Sunday, November 25, 2012

Money Quote - Aristotle

"...but it is by exchange that they hold together. This is why they give a prominent place to the temple of the Graces -- to promote the requital of services; for this is characteristic of grace -- we should serve in return one who has shown grace to us, and should another time take the initiative in showing it.

"Now proportionate return is secured by cross-conjunction. Let A be a builder, B a shoemaker, C a house, D a shoe. The builder, then, must get from the shoemaker the latter's work, and must himself give him in return his own. If, then, first there is proportionate equality of goods, and then reciprocal action takes place, the result we mention will be effected. If not, the bargain is not equal, and does not hold; for there is nothing to prevent the work of the one being better than that of the other; they must therefore be equated...For it is not two doctors that associate for exchange, but a doctor and a farmer, or in general people who are different and unequal; but these must be equated. This is why all things that are exchanged must be somehow comparable. It is for this end that money has been introduced, and it becomes in a sense an intermediate; for it measures all things, and therefore the excess and the defect -- how many shoes are equal to a house or to a given amount of food. The number of shoes exchanged for a house (or for a given amount of food) must therefore correspond to the ratio of builder to shoemaker. For if this be not so, there will be no exchange and no intercourse. And this proportion will not be effected unless the goods are somehow equal. All goods must therefore be measured by some one thing, as we said before. Now this unit is in truth demand, which holds all things together (for if men did not need one another's goods at all, or did not need them equally, there would be either no exchange or not the same exchange); but money has become by convention a sort of representative of demand; and this is why it has the name 'money' (nomisma) -- because it exists not by nature but by law (nomos) and it is in our power to change it and make it useless. There will, then, be reciprocity when the terms have been equated so that as farmer is to shoemaker, the amount of the shoemaker's work is to that of the farmer's work for which it exchanges. But we must not bring them into a figure of proportion when they have already exchanged (otherwise one extreme will have both excesses), but when they still have their own goods. Thus they are equals and associates just because this equality can be effected in their case. Let A be a farmer, C food, B a shoemaker, D his product equated to C. If it had not been possible for reciprocity to be thus effected, there would have been no association of the parties. That demand holds things together as a single unit is shown by the fact that when men do not need one another, i.e. when neither needs the other or one does not need the other, they do not exchange, as we do when some one wants what one has oneself, e.g. when people permit the exportation of corn in exchange for wine. This equation therefore must be established. And for the future exchange -- that if we do not need a thing now we shall have it if ever we do need it -- money is as it were our surety; for it must be possible for us to get what we want by bringing the money. Now the same thing happens to money itself as to goods -- it is not always worth the same; yet it tends to be steadier. This is why all goods must have a price set on them; for then there will always be exchange, and if so, association of man with man. Money, then, acting as a measure, makes goods commensurate and equates them; for neither would there have been association if there were not exchange, nor exchange if there were not equality, nor equality if there were not commensurability. Now in truth it is impossible that things differing so much should become commensurate, but with reference to demand they may become so sufficiently. There must, then, be a unit, and that fixed by agreement (for which reason it is called money); for it is this that makes all things commensurate, since all things are measured by money."

--Aristotle, Nicomachean Ethics [bold italics mine]

So how can money equate things (make them comparable) when its equating power is constricted to a commodity, or any number of those commodities which are the very things that are equated?

Commodity "backing" (bi-metal or otherwise) of money is inverted. It is geared to sterility. It is the same act of sodomy that the usurers perform.


Kevin O'Brien said...

Money functions as a commodity whether it is "backed" or no. With fiat currency, the bankers have the ability to manipulate the value of the currency more so than when it is backed by a metal that they cannot produce at will.

But either way money becomes a commodity itself, even when it is, as it now is, imaginary units of debt. The trade of all sorts of intagibles and futures and speculations proves that man will "commoditize" anything, even a no-thing like our current units-of-debt.

There is also an element of time that enters into transactions paid with money. Since the money itself has no intrinsic value, but has value only insofar as it can be traded for actual wealth (food, housing, clothing, etc.) or for services, then any time anyone accepts any form of money as payment, he is assuming that the money will serve as "tender" for a future trade. If I really want a loaf of bread, and write a blog post for you for $5.00; if I then accept that five dollars on Monday from you, but discover on Tuesday that because of either a famine or a manipulation of currency (inflation), that a loaf of bread is now valued at $10, I am on the short end of the deal, having provided what I thought was commensurate work for pay. This risk is inherent any time any form of money is used, since money always inserts into any transaction a delay of compensation in actual wealth.

But this is just another bit of evidence that money is a commodity, one that because of its portability serves as an agreed upon medium of exchange.

Paul Stilwell said...

Gold and silver are cornered in the markets. Gold has always historically been in the control of bankers. It does not matter if they can't produce it. They simply corner the market on it.

And anyways, metals do not control money. They merely constrict it, and in the case of gold, constrict it severely. Often done by the banks in the past - like during the depression of the thirties. Control implies responses to changes - like population, innovations, new technologies etc.

Your third paragraph is answered simply in that the quantity of money must be controlled. Who shall control it? The banks or the elected government?

The Island of Guernsey has successfully been controlling their fiat money for two hundred years. History shows other examples of similar control over even longer periods of time.

Inflation today is caused by interest, since all the money issued is an interest-bearing debt.

Money becomes a commodity only insofar that the stability of a nation's wealth economy is evident. It is evident in production and so forth. A nation's wealth economy should come into being through the simplification of transaction that fiat money provides. But money in its essence still remains an agreed upon medium of exchange. It does not come into existence as a commodity. When speaking only of dollars, the difference between five dollars and ten dollars is that the five is five and the ten is ten. Or if you will: ten is five more than five, and five is less five than ten. And that's not a commodity.

Belfry Bat said...

Can I be obtuse for a moment, and inquire what difference of opinion has actually been expressed between the two of you, Paul and Kevin? I think one real value in Paul's recent series is to carify one kind of injustice in tying the communication of indebtedness to a pre-existing scarce commodity, already in broad-but-uneven possession. That doesn't preclude the holding of some public debt being commodious; on the contrary, if it weren't, there'd be something funny going on.

On the other hand, Paul, it doesn't seem to me that control of circulation really gives a satisfactory reply to Kevin's third paragraph, because circulation has rather little to do with the risk of drought or famine.

Paul Stilwell said...

He referred to inflation, which is what I was addressing. Who can do anything about drought?

Paul Stilwell said...

But anyways, droughts would only raise the price of the crop that was obliterated. To say that a drought would have the same overall devaluation of the currency as inflation is absurd. And that argument only works if the money were "backed" by that one single crop.

Sorry, but I don't buy this "step on a crack and break the money's back" projection of utter fragility on fiat money.

And money is not a commodity. Money (when it is not debauched as in our own era) represents wealth, and wealth is not a commodity. It is knowledge, raw material, and labour - together. Nickel (the raw material) is mined from the earth (labour) using knowledge. Money represents this. Do you know of any farmer who doesn't figure labour into his costs?

Belfry Bat said...

Perhaps we need more definitions made explicit: what do you mean by "commodity", and why is cash (or an expense account) not such a thing?

For my part I don't think I've suggested anywhere that drought or famine entails "breaking the back" of a currency, though I do think it rightly entails a re-ordering of priorities. But again, help me: it feels, from the reading here, that some disagreement is being perceived, but I can't tell about what, unless its the use of a particular word.

Paul Stilwell said...

What I am saying is this: while money (such as an expense account) can be transferred or traded with as a commodity, money as such is not reducible to simply being a commodity. For it is also a representation. Even if we were to use an actual commodity for a currency, such as tobacco leaves, that commodity must also be representative of wealth. And wealth is not merely commodities.

I was referring to what Kevin said, when I made my "breaking money's back" quip.

His analogy only works if the currency he is referring to is solely "backed" by bread.

Paul Stilwell said...

"With fiat currency, the bankers have the ability to manipulate the value of the currency more so than when it is backed by a metal that they cannot produce at will."

Gold is in every way and more just as fiat. The gold standard works only to enrich the banking class.

Money printing is a privilege only congress has. No one should profit from the creation of money. Government would not profit from the creation of money, but it is in even the government's merely selfish interest to benefit the common good.

J.P. Morgan, the king of robber barons, called gold money "sound" money.

As for manipulation, banks will continue to practice fractional reserve lending in a gold "backed" money system as well.

If the money-creation power is not protected and kept to congress, it is left to bankers. They have the monopoly. Of course the gold standard's little toady is the "Free Market". It's that twin idol of Anarcho-Capitalist gold standard supporters. Idols, like heresies, come in pairs. The von Mises Institute (von Mises himself being funded the Rockefeller foundation) has entrenched in the minds of Christian conservatives this belief that the "free market" is everything the title would imply.

Ludwig von Mises: Ayn Rand for those who claim to disdain Ayn Rand.

"You shall not press down upon the brow of labour this crown of thorns. You shall not crucify mankind o upon a cross of gold." --Jennings Bryan.


"Gold is the ultimate centralization of money power. Yes, it is sound money. The quantity is easily controlled. But controlled by whom? Gold money does not democratize the quantity of money to operate for the benefit of we the people. It centralizes control of money into the hands of those best able to buy up the commodity, serving as the monetary base - the bankers. That way the bankers are in complete control of whether to lend money out or hoard it, cause economic booms or depressions. Again, it's not what backs the money. It's who controls its quantity." --Bill Still

That's right, the bankers.

Kevin O'Brien said...

Paul, I'm not arguing for a "backed" currency. I'm not arguing against fiat money. I'm simply saying money serves as a commodity in so far as it is valued and traded. But you are right, it's more than just a simple commoditiy.

Let's think of it this way. Money represents wealth. Belloc defined wealth as raw materials worked upon by labor to produce something of value to man. He went so far as to deny intangible things as constituting wealth. He said that a book's "wealth" is the paper and binding and ink (all of which are raw materials formed and made useful by man), and not the intellectual content of the writing.

I would go further than Belloc and say that intangibles can also be "wealth".

But either way, by your argument, money is "backed". It is either backed by wheat if I want to buy a loaf of bread with it, or backed by gold if you want to buy something made of gold with it, or backed by labor, if I want to pay my housemaid with it. There's no way around the fact that money's usefulness consists in its ability to be exchanged for something of intrinsic value; that money's value is extrinsic - but that it is a commodity nonetheless, in that it is an item of extrinsic (indeed arbitrary) value that we accept as payment for labor or items of wealth, with the expectation that the money can later be traded for items of intrinsic value.

Now, technically, all "value" is somewhat extrinsic - set by the market place, and determined by physical conditions and fluctuations in supply and demand. But an item's market value is not the same thing as its intrinsic value. My family has no market value whatsoever, but is the most intrinsically valuable thing in my life.

But however you look at it, whatever money is - fiat, gold, etc. - its value consists almost solely in its market use, in its trade-ability.

Kevin O'Brien said...

And so Guernsey illustrates something interesting. When the Guernsey government paid the construction crews with fiat money, even though there was no usury involved, the issuance of this money (this "seed" as you call it) was a form of indirect taxation.

How? Because the government said, "Our citizens will be forced to pay you for the value of this project by accepting the fiat notes that we give you and that you will later give them; and giving you in return items of value - food, clothing, shelter, labor, etc." This is true whether the supply of money is managed, whether there is "interest" expected on its issuance, or whether the money is "backed" by being tied to the price of gold or to the US dollar or the British pound. When a government issues fiat money, 100% of that issue is a taxation.

This does not mean that the taxation will not function as a stimulus to the economy at large; it does not even mean that fiat money is a bad thing; it does not mean that taxation is a bad thing; but it does simply mean that we have to see where the wealth came from to produce more wealth. Bridges and harbor infrastructure require real things like raw materials and labor; they can't be produced by fiat. The fiat is a means of providing the material for the projects from the people who accept the fiat and use it in transactions for actual wealth. The material for the improvements in Guernsey came from taxation.

So, then, my position is that money is wealth - but wealth of very limited intrinsic value, accepted as a medium of exchange for items of greater intrinsic value, which will be purchased at a later date. It is handy and portable and has many advantages, but, like fire, can be misused and can be the source of disaster.

Either way, don't lose sight of what happened in Guernsey - the government taxed the people by issuing the fiat currency. The government did not wave a magic wand. Money is not magic. The things it represents are real. Those real things came from the forced acceptance of the fiat issue. I'm not saying that's wrong, I'm just saying keep your head straight about what a fiat issue is - a form of taxation.

And don't worry, I'm not making a case for the Austrians at all.

Paul Stilwell said...

No, not magic - nor do I claim it is so. Metallic "backing" is actually the magical thinking. Nor do I think, nor did I say, that printing money makes the raw material and labour suddenly appear. You're the one focusing on the money as a disconnected object in a vacuum.

Again, it's the principle under which the money is issued that everyone ignores.

It is the first principle that goes to effecting what it is that gets effected - whether that system is debt or actual ownership.

And that is real.

Paul Stilwell said...

Thank you for your comments. They're valued. I know about the taxation thing. I wouldn't call it forced though. I call it an open proposal - and human beings generally do not want to live according the laws of the jungle. I'm looking more into it.

Paul Stilwell said...

And when wealth is in evidence and economic stability (which is nothing other than beneficence of the common good) is evident, people don't mind paying their taxes. Have you looked into what the income tax is in Guernsey?

And they have 1% unemployment.

Paul Stilwell said...

I never said that money itself was like seed. Rather, the principle under which the money is issued is like seed. Indeed, more than that, as I said in my Misc. post, it is the first enacted model, the first economy. No first completed transaction, no evidence of wealth.

"Forced acceptance"?

If you choose the most reductionist way of looking at it - sure.

Paul Stilwell said...

The public need for infrastructure is not a "forced acceptance". No roads, no transport, no economy.

A government issuing debt-free money would result in low tax, since taxes would not be needed to pay for a national deficit.

The open proposal for a working economy is made by meeting the public need for infrastructure and honouring it with a debt-free medium of exchange. It is "backed" only in the sense that it is incentive-forwarding (in the future tense it could represent an infinite number of things according to individuals' own initiatives). And it is incentive-forwarding precisely because of the principle, or the enacted model, under which it is issued.

Belfry Bat said...

Here's a closer response to the "taxation" analogy: it is the people of the state who should support those who build their infrastructure (or man their hospitals...), because it is the people of the state that benefit. A state issue to do that is consistent with justice, so long as it is done carefully, because on the one hand it codifies a public gratitude, while leaving the recipients of the issue free to redeem that public gratitude out of the public production according to their needs and likings.

I think it is important to distinguish between taxation, an act reflecting the ways one person may be particularly beholden or indebted to the public generally, from the various acts that may devalue a currency or stymie trade, frivolous issue particularly.

Paul Stilwell said...

I agree with this.

Also, when a money is printed and spent specifically to meet the demand for infrastructure, that in itself works as a built-in buffer (though, of course, not the only one, nor in itself a perfect one) to the spectre of overprinting. Though it could be corrupted (and I'm not so sure that would be very easy) it is a real limit that keeps things in check - albeit to a certain extent.