What can I read to better understand how money operates?

[shadowblade34]

I mean, I would rather we traded in gold and silver, rather than paper. Or a system of bartering. And still, there's usury, which shouldn't exist.

[Jonas]

Bartering is stupid and so is trading in gold and silver.

I'd started to write out this whole thing about why, but here's something that makes the point far better: a great allegory about a babysitting co-op which is sometimes used to illustrate the immense usefulness and convenience of paper money and of being able to control the supply of it: http://www.slate.com/articles/business/ ... onomy.html

The gold standard is not the solution to all the world's problems. It's easy to understand and relate to, and I guess that's why people who are worried about what a shitter the economy is in right now like to fall back on it, but there's a reason (almost?) everybody stopped using it many decades ago: because it's inflexible and it has no real useful relationship to the goods and services it was used to facilitate trade of.

[bobby 55]

Bartering is stupid and so is trading in gold and silver.

I'd started to write out this whole thing about why, but here's something that makes the point far better: a great allegory about a babysitting co-op which is sometimes used to illustrate the immense usefulness and convenience of paper money and of being able to control the supply of it: http://www.slate.com/articles/business/ ... onomy.html

Jeez, these sort of articles should be part of high school reading. If I had read something like that when I was at school, it would have saved a few headaches in recent years in trying to get a reasonable grasp of it all. It's more comprehensible to a don't-know-much than the financial columns.

[AEmer]

Tbh if you really were going to switch to a gold standard of a kind, you might as well switch to bitcoins.

That one has no risk of gold and silver mines springing up in poor regions of the world, and noone can manipulate it.

[shadowblade34]

Most of my proper discussion on this topic would be too religiously charged. So I'm just going to say that I think moving to the Islamic system of monetary economics would fix everything. You can disagree with me however much you want, but please at least google it.
Mostly people like Ibn Khaldun, Al Ghazali and

[VectorM]

Shadowblade: gold and silver have value purely based on perception of rarity. There has never been anything actually honest to god physically useful about precious metals other than "pretty" and "rare"*. Their intrinsic value is based entirely on the fact we treat them as valuable. This is identical to the way the intrinsic value of money is based entirely on the fact we treat it as valuable. The only difference is that fiat currency can be printed on demand, whereas gold cannot (well, outside of particle accelerators).

It's still dependent on the entire system of financial security, and dependent on the entire perception of value, and if the system collapses to the point at which money becomes worthless, gold is going to be the least useful thing to own lots of. Shotguns and tinned goods? Much more useful.

And if the moneypocalypse never comes, then you're going to find that buying basic groceries is kinda difficult if all you have is gold, since most supermarkets tend to take cash or bank card payments only. Unless you convert gold back into fiat currency, you can't buy anything, and converting gold back into fiat currency is essentially admitting that you need fiat currency (which you do), and that fiat currency has inherent value (it buys you stuff).

Your argument then becomes "investing in gold gets me more cash because the value of gold increases", which is fine, but that's basic commodities trading and is in no way unique to gold. I could make the same argument about pork bellies (with the added advantage that if the moneypocalypse DOES hit, my basement is full of delicious delicous bacon, rather than inedible precious metal).


Basically, money is an abstract concept, and always will be. Money has no intrinsic value, any value it has is value we ascribe to it, whether it's a printed piece of paper, a number on a computer, or a lump of precious metal.



*gold is of course a rather nice semiconductor, but the usefulness of semiconductors rather requires extensive electronics industries, a fairly recent development, and which by and large is also based on an awful lot of fiat currency flying around.

Go watch the first link I posted on this thread.

[DaveW]

Basically, money is an abstract concept, and always will be. Money has no intrinsic value, any value it has is value we ascribe to it, whether it's a printed piece of paper, a number on a computer, or a lump of precious metal.

This is what has bothered me when people say the gold standard is fantastic and FIAT currency is "worthless paper". The gold standard obviously only works if we assume gold has some kind of value.

It's worth noting, I think, that controlling the supply of FIAT currency isn't something that couldn't happen with gold - DeBeers were well known to monopolize the control of diamond supply.

[Jonas]

Most of my proper discussion on this topic would be too religiously charged. So I'm just going to say that I think moving to the Islamic system of monetary economics would fix everything. You can disagree with me however much you want, but please at least google it.
Mostly people like Ibn Khaldun, Al Ghazali and

Other than the fact that you apparently neglected to end that sentence, it is not our responsibility to find material that supports your arguments. If you want to advocate the adoption of a certain monetary system, ideally you'd take the time to type out a quick overview of how it works and why you think it's good, but the very least you can do is post some links to such overviews yourself.

Go watch the first link I posted on this thread.

DDL typed out that whole goddamn thing, and the best you can do is "go watch the first link I posted"?

You're an asshole, but moreover you're a lazy asshole.

[Edit] In the name of fairness, I hereby issue a warning to myself: Watch it, Wæver, we don't tolerate personal insults and name-calling around here, etc. etc.

[gamer0004]

If you would like to know more about money I can recommend "The Ascent of Money" by Niall Ferguson. It's a book about the financial history of the world, not just about money, which is important because the use of money can only be understood in relation to other financial products.
If you'd like to know more about quantitative easing &c. you'll need a good macroeconomics textbook, I used "macroeconomics" by Olivier Blanchard for my study which I thought was quite good.
Even then, the concept of money is quite complicated. The gold standard isn't used any more so not many macroeconomic textbooks will discuss it. Of course, "gold standard" is a complicated concept itself as it can mean many different things (a way to fix exchange rates, a way to guarantee the value of money or a way for kings to get rich by debasing coins).

I'm relieved there are quite a lot of intelligent responses here. When talking about finance and economics people often do little more than shout cliches about something they don't understand.

I would strongly recommend not to start watching those youtube videos as they are typically too much simplified or wrong. And I would ignore the Mises stuff too: it's a libertarian view on the economy based on wishful thinking, basically (no one has been able to prove, even if just mathematically, that absolute freedom will lead to a first best economic outcome). Ludwig von Mises himself said some intelligent things but it was strongly motivated by politics, and it is now misused by idiots.

As to backing money by gold or silver: the difference between a fiat system or a gold standard isn't very dramatic.
Neither system is actually based on one factor (be it the value of gold or government force). Both are nothing but a way to guarantee the value of money, and this value is derived from the purchasing power of this money. A fiat system guarantees the value of money by guaranteeing you can use it to buy the goods or labour you want to buy by "forcing" people to accept paper money (of course, no force is required because due to this guarantee, people want the money, and thus it becomes a self-sustaining system), a gold standard guarantees you can buy the goods or services by offering gold in return for money, which can, by its "intrinsic" value buy goods or services. A gold standard is thus a more indirect guarantee that the money you have holds value.

Paper money can be misused for quantitative easing, which can lead to hyperinflation, but a gold standard is absolutely no different. Throughout history, there were often shortages of bullion in Europe, leading kings to reduce the percentage of precious metals in coins. Thus they increased the money supply, because the same amount of bullion now equals far more coins. Private money supply also exists when using a gold standard: banks can take in deposits and lend the money to others while they keep only a small percentage to pay depositors, and people can write IOUs instead of using money. At some point banks started to issue standardized IOUs: basically paper money (though supported by gold). All that increases money supply. When there were shortages of coins (a severe problem for Europe throughout the middle ages, because Europeans imported spices and other expensive goods through the Levant but had nothing to offer the Arab traders in return except precious metals, which soon started to run out) people switched to using (relatively expensive) hides, which is on the edge between money and bartering but might be called a private increase in the money supply. When the Spanish conquered South America and started transporting massive amounts of gold to Europe, the result was high inflation in Spain and elsewhere in Europe. A gold standard thus does not necessarily imply a lack of inflation or quantitative easing.

Similarly, fiat money does not work just because the government is forcing people to accept it. It does not derive its value from this force: people refuse to accept it if it cannot be used to buy (enough) goods or services, that is: if the government guarantee is not effective. If a government increases money supply to pay for its own debts (as did Zimbabwe and the Weimar Republic), hyperinflation is the result. No government legislation will make people accept worthless money, and people switch to other means to pay, such as the US dollar, gold and other precious goods, or bartering. The US dollar is now the de facto currency of Zimbabwe (even in government transactions), but even when the Zimbabwean dollar was officially in use (I do not know whether the government supports the US dollar as fiat money at the moment) US dollars were accepted almost everywhere without government legislation. Because the US dollar could buy goods and services abroad, it had value, and because it had value, it could be used in domestic transactions as well.

Thus, money works only if it has guaranteed value, be it due to government legislation or because it is based on a good which itself is generally valuable. However, such guarantees are never absolute: governments can start printing money, making it worthless, or gold might suddenly become abundant, making it less valuable or even worthless (possibly), or money supply might privately be increased to such extent that there is not enough gold to support it leading the informal money supply to collapse. Both systems have their downsides and these disadvantages are very similar.

@Aemer: Economists do not disagree as much as is often said. Compared to other social sciences and in general, economic science is quite homogeneous; economists typically agree on the basics. They do have different opinions about the course of action in economic crises, because there is a strong political background to almost any such decision and because economics is all about trade-offs, so which decision is best depends on the value attributed to the advantages and disadvantages of every decision (which, again, depends on political preferences).
About the economic crisis: I really don't think economists should have seen this coming. That's like saying a physicist should be able to predict a plane crashing. Academic economists study the "laws" of economics, like physicists study the laws of physical processes. Just because these processes are involved does not mean someone who studies these has all the required practical knowledge to know what's happening everywhere in the world. Few economists were aware of the sub-prime mortgages which resulted in the great recession.
Rather, if anyone should see such problems coming it should be specialists in finance and regulatory institutions. Specialists in finance are more similar to engineers, and some of them should have seen the problems coming. Some of them did (especially those at banks), but by then it was too late to do something. Regulatory agencies (in the US) let us down, as a results of deregulation in 2000.
Of course, much like a plane crash, a recession is by definition almost impossible to predict until it is too late: if people had been able to predict the problems of sub-prime mortgages from the beginning, then these would probably have been forbidden. Had problems been obvious a few years before things went wrong then the government could have intervened. Things go wrong because things do not happen as people think they will happen: planes are not sold in the knowledge that there is a good chance they will fail, and if a plane appears to be damaged it will be repaired. Only under special circumstances (human failure, problems which had not been discovered before) do things go wrong, that is: when nobody sees it coming.

[shadowblade34]

Most of my proper discussion on this topic would be too religiously charged. So I'm just going to say that I think moving to the Islamic system of monetary economics would fix everything. You can disagree with me however much you want, but please at least google it.
Mostly people like Ibn Khaldun, Al Ghazali and

Other than the fact that you apparently neglected to end that sentence, it is not our responsibility to find material that supports your arguments. If you want to advocate the adoption of a certain monetary system, ideally you'd take the time to type out a quick overview of how it works and why you think it's good, but the very least you can do is post some links to such overviews yourself.

Which was actually what I was doing, but alas, typing on phones is a pain in the arse.

[DaveW]

Of course, much like a plane crash, a recession is by definition almost impossible to predict until it is too late: if people had been able to predict the problems of sub-prime mortgages from the beginning, then these would probably have been forbidden. Had problems been obvious a few years before things went wrong then the government could have intervened. Things go wrong because things do not happen as people think they will happen: planes are not sold in the knowledge that there is a good chance they will fail, and if a plane appears to be damaged it will be repaired. Only under special circumstances (human failure, problems which had not been discovered before) do things go wrong, that is: when nobody sees it coming.

Well..

People had predicted that the current state of the financial market (including sub-prime mortgages) was going to cause a problem. The only people that seemed to be oblivious to the fact were the companies trading them - but perhaps they just didn't care.

[AEmer]

@ Gamer
"
economists typically agree on the basics.
"
Well, actually, many sciences have divergent views as part of the basics. Biologists and geologists have diverging theories in regard to some relatively simple stuff, but they tend to agree on a whole lot more. And some scientific things are completely uncontrovercial, such as global warming. Perhaps academic economists are in agreement on the basics to a higher degree, who knows. But this was not really the point I was trying to make.

While I must admit, I don't read a lot of economists, I can think of a clear example of public disagreement among economists: Elizabeth Warren anno 2008 (not an economist by education, but certainly one by occupation) certainly has divergent views by comparison to, for instance, Alan Greenspan anno 1995, who is an economist by education. Now you'll notice...this doesn't actually relate to economics as a scientific field. That's on purpose.

Also, interestingly, Alan Greenspan anno 1987 predicted the bursting of the housing bubble in his Ph. D. dissertation (in economics, no less). So, I suppose that just wasn't politically convenient 8 years later....But economists clearly could see the problem coming, and were contemplating it, though making a pinpoint prediction would likely be impossible (though goldman sachs appears to have done just that).

Anyway, thats really besides the point. I didn't make a distinction between academic economists and those employed by financial institutions, but I will now: Academic recognition isn't really what I judge the relevancy of economists by, so it's not what I had in mind when I made my comment. Rather, I judge them by the amount of public, financial and gubernatorial traction they have, and among those, there absolutely is a lot of disagreement going on. Now, you might say that's pretty unfair, that this makes me put the same degree of relevancy on hacks as on people who actually know what they're talking about. That under these terms, there actually would be a controversy about global warming, if I applied it to climate science. That this isn't fair to the field of economics.
Well, that's all true, but I'm not really too concerned about the field of economics, I'm concerned about the people in finance with actual traction and what kind of shenanigans they might be getting up to, as well as the influence they might be spreading.

I'm also fundamentally concerned that economics is a reactive field, just like a lot of sciences, and that this particular fields reliance on past behaviour of the financial market is a detriment to it's ability to solve things currently happening on the financial market, simply because the current situation might be too different from what used to happen.

@ Jonas
Did you actually watch VectorM's link? On the surface, it's pretty much pinpoint relevant to what DDL was saying, and considering DDL didn't really deconstruct the arguments put forward in that link, I think it was fair to assume that he hadn't watched it...
That said, a lot of what DDL said is completely true and doesn't really contradict whats said in that video.

[DDL]

Plus there are only a few computers I can watch youtube videos on here at work, so if anyone can summarise for me...?

[VectorM]

Go watch the first link I posted on this thread.

DDL typed out that whole goddamn thing, and the best you can do is "go watch the first link I posted"?

I know for sure, that I wouldn't hold anything against him, if he just posted a link to an article\video\whatever. And that link is very relevant and adresses the points he raised.

You're an asshole, but moreover you're a lazy asshole

And you are a hypocrite:

I'd started to write out this whole thing about why, but here's something that makes the point far better: a great allegory about a babysitting co-op which is sometimes used to illustrate the immense usefulness and convenience of paper money and of being able to control the supply of it: http://www.slate.com/articles/business/ ... onomy.html

[Jonas]

Everyone is a hypocrite, all the time. It's really quite impressive.

Anyway, that was an article that you could go and read. It was fairly brief, even.

I don't know about you guys, but some of us can't just open up a YouTube video and start watching it at work, I'm in an open office and people will start to wonder wtf I'm doing instead of my work.