History of money, 20th century and earlier

[bilby]

Perhaps he thinks that by differentiating two types of money -- intrinsic-worth and bank-created -- I am speaking of two different monetary systems.

Or perhaps you still won't say what gives gold "intrinsic worth". It seems that gold has extrinsic worth - like tulips had in C17th Amsterdam.

People value gold only because they expect other people to value gold. Unless they are using it in one of the niche roles it plays as a useful metal, such as dentistry or optical coatings.

 

[Swammerdami]

We all have areas of expertise and areas of ignorance. I can tell you more than you ever wanted to know about the detailed workings of IBM mainframes in the 1970's, or interesting methods of image compression. But when I needed to change a tire recently I was afraid I'd make a mistake, so asked for help.

One matter I DO understand is the topic of this thread. I think I'm doing a good job laying out the history of money. There's no doubt in MY mind that I know more about this topic than others here.

I'd like to read more feedback. If my definitions are unclear, ASK -- help me improve this write-up. Loren? RVonse? Politesse? Will ANYONE chime in and "take a stand"?

I honestly do not understand bilby's confusion. He seems fixated on matters that aren't even "up for discussion" -- I'm outlining basic definitions and historic examples.

I'm going to review the history of money in Europe and the Near East but first let's list some things we WON'T need to discuss.

• We won't bother with primitive societies that didn't need money.
• We won't condone the meme "Money is debt." If someone wants to argue this viewpoint is useful, please begin with a paragraph explaining what the meme even means: It has about 3 distinct and contradictory interpretations.
• I've heard some say that gold and silver "do not have intrinsic worth." This is so confused I won't bother refuting it unless someone insists. I will ask "Does platinum have intrinsic worth? How about beanie babies?"

How about it, bilby? If you don't think gold or tobacco have "intrinsic worth" I can guess your stand on beanie babies; but what about platinum? copper? barley or iPhones?

(Anyway, as I've told you over and over and over it doesn't matter for our purpose. "Intrinsic-worth money" is simply coin or commodity which can be used as money despite the absence of any "guarantee" of its value from a government or banker. IOW it has WORTH that is INTRINSIC to it (not legislated or dependent on a banker's remittance).

 

[Swammerdami]

In the Virginia Colony, tobacco was used as money. People who hated tobacco still accepted it as money because OTHER PEOPLE thought it had value.

The phrase "Intrinsic worth" doesn't imply some Divine Design or Moral Meaning. It just means the money had value in and of itself, without reliance on any guarantee by a government, banker or debtor.

Does this help?

Other people would provide things in exchange for it. You accept tobacco as payment because you know society accepts it as payment and thus you can use it to get what you actually want. It's this expectation that underlies the concept of money.

In other words, you agree with me.

 

[bilby]

We all have areas of expertise and areas of ignorance. I can tell you more than you ever wanted to know about the detailed workings of IBM mainframes in the 1970's, or interesting methods of image compression. But when I needed to change a tire recently I was afraid I'd make a mistake, so asked for help.

One matter I DO understand is the topic of this thread. I think I'm doing a good job laying out the history of money. There's no doubt in MY mind that I know more about this topic than others here.

I'd like to read more feedback. If my definitions are unclear, ASK -- help me improve this write-up. Loren? RVonse? Politesse? Will ANYONE chime in and "take a stand"?

I honestly do not understand bilby's confusion. He seems fixated on matters that aren't even "up for discussion" -- I'm outlining basic definitions and historic examples.

I'm going to review the history of money in Europe and the Near East but first let's list some things we WON'T need to discuss.

• We won't bother with primitive societies that didn't need money.
• We won't condone the meme "Money is debt." If someone wants to argue this viewpoint is useful, please begin with a paragraph explaining what the meme even means: It has about 3 distinct and contradictory interpretations.
• I've heard some say that gold and silver "do not have intrinsic worth." This is so confused I won't bother refuting it unless someone insists. I will ask "Does platinum have intrinsic worth? How about beanie babies?"

How about it, bilby? If you don't think gold or tobacco have "intrinsic worth" I can guess your stand on beanie babies; but what about platinum? copper? barley or iPhones?

(Anyway, as I've told you over and over and over it doesn't matter for our purpose. "Intrinsic-worth money" is simply coin or commodity which can be used as money despite the absence of any "guarantee" of its value from a government or banker. IOW it has WORTH that is INTRINSIC to it (not legislated or dependent on a banker's remittance).

OK, try this thougt experiment.

Civilisation has collapsed. I have a store of tinned food, and you have a load of gold bars.

I am happy to trade my tinned food for stuff I need, or can use; Or even for stuff I can expect other people to accept in trade later on.

How do you persuade me to swap a tin of beans for your "intrinsically valuable" gold? What good is it to me, or anyone else, in a post apocalyptic wasteland?

If it's no good, then how can it possibly be said to have "intrinsic value" right now? Or ever?

 

[bigfield]

I found an article which uses the term "intrinsic value of gold" and it seems to just refer to some way of measuring how much people value gold independently of its price in any one currency.

https://www.sciencedirect.com/science/article/abs/pii/S0261560617301857

So "intrinsic value" has nothing to do with whether or not gold has other uses (like making earrings), and just refers to the fact that people are willing to use gold as a store of value even if it isn't made into coins. Which isn't an "intrinsic" value at all.

(Anyway, as I've told you over and over and over it doesn't matter for our purpose. "Intrinsic-worth money" is simply coin or commodity which can be used as money despite the absence of any "guarantee" of its value from a government or banker. IOW it has WORTH that is INTRINSIC to it (not legislated or dependent on a banker's remittance).

That doesn't make the use of the descriptor "intrinsic" any more convincing.

Does it really make sense to treat "everybody agrees this is useful for money" as an intrinsic property of gold?

 

[Swammerdami]

OK, try this thougt experiment.

Civilisation has collapsed. I have a store of tinned food, and you have a load of gold bars....

You are imposing value judgements while I am offering definitions. Whether gold money is "smart" is NOT what we are discussing. Note that tobacco, platinum, peppercorns and iPhones might also have no value in your scenario -- luxuries are of lesser interest when desperate.

You didn't tell us whether you think platinum has "intrinsic value." I haven't checked the exact price lately but it is NOT coveted for glitter yet is very expensive BECAUSE it is scarce. (I'd enclose the fact in a Spoiler box but SUSPECT you are aware that gold is also scarce!)

Here's a fact that might be of interest to YOU. (It's irrelevant to my thread; I'm dismissing the tangent you're on.) The price of gold remained at $35/ounce for about 35 years. It was when it CEASED to be money that the price of gold shot up! Is that compatible with a notion that its ONLY value was its use as money?

 

[bigfield]

Here's an interesting idea for why gold has intrinsic value as money: basically, it's a stable material that can be made into regular pieces, and it is rare but not too rare.

Why Did Gold Become the Best Element for Money?

Plenty of elements could make great currency, but gold is the hands-down winner. Learn why gold is the best element for money at Life's Little Mysteries.

www.livescience.com

 

[bigfield]

Here's a fact that might be of interest to YOU. (It's irrelevant to my thread; I'm dismissing the tangent you're on.) The price of gold remained at $35/ounce for about 35 years. It was when it CEASED to be money that the price of gold shot up! Is that compatible with a notion that its ONLY value was its use as money?

Why did the price of gold shoot up?

Seems to be that it's still just being used as money. I mean, people are mostly buying gold just to have gold that they can sell later.

 

[Swammerdami]

Here's a fact that might be of interest to YOU. (It's irrelevant to my thread; I'm dismissing the tangent you're on.) The price of gold remained at $35/ounce for about 35 years. It was when it CEASED to be money that the price of gold shot up! Is that compatible with a notion that its ONLY value was its use as money?

Why did the price of gold shoot up?

Seems to be that it's still just being used as money. I mean, people are mostly buying gold just to have gold that they can sell later.

The confusion in this thread arises from CONFUSION ABOUT DEFINITIONS. Let's not continue to compound this problem.

Gold is an "asset" and Gold is "money" are two DISTINCT claims. Holding an asset in hopes of long-term appreciation and taking a piece of money to the tavern to buy a round of drinks are NOT similar things.


ETA:
In many contexts what we call "money" corresponds closely to "cash money." (When someone asks if you paid cash for your car, they are NOT asking whether you paid with bank-notes or paid with check. In this context paying the entire price with a personal check -- a form of bank-created money -- is considered "buying with cash.")

 

[bilby]

Gold is not "scarce", under any useful definition of the word. What other metals have such a large fraction of the total amount ever mined snd refined, still sitting in storage as ingots, having never been used for anything, and rarely even looked at by anyone?

 

[bigfield]

The confusion in this thread arises from CONFUSION ABOUT DEFINITIONS. Let's not continue to compound this problem.

Gold is an "asset" and Gold is "money" are two DISTINCT claims. Holding an asset in hopes of long-term appreciation and taking a piece of money to the tavern to buy a round of drinks are NOT similar things.

Gold doesn't do anything while it's kept in a safe. Its sole function is to be moved from one safe to another. Looks like money.

 

[bilby]

Holding an asset in hopes of long-term appreciation and taking a piece of money to the tavern to buy a round of drinks are NOT similar things.

So, gold isn't money.

It has been a LONG time since you could buy a drink in a tavern with a bit of gold. A gold coin, perhaps; But not a gold ring, or earring, or nugget*.

Coins are money (whether made of gold or of cupronickel or copper or silver or anything else). Gold is not money. Gold is a metallic element.

Money is an abstraction, that may or may not be represented by tokens, which may or may not be macroscopic physical objects. Numbers in a bank computer might be money. Numbers in a pocket calculator are not.






* The special case of gold mining communities during gold rushes, when gold might have been used at a tavern to by drinks at a ruinous rate of exchange notwithstanding. Barmen ripping off drunken miners wasn't exactly a complete national economy, even in Australia.

 

[bilby]

Gold is not "scarce", under any useful definition of the word. What other metals have such a large fraction of the total amount ever mined snd refined, still sitting in storage as ingots, having never been used for anything, and rarely even looked at by anyone?

To be more specific, gold is "scarce" in my life (and I presume in yours, unless you work at Fort Knox), because it is valuable, so people are hoarding it as an asset.

Given that it is scarce because it is valuable (and it is observably not scarce for any other reason - most of it is sitting idle in storage for no reason other than its perceived value), then it would be perversely circular to say that it is also valuable because it is scarce.

Platinum, btw, is valuable because it is scarce. Most of the platinum that has been mined is in use for such things as catalysts in industry and automobile pollution control. There aren't big idle stockpiles of platinum just lying around (at least, not on anything like the scale of our global stockpile of unused gold).

 

[Bomb#20]

Here's an interesting idea for why gold has intrinsic value as money: basically, it's a stable material that can be made into regular pieces, and it is rare but not too rare.

Why Did Gold Become the Best Element for Money?

Plenty of elements could make great currency, but gold is the hands-down winner. Learn why gold is the best element for money at Life's Little Mysteries.

www.livescience.com

Also, it has the advantage of being mononuclidic, i.e., all its atoms have the same number of neutrons. Consequently Archimedes and his successors in the assaying business didn't have to deal with any problem of gold from this mine being a little bit denser than gold from that mine.

 

[Bomb#20]

Gold is not "scarce", under any useful definition of the word. What other metals have such a large fraction of the total amount ever mined snd refined, still sitting in storage as ingots, having never been used for anything, and rarely even looked at by anyone?

"My lord, we love our King. His wise remarks are valued by his court as precious stones."
"And for the self-same cause. Like precious stones, his sensible remarks derive their value from their scarcity!"​

- Princess Ida

 

[Bomb#20]

No, not at all. Intrinsic-worth money was gold or silver (or rarely, tobacco, peppercorn, etc.)
A piece of paper implying that a bank will pay gold or silver to the bearer or assignee was bank-created money.

These two sets are DISJOINT. Money was never SIMULTANEOUSLY coins of precious metal AND a bank's promise written on PAPER.

So, you are drawing a distinction between essentially worthless paper, whose value exists only because people believe in its value; and essentially worthless yellow metal, whose value exists only because people believe in its value.

I mean, gold does have some actual uses, but then, so does paper.

Neither has "intrinsic value" as far as I can see; Money used to be a king's promise written on bits of gold, and now it's a bank's promise written on bits of paper, and apparently the way in which these things are importantly different is so obvious that you can't express it in words.

Wait, wait, I think I can field this one for you...

These things are importantly different because there would hardly be point in distinguishing intrinsic-worth money from bank-created money if they weren't, and because your nitpicking is very UNBECOMING, and because you're writing useless gibberish so please make your further remarks more intelligent, and because your criticism was incompetent.​

Hopefully, that clears up your confusion.

 

[Bomb#20]

Other people would provide things in exchange for it. You accept tobacco as payment because you know society accepts it as payment and thus you can use it to get what you actually want. It's this expectation that underlies the concept of money.

Reification fallacy. You accept tobacco as payment because you know somebody who accepts it as payment and thus you can use it to get what you actually want. It's this expectation that underlies the concept of money. There's no need to reify that somebody as "society", as though the use you'll put the tobacco to depended on some consensus or authority. British society went off the gold standard a hundred years ago and no longer accepts gold as payment, and yet British wizards all happily accept it because they know some goblins at Gringott's who'll happily exchange pounds sterling for it.

 

[Loren Pechtel]

There is nothing fundamental about money being debt. Money is anything a community uses as money. People in modern societies often mistake "Money is debt" for a law of nature when it is nothing but the custom of our tribe. Different societies' choices for what to use as money are all equally money, but there are advantages to some choices and disadvantages to others, and for the sake of its many advantages, modern societies have made the strategic choice to use debt as money. That is why money is debt.

No--while we use debt as money that's not what we mean by saying money is debt.

Look at money. Can I eat the electrons in the bank? Use them for shelter? No--they're useless.

But people don't have to use electrons in the bank for money. You're describing the custom of our tribe and mistaking it for a law of nature. The Sumerians used barley for money. Yes, they could eat it.

True, it's possible to have edible money. Irrelevant to the big picture.

Money exists to transfer value, nothing more.

What evidence do you have for that claim? What evidence do you have that "value" even exists? As far as I can see, money exists to persuade people to do what other people want them to do.

You do things, you get money. You trade that money for things others do. It's storing the value you created by working.

Possessing money means you have contributed value to society, it is the measure of this value

That makes no sense. Some people possess money who have contributed nothing to society. People can be literally born with money -- a dying man with a pregnant wife leaves money in his will to his unborn child. And of course people regularly give money to their children with no regard for anything the child has contributed. My parents gave me an allowance when I was a child, and a bike. If the bike didn't mean I'd contributed, why would the allowance mean that?

Value can be given to others.

and can be exchanged for goods and services that actually are of use to you. Thus it is a debt on society.

Non sequitur. It can be exchanged for goods and services that actually are of use to you because the people who'll exchange goods and services for it want to, not because they owe you, let alone because some nebulous abstract third party you label "society" owes you.

If there was no expectation of getting value for your money you wouldn't have accepted it in the first place.

The fact that it is a debt that will be constantly shuffled around rather than ever repaid does not change this.

No, but the fact that you offering money to people who don't want to exchange goods or services for your money doesn't imply they're obligated to, does change this. If the money were a debt, then they would be.

This is also why simply adding money does no good.

That makes no sense either. Whether simply adding money does any good depends on the macroeconomic situation -- it does good in a recession and harm when there's high inflation. Whether money is a "debt on society" isn't the sort of thing that comes and goes with the business cycle.

Yup--because the amount of money that is actually in use is the money * it's velocity. It's this multiplied value that we are aiming to stabilize.

The value of money is the ratio of money to things which you can buy. Adding money doesn't create anything and thus prices just adjust to the new ratio.

Sure it does -- it creates demand. It creates the willingness of people to pay other people to create goods and services.

In the short run only. It will return to where it was.

(And this is why eat-the-rich schemes do not work. Their money represents tools and whatnot, taking it away adds nothing to the consumer side of things. It just makes future people very hesitant to put their money into long term things.)

Money doesn't need to "be debt" or "represent tools" or possess any such metaphysical traits in order for taking it away to add nothing to the consumer side of things and make future people very hesitant to put their money into long term things; that's plain cause-and-effect.

That's not a rebuttal.

Your explanation runs off the rails right at the beginning -- it postulates an indebtedness situation from the get-go, a bloody futures contract! But it's perfectly possible to develop the practice of using bits of metal as a method for breaking up multiway trades into sequences of two-way trades even when all the parties already have their trade-goods in hand. So if you want a "Money is debt" explanation not to be a circular argument, you need to be able to show the metal bits are debts even when they aren't being used to implement loans.

And what about situations where such a division is impossible? I can't sell a line of code to someone, it would be useless. I have to trade a complete program--and almost no other market participants will have anything valuable enough to trade for that.

I guess I was unclear -- I'm talking about dividing complex transactions, not complex products. For instance, you have a chicken and you want to trade it for shoes, but the shoemaker doesn't want a chicken. She wants a knife. Lucky you -- the knifemaker wants a chicken. So the three of you can make a deal, a triangular exchange. But figuring that out and getting you all together to make your three-way trade is a pain in the neck. (And it was just dumb luck that you only needed three people -- it could just as well have taken a fourteen person chain to make it beneficial to all of you.) But if everybody wants silver then you can break up the three-way deal into two two-way deals. You trade your chicken to the knifemaker for a lump of silver. Then you trade the lump of silver to the shoemaker for shoes. Now you're done, and you never need to know or care that the shoemaker is going to trade his lump of silver for a knife. The silver is money, and it's doing its money job perfectly, even though none of you owe any debts to, or are owed any debts by, one another, or "society", whoever the heck that is.

I think this is a matter of perception. The lump of silver is a claim on value that society produces.

 

[steve_bank]

I saw this in a show. Stone money.

Rai stones - Wikipedia

en.wikipedia.org

A rai stone (Yapese: raay),[1] or fei stone,[2] is one of many large artifacts that were manufactured and treasured by the native inhabitants of the Yap islands in Micronesia. They are also known as Yapese stone money or similar names.

The typical rai stone is carved out of crystalline limestone and shaped like a disk with a hole in the center. The smallest may be 3.5 centimetres (1.4 in) in diameter. The largest extant stone is located on Rumung island, near the Riy village; it is 3.6 metres (12 ft) in diameter and 50 centimetres (20 in) thick, and weighs 4,000 kilograms (8,800 lb).[3][4]

Rai stones were quarried on several of the Micronesian islands, mainly Palau,[5] but briefly on Guam as well. The practice stopped in the early 20th century. Today around 6,000 large rai stones are outstanding on the island,[clarification needed] and several can be seen in museums worldwide.[6][7]

The stones were highly valued by the Yapese and used for important ceremonial gifts. The ownership of a large stone, which would be too difficult to move, was established by its history as recorded in oral tradition rather than by its location. Appending a transfer to the oral history of the stone thus effected a change of ownership.[3]

Modern economists have viewed Rai stones as a form of money, and the stones are often used as a demonstration of the fact that the value of some forms of money can be assigned purely through a shared belief in said value.[3][8]

Rai stones were, and still are,[16] used in rare important social transactions, such as marriage, inheritance, political deals, sign of an alliance, ransom of the battle dead, or, rarely, in exchange for food.[3]: 12  Many are placed in front of meetinghouses, around village courts, or along pathways.

Although the ownership of a particular stone might change, the stone itself is rarely moved due to its weight and risk of damage. Thus the physical location of a stone was often not significant: ownership was established by shared agreement and could be transferred even without physical access to the stone. Each large stone had an oral history that included the names of previous owners. In one instance, a large rai being transported by canoe and outrigger was accidentally dropped and sank to the sea floor. Although it was never seen again, everyone agreed that the rai must still be there, so it continued to be transacted as any other stone.[16]

The perceived value of a specific stone was based on its size, craftsmanship, and history. The value could depend, for instance, on whether a famous sailor brought it or whether people died during its transport.[3]: 11 

 

[Bomb#20]

... The ownership of a large stone, which would be too difficult to move, was established by its history as recorded in oral tradition rather than by its location. Appending a transfer to the oral history of the stone thus effected a change of ownership.[3]
... Thus the physical location of a stone was often not significant: ownership was established by shared agreement and could be transferred even without physical access to the stone. Each large stone had an oral history that included the names of previous owners. ...

Oh my god, the Yapese invented blockchain!