Gold is Not Money

[mmissinglink]

red squirrel feces, boogers

Not sure this two can really be money... they look a bit problematic to me as medium of exchange. I guess they are also not so nice to carry around and the fact that they are organic and extremely perishable doesn't make them a good store of value.

Perhaps problematic but there's a much more important point. We shouldn't determine for others what is and what isn't money....that's no different than gov't decreeing by fiat what is and isn't money....and we detest when others in power do it....should apply to all including ourselves. We have to allow the people to determine for themselves what they accept as a medium of exchange. Maybe the squirrel feces is dried and non perishable. But worrying about that is besides the point....the point being that people need to be free to determine for themselves what works for them, be it dried feces, green sand, or whatever....that's up to them to decide.

You and I may not be okay with it, so for us it won't be money but we should not try to impose or decree (as if by fiat) that some things be used or not as money for others.

And just so you are aware, the red squirrel feces suggestion is as much for effect as it is to make a serious point....of course I know that it would be a problematic medium of exchange but the point was that money isn't just what most people think it is.



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[Porcello]

You and I may not be okay with it, so for us it won't be money but we should not try to impose or decree (as if by fiat) that some things be used or not as money for others.

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Agree with all the rest. But I don't believe that money (legal tender) in a country is imposed by decree... It's forced upon the population through taxation.

 

[mmm....shiney!]

"Time is money, and nothing else"
Porcello 2015

Except I don't value your time so you can shove it as a means by which we can transact.

 

[mmissinglink]

You and I may not be okay with it, so for us it won't be money but we should not try to impose or decree (as if by fiat) that some things be used or not as money for others.

.

Agree with all the rest. But I don't believe that money (legal tender) in a country is imposed by decree... It's forced upon the population through taxation.

Even if you pay no taxes (legally or not), don't you still have to use the currency the gov't tells you is legal tender money to pay for virtually everything else you buy in the country you live in? After all, hypothetically, a gov't could state that they want taxes to be paid in silver or gold clumps / blobs. So, taxation is a side issue....payment of taxes is not necessarily the reason behind the why gov'ts issue notes and coinage that is deemed money by that gov't. It (taxation) might be a reason, of course, but certainly not the only or even the main reason they create a legal tender that it's citizens must use as money.




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[Porcello]

I

You and I may not be okay with it, so for us it won't be money but we should not try to impose or decree (as if by fiat) that some things be used or not as money for others.

.

Agree with all the rest. But I don't believe that money (legal tender) in a country is imposed by decree... It's forced upon the population through taxation.

Even if you pay no taxes (legally or not), don't you still have to use the currency the gov't tells you is legal tender money to pay for virtually everything else you buy in the country you live in? After all, hypothetically, a gov't could state that they want taxes to be paid in silver or gold clumps / blobs. So, taxation is a side issue....payment of taxes is not necessarily the reason behind the why gov'ts issue notes and coinage that is deemed money by that gov't. It (taxation) might be a reason, of course, but certainly not the only or even the main reason they create a legal tender that it's citizens must use as money.





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I'll give you a practical example. I lived in the Middle East for a few years and over there in many countries there is no GST or income tax. Most of the national currencies in those countries are hard pegged to the USD and as such have a fixed exchange rate among them. At all effects, this makes the USD the real money in the ME, despite a number of specific official currencies.

For effect of the above, multiple currencies circulate happily together. I used to travel a lot and I've done it many times without the currency of the destination country. Anybody would gladly accept the currency of another country or the USD without too much fuss, also for very small transactions.

Business also accept payments in non official currencies, sometimes also in other currencies non pegged to the USD (e.g. Euro). when you have to pay taxes on your profits, accepting non legal tender money exposes you to currency fluctuation and uncertainty on the amount of money you will actually pay to the government out of your profits.

On my first couple of years there, my main money was the USD. I was paid in USD for my work and my bank account was in USD. But my official currency was the Dirham... I couldn't care less, I was holding a few bills and coins here and there just because received as spare change (yes, it was normal to pay in one currency and receive change in the same or in a different currency)

Edit: obviously I'm not the one who discovered that "taxes drive money". It's one of the fundamental pillars of the Modern Money Theory of Warren Mosler; I have simply experienced what he describes myself. See also this post for further reading:
http://neweconomicperspectives.org/2011/07/mmp-blog-8-taxes-drive-money.html

 

[worldbubble]

for now USD is money the rest is a pegged crap
USD dies and gues what remains?! Right, gold and silver.

 

[mmissinglink]

I

Agree with all the rest. But I don't believe that money (legal tender) in a country is imposed by decree... It's forced upon the population through taxation.

Even if you pay no taxes (legally or not), don't you still have to use the currency the gov't tells you is legal tender money to pay for virtually everything else you buy in the country you live in? After all, hypothetically, a gov't could state that they want taxes to be paid in silver or gold clumps / blobs. So, taxation is a side issue....payment of taxes is not necessarily the reason behind the why gov'ts issue notes and coinage that is deemed money by that gov't. It (taxation) might be a reason, of course, but certainly not the only or even the main reason they create a legal tender that it's citizens must use as money.





.

I'll give you a practical example. I lived in the Middle East for a few years and over there in many countries there is no GST or income tax. Most of the national currencies in those countries are hard pegged to the USD and as such have a fixed exchange rate among them. At all effects, this makes the USD the real money in the ME, despite a number of specific official currencies.

For effect of the above, multiple currencies circulate happily together. I used to travel a lot and I've done it many times without the currency of the destination country. Anybody would gladly accept the currency of another country or the USD without too much fuss, also for very small transactions.

Business also accept payments in non official currencies, sometimes also in other currencies non pegged to the USD (e.g. Euro). when you have to pay taxes on your profits, accepting non legal tender money exposes you to currency fluctuation and uncertainty on the amount of money you will actually pay to the government out of your profits.

On my first couple of years there, my main money was the USD. I was paid in USD for my work and my bank account was in USD. But my official currency was the Dirham... I couldn't care less, I was holding a few bills and coins here and there just because received as spare change (yes, it was normal to pay in one currency and receive change in the same or in a different currency)

Edit: obviously I'm not the one who discovered that "taxes drive money". It's one of the fundamental pillars of the Modern Money Theory of Warren Mosler; I have simply experienced what he describes myself. See also this post for further reading:
http://neweconomicperspectives.org/2011/07/mmp-blog-8-taxes-drive-money.html

Yes, of course in some countries, currencies from other countries are treated as money. That still doesn't negate in any way my argument that the creation of money by a governing body (historically) is not only or primarily for the collection of taxes. History shows us that money was around before taxation. Logic tells us that when a country imposes a tax, there has to be a form of money already in existence in order to pay that tax imposed.

In fact, the earliest monies were commodity monies - I have seen references to ancient Babylon some 4000+ years ago. In later eras, an accepted money was mainly established by a governing body for the facilitation of the payment of debts, public and private.

Besides, if taxes wouldn't be collected by a governing body, a gov't that issues a people's money can still benefit from doing that. A fiat money still serves the purpose of money. Money can be collected for breaking laws, for currency conversion, and possibly for a whole slew of other reasons that has nothing to do with taxation.


I am not one of those people who believes guns and taxation are evil. I am one who believes that guns and taxation can be used by evil people to do harm to others or can be used by righteous people to do good for society. The gun and the tax are not the problem. I am fully in support of the ownership by worthy and sensible people of guns and the collection of legit and sensible taxes by a governing body.



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[mmissinglink]

for now USD is money the rest is a pegged crap
USD dies and gues what remains?! Right, gold and silver.

Not necessarily. Fiat digital currencies or even a form of a crypto-currency could replace the USD. If and when the USD dies, other commodities besides silver and gold might be the favored new money. Personally, the notion of silver functioning as money once again is quite appetizing to me but what I like and what the ruling elite want may be two very different things.


I like polished silver....it's shiny!




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[Skyrocket]

for now USD is money the rest is a pegged crap
USD dies and gues what remains?! Right, gold and silver.

Chinese yuan will be the next world currency me think.

 

[REDBACK]

Gold Is Not Money, Part 2
Steve Saville
email: [email protected]
Oct 13, 2015

I opened a blog post on 7th October with the statement that gold was money in the distant past and might again be money in the future, but isn't money in any developed economy today. I then explained this statement. The post stirred up a veritable hornet's nest, in that over the ensuing 24 hours my inbox was inundated with dozens of messages arguing that I was wrong and a couple of messages thanking me for pointing out the obvious (that gold is not money today). The negative responses were mostly polite *, but in many cases went off on a tangent. Rather than trying to respond individually, this post is my attempt to rebut or otherwise address some of the comments provoked by the earlier post on the same topic.

In general, the responders to my earlier "Gold Is Not Money" post made the same old mistakes of arguing that gold is an excellent long-term store of value, which is true but has nothing to do with whether gold is money today, or confusing what should be with what is. Some responders simply asserted that gold is money becauseit is. Not a single responder provided a practical definition of money and explained how gold fit this definition. That's despite my emphasis in the earlier post that before you can logically argue whether something is or isn't money, you must first have a definition of money.

Due to the fact that many different things (salt, tally sticks, beads, shells, stones, gold, silver, whiskey, pieces of paper, etc.) have been money in the past, a reasonable definition of money MUST be based on money's function. Also, the definition must be unique to money. In other words, when defining money you must start with the question: What function does money perform that nothing other than money performs?

"General medium of exchange", meaning the general enabler of indirect exchange, is the function performed by money and only by money within a particular economy. Now, there are certainly pockets of the world in which gold and other items that we don't normally use as money in our daily lives do, indeed, perform the monetary function. For example, there are prisons in which cigarettes are the most commonly-used medium of exchange. It is certainly fair to say that cigarettes are money within the confines of such a prison, but I want a definition that applies throughout the economy of a developed country. Gold is not money in the economy of any developed country today, although there could well be small communities in which gold is money.

I'll now address some of the specific comments received in response to my earlier post, starting with the popular claim that there's a difference between currency and money, and that although gold is no longer a currency it is still money. The line of thinking here appears to be that currency is the medium that changes hands to complete a transaction whereas money is some sort of esoteric concept. This is hardly a practical way of thinking about currency and money. Instead, it appears to be an attempt to avoid reality.

A more practical way of thinking about the difference between currency and money is that almost anything can be a currency whereas money is a very commonly-used currency. In other words, "currency" is a medium of exchange whereas "money" is the general medium of exchange. The fact is that gold is sometimes used as a currency, but it is currently not money.

Moving on, some people clearly believe that gold is money because the US Constitution says so. Actually, the US Constitution doesn't say so, as the only mention of gold is in the section that limits the powers of states and is specifically about the payment of debts, but in any case this line of argument is just another example of confusing what should be with what is. The bulk of what the US Federal Government does these days is contrary to the intent of the Constitution.

Some people apparently believe that gold is money (or money is gold) because JP Morgan said so way back in 1912. My response is that JP Morgan was absolutely correct. When he made that statement gold was definitely money because at that time it was the general medium of exchange in the US. However, today's monetary system bears almost no resemblance to the monetary system of 1912. For example, when JP Morgan said "Money is gold" the US was on a Gold Standard and the Federal Reserve didn't exist.

Several people informed me that gold must be money because some central banks are buying it or holding it in large quantities. OK, does this mean that something is money if central banks are buying/holding it regardless of whether or not it is being used as money throughout the economy? If so, then Mortgage-Backed Securities (MBSs) must now be money in the US because the Fed has bought a huge pile of MBSs over the past few years, and T-Bonds must now be money throughout the world because most CBs hold a lot of T-Bonds. Obviously, something does not become money simply because CBs hold/buy it.

A similar mistake is to claim that gold must be money because major clearing houses accept gold as collateral. The fact is that the same clearing houses also accept the government bonds of most developed countries as collateral. General acceptance as collateral clearly does not make something money.

Lastly, some readers came back at us with the tired old claim that gold has intrinsic value whereas the US$ and the rest of today's fiat currencies don't. At the risk of seeming arrogant, you can only make such a claim if you are not well-versed in good economic theory. All value is subjective, which means that no value is "intrinsic". Most people subjectively assign a high value to gold today, but they also subjectively assign a high value to the US$. In any case, even if the "intrinsic value" statement had merit it wouldn't be a valid argument that gold is money.

In conclusion, gold is something that is widely perceived to have substantial value. Furthermore, good arguments can be made that its perceived value will be a lot higher in a few years' time. However, it is currently not money.

*Those that weren't polite have had the honour of being added to my "blocked senders" list.

###

Steve Saville
email: [email protected]
Hong Kong

http://www.321gold.com/editorials/saville/saville101315.html

This is the most stupid thing i have read
Some body please smack this guy on the head with a paddle stick
I could drain my spaghetti with this commentary


REDBACK

 

[Porcello]

Yes, of course in some countries, currencies from other countries are treated as money. That still doesn't negate in any way my argument that the creation of money by a governing body (historically) is not only or primarily for the collection of taxes.

Yes, I didn't say that. Money is not created by the government in order to impose taxes. I said the opposite, indeed: taxes are imposed by governments to force people to adopt their money.

History shows us that money was around before taxation. Logic tells us that when a country imposes a tax, there has to be a form of money already in existence in order to pay that tax imposed.

Of course. But if the government allows people to pay taxes with their own issued legal tender or the money already in existence, and both forms of money are similarly good for paying taxes, people will not be pushed to switch to the legal tender as the only money and as a result either the legal tender will go out of circulation or there will be two circulating currencies.

Money can be collected for breaking laws, for currency conversion, and possibly for a whole slew of other reasons that has nothing to do with taxation.

True. But MMT economists say that this is not good enough to force a currency onto the entire population. Not everybody breaks the law and needs to pay fines; when this happen, actual money can be converted into official currency to pay the fine. Conversely, everybody is subject to taxation and the amount of taxation is substantial when compared to earnings.

I am not one of those people who believes guns and taxation are evil. I am one who believes that guns and taxation can be used by evil people to do harm to others or can be used by righteous people to do good for society. The gun and the tax are not the problem. I am fully in support of the ownership by worthy and sensible people of guns and the collection of legit and sensible taxes by a governing body.

Sure. Taxation is a very effective tool for rebalancing economic power across population if used properly.

 

[mmissinglink]

Yes, of course in some countries, currencies from other countries are treated as money. That still doesn't negate in any way my argument that the creation of money by a governing body (historically) is not only or primarily for the collection of taxes.

Yes, I didn't say that. Money is not created by the government in order to impose taxes. I said the opposite, indeed: taxes are imposed by governments to force people to adopt their money.

History shows us that money was around before taxation. Logic tells us that when a country imposes a tax, there has to be a form of money already in existence in order to pay that tax imposed.

Of course. But if the government allows people to pay taxes with their own issued legal tender or the money already in existence, and both forms of money are similarly good for paying taxes, people will not be pushed to switch to the legal tender as the only money and as a result either the legal tender will go out of circulation or there will be two circulating currencies.

Money can be collected for breaking laws, for currency conversion, and possibly for a whole slew of other reasons that has nothing to do with taxation.

True. But MMT economists say that this is not good enough to force a currency onto the entire population. Not everybody breaks the law and needs to pay fines; when this happen, actual money can be converted into official currency to pay the fine. Conversely, everybody is subject to taxation and the amount of taxation is substantial when compared to earnings.

I am not one of those people who believes guns and taxation are evil. I am one who believes that guns and taxation can be used by evil people to do harm to others or can be used by righteous people to do good for society. The gun and the tax are not the problem. I am fully in support of the ownership by worthy and sensible people of guns and the collection of legit and sensible taxes by a governing body.

Sure. Taxation is a very effective tool for rebalancing economic power across population if used properly.

So, people wouldn't adopt a money were it not for taxation? Where's the good evidence for that claim? And I hope you don't tell me to read this and that book...please use your own words and arguments and references I can view online without having to purchase someone else's books. Thank you.


The money already in existence doesn't necessarily NOT have to be legal tender created by the governing body....these are not mutually exclusive. A governing body can create a legal tender that the people would accept without the imposition of taxation. The creation of a money by the governing body could very easily be a great convenience for the people. People today are very easily swayed by convenience. Did you know that the earliest notes (money) issued by the U.S. gov't was largely created in order to pay salaries of soldiers?

Think about United States Notes ("greenbacks", issued by the U.S. Treasury and not to be confused with today's Fed. Res. notes). This was fiat money created by the U.S. government and accepted by people not because of taxation but because it was the best form of money at the time. People will accept a governing body's money not necessarily because of taxation but because it is the best form of money at the time in the view of most people. If a gov't created a form of money that people trusted and liked and made payments of debt convenient, there'd be no reason for the people to wait to be taxed in order to accept that form of money.




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[Porcello]

So, people wouldn't adopt a money were it not for taxation? Where's the good evidence for that claim? And I hope you don't tell me to read this and that book...please use your own words and arguments and references I can view online without having to purchase someone else's books. Thank you.

People would eventually freely choose a form of money, but not necessarily the one decided by the government unless the government enforces it by violence or taxation.
This is what the MMT economists say and it's just a theory, not a universal truth. However, as I said before, I believe it can be true because of my personal experience. I'm not trying to convince anyone that they are right, I'm just making aware the other interested members of this forum that there is such a theory and that in my opinion it is worth some reading time. If you are interested, just google it and you'll find plenty of information about it; if you think it's utter BS and want to dismiss it without even taking a look at it, don't waste your time.

Anyway, after all I'll provide a link to save you some time:

http://www.epicoalition.org/docs/Pavlina_2007.pdf

This is one of the "mandatory reading" from the moslereconomics.com website. There is a lot of stuff to read there and it's for free.

The money already in existence doesn't necessarily NOT have to be legal tender created by the governing body....these are not mutually exclusive. A governing body can create a legal tender that the people would accept without the imposition of taxation. The creation of a money by the governing body could very easily be a great convenience for the people. People today are very easily swayed by convenience. Did you know that the earliest notes (money) issued by the U.S. gov't was largely created in order to pay salaries of soldiers?

Possible in theory but unlikely. I already said before that circulation of more than one currency is possible if both can be used for the same purpose and they are all equally good. Otherwise Gresham's law kicks in and only the worst of the bunch stays in circulation.
The government, the king, or tptb, always wants the exclusivity of money creation and wants to make sure that only one currency circulates in his reign because through money manipulation he can influence population behavior and set economic policies.
Throughout history - even during metal standards -, governments have never resisted the temptation to debase money for one reason or another (always to their benefit, though), so I would argue that money imposed by the government is never to be trusted and, if people were given a possibility, they would choose something that is not under control of the rulers.

Think about United States Notes ("greenbacks", issued by the U.S. Treasury and not to be confused with today's Fed. Res. notes). This was fiat money created by the U.S. government and accepted by people not because of taxation but because it was the best form of money at the time. People will accept a governing body's money not necessarily because of taxation but because it is the best form of money at the time in the view of most people. If a gov't created a form of money that people trusted and liked and made payments of debt convenient, there'd be no reason for the people to wait to be taxed in order to accept that form of money.

Oh yes! The first US paper bill issued by the government and not backed by gold! One of the shiniest examples of bad money. It was clearly not the best money around as the US dollar was fully redeemable for gold and at parity of value nobody, unless completely crazy, would have accepted that toilet paper in place of a bill fully redeemable for gold (which was money at that time in US. Gold and nothing else!). Unfortunately I don't think that soldiers during the civil war had too much say on which kind of note they would receive for their services. Since it was legal tender, though, it was widely accepted and most probably immediately used to pay off taxes while the gold backed US dollar was hoarded (yes, there was taxation and people used greenbacks to pay taxes).

 

[mmm....shiney!]

This is the most stupid thing i have read
Some body please smack this guy on the head with a paddle stick



REDBACK

I'm in town, if I see him I'll oblige.

 

[valuecreator]

MMT is the shit, man.

Stands for Magic Money Tree.

 

[Porcello]

MMT is the shit, man.

Stands for Magic Money Tree.

Yes, that's fiat money! Magic money.

Edit: I'm not endorsing MMT as a whole here. Only when they say that taxes drive money. Other things like: government deficit = net private savings.... Not so much convinced.

 

[Ag bullet]

Chinese yuan will be the next world currency me think.

so that's why they've been buying so much gold.

 

[sterling-nz]

Chinese yuan will be the next world currency me think.

so that's why they've been buying so much gold.

Well me thinks China will get the opportunity , but if they take it or not will be the question.
In this modern day China is far better placed to control things compared to the USA.
After all the USD fluctuates a lot and they only have 350,000,000 people and a murderous military machine to back their $.
China on the other hand has a very firm grasp on their currency and 1,400,000,000 people to back up their military machine.
I may be a bit biased as we have many Chinese folk living in NZ and have a great respect for their culture and their contribution to our country.
If we did not have the Chinese influence in NZ particularly down south here we would be decades behind in the infrastructure we have.
Another thing i feel China has going for it is their open totalitarian attitude, sure the USA does the same things BUT THEY LIE ABOUT IT and try to convince us the are out to help us AS THEY LINE US UP FOR DETENTION.
This "devil you know" attitude that we continue to espouse with the dictators in the USA is old and needs rectifying.

 

[mmissinglink]

Chinese yuan will be the next world currency me think.

so that's why they've been buying so much gold.

Well me thinks China will get the opportunity , but if they take it or not will be the question.
In this modern day China is far better placed to control things compared to the USA.
After all the USD fluctuates a lot and they only have 350,000,000 people and a murderous military machine to back their $.
China on the other hand has a very firm grasp on their currency and 1,400,000,000 people to back up their military machine.
I may be a bit biased as we have many Chinese folk living in NZ and have a great respect for their culture and their contribution to our country.
If we did not have the Chinese influence in NZ particularly down south here we would be decades behind in the infrastructure we have.
Another thing i feel China has going for it is their open totalitarian attitude, sure the USA does the same things BUT THEY LIE ABOUT IT and try to convince us the are out to help us AS THEY LINE US UP FOR DETENTION.
This "devil you know" attitude that we continue to espouse with the dictators in the USA is old and needs rectifying.

1,400 people with pop guns is no match for 35 people with machine guns. Don't shoot the messenger...I'm just breaking the news for you and I'm probably as much anti U.S. war mongering as you.



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[FlashInThePan]

From an investment point of view

Gold is moving toward the monetary system not away form it.

Printed digits (US dollars) are having a diminishing effect in there effectiveness with manipulations requiring exponentially more over time.