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like i said, if gold tends to be used as money because it is over-valued, why would it have ever been used as money in the first place, before it was possible to have such over-valuation? And through market pricing and exchange, how can we even claim that something has a different value than its market price?
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first, the high or low value of a substance has little to do with its use as money. it simply needs a stable value - in the case of money, this means a relatively static supply. as i said, if gold costs a lot, it also sells for a lot. its value has nothing to do with the exchange rates of the non-monetary goods that are actually being traded.
gold might be a pretty value-less thing to have on a desert island (i also don’t know about this…if you had enough, a gold statue would make a pretty attractive beacon to any passing ships). but if everyone was stranded on a desert island, we’d have bigger problems than determining ideal money. for a normal society, gold has far greater value for its weight than food or shelter…this makes sense; it cannot be produced at will. also, two of the ideal properties of money are durability and portability, which neither sandwiches and houses have both.
i am not simply making this up. your dilemma here was debated and solved in the 1700’s. http://en.wikipedia.org/wiki/Paradox_of_value
and you may prefer a sandwich over gold, and would only value gold if it were able to be traded for many sandwiches. but as i said, there are others with the complete opposite persuasion, who want gold not to simply sell it for a greater number of sandwiches, but simply because they want it more than anything else at that value. if everything had a specific value common to everyone, then there would be no trade whatsoever. trade requires people to value what they receive more than what they offer in exchange.
- This is what I originally meant: all that is required for gold to have a market value higher than a sandwich is for one powerful person to desire gold many more times than a sandwich. maybe everyone else would prefer a sandwich over an ounce of gold, but they know that they could sell the gold to that one person for 100 sandwiches. But, if everyone could mine an ounce of gold far easier than they could make 100 sandwiches, this situation would change quickly → the market price of gold would go down as production increased and demand decreased. Normally, it is easier to make 100 sandwiches than to find an ounce of gold. Thus, depending upon how much that one person wanted gold, he may up the price.
People will act to reward themselves. In an exchange society, that means not producing simply what you want, but what others want, provided they in turn provide you with what you want. People actively attempt to produce things like gold, because it is a quicker means of attaining what they do want, then directly producing those things.
- I don’t know what you are saying here. How is gold production different from gold mining? And I don’t see how a significant amount of man-power would be wasted in such operations. Shouldn’t the same thing be occurring today?
5 & 6) No, no no! I hate when I run into this argument because it is simply not true. If you take a $1,000 loan which is the only money in existence, you can still pay the loan and interest (let’s say $1,100) with only $1,000 in circulation. The reasons for this are (a) you don’t have to pay the loan back as one lump payment and (b) the bank spends the money that you pay it back into circulation. As long as you produce things that others want, you should be fine.
of course, it can become a problem when only one institution can create what is solely legally known as money.
- You’re squaring a circle. Of course everyone tries to avoid selling at a loss, yet people still do. The reason that people sell at enormous “gains,” however, is not because of interest, but because of increased nominal demand, which is basically what you’re saying on the side. This isn’t simply interest. It occurs outside of interest. Why wouldn’t I buy a house at $200,000 with cash, then sell it later for $550,000? Because $550,000 later isn’t the same thing as $200,000 today. It’s not a true 100+% profit in real terms. And this is due to money supply, not interest.
Simply because our inflationary currency system is created through the banking system and loans doesn’t mean lending at interest is the required ingredient for inflation. For instance, the emperor of Rome used to debase his coins with base metals, then spend the increased supply. There was no interest, yet prices went up.
Look, your basic premise is flawed. Thus, your conclusions are quite flawed. You are essentially defining your own values for your products. Who is doing all this appraising? An exchange economy uses money for calculation. You should read Mises’s rebuttal to socialism. Here, I’ll give you a link to a summary: http://mises.org/daily/2401 It basically says you can’t replace market exchange rates with appraisals and expect to have a properly working system.
Speculation may have occasional negative effects (although I think you are over-stating them), but it also allows capital investment, the backbone of our economy. You are starting to sound like a 100% Marxist with this stuff. You are suggesting we can engineer a money system to remove interest from lending and an economy that is free from speculation. Good luck.