Re: Amero Hint?


"Joseph Gwinn" <joegwinn@xxxxxxxxxxx> wrote in message
news:joegwinn-2FEEF0.13280929112008@xxxxxxxxxxxxxxxxxxxx
In article <493173ef$0$14307$607ed4bc@xxxxxx>,
"Ed Huntress" <huntres23@xxxxxxxxxxxxx> wrote:

"Joseph Gwinn" <joegwinn@xxxxxxxxxxx> wrote in message
news:joegwinn-8AA43C.11281729112008@xxxxxxxxxxxxxxxxxxxx
In article <49311104$0$14293$607ed4bc@xxxxxx>,
"Ed Huntress" <huntres23@xxxxxxxxxxxxx> wrote:

"Harold and Susan Vordos" <vordos@xxxxxxx> wrote in message
news:5_6Yk.76$xY.54@xxxxxxxxxxxxxxxxxxxxxxxxxxxxx

"Ed Huntress" <huntres23@xxxxxxxxxxxxx> wrote in message
news:49302d91$0$20307$607ed4bc@xxxxxxxxx
snip--

is a fiat system.


Ed,
As you know, I have almost no knowledge where these things are
concerned.
Would you, or could you, explain in a few words exactly what a fiat
system
is? All I can think of is the import auto. Leaves a great deal
to
be
desired.

I'm sincere, Ed. I really don't know.

Harold

Don't feel bad; you aren't alone. And it's not as simple as it sounds.
So,
no, I can't do it in a few words. Here's a middling-sized bunch of
words.
d8-)

A fiat currency is one that's backed by nothing but faith ("the full
faith
and credit of the United States") that the government will take it for
tax
payments, that it will be accepted in exchange for goods and services
by
the
domestic population and by foreigners, and so on. It's what we've had
since
1971. The whole world operates now with fiat currencies. They've been
in
and
out of use for many hundreds of years. To make a fiat based currency
work, a
government has to impose its use on its citizens. To make it work
internationally, a government needs to be a fair and honest trader
with
other currencies. As for what really "backs" them all, I'll just touch
on
it
in a minute.

There is a pretty simple definition of "fiat currency", and it's
written
on all greenbacks: "This note is legal tender for all debts, public and
private". In other words, by Federal Law, we all must accept
greenbacks as money, and are not allowed to insist on for instance
gold.
That's the "fiat" in fiat currency.

The value of gold is inherent, so no law was required to get people to
accept payment in gold.

Joe Gwinn

But the part that sounds easy at first, but which really is the
unanswerable
economic question in discussions about money, is what does it mean that
gold
has "inherent" value? Its use value is a small fraction of its market
price.

It's a form of mass hysteria. So gold-backed currencies depend upon mass
hysteria, very much like the "irrational exuberance" that inflates house
prices to many times their true replacement cost, and corporate stocks to
several times their asset value plus any rational assessment of their
earning potential. We buy gold because we believe that there is someone
even
more irrational than we are, who will pay at least as much for it as we
paid.

In the 21st century, it's a hell of a note on which to base one's
economic
transactions.

Wrong thread, Ed. I took no position on use of gold as a currency.

The fact that gold has inherent value is not an argument for or against
its use as a currency. Lots of things have inherent value. Some have
been used as mediums of exchange, a few for millenia.

Tell us what you mean by "inherent" value in this case, Joe. Or "intrinsic"
value, as it's sometimes labelled.


Use of gold (or any other commodity) as a medium of exchange is not
irrational, although one can argue practicalities.

If a commodity has utility value equal to its market price -- say, sheep
<g> -- then it's rational, although not very practical. If its market price
is many times higher than its utility, or use value, such as gold, then
there is no rationality to it at all. It depends on widespread
irrationality.

Or, as has been argued, you can call it "symbolic" value. That's the way
it's actually functioned over the past century or so, as central banks have
held and traded it. They use it as an agreed-upon symbol of fixed value,
even though it has little real value of its own. But for individuals,
"irrational" is more appropriate. They aren't part of the agreement. They're
just depending on what *other people* think it's worth.

That doesn't mean it doesn't work out well for those who trade it, because
irrationality is quite a common human trait. d8-)


When people pine for the gold standard, what they are really saying is
that they want a currency that the politicians cannot debase. Are they
wrong? Is this fear irrational?

To the degree that it's based upon a supposedly immutable value, it's not
rational. The "immutability" is itself a function of irrational behavior.
There are arguments for a gold standard but they're a lot more complex than
simply protecting against debasement.


A good example of the issue is the silver versus gold money debates and
William Jennings Byrant's Cross Of Gold speech. They just don't
speechify like they used to.

In any event, there was a real policy question buried in that debate.

Yeah, IIRC, that was all about freeing up credit for farmers. It wasn't a
simple plea for debasement.

Jeez, I hope we don't get a long thread going about gold standards. It could
make politics look like simple addition by comparison. d8-)

I have just that one request: I'd like to know what you mean by "inherent"
value of gold.

--
Ed Huntress


.

Relevant Pages

  • Re: Amero Hint?
    ... Would you, or could you, explain in a few words exactly what a fiat ... A fiat currency is one that's backed by nothing but faith ("the full ... The value of gold is inherent, so no law was required to get people to ... irrationality is quite a common human trait. ...
    (rec.crafts.metalworking)
  • Re: Amero Hint?
    ... Would you, or could you, explain in a few words exactly what a fiat ... A fiat currency is one that's backed by nothing but faith ("the full ... and are not allowed to insist on for instance gold. ... The value of gold is inherent, so no law was required to get people to ...
    (rec.crafts.metalworking)
  • Re: Amero Hint?
    ... greenbacks as money, and are not allowed to insist on for instance ... The value of gold is inherent, so no law was required to get people ... I took no position on use of gold as a currency. ... irrationality to me. ...
    (rec.crafts.metalworking)
  • Re: Amero Hint?
    ... greenbacks as money, and are not allowed to insist on for instance ... The value of gold is inherent, so no law was required to get people ... I took no position on use of gold as a currency. ... irrationality to me. ...
    (rec.crafts.metalworking)
  • Re: "Vital National Interests"
    ... All your rhetoric about fiat money being regulated ... you could buy 100 acres of land for say, an ounce of gold. ... *relative* price of items, ... some countries DO legally define their currency in terms of ... ...
    (alt.gathering.rainbow)
Loading