Money Sense

2008-2-25 14:08:00

Larry quoting JJ:

"Does it make sense for a group with no gold to sit around and do nothing because they cannot create money backed by this metal? No, it does not. It makes absolutely no sense."

Larry:

"You need to follow your own advice. You are always telling people to argue against what you said, and to not argue against what you did not say."

JJ:

I do not recall your name being mentioned in that post. My comment applied to some general thinking out there on money. I am quite careful to argue against what you say when I am addressing you.

Larry:

"No one has said that one cannot or should not have an economy if one does not have any gold."

JJ:

Obviously.

Larry:

"What you are arguing against here does indeed not make any sense, but then no one here has argued that one cannot have an economy without gold."

JJ:

I know.

Larry:

"Quoting from the Alan Greenspan article I posted a few days ago:

"(begin quote)

"Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.

"...

"(speaking of the medium of exchange)

"Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange.

"(end quote)"

Larry:

"Depending on the context of the economy a great many things have been used for money. Gold has however been one of the most successful as economies became larger and more complex."

JJ:

This is very basic knowledge.

Larry:

"It is not necessarily the case that gold is the final answer. Whatever the final answer it needs to have some of the virtues of gold. The primary virtue in my point of view is that whatever is used it needs to be difficult for governments (or for privatized government delegates like the Federal Reserve) to create it 'out of thin air' by fiat."

JJ:

The argument is the same whether we are talking about money backed by gold, silver platinum, clams or whatever. To avoid a big diversion unto endless details I should have said precious metal or commodity rather than gold. I use gold when talking about the principle because people understand the value of gold and this is the prime metal we are dealing with.

That said, in the modern world there are only a few items that have a chance of being used as a standard for money. It must have a high value per once so storage is possible and it must not deteriorate. Obviously items as tobacco, clam shells and Playboy magazines are impractical as a basis of backing money. Gold is the only really practical element to be used on as wide basis over a long period of time.

My point was this. What is a group supposed to do if they have no gold OR any other element they can store in vaults as a basis for money? (I hope this new wording helps you understand the point.) If practical commodity can be found as a basis for money what should a group do then? If not sit around, what?

Larry quoting JJ:

"What is the principle behind money that gives it its value? The answer, as related in the parable, is labor."

Larry:

"I believe that Karl Marx has already proposed the labor theory of value. Perhaps you should read his Communist Manifesto?"

JJ:

Earlier you tried to insinuate I was wrong accusing me of siding with Hitler and now Carl Marx. Let's keep our level of argument to the principles involved.

Of course labor has value and money would be worthless without it and this fact isn't diminished even though Hitler, Marx, Nero and the devil himself said it.

Both the good and bad believe in labor as well as eating carrots. So what?

Larry quoting JJ:

"The reason labor is the core principle is that everything money can buy is created by labor including labor itself. A new car, for instance, is the product of labor mining the steel, fabricating it, transporting it and selling it."

Larry:

"You are wrong for exactly the same reason that Karl Marx was wrong. Labor is not the core principle behind value. It is the intelligence behind labor that is the key to value. Any fool can labor and produce little of value. The greater the intelligence that directs the labor the greater the value produced (as a general rule)."

JJ:

I can't believe you are arguing with the above quote. It sounds like you are arguing just to be arguing. Of course labor has to be directed intelligently, but what labor is not? Everyone out there laboring for money is working with some amount of real intelligence. I would think this would be understood. An exception may be the insane.

The bottom line is this. No matter how much intelligence is behind your idea or project -- nothing happens without labor. Without labor no money can have any value. Of course different types of labor have different values. All understand this. But if there is no action -- nothing happens, nothing is created including money. It is an absolute irrefutable fact that without labor money of any kind would have no value.

Larry:

"Quoting Ayn Rand who spoke eloquently on the subject:

"'Money is the tool of men who have reached a high level of productivity and long-range control over their lives. Money is not merely a tool of exchange: much more importantly, it is a tool of saving, which permits delayed consumption and buys time for future production.'

"('Egalitarianism and Inflation,' Philosophy Who Needs It, Ayn Rand)

"So you think that money is the root of all evil? ... Have you ever asked what is the root of money? Money is a tool of exchange, which can't exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value.

"...

"'Money rests on the axiom that every man is the owner of his mind and his effort. Money allows no power to prescribe the value of your effort except the voluntary choice of the man who is willing to trade you his effort in return. Money permits you to obtain for your goods and your labor that which they are worth to the men who buy them, but no more. Money permits no deals except those to mutual benefit by the unforced judgment of traders.'

"(end quotes)

"('The Meaning of Money,' For The New Intellectual, Ayn Rand)"

JJ:

Good quotes. I agree with them. I agree with most of what Ayn Rand writes.

Larry:

"Labor is not the core principle behind money. Intelligently directed labor and free choice are the fundamental principles behind money."

JJ:

Without choice there would not even be existence, but we do not back money with intelligence or choice. The end backing of all money is labor. Even gold backed money could not exist if labor did not mine the gold -- so in principle this money is even backed by labor. The problem is that gold locked in vaults represents an unnecessary labor if an intelligent money system were in play.

Larry quoting JJ:

"The reason that gold is so often associated with money is it is discovered and not created."

Larry:

"More correctly stated, gold cannot be easily created or manufactured. Unlike paper, gold is inherently valuable as a commodity in relation to its monetary value (whereas paper has very little intrinsic value compared to its monetary value)."

JJ:

What you say is obviously true but it shows you missed my point which is somewhat of a metaphysical one.

Larry quoting JJ

"Whereas the creation of a commodity has many stages of labor involved as well as many different laborers the possession of gold can be had in only one step."

Larry

"Obviously you know very little about the mechanics of gold mining and refining."

JJ:

I find it annoying that when you and Blayne disagree with me you insult me by stating that it is obvious I know nothing about the subject. In each case you are wrong on this assumption. My father searched for gold for many years of his life in both North and Central America and was a mining consultant. He built specialized and unique equipment for extracting gold. He taught me how to pan for gold when I was a small kid and took me on mining trips. I know about gold.

Obviously there are extraction techniques that are complex, but my point was that much of the gold in our history has been mined on an individual one step process - by panning for it or simple mining large veins and simple refining if the percentage is good.

One can still go extract gold in a one stage process. I know where I can go pan for some gold now if I wanted to go get it and it would be a simple one step process.

Again, I think you missed my point which is somewhat metaphysical. That is people feel closely associated with gold because the human race has had such a close one to one association with it. I believe I uniquely understand this because my Dad was obsessed with finding gold more than anyone I have met. He also knew the stories behind every lost mine you could imagine and wrote books around them.

Larry quoting JJ:

"Because it is labor that creates wealth then labor is the optimum ingredient to back money."

Larry:

"Sorry JJ, but Karl Marx has already beat you as the exponent of this theory."

JJ:

Instead of demonizing by association how about quoting what Marx said so I can tell you if I agree with him or not.

Some of what Marx said was correct and some was not. His main mistake was in advocating force and violence to implement his views and this fault has nothing to do with our discussion.

Larry:

"Look at the enormous wealth that was produced in about a century in the United States during the 19th century, the time of the Industrial Revolution. That wealth did not primarily come from labor, but from the free intelligences that discovered more and more productive ways to use labor."

JJ:

I have never argued that all labor has the same value, but without labor nothings happens and there will be no money or creation. Unintelligent labor can produce some things of value through dumb luck, but yes, of course the more intelligent the labor the greater the value. This does not discount the fact that without labor nothing happens and it is why labor can back up money. The labor that backs up money will always have intelligence directing it. This is so obvious I wouldn't think we need to discuss it.

Genesis talks about God's labor or "work." The writer did not feel the necessity tell us that God's work was intelligent. I think it was assumed we would easily understand this. It was also obvious that without God's labor creation would not have been. Labor is indeed at the foundation of all value.

Larry:

"Money is the representation of the value produced by men. That value is the result of intelligence and labor. Labor alone is not the principle. Karl Marx (and now JJ) claimed that is was, but he (and JJ) was wrong."

JJ:

I did not say intelligence was not necessary. Please argue with what I do say, not with what I do not say.

Larry:

"In terms of material rewards I believe that a free market system is the fairest way of deciding who gets what. Once people have earned money then of course they can consider their moral obligation to help those who for various reasons, either disability or misfortune, are in true need.

"I see no particular virtue in the concept of stealing from the rich to help the poor unless the rich got that way by totally unfair means and won't help those who truly need it. The fact though is that the more political and economic freedom a people have the more generous they appear to be. People in the United States have a far better than average record of donating to the less fortunate compared to many other peoples of the world."

JJ:

I am glad to see you are agreeing with me here.

Thanks to you and others for the added information on Guernsey. I do not think that it contradicts the quote I gave on it. I noticed that you quote Wikipedia which Blayne rejected as unreliable when I quoted it.

The fact remains that Guernsey has used fiat money for almost 200 years. It is not a perfect example but one worthy of consideration.