregate, there can never be too little or too much in the way of overall goods and services. This is undoubtedly true in a barter economy. Introducing money changes everything. Now, instead of trading goods for goods, we trade goods for tokens (which unlike goods, have no capacity to satisfy needs and desires themselves, but do have a capacity to buy things that can). As long as people turn over the money to buy other goods and services relatively quickly, Say's Law roughly still applies. But what happens when people want to hold money rather than spend it (generally out of uncertainty for the future)? In other words, demand for money begins to exceed supply. Going back to Say's Law, that excess demand for money will be counterbalanced by an excess supply of real goods and services (including factors of production like capital and more importantly labor), in other words there will be a general glut, and it will likely include significant unemployment. Now, it's tempting to go back and simply assume that prices (not just of commodities, but also wages and interest rates) will simply fall to bring the excess demand for money back into balance with the excess supply of real goods and services. The problem is that this never actually happens in reality, and centuries of empirical data back that up. It goes to the point I made earlier - money is not just a veil over the real economy, and changes in the supply and demand for money have real impacts on the economy apart from simple adjustments in the price level.
oh please! Give me even just a smidgen of so-called 'historical evidence'! Prices do, have and will follow the demand/supply ratio, its what every economic thought is based on! The impacts on 'the economy' that you allude to is due to the manner in which the monetary supply has changed... for instance, when the FedRes increases the supply of money by forcing the interest rates for borrowing money lower than market then people will make decisions based on false information: producers will make malinvestments on capital equipment/employment, consumers will do the same in different areas depending on how the 'bubble' proceeds to them (like the current housing bubble). Yes, these are 'real' effects on the economy, but they are NOT due to the quantity of money, but rather HOW the quantity changed and where it entered the market.

Are you suggesting that it matters if there are $10 trillion dollars available for exchange, or $1 trillion? The quantity doesn't matter, prices will be determined depending on the interplay between the values of all current goods and the total amount of money available - no matter what that quantity happens to be.

[Paladin]

I'd like to propose a thought!
Our money is not backed by gold-! Our reserves of fine metals do not meet the more massive exchange of money.

Our current economy is based off of the velocity of money (more the speed it can be spent and loaned). And this is determined by our service consumerISM oriented society. (oh no...an ism) Consumer tendencies go down, our businesses suffer.

Just being silly....
You are talking about the specifics. How do you come to such specific ideas? Through experience? I would say through conjectures on how everything works. You change from arguing hugely general points to arguing the definition of barter. For knowledge, you argue?
*whine whine whine*
Well...I'm done with that! Continue Economists (or self-claimeds)!

[gavnook]

RueTheDay wrote: Then you are making the same mistake Ricardo made when he called money nothing more than a "veil" over the real economy.

If such a position were correct, then think for a moment about what it would mean. It would mean that if we decreased the money supply by a factor of ten tomorrow, that prices would simply adjust downward by an equivalent amount with no other impact on the economy. Likewise, if we increased the money supply by a factor of ten, prices would simply adjust upward by an equivalent amount with no other impact on the economy. We know from historical evidence that this is false. Sudden changes in the money supply in either direction have enormous impacts on the real economy - production, employment, investment, trade, etc.; it doesn't just cause a simple price adjustment. Thus we cannot simply ignore money or treat it as an abstraction.

For prices to instantly adjust to such a change in the money supply, there are two requirements.
1. Perfect information/rational behavior - for people to charge/pay the adjusted price, they must understand what has just happened, and they must understand the ramifications. This would be a much bigger problem in your tenfold increase/decrease example than in any realistic scenario.
2. The decrease/increase must be proportional to a man. Otherwise, even if we assume perfect information/rational behavior, the fact that some people have relatively more money and some have relatively less changes the whole economy. In real life, money supply changes always benefit some at the expense of others. If a change in the money supply benefits steel producers at the expense of everyone else, the real demand for the factors of production of steel will increase.

Put the two together, and you have the problem of people not knowing where the money is. Faced with a dramatic change in the money supply, the entrepeneur must now not only try to figure out what prices to charge and pay, but must also determine if he's even in the right industry.





RueTheDay wrote:
Quote: Say's lawFrom Wikipedia, the free encyclopedia
In economics, Say’s Law or Say’s Law of Markets is a principle attributed to French businessman and economist Jean-Baptiste Say (1767-1832) stating that there can be no demand without supply. A central element of Say's Law is that recession does not occur because of failure in demand or lack of money. The more goods (for which there is demand) that are produced, the more those goods (supply) can constitute a demand for other goods. For this reason, prosperity should be increased by stimulating production, not consumption. In Say's view, creation of more money simply results in inflation; more money demanding the same quantity of goods does not represent an increase in real demand.

There are lot's of interpretations and misinterpretations of Say's Law out there. The most common misinterpretation is that "supply creates demand rather than vice versa". I believe that misinterpretation actually originated with Keynes.

What Say's Law actually says is that while there can be imbalances between supply and demand in individual markets, that at the aggregate level, supply and demand are always equal (because an excess supply in one market is always balanced out by the opposite in another market and vice versa) and thus, there can be no such thing as a general glut.

The rationale behind Say's Law is quite simple. Every buyer is a seller and every seller is a buyer. The laborer sells his labor so that he can buy food, clothing, and housing. The manufacturer sells finished goods so that he can purchase more inputs to make more finished goods. The butcher sells meat so that he can buy other goods he needs. So on and so forth. There are always two sides to any transaction, so in the aggregate, there can never be too little or too much in the way of overall goods and services. This is undoubtedly true in a barter economy. Introducing money changes everything. Now, instead of trading goods for goods, we trade goods for tokens (which unlike goods, have no capacity to satisfy needs and desires themselves, but do have a capacity to buy things that can). As long as people turn over the money to buy other goods and services relatively quickly, Say's Law roughly still applies. But what happens when people want to hold money rather than spend it (generally out of uncertainty for the future)? In other words, demand for money begins to exceed supply. Going back to Say's Law, that excess demand for money will be counterbalanced by an excess supply of real goods and services (including factors of production like capital and more importantly labor), in other words there will be a general glut, and it will likely include significant unemployment. Now, it's tempting to go back and simply assume that prices (not just of commodities, but also wages and interest rates) will simply fall to bring the excess demand for money back into balance with the excess supply of real goods and services. The problem is that this never actually happens in reality, and centuries of empirical data back that up. It goes to the point I made earlier - money is not just a veil over the real economy, and changes in the supply and demand for money have real impacts on the economy apart from simple adjustments in the price level.

I find what you're saying interesting. I don't know that I've seen your take on Say's Law before. Before I really say anything, I'd like to know more about these centuries of empirical data.

[Atlas Bergeron]

Free Thinkr wrote: Atlas Bergeron wrote: Free Thinkr wrote: Atlas Bergeron wrote: Free Thinkr wrote: Otherwise, why bother with money at all?
why bother with a means of exchange?
Right. If you simply wish to trade commodities, why bother with a medium? Like I said, money's distinguishing factor is as a means of trade;
gold can't be used as a means of trade?
It can, but so can oil, or cigarettes, or cars. If you just want to trade stuff, why bother with money?
indeed. If gold, silver, or oil can work as well or almost as well as money (by "money" I assume you are now using the definition of "fiat money" which is fine as long as you hold to it), then why would you use fiat money?

Quote: Quote: Quote: if you wish to use an actual commodity as money, it sort of defeats the purpose.
which purpose? The purpose of trading? I don't see how using gold or any good which has a standard value defeats any purpose. I really have no idea what you are talking about anymore.
It defeats the purpose of creating a specific medium for trade.
Right, there is no reason to create a specific medium for trade, becuase any medium can theoretically be used. The people who do make such decisions would buisnesses, and thier basis would be "which means for trade will recieve the most market support." Then the purpose for which material to use is which material will recive the largest consumer base--in other words, which material will earn the most profit.

[Free Thinkr]

Atlas Bergeron wrote: Free Thinkr wrote: Atlas Bergeron wrote: gold can't be used as a means of trade?
It can, but so can oil, or cigarettes, or cars. If you just want to trade stuff, why bother with money?
indeed. If gold, silver, or oil can work as well or almost as well as money (by "money" I assume you are now using the definition of "fiat money" which is fine as long as you hold to it), then why would you use fiat money?
For a couple of reasons. One, it's more convenient (think paper). Two, it's not a commodity, and its supply can be controlled.

Quote: Quote: It defeats the purpose of creating a specific medium for trade.
Right, there is no reason to create a specific medium for trade, becuase any medium can theoretically be used.
We could use yaks if we felt like it, but I think you'd agree that there's a reason we use money rather than yaks.

Quote: The people who do make such decisions would buisnesses, and thier basis would be "which means for trade will recieve the most market support." Then the purpose for which material to use is which material will recive the largest consumer base--in other words, which material will earn the most profit.
Which would be fairly widely agreed-upon in short order, at which point standards would come to exist, at which point the point of using a commodity to facilitate other trades would become moot.

Tip: Firefox 2 has a real-time spell-check.

[ubikk]

I've studied the depression quite a bit, and I'll give you my analysis: The great depression was caused by very, very bad fiscal policy. FDR did the best he could do under the circumstances to get the economy moving, and here's why I believet that:

1. After the stock market crashed, the money supply also crashed.

2. Hoover made the critical mistake of further tightening the money supply and strangling credit.

3. This resulted in a situation where businesses had no money to make payroll and could not get any loans

4. Now, the consumer market was doing fine, and production capacities were also very good and growing at a steady rate, so it was not anything intrinsic to the economy at that time, but rather it was a case of a lack of money.

5. So, companies stopped paying, or paid less and workers stopped coming to work and buying things.

6. This lead to deflation, where we had declining demand ahead of production drops.

7. INTERJECTION -- In 2006, if this happened, the fed would lower interest rates and expand credit, and congress would authorize emergency low-interest loans to critical industries, like they did after 9/11.

8. In the 1930s, everyone blamed loose credit for causing the stock market crash, and hence, there was a nationwide stigma against lending money to people. That made it politically incorrect for the government to loosen credit or make loans. This was also partly the result of lack of experience.

9. So, along comes FDR. Being rather Keynesian, he realized that to get the economy moving he needed to get money flowing so people could get paid and would start producing goods and services.

10. Just expanding the money supply and issuing welfare checks was frowned upon then as it is now, so FDR decided to institute a series of government projects that it use to expand the money supply. Bridges, dams, electrification

11. In essence, the government entered the demand side for goods and services, and paid suppliers for steel and labor, which gradually started money flowing into the economy. Government workers were getting paid, and they were going home and buying food and clothes, and housing. In many places, if you didn't work for the government or have government workers as your customers, there was almost no way to get cash.

12. This kept the economy in survival mode, however, government cannot drive the economy on its own in a free market system.

13. Along comes WW II which called for a dramatic increase in production capacity paid for by deficit spending. After WWII, three things happen:

14. First, the supply of energy has exploded. Electric dams and oil wells and the promise of nuclear power, rural electrification, among other things leading the way.

15. New energy intensive technologies that grew out of the war have also exploded productivity rates. Oil(diesel)-powered heavy equipment replaces steam shovels and manual labor. Electric power tools, cars, fertilizers (fertilizer uses a lot of energy), pesticides and herbicides (now made from cheap oil based on chemical weapons research) better communication, etc. All this expands productivity

16. The Marshall plan, funded by extending huge amounts of credit to European countries, creates a massive export market, which draws on and grows this expansion in productivity increased government revenue. Europe begins to pay back the loans returning money to all those people who bought war bonds.

17. The government insititutes bills for veterans, they educate military people turning them into engineers and scientists and business people, and helping them buy houses. Once the marshall plan starts petering out, the US economy shifts toward a construction based economy and starts using all the construction materials they'd been sending to Europe to build the suburbs.

18. People move to the suburbs and buy cars.

19. The rest, as they say is history.

20. This is a pretty simpllified explanation, but it covers the basics.