In Irredeemable Paper Money, Savings Is an Illusion

4 replies
  1. JR says:

    The analogy I would use, is that you cannot hoard endless amounts of say, wheat. After not to long a time, your wheat will be rotten, of no consumable quality, your savings will be worthless.

    People hoard endless $ because they think the quality, so value, of $ is constant, without thinking that the $ is actually the obligation of its bank of issue. The bank of issue has not the means, nor intention to amortize its debt, so it is rotten, of no quality, your savings are worthless.

    The demonstrable fact that $ trade (almost) good as gold, defies rational explanation, so must be irrational. When it comes to money, the only thing you cannot have too much of, whose demand approaches the infinite, irrationality seems an all too common outcome.

  2. JR says:

    Something I thought you might like. From “late French economist and Bank of France official Charles Rist (1938)” via Doug Noland’s Credit Bubble Bulletin.

    “But let us tackle the essential argument, the argument in which [John] Law is a real forerunner, the crushing argument which, since his time, has been used by all the currency cranks and by all plundering states. What is money but a simple exchange voucher conferring the right to a certain quantity of goods? And if that is its function, what is the point of using a costly metal? Here we reach the cardinal point of Law’s theory. Money is only a voucher for buying goods. It is a formula which has provided the starting point for all currency cranks, an apparently self-evident axiom on which have been based all systems which deny the citizen the right to a means of storing value. Money is made only to purchase with. Money is not the durable and indestructible good, of stable value and unlimited acceptability, with the help of which man has been able to put by the product of his labor, the instrument for saving by means of which a bridge is built between the present and the future and without which all provisions for the future would become impossible. No!”

    “But apart from that, [Law] misunderstood the real character of metallic money, and it is this that makes him so representative of all the currency cranks. He ignored the function of money as a means of storing value in a world where men are so anxious to preserve the product of their labour and their saving from price fluctuations and vicissitudes of all kinds. It is that which ruined [Law’s] System. That metallic money is not an ideal instrument of circulation, and that it can be conveniently replaced in this respect by all sorts of circulating credits has been known from the earliest times. But nobody has yet shewn that circulating credits can replace the precious metals in their function as a store of value. None of the monetary systems yet know to us, even the most advanced, has dispensed with the precious metals, that ultima ratio of trade.”

  3. JR says:

    And this from Doug Noland,

    “Rist titled his first chapter, “Confusion between Credit and Money in the Political Economy in the Eighteenth Century.” In our 21st Century age of runaway electronic debits and Credits based finance, the distinction between “money” and Credit has completely blurred. I’ve tried to make the case that there is in reality an exceedingly important difference: Credit is much about confidence, while money is “precious.” Credit, as was on full display between 2006 and 2008, can be robust, whimsical, fleeting and frighteningly fragile. “Money” – perceived as a trusted liquid store of nominal value – is the rock foundation for the entire financial system. As such, “money” enjoys almost insatiable demand.”

    Not bad, though I don’t know what he means by ‘nominal value’. I’d say money is absolute value. At least as absolute as anything can possibly be in our imperfect world.

  4. Keith Weiner says:

    JR: In a way, you could say the purpose of this site is to clarify the distinction between money and credit. It’s simply to say, as JP Morgan said, “Money is gold, and nothing else.” But like all paradigm shifts, it is hard (today) for people to get their arms around this simple but radical idea. Thus our graphs of the currency prices in gold on the right side of the page, and many articles about the ongoing credit collapse along with the various attempts to re-expand it.

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.