What is Money? (1913)
moslereconomics.com
moslereconomics.com
This is a very slippery argument. The overall point of the essay is to show that basing one's currency on a metallic standard is silly and destructive. In this quote, the author is correct in that rarely in history has the monetary unit been permanently and inalterably fixed to an exact weight of metal. But -- it has been the norm in history to have a substantial precious metal content in money, with that content being fixed in the short term, and any lessening of the amount leading to charges of debasement, and possibly even the refusal to accept the currency.
The reason why precious metals have been an important part of money is trust -- an issue which the author fails to address. It takes a very strong government to make its subjects accept fiat currency. If the sovereign pays his soldiers in fiat currency, the soldiers know that the sovereign can infinitely dilute the currency, making the currency worthless. Whereas if the sovereign pays in coin containing precious metal, the soldier knows the precious metal is likely to be of value in many markets, no matter what the sovereign does. And by requiring money to be made from previous metals, it slows down the rate at which the sovereign can debase the currency (although of course the sovereign can and does slowly reduce the metal content).
If you trust your a particular government (or organization, or corporation) completely, then the author's arguments make sense, and you can accept the scrip of that government as currency. But if you don't trust that government completely... then you need a more complete assessment of the pros and cons of different monetary arrangements.
The main limits to how much money private banks can create are certain legal requirements and costumer trust that the bank is healthy. The legal requirements can be reserve requirements or capital requirements. Neither directly put an upper limit on money creation. A healthy bank will always be able to obtain more reserves. Capital requirements basically restrict how much banks can gear their capital, and when the banking sector grows in worth over time, it can add an equal amount of money into the system multiplied by that factor. In Denmark (where I am from) the is no reserve requirement and the banks are geared at ~20x.
http://www.usinflationcalculator.com/
There's also all the relentless propaganda saying that inflation is a good thing, and if it isn't, it's caused by speculators & greed, not the government.
I don't invest in anything denoted in dollars (such as bonds).
All that really matters is that the dollar doesn't significantly lose value between payday and tax time – which by definition, it doesn't, since tax rates are fixed in dollars a year ahead of time anyway.
I won't bother to argue the virtues of inflation with you, since it seems clear you've made up your mind about that "propaganda". But to claim that controlled inflation is inherently a "bad" thing – for no reason other than that it causes a thing with no inherent value to decrease in perceived value – belies a misunderstanding of value.
Anyone who holds a dollar in their hands. Anyone who invests in assets that are taxed on the inflationary "gains" in value. Anyone who has to wait months/years for a raise to catch up with the intervening inflation. Anyone on a fixed income. Anyone who's inflation rise in wages gets taxed at their highest marginal tax bracket, or even pushes them into a higher bracket.
To argue pro inflation based only on the short run view is missing the point.
It's funny, that's exactly what I was going to say about deflation. I hear Mr. Nakamoto is worth a lot these days.
The rest of your argument doesn't make sense to me, as the only effect inflation has on anyone is the price increase in a good between the time you receive the money and the time you spend it. Not the price increase since the money first came into existence. It doesn't matter when I get money, so long (a) I am paid according to the current worth of the currency (i.e., in real terms) and (b) as I spend (or invest) it quickly.
I mentioned in another comment that inflation does have the negative effect of masking wage stagnation, which causes exactly condition (a) above to be violated. This is ultimately a problem with people's understanding of money. It would be great if employers were forced to announce a lack of yearly pay increase as a pay cut in real terms.
Condition (b) on the other hand. That's more a problem for the wealthy. Personally (as an upper-middle class tech worker) I'd love it if I could just shove my savings under a mattress and have it increase in value. It's those living paycheck to paycheck – which, if I recall correctly, is the vast majority of Americans – who don't have to worry about spending their cash before inflation gets to it.
I would rather talk about our apparently opposing perspectives on inflation as I think that's the interesting bit. (I think our perspectives are only different in that one looks at things on a short small tempro/local human scale, and the other is more economy wide/slow moving in view - and one needs both)
> the only effect inflation has on anyone is the price increase in a good between the time you receive the money and the time you spend it. Not the price increase since the money first came into existence. It doesn't matter when I get money, so long (a) I am paid according to the current worth of the currency (i.e., in real terms) and (b) as I spend (or invest) it quickly.
I claim that there is another effect that is only visible when looking at large scales - of both people and time. What you claim is true when looking only at an individual actor, or some small scale. There, sure, an individual can receive and spend money and generally get equal to what one gives for things. This is the short term perspective on inflation. What I claim is true only shows up when looking at the economy more holistically, and over time.
Let's say that I am a government defense contractor. Let's say that The government loans into existence a huge sum of money and promptly disburses it to me to pay for some new defense widget. Meanwhile, the rest of the economy is buying and selling stuff at the old price point, oblivious to this new cash influx. (I am ignoring expectations at the moment - but I do not intend to always ignore them! --spoiler, I will just claim that they don't entirely spoil my defense contracting party)
I can merrily build a widget army, inking large contracts at the present price point, which has not yet increased in response to this influx of cash (since I am holding all of it). The difference in price, between what I pay and what stuff will be worth once the cash is entirely diffused, amounts to a subsidy paid to me, in the amount that inflation will devalue the currency once it has fully circulated. I experience the benefit in that I have more wealth, encapsulated within the stuff I just bought, than someone down the line could purchase with the same amount of cash. So the next contractor down the line benefits a little less than me, so on and so forth until the money trickles down to everyone, and they just see a general rise in prices. The fundamental mechanism is that I get to buy at the old price point, while in fact already experiencing the increase in supply of money. If money distributed equally, I would see a fair price. Instead, I see an artificially low price, given the true supply of money now.
I claim that this subsidy to me really has made "the little people" a tiny bit poorer, and me a little bit richer. (and that this is a machine running day and night for years on end... )
Now expectations - here is where the objections to "my" theory hold their ground. It is claimed that because the various contractors down the line expect general inflation they can price it into their contracts, they can charge me a bit more than the current price level would suggest is right, due to expected changes in the value of money relative to their widget components from now and delivery time.
People make such forecasts all the time. Forecasting is difficult. The economy swings on the actions of the fed.. The fed knows this... and so on. I can't fully answer this. The trail of logic runs cold. Who is winning the expectation battle? Who is getting rich?
My great forecast/bet/wager, (which I cannot prove!) is that even with rational expectations of inflation, people in power have found it useful to continue to inflate to pay their cronies, to continue to enrich themselves year in and out via this mechanism.
I suspect this comes back around to your condition (a) violation above - people's understanding of money, sometimes predicated on faith in things like rational expectations, sometimes predicated on flat out not "getting" that pay stagnation is pay decrease, is the final underlying driver that causes rational expectations to loose out, and "my" defense contracting pseudo self to "win" out.
I hope I didn't come off rude. If I did I sincerely apologize. I probably did. I probably came off like a long winded ass. Again I am sorry. Lots of things going on at the moment. The short of it is that it might take me a while to get back to you tonight should you read this monstrous wall of text but I will do my best.
Cheers
(Personally I invest in productive assets and bettering my standard of living, but to each their own.)
"..forbade the hoarding 'of gold or silver coin or bullion or currency', under penalty of $10,000 and/or up to five to ten years imprisonment. The main rationale behind the order was actually to remove the constraint on the Federal Reserve which prevented it from increasing the money supply during the depression"
https://en.wikipedia.org/wiki/The_Gold_(Control)_Act,_1968
"Desai finally introduced the Gold Control Act, on 24 August 1968, which prohibited citizens from owning gold in the form of bars and coins. All existing holding of gold coins and bars had to be converted to jewellery and declared to the authorities. Goldsmiths were not allowed to own more than 100 gms of gold."
(If they do, it's in a 401k, which is a productive asset and not tied to the whims of fiat currency.)
Poor people have debt. (Actually, I think most people in the US have net debt. (EDIT: Actually it's 20%; 30% if you're a minority [1].)) Inflation is good if you have net debt. It means the principal of your debt decreases in real terms each year.
I keep bringing up gold because this whole thread is about metal-backed currencies. Poor people can – and do – buy gold just as easily as rich people can. Pawn shops are rife with the stuff. The problem isn't that they must "watch their savings wither". It's that they don't have savings; they have debt.
[1] https://www.marketwatch.com/story/one-in-five-american-house...
Contrast that with the impacts of deflation: If you know you’ll be able to buy more tomorrow with the same money, you’ll often choose to wait.
Because companies see fewer revenue for the same goods/services they have to cut costs - unemployment balloons.
Fewer people employed decreases demand overall. Leading to still more layoffs.
The deflationary forces spiral the economy lower and lower.
Any debt a person holds becomes dramatically more difficult to pay as their income decreases.
And all because the money supply remained constant or decreased in circulation.
With free banking, there won't be net deflation either, as the market forces on the creation/destruction of money prevent it.
As pretty strong evidence, there was no net deflation or inflation in the US dollar from 1800 to 1914, while the economy grew from subsistence farming to superpower.
To argue that this cannot work, one must explain that.
The one thing that changed in the 20th century is the absence of severe deflationary crises. Inflation in the 20th century is actually way less volatile than in the 19th century, but absent deflational periods those low levels of inflation compound over the decades.
source: http://liberalarts.oregonstate.edu/sites/liberalarts.oregons...
What sort of nonsense is that? A lot of people don't have savings, sure, but there's also a lot of working class individuals who are financially responsible enough to save.
> If they do, it's in a 401k
Exactly my point -- the only way to save money is to risk handing it over to a corporation and crossing your fingers. Never mind that the general advice is not to invest money you plan on needing within the next 6 years.
> Inflation is good if you have net debt.
Not when the interest rate on your debt is higher than the rate of inflation.
You've done a sad job making any case at all for inflation.
Yes, it's still good. It still decreases the real value of your principal. Deflation does the opposite.
There were many government employees in Brazil who'd bought real estate in Brasília (the country's new-ish capital) with significant mortgages at reasonable fixed or quasi-fixed interest rates before the inflationary 1980's. After many years of 100% or 600% inflation in the 1980's, were left paying the equivalent of US$50 per month mortgage for awesome apartments.
I.e. people who loan money are not stupid, and you're not getting any bargain because of inflation.
My mortgages are all using a fixed repayment plan, where the interest rate, payments, and repayment duration are fixed on day one. If the inflation rate doubled or halved next year, my loan terms won't change and I'd end up repaying less or more money, relatively.
Many other loan rate, such as margin interest, are "prime rate plus X". The prime rate is inflation plus a constant.
Again, the people loaning out the money are not fools about inflation.
Inflation comes from a imbalance in supply and demand. If demand in an economy is growing in a healthy way, you'll have some inflation as investments in production will take time to result in increased production.
This increase in prices serve as signaling to determine where to invest in capacity.
Prices is how agents communicate in open markets, a slight inflation is a message that there is unmet demand.
But this is all basic economics...
inflation is good for net debtors and bad for savers.
> Inflation comes from a imbalance in supply and demand
price inflation is a necessary consequence of monetary inflation.
> This increase in prices serve as signaling to determine where to invest in capacity.
thats actually how malinvestment occurs. people see a lot of money flooding in, and think that is a demand for capital investment, but then when their customer base dries up they realize it was an artificial stream of money that shifted with the political winds.
> Prices is how agents communicate in open markets
this is true
> a slight inflation is a message that there is unmet demand.
a gradual increase in prices is a sign that more dollars are chasing the same amount of goods, ceteris paribus.
> But this is all basic economics...
not sure that condescension is warranted. basic economics distinguishes between price inflation as a result of monetary inflation and price increases due to other reasons.
Inflation is good not because of inflation itself, but because of what it signals: a growth in demand outpacing the growth in supply.
If supply is not outpacing demand, there are no investments in additional capacity.
> thats actually how malinvestment occurs.
No, that's how gains in productivity work. And that's how competition works. As demand increases, multiple agents will invest independently to supply that demand, leading to oversupply, leading to reduction in prices, leading to trimming out of inefficient capacity and a new equilibrium at a higher efficiency than before.
That's the economic cycle.
> price inflation is a necessary consequence of monetary inflation.
But not vice versa, you don't need monetary policy to have inflation, you don't even need a monetary system, or even "money" or currency. Inflation is just a continuous change in value between two goods due to a difference in supply/demand between the two. If there were only two commodities in the world, A and B, both with the same demand, but A is being produced at faster rates than B, there would be inflation.
> a gradual increase in prices is a sign that more dollars are chasing the same amount of goods, ceteris paribus.
Indeed, so there will be more dollars invested in supplying those goods.
> not sure that condescension is warranted.
That's not a condescension, it is basic economics.
price inflation is a signal of monetary inflation. you appear to be confusing price inflation with an increase in prices due to increased demand.
> If supply is not outpacing demand, there are no investments in additional capacity.
actually as long as marginal profit is positive there is an incentive to invest in capital goods.
> No, that's how gains in productivity work.
malinvestment is not productive, in fact it is destructive.
> But not vice versa, you don't need monetary policy to have inflation, you don't even need a monetary system, or even "money" or currency. Inflation is just a continuous change in value between two goods due to a difference in supply/demand between the two. If there were only two commodities in the world, A and B, both with the same demand, but A is being produced at faster rates than B, there would be inflation.
'monetary inflation' as defined in basic economics is an increase in the money supply. no one said you need monetary policy for the money supply to increase.
> even need a monetary system, or even "money" or currency.
thats very interesting, do you have a citation?
> As demand increases, multiple agents will invest independently to supply that demand, leading to oversupply, leading to reduction in prices, leading to trimming out of inefficient capacity and a new equilibrium at a higher efficiency than before.
thats how price signals work in a normal market. now consider what happens if a counterfeiter creates a bunch of fake dollars and spends them. people see the influx of cash, interpret it as effective demand, and invest in capital goods. then the counterfeiter gets caught and the money dries up, and all these businesses have excess capacity that shouldn't have been built in the first place. textbook malinvestment.
the same thing occurs when the government inflates the money supply, except the "counterfeiting" is legal and "we as society" accept this because the money is spent in "politically acceptable" purposes. it still causes malinvestment. which is something you can find in an intro to macro textbook.
> That's not a condescension, it is basic economics.
actually its quite condescending and it would help if you guys would educate yourselves on basic econ before presuming to lecture others on the subject. reading a basic macroeconomics textbook would do wonders for your perspective.
No, you don't need monetary inflation to have inflation.
> malinvestment is not productive, in fact it is destructive.
Sure, but investment to supply additional capacity isn't malinvestment, by definition.
> no one said you need monetary policy for the money supply to increase.
> now consider what happens if a counterfeiter creates a bunch of fake dollars and spends them. people see the influx of cash, interpret it as effective demand, and invest in capital goods.
Oh, now I see, you're talking about the very particular case of inflation caused exclusively by bad monetary policy, and then extrapolating that to all inflation.
Inflation caused by bad monetary policy is indeed bad, but that's only one particular case of inflation.
Your argument is essentially "sulfuric acid is bad for society, because in some cases sulfuric acid can do a lot of damage if misused". Indeed, if misused it can do a lot of damage, but that applies to anything.
> reading a basic macroeconomics textbook would do wonders for your perspective.
Indeed, maybe you should give it a try!
yes, the textbook case.
> Indeed, maybe you should give it a try!
indeed I have and thats how I know you're either ignorant or engaging in sophistry. good day.
With "savers" being a close approximation of "the rich" and debtors being another word for "the poor".
>price inflation is a necessary consequence of monetary inflation.
Counter-intuitively, it actually isn't a necessary consequence - not if velocity of the new money grinds to a halt after creation. Newly created has to be spent and respent and respent and so on for it to cause price inflation.
There are many ways that this can happen - e.g. if the money just ends up parked in a bank account or if the dampening effect of industrial slack offsets the creation of new money (i.e. a glut of inventory soaks up the excess cash).
>basic economics distinguishes between price inflation as a result of monetary inflation and price increases due to other reasons.
Economists actually get this wrong all the damn time. Monetarists (like Milton Friedman) attributed price inflation due to the 1970s oil shock to a so called excess expansion in the money supply that didn't happen.
Essentially, Saudi princes siphoning off more wealth via higher oil prices was blamed on money printing rather than cartelization, and it was decided that "debtors" should be the ones to take the financial hit for that by jacking up interest rates.
thats false. many rich hold vast amounts of debt, which makes them benefit from inflation. also relevant is the discouraging effect of monetary inflation on savings. so poor people are incentivized to live paycheck to paycheck
> Counter-intuitively, it actually isn't a necessary consequence - not if velocity of the new money grinds to a halt after creation. Newly created has to be spent and respent and respent and so on for it to cause price inflation.
thats true, if the money is never spent. just like filling up your gas tank doesn't contribute to climate change if no one ever burns the fuel.
in the real world, people deposit that money in banks, who loan a multiple of their deposits out. so that money actually gets turned into debt and spent on a lot of stuff. thereby bidding up the price of stuff, which is price inflation as a result of monetary inflation.
> dampening effect of industrial slack offsets the creation of new money (i.e. a glut of inventory soaks up the excess cash).
that means that price inflation soaked up the decrease in prices that everyone in the market would have enjoyed. thats an example of how monetary inflation robs everyone except the first people to get the new money.
> Economists actually get this wrong all the damn time.
they still know that the difference exists, which is something that the parent comment apparently didn't realize.
"rich" people in vast amounts of debt aren't rich, they're broke.
Rich people are owed money. They have money to spare so they lend it out for interest, see?
>poor people are incentivized to live paycheck to paycheck
people who live paycheck to paycheck, minus a few exceptions, do so because their cost of living equals their salary.
Your concern for the "poor savers" is touching albeit misguided.
not necessarily. if you have a lot of debt, but you hold the title to capital goods that produce income, then you can be very wealthy.
> Rich people are owed money. They have money to spare so they lend it out for interest, see?
indeed, there are rich lendors and rich debtors. that doesn't mean a person who owns factories who has issued a lot of bonds is broke. far from it.
> people who live paycheck to paycheck, minus a few exceptions, do so because their cost of living equals their salary.
cost of living for many people is variable. if you are incentivized to spend your money before it depreciates, that changes the calculus on many decisions, such as how much to spend on housing.
> Your concern for the "poor savers" is touching albeit misguided.
how is it misguided?
As I said. I bet you've heard that your whole life, too. It's good to question things you've heard your whole life.
> Inflation comes from a imbalance in supply and demand.
Inflation comes from the government issuing money at a faster rate than the economy grows. The reason it does that is to spend more money without raising taxes. This is sold to the citizens as being "good", and any deleterious effects are blamed on mumbo jumbo theories like "wage-price spirals" and "cost-push".
Keep in mind that there's no free lunch when it comes to economics, just like there's no free energy in physics. Any economic theory that creates something out of nothing is false - you don't need to understand it to know it is false. Just like when some crackpot comes to you with a perpetual motion machine, you know it's a fraud even if you don't examine his theory to find out where he went into the ditch.
Sure, and it is questioned. But this isn't just "something I've heard", but something me, and many others, have studied to exhaustion. It's basic economics. Like gravity. When was the last time you jumped out of a window just to question gravity?
> Inflation comes from the government issuing money at a faster rate than the economy grows.
Wrong. That can be one mechanism of inflation, but not the only one. There are many more sources of inflation. For example, the new world gold mines.
> Any economic theory that creates something out of nothing is false - you don't need to understand it to know it is false.
???
There are also countries that are (or were) not trusted but have been able to use paper money successfully by pegging their own currencies to those of other countries.
It's not a coincidence that wages decoupled from productivity around the same time the US got off the gold standard.
It's also not a coincidence that endless wars have only been made possible by the governments ability to print money (back when funding of a war was explicit via taxation people actually cared).
I'd love to hear your reasons why inflation is good for me -- someone with little money simply trying to save for a home which is increasingly out of reach each year.
Most of the points you are raising aren't about capitalists, they are just about entrenched power structures. Capitalists are a different group of people (eg, small business owners). You should find someone else to blame :P.
> Having to fight with your employer year after year for the same wage?
Real wages tend to whatever the market clearing price is. Deflation isn't what makes employees have to fight to keep the same wages, it probably some combination of real factors like:
* Competition from cheap overseas labour
* reduced need for labour in the supply chain
* General increases in supply of labour that exceed growith in supply
Inflation makes it easier to miss, but the capitalists don't really benefit in any meaningful way here.
> Working class unable to effectively save because interest rates are well below the rate of inflation?
Nobody benefits from this. The way our the modern (>1960s) political climate is, the capitalists will end up paying for welfare for the working class to suplpiment their low savings.
> Unable to reason about what's a reasonable price because the central banks keep manipulating your measurement stick?
Affects everyone, not necessarily to the advantage of anyone.
more importantly, inflation discourages savings, because you have to invest your savings just to stay ahead of inflation. investment and savings are different categories, its financially unwise to conflate them.
The author does not fail to address this:
>We find, however, the same pride of accuracy with the Roman mints; and also in later days when the coinage was of base metal, the directions to the masters of the mints as to the weight, alloy and design were just as careful, although the value of the coin could not thereby be affected. Accuracy was important more to enable the public to distinguish between a true and a counterfeit coin than for any other reason.
The need for a strong government to make its subjects accept coins is also talked about in detail, e.g.:
>There can be no profit from minting coins of their full value in metal, but rather a loss, and it is impossible to think that such disagreeable punishments would have been necessary to force the public to accept such coins, so that it is practically certain that they must have been below their face value and therefore were tokens, just as were those of earlier days.
What you said is mirrored in the article.
If they refuse you execute them and confiscate their property. A total loss of time.
Or perhaps just remove their liberty - which is still a significant loss of time.
As the individual do you take the deal or stand the consequences?
Nothing to do with trust. Everything to do with power.
Marx's most interesting and compelling contribution - until recently seldom understood in the English-language literature - was his theory of the "value form" and money as the "necessary form of appearance of value". This contribution is further masked by the common practice of identifying "the labor theory of value" (there is no such singular theory) as Marx's principal contribution. In fact, he was a critic of the many (contradictory and inconsistent) "labor theor[ies] of value" in circulation at the time.
"According to Marx, value and money are inseparable yet not identical: without money there can be no value, yet money is not value. Marx’s thesis of the inseparability of value and money overturns the classical theories of value and money and establishes new concepts governing the theory of price. These new concepts rule out the ordinary assumption of price theory, namely, that value is the independent variable that explains the behavior of price, which is conceived to be the dependent variable." - Patrick Murray (https://www.mtholyoke.edu/courses/fmoseley/conference/murray...)
"The fundamental theories on which the modern science of political economy is based are these:
That under primitive conditions men lived and live by barter"
"But modern research in the domain of commercial history and numismatics, and especially recent discoveries in Babylonia, have brought to light a mass of evidence which was not available to the earlier economists, and in the light of which it may be positively stated that none of these theories rest on a solid basis of historical proof—that in fact they are false."
A few paragraphs later, he even says:
"In both these instances in which Adam Smith believes that he has discovered a tangible currency, he has, in fact, merely found—credit."
In other words, the author who wrote this piece, A. Mitchell Innes in 1913, is one of those "contemporary anthropologists of money."
Besides that, the book is a collection of anecdotes carefully selected to try to paint a coherent picture. It is clearly written by someone who doesn't understand economics, to a public that doesn't understand economics.
It is so full of basic mistakes that it is hard to decide if the problem is ignorance, laziness or malice.
But it sells well!
"Apple Computers is a famous example: it was founded by (mostly Republican) computer engineers who broke from IBM in Silicon Valley in the 1980s"
The level of stupidity in this quote is unbearable. Basic fact checking for 5 seconds on Google would have been enough...
Now take that and apply the Murray Gell-Mann Amnesia Effect.
And that's before we get into ignominious phrasing such as "I would like to end, then, by putting in a word for the non-industrious poor. At least they aren't hurting anyone."
Debt is a book written backwards. It starts with and idea: capitalism is bad and debt is the instrument of capitalism. It then piles up and links selected - but vague and frequently unsourced - anecdotes to try to create a logic supporting that idea.
From an economics perspective, it isn't even wrong. But it does sound appealing to anyone who has debt or dislikes capitalism. Therefore, I expect a lot of downvotes.
[Edit: typos]
And underlying it all is a simple 'proof of burn' concept. Every person has a finite amount of time available to them. When you put some of that 'out of use' by serving others you gain credit from others.
The monetary system is essentially a notarised system of time credits which we exchange between ourselves.
The article includes this passage, which mirrors this idea:
>It is by selling, I repeat, and by selling alone—whether it be by the sale of property or the sale of the use of our talents or of our land—that we acquire the credits by which we liberate ourselves from debt, and it is by his selling power that a prudent banker estimates his client’s value as a debtor.
In fact, you can see money as a credit towards an extremely trustworthy debtor.
So trustworthy that everybody will accept that credit on its face value in exchange for any sort of goods.
What's the characteristic of a risky loan, it comes with a very high interest rate right?
So what happened when the risk is the lowest possible? The interest rates goes to zero or even negative.
That's money, a government-bond of a very stable country with little debt is quasi-money. The difference is only quantitative, makes sense?
> So what happened when the risk is the lowest possible? The interest rates goes to zero or even negative. Makes sense?
the risk premium is not the same as the interest paid the lender by the debtor for the privilege of having something now and paying it back later. in this case, the interest rate is the price of money, denominated in money, arbitraged over time.
look at it another way, why would anyone make a loan if they didn't stand to gain anything? why would I loan you $5 in order to get $5 back at a later date? I already have $5. now if you give me $5.05 back tomorrow, then I have gained 1% for my sacrifice of letting you hold the money for a day.
Exactly. That's precisely the question.
If you lend money 1) you bear the risk of not seeing you're money back 2) you're not able to spend that money during the loan period.
Even if you don't care about risk and don't want to spend that money 3) you'd still be greedy enough to want something back, right?
So let's imagine all 3 points disappear:
1) There is practically no default risk. 2) You could still purchase something by exchanging your credit with goods (and everybody would accept for its nominal value without any discount). 3) This credit certificate you hold in your hands turns out to be very convenient to use. It's so much easier to trade and everybody accepts it and trusts it, why not to use this as "money"? And why to ask something back when it's already providing me more utility then "money" with no disadvantages?
So in reality you have a lot of "loans" that end up being called quasi-money exactly for the reasons above.
Some countries issue government-bonds with negative interest rates, not only because they are considered very safe investments but also because banks use those type of bonds for their operations making them convenient to hold.
Like I've said, it's a quantitative difference not a qualitative one. Money = loan with negative interest rate.
Unfortunately this "nonsense" is the explanation that any economist would give you.
Maybe you can be the first one to propose a revolutionary alternative theory, but I haven't read it :)
that doesn't support your novel assertion.
> Unfortunately this "nonsense" is the explanation that any economist would give you.
lots of people running around hn espousing their own particular viewpoint as mainstream econ. are you guys working together or is it just a few guys attempting to take advantage on a non-econ crowd?
> Maybe you can be the first one to propose a revolutionary alternative theory, but I haven't read it :)
well you're obviously not very well read if you think commodity money is a revolutionary alternative theory :). I'd suggest starting with introductory econ textbooks and setting your own prejudices aside until you're better informed.