Reagan Will Disgrace US Currency

[Hogeye]

Darrel agrees with my claim that gold is an inflation hedge, both explicitly, and with the evidence he offers. I.e. "For over one hundred years from 1800 through to 1970, the cost of gold remained fairly stable with a very gradual rise from 19 US dollars an ounce to 38 US dollars an ounce." In other words, gold was an inflation hedge from 1800 through 1970.

Note that statements about inflation hedges concern hoarding, not investing. I.e. Which holds value better - hoarding gold or paper money? Thus, giving one or the other a handicap by assuming a 5% interest for one is not legitimate. If you do assume such an investment, you need to assume it about both. E.g. Per Doug's observation, at the moment of investment, one might have invested a dollar's worth of gold or a dollar's worth of paper. But then you have assumed away anything having to do with inflation hedging. If you want to assume compound interest, you should assume a 5% increase in the weight of gold per year versus a 5% increase in nominal value of a paper dollar, but then you are just unnecessarily complicating the hoarding question only to get the identical result - that gold is an inflation hedge.


Darrel then makes a different claim: that, though gold is an inflation hedge, it is a bad one. This is a different, and more complex question. First you have to ask, compared to what? Certainly, with 20-20 hindsight, we can say that for the past 20 years gold has not been as good an inflation hedge as real estate in Northwest Arkansas. And I agree that land, in general, is also a good inflation hedge. Almost anything with utility to mankind and some degree of scarcity is an inflation hedge. Another complication concerns relative risk, and the fact that gold is a commodity and land is not. (I.e. gold is homogeneous, one 1 oz. chunk is replacable by another; land varies tremendously in quality, one lot is not the same as another.) Also, there is a difference in liquidity - its easier and quicker to sell a piece of gold than a particular piece of land. Finally, there is the consideration that one can buy gold (or silver) in small quantities, i.e. it doesn't require as much wealth to buy a chunk of gold as land or buildings. So I neither agree nor disagree that gold is a bad inflation hedge, the statement being too fuzzy and the comparison unclear. I'm satisfied with limiting my contention to: Gold is an inflation hedge. Without a specific alternative to compare it with, I'd call anything which hold values better than paper money a "good" hedge, but that's using "good" in different way than Darrel.

It appears to me that much of Darrel's "disagreement" is based on an equivocation of "inflation hedge" and "investment." Something can be a good inflation hedge without being a good investment (especially in hindsight.) He clearly makes this equivocation when he makes such statements as, "How do you get interest or compound interest on an investment in a chunk of gold!?"

Bottom line: inflation hedging is about hoarding; investment is about production of wealth. Our latest conversation is basically: "This is an apple." "No, that is a bad orange."

[Dardedar]

Darrel agrees with my claim that gold is an inflation hedge, both explicitly, and with the evidence he offers. I.e. "For over one hundred years from 1800 through to 1970, the cost of gold remained fairly stable with a very gradual rise from 19 US dollars an ounce to 38 US dollars an ounce." In other words, gold was an inflation hedge from 1800 through 1970.

DAR
I give up. I can't bring myself to read the material after this part. If your reading comprehension is so broken that you think that an increase from $19US to $38US over a 170 year period is a good investment, or a good inflation hedge, or anything other than a complete wipeout (or that this was my claim, or that I am in some way agreeing with you), then there is no hope of communication. There is no point in trying.
And I don't know why this is the case. I thought your Lysander Spooner presentation was quite cogent and informative.

D.

ps If you put $19 at a paltry 3% interest over 170 years you get: $2,891.

5% gets you: $76,021

10% gets you: $206,780,736

Of course an adjustable rate between these percentages will give results somewhere between these extremes.

You can play with the compound interest calculator here

...Compounding is "the greatest mathematical discovery of all time." --Einstein

[Hogeye]

If your reading comprehension is so broken that you think that an increase from $19US to $38US over a 170 year period is a good investment, or a good inflation hedge...

Sigh. You still don't see the difference between an investment and an inflation hedge. Look at your own words! If gold retained value better than paper (hoarded, not invested), then by definition it is an inflation hedge. You admit that an ounce of gold went from $19 to $38. Ergo, it was an inflation hedge.

If you put $19 at a paltry 3% interest over 170 years you get: $2,891...

Right. Here you are talking about investment. Your arithmetic is correct whether the original investment was paid for by $19 in gold or $19 in paper. But you are totally off the subject of whether gold is an inflation hedge - a question which has to do with hoarding, not investment.

(It occurs to me that you may be confusing dollar qua unit of measurment for wealth, and dollar qua pretty piece of paper printed by the US State.)

[Barbara Fitzpatrick]

Neither the "pretty piece of paper" nor the piece of gold have any inherent value other than that assigned by the society in which it is used. Land does, so if you want an inflation hedge, land would be the way to go. The accepted price for a piece of land varies, largely dependent on how well society believes the economy is doing, but it's utility does not. [If it was ever possible to grow food on it, it will always be possible (barring some nimrod neighbor using his "private property" rights to poison your land with toxic runoff). If it ever was possible to build on it, it will always be possible to build on it.] The civilizations of Africa, whose economies were based on trickles of gold going to Europe, were destroyed by the massive amounts of both silver and gold coming from the "New World" in the 15th and 16th centuries and deflating the price of both.

Actually - and I don't know how much - but either the gold or the "pretty piece of paper" stashed under the bed for 90 years has gained in the value the society puts on it, as long as you treat them both the same - i.e., sell to a collector for the current valuation in current dollars.

[Hogeye]

Neither the "pretty piece of paper" nor the piece of gold have any inherent value other than that assigned by the society in which it is used. Land does, so if you want an inflation hedge, land would be the way to go.

I still agree with your repeated assessment of "inherent value." I agree that land (like gold) is an inflation hedge. Land and gold are both scarce, and have utility to man. (There's gold in your cell phone and virtually every electronic device. It is an excellent electrical conductor and does not tarnish.) Paper money, however, does not have such objective utility over and above being able to wipe your ass or write a note on it - and the govt printing on it reduced its utility in the latter respect. Put another way, virtually all utility of fiat money comes from its usefulness as a medium of exchange.

Now, if governments were run by angels, then this might not be a problem. But history (and the logic of human action) shows that issuers of fiat money tend to increase the supply whenever they feel the need for more money. Which is early and often. The advantage of specie (or land) based money is that these things cannot be easily increased in supply. It's difficult and expensive to mine gold, and the land supply is essentially fixed, at least until colonization of another planet. OTOH governments can print up more funny-money whenever they feel like plundering in a way subtler than taxation. Taxation is unpopular, and people easily see their loss of wealth. Inflating the money supply is very subtle - people do not feel their wallets getting lighter when more money is printed. This robbery is so subtle that many very smart people do not understand what's going on.

[Doug]

Neither the "pretty piece of paper" nor the piece of gold have any inherent value other than that assigned by the society in which it is used. Land does, so if you want an inflation hedge, land would be the way to go.

I still agree with your repeated assessment of "inherent value." I agree that land (like gold) is an inflation hedge.

DOUG
And when your land prices fluctuate, what becomes of the alleged "hedge"?

Land and gold are both scarce, and have utility to man.

DOUG
Gold has no inherent utility, except maybe in electronics, as you mentioned.

(There's gold in your cell phone and virtually every electronic device. It is an excellent electrical conductor and does not tarnish.) Paper money, however, does not have such objective utility over and above being able to wipe your ass or write a note on it - and the govt printing on it reduced its utility in the latter respect. Put another way, virtually all utility of fiat money comes from its usefulness as a medium of exchange.

DOUG
But fiat is 99% of the price of gold. We don't always use gold for electronics connections, and we could stop using it.

Inflating the money supply is very subtle - people do not feel their wallets getting lighter when more money is printed. This robbery is so subtle that many very smart people do not understand what's going on.

DOUG
People don't "feel" when their land prices fall either.

[Hogeye]

And when your land prices fluctuate, what becomes of the alleged "hedge"?

Fluctuation in price has absolutely nothing to do with being an inflation hedge. Maybe we need some definitions.

inflation hedge - An investment designed to protect against inflation risk. Such an investment's value will typically increase with inflation. (from here)

Investments designed to hedge against inflation and the loss of purchasing power associated with it. (from here)

(Anticipating objections by Darrel, "investment" is used in the looser sense here.)

There's nothing about fluctuation there, Doug. But maybe you're concerned that some land may gain while other land may lose value wrt the dollar. This is true - land is not a commodity like gold. Thus, saying land is an inflation hedge is a generality - any given piece of land may not.

We don't always use gold for electronics connections, and we could stop using it.

Yes, there are substitutes for almost any product, but that does not deny the utility.

But fiat is 99% of the price of gold.

You are totally mistaken here. "Fiat" means "decree." The US went totally off the decreed gold standard back in '72, so none of gold's value is by decree anymore. All of its value is based on the subjective perception by people of the utility of the next incremental chunk of gold, aka its "marginal utility." I might add that asthetic beauty is part of this utility, and should not be ignored.

Hogeye> Inflating the money supply is very subtle - people do not feel their wallets getting lighter when more money is printed. This robbery is so subtle that many very smart people do not understand what's going on.

Doug> People don't "feel" when their land prices fall either.

You seem to miss the point here. The point is that government can arbitrarily increase the supply of fiat money, but not land. The other point is that, unlike taxes, this robbery of value is unseen. Thus, it's easier for govt to get away with printing more money than raising taxes, even though the result is essentially the same.

[Doug]

Fluctuation in price has absolutely nothing to do with being an inflation hedge. Maybe we need some definitions.

inflation hedge - An investment designed to protect against inflation risk. Such an investment's value will typically increase with inflation. (from here)

Investments designed to hedge against inflation and the loss of purchasing power associated with it. (from here).

DOUG
OK, define inflation. And show it doesn't apply to land, then.

[Hogeye]

inflation - an increase in the amount of money relative to the amount of goods available for purchase

Since the amount of land is (almost totally) fixed, money backed by land cannot be arbitrarily increased. Certainly building dikes to push back the sea is much harder than running a printing press.

(Similarly, mining gold is also harder than printing pretty paper.)

[Doug]

inflation - an increase in the amount of money relative to the amount of goods available for purchase

DOUG
If the population increases, how do you get more goods into the system without using more money?

Since the amount of land is (almost totally) fixed, money backed by land cannot be arbitrarily increased.

So how do you get more money into the system if more people are born to members of the community?

This sure sounds like it can't work.

[Certainly building dikes to push back the sea is much harder than running a printing press.

(Similarly, mining gold is also harder than printing pretty paper.)

It is not at all clear to me how land can "back" the money. It seems like a holdover from more superstititious times when people thought that money represented a physical thing or it is worthless. That is an obsolete view of money in my view.

[Barbara Fitzpatrick]

Doug, that's Hogeye's point exactly. He thinks money is worthless unless it represents a physical thing. He does not accept the validity of money as a concept.

[Dardedar]

Doug, that's Hogeye's point exactly. He thinks money is worthless unless it represents a physical thing.

DAR
He may like to pretend that's what he believes, but in the real world where he buys and sells like anyone else, he doesn't treat paper as worthless. Actions speak louder than words.

BARB
He does not accept the validity of money as a concept.

DAR
Until it comes time for him to buy or sell something. Then you know he does.

[Hogeye]

If the population increases, how do you get more goods into the system without using more money?

Production. The amount of money has little or nothing to do with "getting more goods." In times of hard money (and no major gold strikes), there was a "natural" slight deflation, as the amount of goods (for more people) increased relative to the amount of specie.

So how do you get more money into the system if more people are born to members of the community?

Ah, I see. You are under the misapprehension that you need more money to "handle" more people and goods. The short answer, implied above, is that more money isn't necessary - all that happens is prices get lower for goods (aka deflation.) For the long answer, see What Has Government Done to Our Money? chapter 8 - The "Proper" Supply of Money. But I'll tell you the punch line: "We come to the startling truth that it doesn't matter what the supply of money is." If people and goods double, and the money supply stays the same, then everything will just cost half as much.

Doug> It seems like a holdover from more superstititious times when people thought that money represented a physical thing or it is worthless.
Barbara> Doug, that's Hogeye's point exactly. He thinks money is worthless unless it represents a physical thing. He does not accept the validity of money as a concept.

Obviously I have not explained it very well, because I am saying the opposite. Money need not have any use or value whatsoever other than exchange value. The reason I object to fiat money is not because it has no value other than exchange value; it is because it is too easy to increase the supply. If I were sure that the supply of paper money would be stable (if treasury agents were angels, or things were run by that robot in "The Day the Earth Stood Still"), I would have no objection to it.

[Barbara Fitzpatrick]

Money is like any other commodity. It has an inverse ratio of value to availability. It just happens to be THE commodity for exchange. Whether it is paper, beads, or "silver rounds" - more of it means less value per piece and less of it means more value per piece. Each piece's value, however, is given in conceptual terms of its buying power. The concept of "dollar" or "peso" or "knut" is a medium of exchange more efficient in societies than barter and trade. It has no value other than that the society agrees to give it. It is the "middleman" in trade. It is a convenience and nothing more - but also nothing less. From Hogeye's writings, he seems to think gold (specie) has more inherent stability than other forms of money. If their civilization hadn't been destroyed by the influx of silver and gold from the "New World" in the 17th century, he could have asked the Songhai (Africa, currently the area covered by southern Mali, Burkina Faso, Ghana, Togo, and eastern Ivory Coast) about that.

[Doug]

If the population increases, how do you get more goods into the system without using more money?

Production. The amount of money has little or nothing to do with "getting more goods." In times of hard money (and no major gold strikes), there was a "natural" slight deflation, as the amount of goods (for more people) increased relative to the amount of specie.

DOUG
There is nothing "natural" about specie. It has no inherent value relative to other more useful substances.

So how do you get more money into the system if more people are born to members of the community?

Ah, I see. You are under the misapprehension that you need more money to "handle" more people and goods. The short answer, implied above, is that more money isn't necessary - all that happens is prices get lower for goods (aka deflation.) For the long answer, see What Has Government Done to Our Money? chapter 8 - The "Proper" Supply of Money. But I'll tell you the punch line: "We come to the startling truth that it doesn't matter what the supply of money is." If people and goods double, and the money supply stays the same, then everything will just cost half as much.

DOUG
Look, if you have more people, and they spend, you need more money for them to use. But producing more money is inflation, according to you. So how do you increase both the amount of goods and the amount of money in your artificial system?

The reason I object to fiat money is not because it has no value other than exchange value; it is because it is too easy to increase the supply. If I were sure that the supply of paper money would be stable (if treasury agents were angels, or things were run by that robot in "The Day the Earth Stood Still"), I would have no objection to it.

DOUG
The supply is not the problem. Now that more and more banking is done electronically, is electronic banking "fiat" too?

[Hogeye]

Hogeye> In times of hard money (and no major gold strikes), there was a "natural" slight deflation, as the amount of goods (for more people) increased relative to the amount of specie.

Doug> There is nothing "natural" about specie. It has no inherent value relative to other more useful substances.

That's neither here nor there - it has nothing to do with my comment. I've repeated agreed that nothing has "intrinsic" value. My comment is not about naturalness of specie, whatever that means. It says that, due to technological advances and accumulation of capital goods (machines), the amount of goods normally increases somewhat faster than the amount of specie. IOW Goods in general increase faster than newly mined precious metals. Hence slight deflation.

Look, if you have more people, and they spend, you need more money for them to use. But producing more money is inflation, according to you. So how do you increase both the amount of goods and the amount of money in your artificial system?

You make smaller denominations of money without increasing the nominal total value of money. In our last example, the amount of goods (and people) doubled, so prices in (say) gold roughly halved. For people to have enough small change, smaller pieces of gold (or smaller denominated "warehouse receipts") may be required. I think our disconnect is on the word "amount." I was thinking total weight of gold. You were thinking penny, nickel, and dime tokens. If things get too "cheap" wrt gold, we may have to start using half-penny tokens, but the total amount (weight) of gold need not change.

Now that more and more banking is done electronically, is electronic banking "fiat" too?

Some is, and some isn't. What makes a particular "brand" of money hard or fiat is whether it is backed, not whether its tokens are paper, electrons, or shells. E-gold is hard money, US$ denominated e-currency is fiat.

The supply is not the problem.

I beg to differ - supply is everything when it comes to inflation. It's more money chasing the same amount of goods. So the price of goods gets bid up. Barbara gets it:

Money is like any other commodity. It has an inverse ratio of value to availability. It just happens to be THE commodity for exchange. Whether it is paper, beads, or "silver rounds" - more of it means less value per piece and less of it means more value per piece. Each piece's value, however, is given in conceptual terms of its buying power.

That's an excellent, concise explanation. She goes on to tell us why money is so important to civilization:

The concept of "dollar" or "peso" or "knut" is a medium of exchange more efficient in societies than barter and trade.

Barter has two grave inefficiencies. First, most goods are not divisible. How do I trade a plow for a dozen eggs. If I break off a chunk of my plow, the chunk has little or no value (compared to a whole plow.) The second inefficiency in barter is the necessity for a double coincidence. If I want to trade chess lessons for a pound of coffee, I, as coffee-wanting chess-lesson producer, must find a chess-lesson-wanting coffee producer.

So far Barbara has aquitted herself like a Nobel prize winning economist. But next she appears to stumble:

It [money] has no value other than that the society agrees to give it.

I submit that there is no social contract giving value to money - no "agreement." Money derives value from its usefulness as a medium of exchange, in the independent judgement of its users distributively. Maybe that's what she meant, but I needed to clarify.

From Hogeye's writings, he seems to think gold (specie) has more inherent stability than other forms of money.

Yes, or more specifically, gold has more stability than fiat money. Why? Simply because it is harder to mine gold than to print fiat money. Barbara gives an example where the supply of gold drastically increased in a society. Fine. But for every such case there are tens or hundreds of cases of fiat money getting inflated. And you don't have to go to the darkest Africa circa 1700 to find examples! The gold supply did admittedly increase after the California and Australian and Alaska finds, but fiat money is drastically inflated in virtually every third-world State, and inflated less drastically in developed States. Instead of three major gold strikes in the last two centuries, we have virtually every State in the world "striking" the printing press every year. And the percent increase in the world supply of gold from a strike is very small compared to routine percent increases in fiat currencies.

[Doug]

Look, if you have more people, and they spend, you need more money for them to use. But producing more money is inflation, according to you. So how do you increase both the amount of goods and the amount of money in your artificial system?

You make smaller denominations of money without increasing the nominal total value of money. In our last example, the amount of goods (and people) doubled, so prices in (say) gold roughly halved. For people to have enough small change, smaller pieces of gold (or smaller denominated "warehouse receipts") may be required. I think our disconnect is on the word "amount." I was thinking total weight of gold. You were thinking penny, nickel, and dime tokens. If things get too "cheap" wrt gold, we may have to start using half-penny tokens, but the total amount (weight) of gold need not change.

DOUG
That sure sounds like fiat to me. It is not clear what "backing" money is supposed to mean.

But regarding the amount of money:

Suppose you have a community of 1,000 money users, and, say 10,000 gold tokens are among them, there are enough tokens for each member to have ten tokens.

But suppose that children, etc., bring the total number of users to 2,000 in a few years. Now there are only enough gold tokens for each person to have 5 tokens each. When the community has 10,000 members, there are only enough tokens for one each. And after that?

If you break up the tokens into smaller pieces, what's the point? You may as well use something besides gold. It is all arbitrary, so I don't see why you are so down on U.S. currency. It's the same thing.

[Barbara Fitzpatrick]

The problem of getting gold in small enough pieces to deal with everyday purchases is why the U.S. went to silver for its money in circulation. While (at that time) the dollar was "backed" by gold (or gold was price-controlled to the dollar), very little cash was actually gold. The $20 "double-eagle" was about the size of a silver dime.

What Hogeye means by "backed" is that no more paper money can be printed than there exists locked up somewhere a "specie" or commodity having socially agreed upon value. He likes gold, but apparently silver will do in a pinch (since he's offered "silver rounds" for $15). The ancient Irish used dairy cattle (you can see the problem with that - you get automatic inflation when a cow dries or dies). The problem or benefit of the "backed" system - depending on your point of view - is that it drastically limits credit. Our society has gone "credit crazy" to the extent that as individuals and as a nation we are teetering on the edge of disaster, but a society without credit is hamstrung for accomplishing much of anything. Of course, that's why Hogeye likes it.

[Hogeye]

That [tokens] sure sounds like fiat to me. It is not clear what "backing" money is supposed to mean.

Money is backed iff (it is itself a commodity OR it can be exchanged by its provider for a fixed amount of a commodity). If you can exchange your token (paper currency, base metal coins, and digital accounts are examples of tokens) for a fixed amount of a commodity, then the token is backed. Think of them as warehouse receipts for the commodity. If the tokens are based on decree only, i.e. cannot be exchanged for a fixed amount of commodity, then they are fiat money. The US Treasury Dept. will no longer exchange paper dollars for gold or silver. They stopped doing that for citizens in 1933, and for foreign central banks in 1972. Thus, by definition, the US dollar is fiat money. OTOH e-gold, a type of digital money denominated in grams, can be exchanged for grams of gold. It is backed (or "hard") money. The Liberty Dollar is another backed money. It's easy to figure out whether any given type of currency is backed; just ask yourself whether it is a warehouse receipt for a commodity.

Suppose you have a community of 1,000 money users, and, say 10,000 gold tokens are among them, there are enough tokens for each member to have ten tokens. ... When the community has 10,000 members, there are only enough tokens for one each. And after that? If you break up the tokens into smaller pieces, what's the point?

The point is that (assuming the original tokens were for 1 oz., thus the total gold stock was 10,000 oz.) all the economic transactions will still occur without giving counterfeiters the opportunity to rip everyone off by debasing the money. Instead of counterfeiters (legal or not doesn't matter) arbitrarily increasing the money supply, you have 1/10 oz. tokens being used without increasing the money supply at all. Using fiat money is practically begging someone to rip you off, i.e. engage in inflation. It's like leaving your wallet on the hood of your car before you go inside a Wal-Mart. You will almost certainly have it stolen. Leaving your money in the hands of a printing press operator rather than a warehouser of gold is essentially the same thing. Unless you know the press operator is an angel, who would never print more money for his own purposes, you would be a fool to do so. Americans were not fools a century ago; they would never have accepted fiat money. It took almost a century of propaganda, evasion, and habituation to move from the hard dollar to a totally fiat dollar. How many people today know that "dollar" was originally a unit of weight?

You may as well use something besides gold. It is all arbitrary, so I don't see why you are so down on U.S. currency. It's the same thing.

I have no objection to using commodities other than gold. There is nothing magic about gold. Gold and silver have simply been the commodities that have "won out" in the market for monetary purposes. I prefer hard money to fiat money because it cannot be easily debased by money providers.

What is the cost to the US Treasury Dept. of manufacturing seven $100 bills? Probably pennies. What is the cost of a mining company to produce 1 troy ounce of pure gold? About $600. (Gold mining has roughly the same rate of return as other businesses, and currently an oz is $631.) Now, Doug, here's the question: Who is more likely to inflate their respective money? The Treasury Dept. or the mining companies? It's a no-brainer. One of them has massive incentive to inflate, and tons of politicians and special interests goading them on, and can inflate drastically for pennies; the other has to do a lot of work and makes close to a normal return on investment. This argument is against fiat money; it works not only against government central banks, but also dishonest "wildcat" banks. In short, govt central banks are legal counterfeiters; they rob current holders of the fiat money by printing more money (aka inflating the money supply.)

The problem of getting gold in small enough pieces to deal with everyday purchases is why the U.S. went to silver for its money in circulation.

Silver had for centuries been preferred for small purchases over gold. This goes back way before the US. It is a market phenomena, not a decreed phenomena; the price of silver historically has been less than gold. Many of the US problems wrt gold and silver have been the "pegging" (govt price-fixing) of gold and silver - i.e. a decreed gold/silver ratio aka "bimetalism." This price-fixing caused a shortage of one or the other, depending on which was overvalued wrt the market price. It also made things ripe for special interest groups (e.g. silver mining firms) to bribe/lobby/corrupt, which politicized the monetary issue tremendously.

What Hogeye means by "backed" is that no more paper money can be printed than there exists locked up somewhere...

Right. You get it.

The ancient Irish used dairy cattle (you can see the problem with that - you get automatic inflation when a cow dries or dies).

Right, which is precisely why commodities like gold and silver won out in the market for money over cows. Specie is higher unit value, divisible (cow parts don't retain consistent value), homogeneous (some cows are better than others), more durable (cows can spoil, but not specie), and more easily transportable.

The problem or benefit of the "backed" system - depending on your point of view - is that it drastically limits credit.

I disagree. How do you figure that? I would say the opposite, that fiat money limits credit. How? It makes lending more risky than otherwise, since the lender has a harder time foreseeing what money will be worth in the future. What rate of interest should he charge to cover future inflation? Barbara, a lot of the "society gone credit crazy" problem may be due to fiat money inflation. Why save, when the govt shows you can borrow and spend indefinitely? Why worry about debt, when it may be obliterated by inflation? OTBE, Inflation favors debtors and screws creditors, since debtors repay in cheaper money. And of course, the biggest debtor of all is the USEmpire - which is why they have such a great incentive to inflate. Already, the only way to "pay back" the central banks of China, Russia, and Japan (massive holders of T-notes) is to inflate the dollar.

A society without credit is hamstrung for accomplishing much of anything. Of course, that's why Hogeye likes it.

LOL! This is bullshit, and you know it. I know that credit is a good financial tool, and of course I want society to succeed. How could you possibly think that I am against society or accomplishing things? Hmmm. Maybe you equate society and State. I realize that the State is the enemy of society - that every increase in State power is a decrease in social power. It's society vs. the State; if you haven't figured that out, there's no way you can understand politics (or history for that matter.)

[Doug]

That [tokens] sure sounds like fiat to me. It is not clear what "backing" money is supposed to mean.

Money is backed iff (it is itself a commodity OR it can be exchanged by its provider for a fixed amount of a commodity). If you can exchange your token (paper currency, base metal coins, and digital accounts are examples of tokens) for a fixed amount of a commodity, then the token is backed.

OK, so what is the advantage to exchanging your money for a commodity? I don't see any point to it. Besides, if the money is good, you don't need to exchange it, you can just buy the commodity.

Think of them as warehouse receipts for the commodity. If the tokens are based on decree only, i.e. cannot be exchanged for a fixed amount of commodity, then they are fiat money.

Doesn't the society have to decree that you can exchange the money for a commodity? It would seem that ALL money is based on decree. I don't see how it could be otherwise.

The US Treasury Dept. will no longer exchange paper dollars for gold or silver. They stopped doing that for citizens in 1933, and for foreign central banks in 1972. Thus, by definition, the US dollar is fiat money.

What can you exchange the gold for, if exchanging is supposedly so important?

OTOH e-gold, a type of digital money denominated in grams, can be exchanged for grams of gold. It is backed (or "hard") money. The Liberty Dollar is another backed money. It's easy to figure out whether any given type of currency is backed; just ask yourself whether it is a warehouse receipt for a commodity.

I still don't see any advantage to exchanging anything.

Suppose you have a community of 1,000 money users, and, say 10,000 gold tokens are among them, there are enough tokens for each member to have ten tokens. ... When the community has 10,000 members, there are only enough tokens for one each. And after that? If you break up the tokens into smaller pieces, what's the point?

The point is that (assuming the original tokens were for 1 oz., thus the total gold stock was 10,000 oz.) all the economic transactions will still occur without giving counterfeiters the opportunity to rip everyone off by debasing the money. Instead of counterfeiters (legal or not doesn't matter) arbitrarily increasing the money supply, you have 1/10 oz. tokens being used without increasing the money supply at all.

That doesn't address the issue. If you split the money into smaller pieces, isn't the society then arbitrarily saying that the pieces are worth more? How is that not fiat?