Uhm, this free money value also is an illusion to the same degree, even one with an additional devaluation component.
Yes, but free money doesn’t claim to provide the store of value function. And there will be less increases and decreases in hoarding. Hoarding would be low and more or less constant. The differences in hoarding can have an important effect on the price of money. In fact, monetary cycles with a gold standard start with an increase in hoarding that causes deflation.
I’ll just ask you a simple question. Would you as a merchant rather take money A that at least may keep its value, or would you rather take money B that for sure will lose value by definition?
I would accept both and spend the free money first. I think that’s what merchants do with the chiemgauer and other Regio currencies in Germany.
That’s what merchants did in Wörgl during the great depression. It’s better to take free money than not selling anything because money velocity is frozen, don’t you think?
100% of the people will always have 100% of the money at all times! The only thing that happened after 5 years were lower prices of the goods, but a 100% of the money spent still buys a 100% of the goods and services created.
Not completely accurate but…
At any time it just depends on what the money is spent on. If they buy canned food good, if not it’s bad on this island. The nominal amount of money going round does not change that. The restraint comes from scarce resources not from scarce money.
Exactly. By hoarding money they’re not better prepared for anything, just like printing money after the disaster won’t help them.
The “store of value” is only when the individual compares himself with the others, but society as a whole isn’t storing any value by hoarding money. Money is just like a certificate of labor/services provided. It is just an accounting tool, information, a technology. It doesn’t have intrinsic value. It doesn’t need intrinsic value. It just needs users willing to accept it and trade with it.
At all times you have all of those options. How do you want to prevent people from saving in Gold? You could only do this by punishing things like Gold with a tax that is so high that they rather would accept the “free” money fee.
Let them save in gold. I (unlike Gesell who thoutght that money was a natural monopoly) advocate for a free monetary market. But be aware that gold is still money. If it wasn’t, its price would be much closer to silver. It has a value component that comes from the fact that it is money. This monetary value can dissapear if it stops being money, gold can be demonetized. Even if Gold remains a money-like certificate that only serves as a “store of value” it depends on how much people want to save at the same time.
If many people wants to “save” at the same time, great, the price rises and everybody feels reacher. If everybody wants to cash out at the same time, they will realize that Gold wasn’t actually the store of value they thought.
Also people cannot save in normal goods. Why? Because if e.g. all people saved in canned food, that would mean there were huge inventories of canned food, that would drive the price of canned food lower at the moment some people want to make use of this purchasing power (that would just create a canned food bubble). So canned food will not retain its value the same way as Gold does, and of course after a few years it perishes anyway, which means a lot of economic effort was done for nothing. Not to forget that if you have canned food you would first need to find someone who would want to buy canned food to give you money. Good luck with that in a world in which everyone already has tons of it himself (That’s how bubbles start to bust actually). So nobody will save in canned food, not the way you think.
No, no. I didn’t meant everybody saving all its wealth in canned food, just another possibility. As an insurance to consume later themselves if they need it, not to sell it later. They will pay in storage costs and the food will eventually rot, but they’re saving through this insurance. they could also buy other commodities such as oil or gold (not as secure as some may think), but, again, it’s just another possibility.
The main way to save is to invest in capital goods or lend the money (even at zero interest).
The point is, discouaraging hoarding is not the same as discouraging saving, they’re not synonyms.
jtimon:
Because gold-money (capital-money) has higher commerce costs than free money. That’s the criterion of quality for money.
Capital-money money also holds back prosperity by preventing capital yields to naturally drop near zero like other economic profits (through the basic interest that appears with money-capital) and springs monetary cycles.
No, it does not. If you look at my example from before you will notice that me and the seller of the good always have to pay the sell and buy spread of Gold if we want to save in Gold. It was actually cheaper in this example to do the business directly in Gold. If the commerce cost was lower of free money then this “free” money wouldn’t punish me with a fee that is driving me to an alternative in the first place. And of course if there is no government forcing this free money on me, I will not use it anyway, as you wouldn’t either.
About the commerce costs, you say something differet later. I’ll answer to that.
About the monetary cycles, this is the sequence of events:
- Capital accumulation leads to prosperity but also to lower capital yields and therfore lower interest rates.
- With low interest rates, savers prefer to hoard rather lend.
- An increase in hoarding causes deflation which at the same time encourages more hoarding. Borrowing gets less attractive with deflation and some loans are not payable anymore, because business plans weren’t taking delfation into account.
- Destruction in the financial market, capital destruction (new capital goods aren’t produced and the old ones perish) leads to higher capital yields (less competition among capitals).
- At some point, a new price equilibrium is reached in which the capital yields are above the basic interest (an economic rent caused by capital money) again.
jtimon:
Your definition of money is different than mine’s. I don’t think that “store of value” is a desirable property of money. Well, as shown in the island example I don’t think that’s even possible. Money is just information, kind of a certificate of labor or wares provided.
What’s your definition of money?
Please, don’t tell me only what money DOES (medium of exchange, unit of account, store of value), tell me also what money IS according to you. I hope you don’t say it’s a commodity or a ware like anyone else.
Sorry but that (store of value) is the most important function of it. Money is the most widely accepted medium of exchange. How does it get that status? Of course by being a reliable store of value, beside some other characteristics
No. The most important function is the medium of exchange, it enables division of labor, specialization, big projects, etc.
Money doesn’t need an underlying source of value different than being the medium of exchange. Money can be made of paper.
Also, as shown before, the store of value function in a symbolic “commodity” as money is an illusion.
You didn’t define money. It would be intersting to know the differences in our definitions.
For me, money is just an accounting tool (information) that serves as a medium of exchange.
I’ll answer to the rest later.
