Blended gold-fiat $ monetary system?

[Jontg]

Gold is fiat. It's worth something because people agree it is. The only difference between a pinch of gold dust and a dollar bill is that one is pretty and solid enough that people have an easier time believing it's worth something.

 

[drkitten]

Gold is fiat. It's worth something because people agree it is.

No. Words have meanings. Learn to use them, or at least, not to abuse them.

The key characteristic of fiat money is that you can make more of it with essentially no effort. I can write a check for any amount I like -- a hundred, a thousand, a million, a zillion billion trillion jillion, and if enough people trust my check, it can circulate just like a dollar bill or a squirrel pelt or a pinch of gold dust.

I can't conjure gold dust out of my pocket. While it's true that the value of gold as a medium of exchange may not be related to its other uses, that doesn't make it "fiat money."

 

[stilicho]

Gold is fiat. It's worth something because people agree it is. The only difference between a pinch of gold dust and a dollar bill is that one is pretty and solid enough that people have an easier time believing it's worth something.

That's why Tippit largely vacillates about what real money is. He shifts gears on each and every thread from "Real Money = Gold Standard" to "Real Wealth = Abundance of Stuff".

The reasoning in Dr Kitten's post early on is sound. Blended systems of any type won't work. The only point upon which I disagree is that bank robberies are/could be profitable. Since the rise of EFT and currency centres (at least here in Canada), along with ending cash limit incentives for branch managers, banks don't contain nearly as much money as they used to.

 

[stilicho]

No. Words have meanings. Learn to use them, or at least, not to abuse them.

The key characteristic of fiat money is that you can make more of it with essentially no effort.

Wait a second. Normally I don't disagree with you but are you sure about that? What if the government (monarch, revenue agency, tax collector, Pharisee, etc) decided to accept only gold dust for the settlement of tax assessments? Wouldn't that be by fiat? A fiat is an authorisation or a declaration.

Wasn't this exactly what the whole bi-metallic debate ("Cross Of Gold") was all about?

 

[timhau]

I finished a book by de Vries where he squarely "blames" the Swedes for our vicious fiat currency. He said their coins were minted in copper and larger denominations weighed several pounds each as a consequence.

The largest 'coins' weighed over 40 lbs, but so what? They were real wealth!

 

[GreyICE]

Wait a second. Normally I don't disagree with you but are you sure about that? What if the government (monarch, revenue agency, tax collector, Pharisee, etc) decided to accept only gold dust for the settlement of tax assessments? Wouldn't that be by fiat? A fiat is an authorisation or a declaration.

While this is technically the definition of fiat, you have to be careful when you look up words in the dictionary and use them blithely (a tad like looking up 'gay' and then assuming a 'gay bar' is a place where everyone is really happy).

Fiat currency is currency because it is declared so 'by fiat.' Even if gold were a currency, it would not be fiat, because gold has a value independent of its value as a currency.

In short, dictionaries are objects of limited value.

 

[Francesca R]

RE: Gold Fiat

 

[drkitten]

Fiat currency is currency because it is declared so 'by fiat.' Even if gold were a currency, it would not be fiat, because gold has a value independent of its value as a currency.

Yup. I should point out that technically gold can be a fiat currency if we declare "by fiat" that an ounce of gold is worth a hundred zillion trillion dollars (rather like a penny is fiat currency despite the fact that the zinc it contains is worth a hundredth of a cent or something like that. I guess technically even currency has some intrinsic value if you need to light a fire badly enough or something.)

But the key property of fiat money from an economic standpoint is that no sensible person would use it as currency if it weren't backed up by a collective hallucination taking the form of law/policy. If the Fed suddenly repudiated FRN's and would not longer accept them, you'd see the value plummet like, er, um,.... a thing that plummets very quickly.

And that's actually a good thing to sensible economists, because it means, first, that currency tends to circulate. We had a problem in the States twenty-five or so years back when copper prices started to rise, and the then-copper pennies were starting to be worth more for their copper value than their face value. This meant that some people were taking pennies out of circulation -- in some cases, thousands or hundreds of thousands of pennies. (I blush to admit that my mother was among those people; I think we still have something like 50,000 rolled copper pennies lying around our basement against the rise in copper prices.) Taking money out of circulation like that, especially on a large scale, does nasty things to the economy.

So the Fed switched to zinc, which was much cheaper, and today pennies circulate again.

Imagine what would transpire if this had happened to all forms of currency, top to bottom, so it wasn't just incidentals like pennies that were being taken out of circulation.

The other advantage, and this is even more important, is that by using nearly-valueless fiat money, the government can easily and cheaply control the amount of money in circulation.

Of course, Tippit believes counterfactually that this is a bad thing. He apparently likes the idea of uncontrolled liquidity crises from time to time, and occasional unexpected bouts of runaway inflation when someone opens a new mine or finds a new way to extract gold from seawater. He likes the idea that his supply of gold will always be worth exactly $1 even if he has no idea whether a loaf of bread will cost a penny or a hundred dollars.

Sensible people think the other way; they'd rather be able to predict the price of bread than the price of gold.

 

[Tippit]

Yup. I should point out that technically gold can be a fiat currency if we declare "by fiat" that an ounce of gold is worth a hundred zillion trillion dollars (rather like a penny is fiat currency despite the fact that the zinc it contains is worth a hundredth of a cent or something like that. I guess technically even currency has some intrinsic value if you need to light a fire badly enough or something.)

Declarations don't mean much without associated force. If I put a gun to your head, you are more likelly to accept whatever I tell you to accept as currency, or maybe just hand over all your property.

But the key property of fiat money from an economic standpoint is that no sensible person would use it as currency if it weren't backed up by a collective hallucination taking the form of law/policy. If the Fed suddenly repudiated FRN's and would not longer accept them, you'd see the value plummet like, er, um,.... a thing that plummets very quickly.

Plummet like... the US dollar is now? It's funny how even someone like you uses the term "collective hallucination". Since the Fed is typically in the business of counterfeiting our money, it isn't really interested in repudiating them, so that makes no sense what-so-ever. It's the public and the rest of the world who has been and is about to repudiate the dollar. The middle east, China, Russia, Japan, and France have already threatened to stop pricing oil in dollars.

And that's actually a good thing to sensible economists, because it means, first, that currency tends to circulate. We had a problem in the States twenty-five or so years back when copper prices started to rise, and the then-copper pennies were starting to be worth more for their copper value than their face value. This meant that some people were taking pennies out of circulation -- in some cases, thousands or hundreds of thousands of pennies. (I blush to admit that my mother was among those people; I think we still have something like 50,000 rolled copper pennies lying around our basement against the rise in copper prices.) Taking money out of circulation like that, especially on a large scale, does nasty things to the economy.

If people are willing to accept (or forced to accept as remittance for income taxation) fiat currency, then people will tend to horde good money and spend bad money. If all money was sound money, currency would have no problems circulating. The desire for people to save money would be offset by higher interest rates offering more attractive investment returns.

The other advantage, and this is even more important, is that by using nearly-valueless fiat money, the government can easily and cheaply control the amount of money in circulation.

The central bank manipulation of the money supply isn't an advantage, it's a disadvantage, resulting in asset bubbles, malinvestment, inflation, and deflation. Someday, even you will figure this out.

 

[GreyICE]

Declarations don't mean much without associated force. If I put a gun to your head, you are more likelly to accept whatever I tell you to accept as currency, or maybe just hand over all your property.

And we're down the rabbit hole of stupid now.

You do realize that banks issued currency way back when, which circulated because it's really a lot more useful than gold standard garbage, right?

 

[Francesca R]

Plummet like... the US dollar is now?

You have previously obfuscated about what you mean by the value of the dollar, but have come down on the side of domestic purchasing power. Therefore since consumer prices are at the same level in the US as one year ago, the dollar is not plummeting now according to your definition,

The middle east, China, Russia, Japan, and France have already threatened to stop pricing oil in dollars.

Put to rest here

 

[Tippit]

You have previously obfuscated about what you mean by the value of the dollar, but have come down on the side of domestic purchasing power. Therefore since consumer prices are at the same level in the US as one year ago, the dollar is not plummeting now according to your definition,

Put to rest here

You perpetually obfuscate the facts that 1) the consumer price index is cooked, 2) the dollar is the reserve currency of the world, people buy things denominated in dollars in many places outside the US and most importantly 3) monetary inflation often results in asset inflation, which serves to price people out of homes and cars, or require them to go into ever more debt at longer maturities to finance these things. The inflation of financial assets as the direct result of monetary inflation represents the subsidy of the rich investor class by the printing press.

What exactly does your thread "put to rest"? It looks like a comparison of one fiat currency vs. another, vs. a basket of fiat currencies. Yawn.

 

[Francesca R]

What exactly does your thread "put to rest"?

Your 6 week old story is a non-story.

 

[Tippit]

Your 6 week old story is a non-story.

That isn't an argument. You're smart enough to know that monetary inflation doesn't necessarily manifest itself in consumer prices, but can manifest itself in asset prices not limited to homes, cars, stocks, and bonds. Do you agree or disagree?

Assuming you agree, tell me why consumer price inflation is any worse than asset price inflation? The only difference is that people who own assets are shielded to the degree they aren't exposed to depreciating currency, unlike the poor. This is incidentally why monetary inflation is a regressive tax - a flat levy on monetary wealth.

 

[kevinquinnyo]

Well I thought the gold fiat picture was funny, if no one else did

 

[Francesca R]

Thanks.

 

[Tippit]

*crickets*

 

[drkitten]

*crickets*

Face it, Tippit.

Edited by Lisa Simpson: 

Edited to remove incivility.

We've heard all your material and it's still wrong.

 

[jakesteele]

... who doesn't seem to have quite wrapped his mind around what this "money" thingy actually is.

But apart from that...

Do you know more about money and economy than Ron Paul does? If you do, you should email him and set him straight.

 

[Dr. Trintignant]

So the Fed switched to zinc, which was much cheaper, and today pennies circulate again.

Modern nickels are worth more than 5 cents in metal. There are laws against melting down coins, though, so it's hard for individuals to make money with that approach. And it's probably not profitable enough to attract larger-scale operators.

- Dr. Trintignant