(urth) Urth Digest, Vol 57, Issue 31

[Steven Hall]

Thank you, I enjoyed that.

Adam Thornton wrote:
> On May 19, 2009, at 7:17 PM, brunians at brunians.org wrote:
>> Tell us about the money, Dan'l.
>>
>> Where does money come from again?
> 
> Hey, I'll take a crack at this one.  The short answer is, "Money comes 
> from trust."
> 
> Money initially comes about because direct barter is *really damn 
> inconvenient*, and things like cows aren't particularly fungible and 
> tend to lose a lot of their value when divided.
> 
> The first thing to try is that you trade a big, heavy, hairy, smelly cow 
> for a few ounces of something that is portable, doesn't spoil, and is in 
> short supply, like gold.  Which is great, as long as someone else wants 
> gold about as bad as you wanted gold for your cow.
> 
> But then you have the problem that unscrupulous bastards will start 
> adulterating the rare, precious commodity with something more plentiful, 
> so your two ounces of gold turn out to be gold mixed with some amount of 
> lead or something.
> 
> Now, it's tough to detect debased currency.  Ways to assay it turn out 
> to be inconvenient, expensive, and/or processes that require specific, 
> skilled knowledge.  And obviously you can't just trust that the thing 
> someone just handed you is in fact the proper amount of the precious 
> commodity he says it is, because there's a huge incentive for him to cheat.
> 
> So then states get into the act.  They declare that they have a monopoly 
> on money, and they make coinage, and they do so using tools that are 
> fairly expensive and inconvenient to duplicate, and they do things like 
> mill the edges so it's pretty evident if a coin has been shaved.  And 
> then they back up their monopoly on the monetary supply with the threat 
> of awful things happening to you if you try to compete, either by 
> starting your own competing currency or adulterating their currency.  
> What do the people using the currency get out of this?  Why, they get 
> the state's assurance that the money has however much precious material 
> in it, and that it is therefore guaranteed to be good for something.
> 
> Of course, governments being what they are, THOSE fuckers debase the 
> currency and cut it with nickel or whatever.  But the funny thing is, it 
> turns out that if everyone just keeps on acting as if the money *were* 
> worth what it's supposed to be worth, things continue running OK.  This 
> is crucial.
> 
> So, after a while, there becomes a need for a couple more refinements: 
> 1) it's really tough to carry around six thousand pounds of gold 
> coin--if you could even find it--if you want to build a new castle, or 
> put together an army, or something.  So then you get state-issued 
> banknotes, which you CAN redeem for some amount of precious-metal (or 
> agreed-upon-it's-just-as-good-as-silver-no-really) coin.  You also get 
> merchants agreeing to extend each other credit, which doesn't cut into 
> the state currency monopoly, because the credit isn't actually converted 
> to coin until it's redeemed.
> 
> And things go on in this way for a while, until governments realize, 
> "well, crap, there's practically nothing of value in this coinage 
> anyway...let's just go off the gold standard, shall we?"  And at that 
> point, money is money *BECAUSE THE GOVERNMENT SAYS SO*, and secondarily 
> (but still importantly) because the government has the implicit threat 
> of violence to back it up if you say, "no, that's not really 1/200th of 
> a cow, that's just a piece of paper with some green ink on it."
> 
> And even this works OK for a while, until so much money has been made up 
> in notional trades and the extension of notional credit that when 
> someone tries to call in a debt everyone stands around looking 
> embarrassed and then eventually admits that there isn't any real value 
> underpinning anything.  And of course then no one trusts anyone anymore, 
> money isn't worth anything, and those people who have fertile land and 
> weapons to defend it look pretty smart.
> 
> And then you have:
> 
> http://www.dilbert.com/2009-05-10/
> 
> And that, boys and girls, is how we got here today.
> 
> More questions?
> 
> Adam
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-- 
Steve Hall
sghall at comcast.net