Skip to comments.Steve Forbes : A Short Money Treatise for D.C. Dummies
Posted on 10/11/2010 2:36:13 PM PDT by WebFocus
It's time to get back to basic economics. Money--both the paper and electronic varieties--is, in and of itself, worth nothing; it has no intrinsic value. It is a means--and a profoundly important one--of enabling people to more easily conduct transactions without having to go through the clumsy and utterly inefficient barter process.
For example, when we sell a subscription to Forbes we don't receive in return an endless variety of products (loaves of bread, goat cheese, hot dogs, shoes, blouses and neckties, etc.) or services (two hours of lawn mowing, etc.). We are paid in cash and can then determine for ourselves what products or services--such as a writer's salary--we pay for with that subscription fee. If policymakers could grasp that elemental concept, they'd save themselves and the world considerable grief and could then get down to the business of removing trade barriers between those who wish to do business with one another.
Money is a facilitator. It should be a fixed standard of measure, as are the minutes in an hour, inches in a foot and pints in a quart.
Imagine if the government decided to increase the number of minutes in an hour from 60 to 70. You can hear policymakers congratulating themselves: "People will work longer at the same pay. This will be a boon to productivity!" Or if Washington increased the number of inches in a foot from 12 to 15: "Home buyers will thus get more house for the same price and that will stimulate home buying!" Preposterous? It's no more foolish than what we and other countries routinely do with our currencies.
(Excerpt) Read more at forbes.com ...
The article in its entirety should be mandatory reading for those who are taking a class in basic economics.
You lost me at money “has no intrinsic value”. That is what happened when we abandoned the Constitutional requirements for money, not a description of what money is.
If the answer is "restore the economy" I would ask what he would be doing differently if the answer was "f**k it up"??
But even when our money was gold and silver coin, or paper which could be redeemed for gold and silver, it's importance was still as a medium of exchange. Most people have no intrinsic use for silver or gold. (But it is nice to look at compared to a pile of stone or something.)
The question is what makes for good money? Someone came up with seven qualities for the ideal commodity to use as money: widely marketable, transports easily, relatively scarce, relatively imperishable, easy to store, easily divisible, all units are similar. And additional one should have been: can not be easily debased by banks or govenments.
Note that many of your attributes are associated with intrinsic value. I have a visceral distrust of anyone who attempts to divorce intrinsic value from money, and they are probably in the camp of the debasers.
Educate me. What is the intrinsic value of money?
One might say that is what the money is worth if there is no law compelling people to take it as legal tender.
And what would that be?
Your question is too general to be answered. If the money in question is metal, it can be manufactured into an object of value.
You are just ducking and dodging and shucking and jiving now. The value of money is its utility, its utility as a medium of exchange. Sure metal coins have some value other than money but usually not as much as it would have if used for money so that is a non-starter. Paper money can also be used for other things, even toilet paper, but that would be a foolish use of it. Money, as money, has no intrinsic value other than its utility as a medium of exchange. To argue otherwise is simply for the purpose of being stubborn.
You said you stopped reading the article when you saw the phrase “money has no intrinsic value” but you should have kept on reading. The utility of money as a medium of exchange is that you don’t have to find someone who wants what you have and has something of equal value that you also want. If the exchange is made for money then you can buy anything you want whether of equal value or not.
My gold coins have value even though they are not used as a medium of exchange. Metal money has more intrinsic value than paper money because toilet paper is not very valuable. To say “money, as money, has no intrinsic value other than its utility as a medium of exchange” is a tautology; you are defining money in a particular way. But why?
Money with intrinsic value is less likely to be debased by those trying to tear down a Free Republic. Which side are you on?
That is because it is no longer money. It is gold, a commodity or a collectable. Which government accepts gold coins as a medium of exchange? None! Therefore, it has no value as money.
What are you going to do with your coins? Use them for barter or eventually exchange them back to money?
In fact, the State of Oregon recently determined, consistent with the plain language of the Constitution, to take gold and silver coin in payment of taxes from a fringe Senate Candidate (at face value, so that the candidate lost money to make his point).
But you seem fatally confused by the notion that money has to have something to do with government. It might interest you to know that Thomas Paine was sufficiently enraged with government abuse of money that he opined that any politician who even dared to propose legal tender laws should be immediately put to death. As I see the unfolding economic disaster slowly but surely arising with historic inevitability from the unconstitutional tender laws, I am moving into his camp.
I note you do not answer my question. I still think that supporters of money without intrinsic value are enemies of a Free Republic.
You are correct that I was associating money with government because that is the historic norm and accepted tradition. Plus, money must be legal in this country. I am aware that other entities, perhaps a bank, can establish their own money. At one time the military had its own script. Getting others to have faith in it and accept it is the problem. Even U.S. Treasury Notes are suspect now.
I am sticking with the philosophical argument about the value of money. Others have noted the characteristics a medium of exchange should have. Being legal, widely accepted and portable are among them. Buying big-ticket items with gold coins is not practical for buyer or seller.
I think it is preferable for money to be backed by something valuable and tangible. It used to be gold. However, as a population grows and the need for more money arises, it is hard to find, buy and store that much gold. As I recall, and I am not confident in this, the U.S. Treasury would keep an accepted ratio of gold to money when we were on the gold standard. That is the same as requiring banks to keep a certain reserve ratio.
The gold standard moderated swings in currency values but it did not eliminate it. Other factors affect that as we know from Econ 101. It also does not make currency or gold immune to manipulation. The rap against the Federal Reserve is its manipulation of the money supply at the whim of politics. The same can be done with gold.
Gold is having a hard time meeting the demand right now. Many who think they own gold only own gold certificates, or a promise to exchange it for gold. Those certificates have a value in the amount of gold they can be exchanged for but no monetary value is assured. In fact, they may get nothing. Some of the big gold sellers, like JP Morgan Chase, have admitted they don’t have near enough gold on hand or assured of delivery to honor all of the certificates they have sold.
This is getting too long so I will revert to my original statement: I agree with Steve Forbes that money itself has no intrinsic value. Its value is as a medium of exchange because its worth otherwise is in a constant state of flux. That worth is determined by how much of it someone wants in exchange for what the have. Anything is worth what someone will pay for it, period, no matter what the medium of exchange is.
As to “money must be legal in this country,” the Constitution says “no State shall make anything but gold and silver coin a tender in payment of debts” (tender laws are not required, but if States (not the United States) choose to enact them, only gold and silver coin can be the required legal tender. Congress is given the power to “coin money,” again linking money to intrinsic value.
If the supply of gold increases more slowly than the economy, then prices fall slowly. This is a good thing, and when it has happened in the past, the population has seen rapid increases in wealth and prosperity.
As George Bernard Shaw said: “You have to choose [as a voter] between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.”
It is true that government can manipulate the gold standard, as for example by putting less gold in the coins. But every citizen can understand that. The problem with paper money is that ordinary citizens don’t seem to understand the debasement process.
A quote from Keynes: “Lenin is said to have declared that the best way to destroy the Capitalistic System was to debauch the currency. . . Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million can diagnose.”
Those against metal-backed money are allies of Lenin, whether they know it or not. You might be interested in reading the essay by Warren Buffett’s father on this subject.