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The form of currency

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The form of currency

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pluMmet Posted: Tue, Oct 9 2012 8:01 AM

I'm sure I'm not as learned as most of you here. I only recently have been involved with economic ideas that began with me hearing abut an investment opportunity in currency. I have since become a moderator at a currency forum and not have this annoying desire to understand a subject that I am not fond of. Currency creation and interest yielding investments.


 

I just viewed a youtube video titled Central Banking, Deposit Insurance and Economic Decline | Speaker Panel and saw this institute listed as a concerned party. I had heard mention of it before.

So to the crux of my post, I've thought a great deal on how currency should be created myself. My conclusion is that money needs to be fiat and that any countries money supply needs to be based on their number of citizens. Further, the fractional citizen to currency ratio needs to be assessed (against other countries) every 2 or 4 years based on that countries production then made public for all to know but a yearly expansion or contraction based solely and respectively on current number of citizens due to births and deaths.

I could go on about why i think that would be best but it fulfills all reasons of why we need currency and limits corruption greatly.


 

I'm sure others have thought of such things but perhaps this is a gently nudge towards it again.

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Phi est aureum replied on Tue, Oct 9 2012 1:54 PM

Why do you think currency needs to be fiat? And why does the amount of currency need to be in proportion to the population?

The only one worth following is the one who leads... not the one who pulls; for it is not the direction that condemns the puller, it is the rope that he holds.

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pluMmet replied on Tue, Oct 9 2012 2:19 PM

 

Thank you for asking.

If currency is tied to a commodity like a precious metal the people that mine and process the the metal have the ability to control booms and busts and the same corruption that happens today continues.

As far as being Fiat and tied to population numbers, in all my looking into currency cycles the main indicator of strife or productivity is how much currency is present per person. The Great Depression when followed in currency per person gives a clear signal to events in this manor.


 

In fact it seems that people that like to create booms and busts keep the currency per person as a linchpin in their calculations as far as I can see.


 

There is also a mental factor that goes into every person being aware of how much allotment there is per person.

A lion can only eat so many other animals per year and a person that has an inordinate amount of currency in this system would be a candidate for corruption buy this logic.

On the reverse of people that are smart enough to get more for themselves people that had less means would understand giving up a portion of their “allotment” to work for a better handler of business affairs.

People would have a hard time believing that anyone had the ability to be so helpful to society that they for instance should have 25,000 times an allotment and as a billionaire against someone who earns 40,000.

Fault is at the top just as it is at the bottom and this would allow things to level. IMHO

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Phi est aureum replied on Tue, Oct 9 2012 2:34 PM

I guess the better first question would have been how do you define "money." Do you understand what money is?

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Zlatko replied on Tue, Oct 9 2012 3:24 PM

I don't mean to be rude but your idea suggests so many holes in your understanding of what money is and isn't that it would be more productive for you to first study what others have had to say about money before trying to formulate your own theory.

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pluMmet replied on Tue, Oct 9 2012 3:35 PM
You wont offend me so don't worry.. :) I've heard the definition of money.. fungible, divisible and so on. I find that definitions of things can be part of why people have a hard time coming up with better way to do things. As such I have paid more attention to why we need currency. In a world where there are limited resources trade is hindered by a barter system in that one would have to carry around commodities and hope it is what the person needs so you can have what you desire. And thanks for not pointing out my spelling errors ;)
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Phi est aureum replied on Tue, Oct 9 2012 3:43 PM

 

The reason you are incorrect about the ability of miners of gold being able to cause the business cycle under a 100% gold standard is twofold.
 
1) Money is a medium of exchange. It has value because it can be traded for other things. In the case of gold, gold itself is valuable. People want it for electronics, jewelry, etc. Gold is a commodity that is used in production. Fiat has no productive or intrinsic value of any kind. People do not build things with this paper. 
 
So, when paper (fiat) is used as money, its ONLY value is as a medium of exchange. Since it is just paper (or even just 1's and 0's on a computer system), the supply can be increased arbitrarily, and quite easily, I might add. Increasing the supply of fiat only serves to cause the price levels of other goods to rise. This actually usually comes in the form of an artificial lowering of interest rates. As credit is extended artificially, malinvestments are made in the inflating of a bubble, and a crash happens followed by the markets adjusting prices, and generally, a reduction in price level as the bubble deflates.
 
When gold is used as a medium of exchange, and in a society where financial institutions cannot rely on fractional reserve banking or a central bank for a bailout after taking large risks that do not pay off, the value of currency is as not only a medium of exchange, but ALSO as an actual, tangible, valuable commodity. It is also superior to fiat because it cannot just be printed or input into a computer system, or in other words, it is nearly impossible to counterfeit. Therefore, the supply of this hard currency couldn't be increased arbitrarily. It only would increase as it was mined.
 
So here's the deal. Gold mining companies wouldn't want to mine all of their gold as fast as possible, as then they will be out of resources for next year. Obviously, someone who owns a forest does not cut down all the trees at once. They cut only what is needed by the market, and do all they can to maintain it (like replanting). Further, suppose they did mine all the gold at once and dumped it on the market. As they exchange it for other things, it slowly will lose its purchasing power (since the supply, surplus is so large). And even if they did anyway, they won't be needing that machines, fuel, labor, etc. next year, since they don't have anymore to mine. So there will be a higher supply of all these things next year, meaning the prices will tend to decrease. So while the amount of gold increases, when used as money, things that it is traded for become cheaper. 
 
Maybe I haven't explained this very well (I think much too simplified), but the gist of it is, the market constantly is adjusting these things on its own in an attempt to find balance. The only thin that can hinder it is external intervention, like a central bank arbitrarily increasing the money supply/artificially lowering the interest rates.
 
2) While I touched a little bit on this point in #1, I don't think you have explained how the business cycle comes about and continues. It is because credit is expanded by an external actor, and this artificially lowers the interest rates. But only loan institutions could do this. A gold mining company does not loan out its freshly mined gold, it trades it for another commodity. Now, if a gold mining company tried to do this, that would be one thing. However, in a free market, if they take risks that don't pay off, they are out of luck. They wouldn't be bailed out by a "gold miner of last resort," so to speak. 
 
The point is, in a free society (which can only exist with free markets), there is no incentive to take such big risks. In the system we have today, banks are encouraged to take these big risks. This is because:
 
1) If the risks pay off, they keep the profit; if the risks do not pay off, they are bailed out by the central bank (which uses the power of a monopoly on the creation of a fiat currency held in place with legal tender laws) that uses its only tool, inflation, to bail them out, or in other words, when the high-risk-taking banks fail, they simply steal some of the value of the money in your pocket to cover their asses. It's like a casino telling a rich guy to play roulette and he can keep all his winnings and if he loses it all, the casino owner will simply take enough chips from all the other players to reimburse the rich man for his losses so he can continue gambling.
 
2) If a bank refuses to take high-risks, they are bested by their competition, who keep the winnings and are reimbursed for losses. This is like how, in my casino example, if another rich man sees what is going on and recognizes that it is wrong and decides not to bet big, the other rich guy makes lots more money, and when the other rich guy loses, the casino steals chips from the honest rich man. What incentive is there not to gamble big, then?
 
***Keep in mind that just because there is a 100% gold standard, this doesn't mean everyone has to carry around gold coins. There would be banks that keep them in reserve and issue you a paper note that is a claim to the amount of gold you have stored with them. It's like a warehouse receipt that entitled the holder of the note to redeem it for the specified amount of gold on demand from the issuing institution.

The only one worth following is the one who leads... not the one who pulls; for it is not the direction that condemns the puller, it is the rope that he holds.

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pluMmet replied on Tue, Oct 9 2012 3:50 PM
You are claiming I have misunderstood but with the little I wrote you seem to have not been able to grasp it. "So, when paper (fiat) is used as money, its ONLY value is as a medium of exchange. Since it is just paper (or even just 1's and 0's on a computer system), the supply can be increased arbitrarily, and quite easily" I have already simply explained that the currency is tied to population so unless you have a people making machine your response is incorrect. I would imagine that you will respond in the normal way and say that they can print more currency then the rules allow but that would be a truly sad response considering how fiat got it's start. That being vault owners issuing credit for more gold then they held.
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Phi est aureum replied on Tue, Oct 9 2012 4:02 PM

 

The claim of how fiat got its start is a little skewed. Yes, banks issued more notes than gold they had (fractional reserve banking), but it was enforced by government bailing out these banks with bank holidays, taxes, and even straight up bailouts. I have said in a system of a free society, no bailouts would be given, and thus the tendency to do such a thing would diminish since failing banks would have to actually fail.
 
Further, I understood what you said, I just don't understand why you said. Without a theory as to why the amount of currency MUST be tied to population, increasing the money supply with increases of the population IS, in fact, arbitrary. Just because one has a formula, it doesn't negate the possibility of said formula to be arbitrary.

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pluMmet replied on Tue, Oct 9 2012 4:14 PM

I would never deny it being arbitrary... lol

Nor would I say that gold standerd isn't arbitrary.

I understand that as money gold has been able to fill the role well in lue of other stuff but that system is prone to human lies and greed.

All I'm suggesting is that we should try to mitigate that problem and what I have proposed does a much better job of it.

Again in my imiginations I would expect the standard response of you can't stop lies and greed and my response is that you have no chance of doing so if you don't give it a shot. In doing so you just might learn how to get it done.

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Phi est aureum replied on Tue, Oct 9 2012 4:38 PM

 

A gold standard isn't arbitrary when one considers the power the people hold under such a system. When people do not feel that the government is spending their money wisely, or for that matter, don't agree to theft at all, or when people feel that banks are being to risky with their money, they can simply redeem their gold notes for the physical gold and stop them in their tracks. This allows for people to stop a bubble before it gets monstrous. And the failing banks along with the malinvestments become apparent and the market reallocated resources more properly. It also isn't arbitrary when one considers that the market (though governments have done all in their power to stop it) has consistently chosen gold as money over anything else. It's not arbitrary, it's voluntarism.
 
You haven't really proposed much. Who decides what the ratio of currency to population is? How is this person even chosen? How will they know if they made the right calculation? 
 
Since you haven't really given what most would call a proposal, I see no reason for you to claim that it would do a "much better job."
 
Further, how does your (non)proposal intend to stop greed and corruption?
 
You haven't explained anything yet.

The only one worth following is the one who leads... not the one who pulls; for it is not the direction that condemns the puller, it is the rope that he holds.

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pluMmet replied on Tue, Oct 9 2012 5:08 PM

This has reached a death spiral...

 

I want to thank you for responding to my original post. It gave me cause to continue to a point that I am happy with.

I've said what I needed to.

Have a wonderful day.

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Anenome replied on Wed, Oct 10 2012 2:22 AM
 
 

pluMmet:

So to the crux of my post, I've thought a great deal on how currency should be created myself. My conclusion is that money needs to be fiat and that any countries money supply needs to be based on their number of citizens.

Whelp, long story short, you don't know what you're talking about.

pluMmet:
Further, the fractional citizen to currency ratio needs to be assessed (against other countries) every 2 or 4 years based on that countries production then made public for all to know but a yearly expansion or contraction based solely and respectively on current number of citizens due to births and deaths.

All these proposals rely on government force, meaning they're unethical / immoral, w/e.

pluMmet:

I could go on about why i think that would be best but it fulfills all reasons of why we need currency and limits corruption greatly.

Bitcoin elimintes corruption entirely. Besides, any fiat currency is subject to the mass evil of inflation. And it can only be limited by the threat of complete repudiation, which isn't much of a limit.

 
Autarchy: rule of the self by the self; the act of self ruling.
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tom99holk replied on Wed, Oct 10 2012 4:30 AM

In Ron Pauls words let the market choose the currency (he doesnt want to end the fed himself he wants let the free market shuts it down by bypassing it)... lets have dual standart gold and paper I would add Bitcoin to the mix... then the markets pick the winner obviously money printers would lose... he talks about this in his book "End The Fed" & Peter Schiff  in his new book

The Real Crash

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