
Where has all the money in the world gone? - stevenj
http://www.reddit.com/r/finance/comments/utf5u/where_has_all_the_money_in_the_world_gone/
======
ricardobeat
If you have fun reading crazy whack conspiratorial blogs, this thread lead to
a couple great ones:

\- [http://www.divinecosmos.com/start-here/davids-
blog/995-lawsu...](http://www.divinecosmos.com/start-here/davids-
blog/995-lawsuit-end-tyranny)

\- <http://benjaminfulford.net/>

I liked the two whackos interviewing one another:

    
    
        BF: They offered me at one point the job of Finance Minister of Japan.
        DW: Finance minister of Japan. Right.
        BF: They also, believe it or not, offered me General Electric and General Motors.
        DW: Like you would be the CEO, or something?
        BF: Yeah, and I guess the chief shareholder. The problem, of course,
            is I had to go along with their plan to kill four billion people.
            It’s the classic “sell your soul to the devil” situation.

------
bokonist
The fundamental problem is that the monetary systems of the modern world are
all designed on the Wile E. Coyote principle. As long as you never look down,
the system works.

In the U.S. there is ~$14 trillion in government debt. There exists tens of
trillion more in private debt. But only $2 trillion exists in bonafide,
actual, real honest-to-goodness dollars (I'm including in that count accounts
at the federal reserve, not just paper money).

How is this system sustainable? How can any of this debt ever be repaid? Well,
since everyone knows the government can print money, most people do not worry
about the government being insolvent. A dollar T-Bill is as good as a dollar
green bill, both are backed by the full faith and credit of the USG. If the
government needs to, it can always print money to redeem mature treasury debt.
Since no one worries about insolvency, most people would rather have treasury
bills (or a deposit account or CD backed by TBills) because they pay interest.
So the $14 trillion rolls over in perpetuity. In reality, $14 trillion is not
really debt, since it is nonsensical to speak of debt that one owes oneself
and can negate by printing paper. The $14 trillion _is the money supply_ \-
T-Bills are just a dividend paying form of money.

However, the situation in Europe is much more sticky. Europe runs the same
type of monetary system. There are tens of trillions in Euro denominated debt,
but only $1.3 trillion in actual bonafide Euros. However - unlike with the
dollar - the countries that created this debt do not have the power to create
Euros. So as suddenly as markets lose confidence in the debt, it becomes
impossible to roll over the debt and pay it off. There simply are not enough
Euros in the world to pay off even a small amount of debt. Every single
country in Europe would be insolvent if investors look down and lose
confidence. Even Germany could not pay its debt if investors demanded
redemption at maturity The European Union government could order the european
central bank to print money to buy out the debt, but this creates all sorts of
political conflict as it results in transferring real wealth from country A to
country B.

So that's why Europe is stuck. It adopted a monetary system that works when
the government controls the currency, and adopted it in a situation where
governments cannot print money. No one in Europe has the brains or authority
to actually refactor and re-architect the system, so they are just muddling
around, following the path of least resistance and putting in stop-gap
measures.

My own pet solution is on my blog: <http://intellectual-detox.com/europes-
crisis/> If anybody from the ECB reads Hacker News, I am available for hire as
a consultant at the low, low fee of 1 ounce of gold an hour :-)

~~~
WA
You ask how any of this debt can ever be repaid. But is this really what we
want to achieve? Repay the debt? If money is, like in the reddit post, an IOU
(or a certain unit of debt), then the idea is to balance out the amount of
money (debt) with the growth of the economy. Too much and we got inflation.
Too little and we cripple the economy.

I'm very curious why debt should be repaid at all, care to explain?

(Note: I think one's own debt is different than the debt in an economic scale)

~~~
zanny
Here is the catch in the 21st century - we are creating debt in exchange for
things that can create goods without human intervention.

The entire monetary system is built off the idea of trading goods and services
that are the products of human labor. Things like automated assembly lines are
a precursor - when we had 3d printing, you remove all human factors in the
creation of goods besides the raw resource acquisition, and sufficiently
advanced printers can also decompose trash into reusable pieces so you don't
even need raw materials any more besides power.

All our financial woes and economic malnourishment is the product of this
system, beneath government welfare overspending the budget, it is why
corporations post record profits while laying off thousands and why all that
money goes to the top of the management. When the actual consumable and usable
goods are not produced by people, the sale of individual units breaks down.

Look no further than media. Media is an upfront cost of creation, but
reproduction is free. The current system is so broken because it tries to
charge per unit as if unit production has an associated cost, where the cost
is the funding, not the distribution. That problem only gets worse as we
automate everything more and more (automated cars replace drivers, 3d printers
replace small scale manufacturing...).

That leads to a big one. Automated mining and farming. Fully, with no human
intervention, where you can set off a robot with some pre-programmed track of
land to till or dig and it will extract all the resources from that area for
you. Once that happens everything goes out the window, because a single point
of sale unit of production (plus maintinance, which then gets ursurped by the
singularity making machines improve themselves) where once one of these
machines is available, resources are no longer scarce.

And then money breaks down. Because when human effort is no longer involved in
the day to day operations of goods production, there is no continuous "cost"
involved anymore, in the terms the Reddit thread describes, or how most people
interpret goods and labor.

~~~
gaius
Once you make movie A, the next million copies of movie A are essentially
free. So we divide the cost of A by the number of units we expect to sell,
rather than charging the full price of it to the first viewer, and giving it
away to the others.

Crucially, and this is where the whole utopian post-scarcity dream falls
apart, the cost of making movie B doesn't significantly depend on the cost of
movie A. Because a movie isn't a "thing". Movie B is a different thing than
movie A.

~~~
tempuser008
And then we apply the same principle to a song. Once you record the first
song, the next million copies of it distributed via internet is basically
free. Or is it. It would be nearly free if there were no fat cats in the
middle.

~~~
gaius
Distribution is free - but shouldn't the band be paid what they would have
gotten with no record label in the way? That may mean songs on iTMS being 10p
instead of 99p - don't creators of products you want deserve paying?

------
ap22213
I just finished David Graeber's "Debt", and it really enlightened me on this
subject more than anything in that reddit thread. It's one of the most
scholarly, informative, provocative books I've read in a very long time. I'm
actually reading it a second time through, just to make sure I understand it
all.

~~~
planetguy
I've been reading large chunks of that and it's both good and bad. The good
parts are where he sticks to his core strength of anthropology -- it's filled
with fascinating descriptions of how commerce and law worked in various
societies, ancient and modern, from the Irish monks who sat down and figured
out the precise compensation that you need to pay if one of your bee stings
another man [the regular price of the sting minus the cost of the bee] to the
spear/cloth bartering festival slash orgies of some Aboriginal tribe. Lots of
fascinating stuff there.

He is on much shakier territory when he starts to enter into the economists'
domain. He's probably correct when he declares that the inefficient pre-money
"barter economy" has never actually existed, but then he breaks his arm
patting himself on the back to say he's smarter than all the economists who
always use this as an example when explaining why we have money.

When it comes time to actually try to explain debt itself, he's really lost.
He starts the book by posing a question: how is it that the language of debt
got so wound up in the language of morality; by extension, why do we think
it's immoral to not pay our debts? He never seems to come around to the
obvious answer: that a debt is a promise, a promise of money later in exchange
for money now, and that breaking your promises is seen as immoral because it
breaks the reciprocity that underlies almost all human interactions. He seems
to have a mental image of "debt" as something that a loan shark puts you in so
that he can break your legs afterwards, rather than the vast majority of the
world's responsible debt arrangements which wind up beneficial to both
parties.

Anyway, I'd say Graeber's "Debt: The First 5000 Years" has some interesting
bits but a bunch of flaws. And this comment is only this long because I don't
have an account on Amazon.

~~~
davidgraeber
The point that the morality of debt is based on the fact that it's a promise
already appears on page 4. Similarly the very last paragraph, begins "What is
a debt, anyway? A debt is just the perversion of a promise. It is a promise
corrupted by both math and violence..."

And so on. Might want to read more than "chunks" of a book before lecturing
the world on what's not in it.

~~~
planetguy
Dave, Dave, don't be so defensive! I mean, I spend time googling for my name
too, but I manage to resist the temptation to throw myself into any discussion
of my work, it just comes across badly. I mean, I did go and buy a copy of
your book, hardback too, and I did just go and give you a semi-positive review
in which I heartily recommended large chunks of it. I really did enjoy quite a
lot of it.

You're right, page 4 does mention the idea that a debt is a promise. But it's
immediately pooh-poohed as an idea that's "dangerous because it's self-
evident". And the last paragraph does call a debt a "promise corrupted by both
math and violence", but it's not clear how anything is "corrupted" here. So
yeah, you _acknowledge_ this self-evident idea, but only to dismiss it without
a proper argument.

Also while you're here (actually yours is _exactly_ the kind of book that I
read while wishing that I could argue with the author about certain points, so
it really is a privilege to have you here and I hope that doesn't sound like a
backhanded compliment), the _other_ point I think you dismiss without enough
of a fight is the idea that all human interactions are based on reciprocity.
There is of course _one_ counter-example, the child-parent relationship in
which the parent is generally happy to give selflessly, but that's a special
case which seems to be more-or-less hard-coded into our genes; our minds are
programmed to give selflessly to our children since from our genes' point of
view they're nearly equivalent to ourselves. Once we step _outside_ the
parent-child relationship, however, your other examples of non-reciprocal
human behaviour (apart from outright theft, extortion and other forms of
behaviour where one party isn't consenting) don't ring true. Two labourers
working on the same project will, of course, pass each other hammers, but
there _is_ an expectation of reciprocity even in group work, as anyone who has
ever worked in a group with someone not pulling their weight will know.

In conclusion, you've written an interesting history of debt, but I think
you've started off with some kind of antipathy towards debt which has stopped
you from really gaining a good perspective on it. I still don't understand the
objection to the basic concept of debt: that if Alice has something and Bob
needs it then Alice can lend Bob that thing and get it back in the future, for
mutual benefit. I find that to be a glorious example of human interaction at
its best. But then again, I've already paid off my mortgage.

~~~
calibraxis
Hopefully "Dave, Dave" will ignore this (maybe unwitting) trolling.

There's many ways where those with surplus wealth can give it to those with
insufficient wealth. Anyone here on HN can name multiple forms of
investment/subsidy (such as venture capital, or the goverment subsidy which
led to computers and the internet), and some may even be at work at more
advanced forms of credit unions (such as Mike Leung's work on participatory
credit unions).

Furthermore, anyone who's skimmed the book's first chapter can see that this
poster's original post was beyond uninformed, taking a point _Debt_ carefully
discusses in the first few pages, and presents it as if the author never
anticipated it. Same with the book's discussion of commercial reciprocity vs.
mutual aid in chapter 5.

David just helpfully posted here to point out the obvious...

------
orijing
Here is an answer from Quora that really resonated with me:
[http://www.quora.com/In-recent-days-trillions-of-dollars-
of-...](http://www.quora.com/In-recent-days-trillions-of-dollars-of-wealth-
has-been-wiped-off-global-stock-markets-Where-has-it-all-gone/answer/Ben-
Golub)

Basically, these wealth were expectations.

~~~
jvm
That guy is talking about stock value, not money itself.

------
dimitar
The question is wrong - the assumption is that the quantity of money has
decreased, while purchases ("Aggregate demand") are the same. If fact its
exactly the other way around.

Anyone who misses this fact is very unlikely to give a correct explanation.
And the explanation is in an Econ 101 course.

~~~
jvm
I agree with you technically speaking, but another way of thinking about it is
that cashflow is really what we think of when we think "quantity of money"
(Adam Smith, a gold piece that sits in a chest is realy not part of the money
supply, yaddayadda). Cashflow (aka NGDP) is actually way down:
[http://marketmonetarist.com/2012/06/19/guest-post-
measuring-...](http://marketmonetarist.com/2012/06/19/guest-post-measuring-
the-stance-of-monetary-policy-through-ngdp-and-prices-by-integral/)

...it looks like this is the distinction you're making when you say Aggregate
demand, I'm really just adding this comment to help other people better
understand your comment.

------
raheemm
Khan Academy should hire that person.

------
jvm
Here's my attempt, without talking about apples or anything:

Essentially, the 'money supply' is determined by the central bank, since they
are the issuers of money. You can read on your US dollars that they are issued
by the federal reserve. An excellent measure of the money supply is NGDP,
since this is the number of dollars traded every year (that sort of quantifies
how many dollars are available to be captured by working, trade, etc.).
Unfortunately, in 2008, the US Fed decided to adopt an ultra-tight monetary
policy, resulting in a severe drop-off in NGDP relative to previous trend (the
worst since the Great Depression, graphs here:
[http://marketmonetarist.com/2012/06/19/guest-post-
measuring-...](http://marketmonetarist.com/2012/06/19/guest-post-measuring-
the-stance-of-monetary-policy-through-ngdp-and-prices-by-integral/))

It does not look like it will ever recover to the previous trend, so the money
supply is much smaller than people would have expected before 2008. In theory,
the nominal value of money shouldn't matter in the long run. However, since
people before 2008 signed contracts (read, 30-year mortgages) anticipating a
much higher aggregate money supply, this has triggered a shortfall in demand
ever since, which has left our economy in the tank.

~~~
nhaehnle
_Essentially, the 'money supply' is determined by the central bank, since they
are the issuers of money._

It's not as simple as that. The amount of money in public circulation is
largely determined by banks, because every loan given increases the amount of
(electronic) money in circulation. The central bank then adjusts the amount of
central bank money (reserves) by open market operations, but it does so
defensively, to defend its interest rate target. So yes, with an interest rate
target of essentially 0%, they can increase the amount of reserves out there,
but this does not translate to more money in public circulation.

Modern Monetary Theory contains probably the best summaries of how this works.

~~~
jvm
> So yes, with an interest rate target of essentially 0%, they can increase
> the amount of reserves out there, but this does not translate to more money
> in public circulation.

Sorry just noticed this. This is a common misperception. They have been using
QE to create more money in public circulation now that interest rates are 0,
and there's nothing ineffectual about that.

To see why this is possible, just consider the question, could the Fed create
inflation at the 0-lower-bound by saying they will print money until they get
it? The answer is clearly yes. Actually the Bank of Switzerland did that
recently to set a Euro peg.

~~~
nhaehnle
I guess it depends on what you mean by public circulation. QE was certainly
effective in raising the amount of reserves, since that is what it is by
definition. But reserves are only ever held by banks. The amount of money held
by the non-bank public has not been changed significantly by QE.

As for targeting the money supply, you're right, they could do that, and in
fact they did try it a few decades ago. The problem that was observed is that
it created extreme volatility in the interest rate. The lesson learned from
the experiment is that either the interest rate or the money supply has to be
volatile, and there's general consensus that a volatile interest rate hurts
the economy, whereas a volatile money supply has marginal effects at best.

------
opminion
The answer by Redditor otherwiseyep is really, really good as a quick public
forum answer.

Definitely worth reading for those of us five-year-old-equivalents in terms of
knowledge of macroeconomics.

------
nradov
A lot of the money essentially evaporated when borrowers defaulted on bank
loans. Banks have the ability to temporarily create new money (subject to
reserve requirements) by issuing a loan, and then that extra money is
gradually retired as the borrower repays with interest. But when the borrower
defaults the created money goes away all at once and reduces the bank's
capital reserves, which in turn reduces the amount the bank can lend in the
future.

------
guynamedloren
Very interesting explanation, but unless I missed something, the concluding
statement is simply incorrect, which makes the whole thing _wrong_.

> _So now you're still growing apples, but instead of trading them for deer-
> haunches and shoes, you trade them for Loddars. So far, so good. Once again,
> you want some meat, except harvest time hasn't come yet so you don't have
> any Loddars to buy meat with. You call me up (cellphones have been invented
> in this newly-efficient economy), "Hey otherwiseyep, any chance you could
> kill me a deer and I'll give you ten Loddars for it at harvest-time?" I say,
> "Jeez, I'd love to, but I really need all the cash I can get for every deer
> right now: my kid is out-growing shoes like crazy. Tell you what: if you can
> write me a promise to pay twelve Loddars in October, I can give that to the
> shoe-maker." You groan about the "interest rate" but agree.

Did a lightbulb just go off? You and I have once again created Money. Twelve
loddars now exist in the town economy that have not been printed by the
central bank. Counting all the money trading hands in the village, there are
now (a) all the loddars that have ever been printed, plus (b) twelve more that
you have promised to produce._

"Loddars" are essentially dollars, a physical form of currency. The apple
farmer does not have any loddars, but he promises to give twelve loddars to
the hunter at harvest-time. The loddars come from people purchasing his
apples, which have already been printed, thus are already in the system. Since
loddars have been standardized by the central bank by this point, an apple
farmer cannot simply 'create loddars' out of thin air. He can promise loddars,
but that's very different than actually creating loddars. New money has not
entered the economy.

~~~
mmaunder
You wouldn't have been able to create Loddars if you said "Well the value of
an IOU from the apple farmer has been established at this point so you can't
just create a Loddar". But Loddars were created because money is an IOU for
anything. And so you can create new money by creating a new IOU even though
Loddars exist.

~~~
TeMPOraL
I keep wondering:

When you create this new IOU you basically start to repeat the process that
resulted in Loddars in the first place; you could theoretically repeat it with
the new IOU. Isn't it getting recursive? :).

~~~
rajivm
Yes, and in fact this happens many times over:

Greg gets a loan from the Bank for $5000. Greg gives Stacey the $5000 to buy
her car. Stacey deposits the $5000 in the bank. Bob gets a loan from the Bank
for $4500. Bob deposits this $4500 in his bank account to spend. Mark gets a
loan from the Bank for $4000. And it goes on.

In the United States: Of less than $11.5 million have no minimum reserve
requirement; Between $11.5 million and $71.0 million must have a liquidity
ratio of 3%; Exceeding $71.0 million must have a liquidity ratio of 10%.

That means mosts Banks only have to retain 10% of their money as cash and can
continue to recursively loan out the rest of it.

------
Androsynth
One of the best explanations about all of this is in the book _How an Economy
Grows and Why it Doesn't_ by Irwin Schiff <http://freedom-
school.com/money/how-an-economy-grows.pdf>

It seems this explanation is somewhat of a rehash of that book. The book is
relatively short and well worth your time if you found this reddit answer
interesting.

------
lifeisstillgood
Can I just ask a question

we produce money as a form of IOU against the future production of the
economy, (apples).

This debt is really an increase in the money supply

each year the government borrows some more - increasing the supply by
hopefully an accurate guess of future production

if it's a bridge I get it. Gov borrows 1 bn, builds a bridge, there is a new
billion dollars worth of value in the economy

but apples? If I eat an apple and throw away the core do we then have to
reduce the money supply by the price of an apple? When and how is this done?

I can see some of the value of the IOU I used to buy the apple hanging around
in forms of greengrocer shops, farm worker jobs etc. But some of it really is
now, gone

maybe I should have listened more carefully in economics lectures.

~~~
d4nt
I think the apple was only ever valuable in the sense that it had some
calories and could keep you alive a bit longer, long enough to keep on working
a bit more and generating other forms of value for others.

Value is a very strange concept, if there were no people then apples would be
of no value. If there were people but they all agreed they didn't want apples
and weren't prepared to work for them then they wouldn't have any value. They
value of apples is defined by how many other people want them and how hard
they are prepared to work in return for them. When you eat an apple you stay
alive and thereby increase the value of all future apples.

------
davvid
It is mathematically impossible for all of the debt in the world to be repaid
(without more debt, and it's this way by design).

Money is debt, and debt is slavery. Shhh! You're not supposed to look behind
the curtain.

~~~
rapala
If you red the reddit answer carefully, you would know that there never was
enough money to pay the dept in the first place. That is the whole point of
dept. You don't have enough money for something _at the moment_ , so you
borrow it and pay it back when you have accumulated the money.

------
kalininalex
I recommend watching Money as Debt
(<http://video.google.com/videoplay?docid=-2550156453790090544>). This
fascinating video explains the roots and consequences of the crisis in the
very visual way. For a more scientific approach take a look at The Debt
Deflation Theory (<http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf>).

------
kylebrown
A possibly relevant, interesting wiki I ran across recently:
<http://en.wikipedia.org/wiki/Endogenous_money>

------
Tycho
Money is debt, but on a more fundamental level it's a combination of trust and
confidence. Those things are necessary for doing business, and they can be
destroyed.

------
Keyframe
this is essentially described in "Money as debt"
<http://video.google.com/videoplay?docid=-2550156453790090544> If you ignore
really low production value, it's a really informative piece on how modern
money works.

------
jackfoxy
It's been a long time since I read it, but the top reply on Reddit reminds me
of _Human Action_ <http://en.wikipedia.org/wiki/Human_Action> (the wiki
synopsis doesn't remind me at all of the book I read) by Ludwig von Mises
<http://en.wikipedia.org/wiki/Ludwig_von_Mises>. Once somewhat influential I
think the book has fallen into obscurity. My memory is von Mises constructed a
rational economic system using a _bottom up_ approach starting with _human
action_ , rather like the the Reddit poster attempts.

------
cs702
The so-called “fiat money” (i.e., money not backed by a commodity) used by
modern economies is controlled by a central bank whose overriding goal is
maintaining monetary and financial stability. Only the central bank can issue
new money or take it out of circulation.

Note that this is just a _political_ arrangement that prevents the parts of a
government that spend money from conjuring it out of thin air. For example, in
the U.S., President Obama can’t just call Ben Bernanke and demand that the
Federal Reserve issue more money to pay for the federal government’s
expenditures; instead, the federal government must either collect additional
taxes or borrow funds from investors, and the Federal Reserve _independently_
gets to decide if, how, and when to issue new money (or take it out of
circulation) to fulfill its dual objectives of monetary and financial
stability.

Typically, central banks like the Federal Reserve issue money (or take it out
of circulation) via two mechanisms:

(1) The central bank can buy and sell government bonds to expand or contract
the amount of money in circulation and/or push interest rates up or down. When
a central bank buys such bonds, it pays with newly issued money, thereby
replacing one government obligation (bonds) with another (money) of equal
present value; and when the central bank sells any government bonds it holds,
the money it receives is taken out of circulation (i.e., destroyed).

(2) Certain private-sector financial firms can borrow directly from the
central bank, which lends them newly issued money, thus acquiring a new
financial instrument (a loan to a private-sector entity) and issuing a new
obligation (money) of equal magnitude; when the loan is repaid, the central
bank takes the money out of circulation, reducing government claims and
obligations by the same magnitude.

The money issued by a central bank, which is held only by depositary
institutions like banks, is called “reserves.” The aggregate of all bank
reserves (plus all paper currency in circulation, to be precise) is called the
“monetary base.”

In normal times, whenever bank reserves grow beyond required legal minimums,
banks supposedly make more loans, thereby increasing the amount of money
flowing through the economy and promoting economic growth. In other words, an
increase in the monetary base is supposed to result in an increase in the
money supply.

However, at present, for whatever reasons (and there is much debate among
professional economists as to what those reasons might be), the monetary base
has grown immensely[1], but banks are _not_ making the expected additional
loans, so the amount of money flowing through the economy is not growing as
economists would expect in normal times.[2] “Money velocity” (a measure of the
number of times money gets turned over in the economy) has collapsed.[3]

So, that’s the answer to the question, “where has all the money gone?”

\--

[1] You can see the incredible growth in the U.S. monetary base here:
<http://research.stlouisfed.org/fred2/series/BASE/>

[2] You can see the incredible growth in excess reserves in the U.S. banking
system here: <http://research.stlouisfed.org/fred2/series/EXCRESNS?cid=123>

[3] You can see the dramatic drop in U.S. money velocity here:
<http://research.stlouisfed.org/fred2/series/M2V?cid=32242>

~~~
MaysonL
And you can read a fairly technical description (written in 1999) of the
current situation here:

Thinking about the liquidity trap:
<http://web.mit.edu/krugman/www/trioshrt.html>

~~~
cs702
Yup.

The source material on liquidity traps (written in 1936):
<http://ebooks.adelaide.edu.au/k/keynes/john_maynard/k44g/>

An alternative explanation on why they happen (written in 1933) here:
<http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf>

And yet another alternative explanation here:
<http://www.levyinstitute.org/pubs/wp74.pdf>

All three explanations written by people who lived through the Great
Depression of the 1930's. All three worth reading IMO.

------
adamt


------
xtiy
Watch Zeitgeist Moving Forward and you'd understand.

~~~
swalsh
It is so easy to find just plain wrong information on the internet these days.
The problem is people don't know what they can and cannot trust, so it
continues to perpetuate itself even amongst more intelligent people.

~~~
verra
Why don't you address the points in the movie instead of starting a personal
attack?

------
jfoster
The money-go-round slowed down a bit.

------
zerop
Swiss Banks....

------
wavephorm
When you learn how money really works, you begin to understand just how
diabolical our entire socio-economic system is. Inflation, recessions, boom-
bust, the stock market, fractional reserve banking, interest rates... it's all
rigged, a giant shell game, and it boils down to an invisible whip that the
rich use to keep people working for things they don't really need and to pay
taxes for the sole purpose of perpetuating a perverted economic system.

~~~
sirclueless
I don't know about you, but I have had down periods in my life, when I wasn't
actually producing anything of value. If we actually used a barter economy
then I would starve, or be reduced to sweating in a field growing plants. But
since we live in a world where money is transferrable and credit is
obtainable, I can weather those periods just fine and live in a decent house
with air conditioning in the summer and heating in the winter.

The best evidence that people really like to have transferrable currencies is
that they develop independently in just about every market in the world. For
example, ancient Africans used Cowry shells. Players of the videogame Diablo 2
used a particular ring, the Stone of Jordan.

While there's certainly fraud and even systemic failure at times, it's hard
not to appreciate all that liberal economics has done for our quality of life.

~~~
calibraxis
It actually turns out that barter is one of the founding myths of modern
economics. Notice that economics books always have these invented stories of
quaint towns (or savage tribes) of people in the same community bartering;
they don't actually offer historical evidence. Turns out there is none. When
people trade in a community, credit systems predate currencies, which predates
barter. This is the opposite of the usual myth (where everyone barters like
fools, then they use currency, then they tech up to credit).

And they also make the strange assumption they'd be engaging in the "spot
trade," which also is ahistorical. It's not like you'd come to me with shoes
and I'd hand over a sack of potatoes. If we're neighbors, our relationship
wouldn't be about market transactions (unless I suppose we're hostile and
untrusting, so we'd better trade simultaneously so we don't rip each other
off).

I think Graeber's _Debt: The First 5,000 Years_ is the most illuminating
source on the subject. (<http://www.amazon.com/Debt-The-
First-000-Years/dp/1933633867>)

~~~
bergie
I was reading some artist biographies from the 1800s recently. What amazed me
was the credit system that allowed them to work and travel nearly as freely a
the modern hacker would do. Instead of credit cards you had a network of IOUs,
which enabled the economy to keep going.

Of course much of that network got wiped out in the 30s recession.

------
wissler
Corral everyone into centralized monetary dictatorships, and this is what
happens. What did you expect?

It doesn't matter how you design the monetary system, what matters is that
it's centralized -- a mandated system backed by SWAT teams. Create that, and
you've just created a system that will inevitably result in sweeping financial
destruction throughout the economy.

What we need is the diversification a free market money system would provide.

~~~
colanderman
_It doesn't matter how you design the monetary system, what matters is that
it's centralized -- a mandated system backed by SWAT teams. Create that, and
you've just created a system that will inevitably result in sweeping financial
destruction throughout the economy._

I don't follow. Can you elucidate how the first sentence leads to the second?

~~~
wissler
[https://docs.google.com/file/d/0ByyIBJqJ0pDBZDAyY2FhODUtYTY0...](https://docs.google.com/file/d/0ByyIBJqJ0pDBZDAyY2FhODUtYTY0NC00ODk5LTg5ODctMjA2OGUxOWRiZjRm/edit?pli=1)

~~~
colanderman
That entire article is moot because (a) we're not on the gold standard and (b)
it fails to account for risk. But I'll humor you and prove the article
illogical two different ways.

Assume we _were_ on the gold standard. The amount of gold in the world is
limited. Most importantly, it does not grow exponentially with our economy
(which is in fact the product of two exponentials -- population growth and
technology growth). A gold standard is therefore deflationary in nature,
meaning that the value of 1 oz of gold grows over time. This means that on the
gold standard, interest rates would be FAR lower (probably even 0%) due to the
inherent "interest" built into gold. However the article assumes both a gold
standard (in the first paragraph), and moderate interest rates (5%). Therefore
the article is inconsistent and illogical.

Let us instead limit our scope to risk-free loans (e.g. T-bonds). Take risk
out of the equation and interest rates simply counteract inflation, meaning
that the buying power of your loaned money remains constant. However, the
article assumes both risk-free loans (since it does not account for losses due
to defaults), and that one can purchase absurd quantities of goods with
interest compounded over several years (which is not true if buying power
remains constant). Therefore the article is inconsistent and illogical.

Furthermore, you did not state how this relates to the _first_ half of what I
quoted -- something about SWAT-team enforced standards. I am still utterly in
the dark about the relevance of this to monetary policy. (Wouldn't any policy,
e.g. gold standard, require some form of law enforcement to _keep people from
robbing each other_?)

------
tubbo
"E.g., a new farmer with no track-record might have to promise me twice as
many potatoes in exchange for a deer haunch, due to the risk that I might
never see any potatoes at all."

This part of our system doesn't make any sense to me. What makes you think
someone's gonna have more incentive to "pay up" if they now have to work twice
as hard?

~~~
Tycho
It's set by supply and demand, not by logical inference. Low risk investments
are more in demand, driving their price up and thus lessening their return.
High risk investments are in less demand, so their price falls, making the
return higher.

