Thread: Каддафи хотел заменить доллар золотом

Originally Posted by Ramil

Now they come to the bank and willingly surrender themselves into a nearly life-long slavery. Well, dependance. How that will change if they go to the 'golden' bank, get 1000 gold pieces and then return the same 1000 gold pieces later?

Because, there is no incentive for the bank to do that otherwise. The bank does not magically have money, it gets the money from people promising them a return, gives the very same to the young couple for the higher return, and keeps the difference for itself. So, the investors have the incentive to make money, the bank has the incentive to make money, and the young couple owes all that money to the people and the bank, but gets their apartment and have a place to live.

Originally Posted by Ramil

I don't mind the added value when it is a real value and in an economy driven by a fixed currency you will find nothing against that... But. Let's continue your line of thought. The initial investments are done and the value is added and established. We put a price to this amount of comfort. Why the next day the cost of that same amount of comfort gets higher? No more value is added, after all. It's only money that got cheaper. Why is that?

The long story short, it came from the way the previous aristocrats used to pay for all the goods and service in the cities: the beautiful ball dresses, the high-end wine cellars etc. They paid with what was called а "promissory note" (вексель) which specified an obligation payment but could not be produced immediately because the crop haven't yet grown on the fields which belonged to that aristocrat and wasn't yet sold on the market, therefore that note was just a promise to pay. Due to the fact that the aristocrat's daughter need the ball dress by the next Saturday and couldn't wait until the crop will be sold next year the aristocrats needed to present some kind of incentive to those who tailored the dress, so they said "please wait a couple of months and you'll get a bigger amount of the legal tender than you ask for it". The dress-makers agreed to wait. That what is known today as the interest (=the incentive). Back to our aristocrat, the several months had passed, but the amount of crop was still not sufficient to cover for the dress. But the dress-maker needs to pay the workers right now. So he goes to another guy with money and says: "here's a promise note I got from that aristocrat; I would agree if you pay me less money (sic! -> inflation!) than he promised, but I need that money right now; however, once the aristocrat has enough crop to sell, you will get more money than you give me, because you'll earn the interest from the aristocrat and the inflation difference from me". So, those guys with money also have strong incentives to collect the aristocrat notes for long time, and then come to them with the demand to pay right now. So, if the aristocrat was lucky enough to pay those notes at the years of good crop yield he would be ok, otherwise he would have to give up some of his property, typically a village or two to cover for his promises. So, later on the entire governments did the same thing: they need weapons right now or they would loose the power, so they issue their promising notes to pay for the weapon once they win the war and get their adversaries' property. At that point, the legal tender could be whatever, it didn't really matter - the more golden the better. However, it was quickly discovered that when the government needs the legal tender the most - during the war - the population becomes afraid that something will not work out right and they start saving and not spending (=hoarding) their legal golden tender, so the amount of legal tender in the country becomes less and less creating an unhealthy demand for the tender and thus raising its value above what it's actually worth. So those who use the services of the people - the government becomes paralyzed money-wise - it can't pay those in service in legal tender because it's scarce and very expensive for the government to produce. So, at that point the governments started to issue the promising notes (=the State Bank notes) directly to the people in promise to pay them more once they have the money. But if one person (the money guy) gets that 'government promise' from another guy (the dress-maker) even for the real goods and services it's still just a promise so it has less value as soon as it changes hands. And what is the government promise exactly? In addition to the crop grown in the government fields, that is someone in our country would always agree to give you some goods or some services in exchange for those 'promise notes' and bring you the same value you spent giving up your goods and services. On the other hand, how real that promise actually is? If I borrow $10 from you and say I'll give you $15 in return you might believe me because I'm your government and you have no choice, but if I ask to borrow $100,000,000,000,000,000,000,000,000,000,000 and promise to return $150,000,000,000,000,000,000,000,000,000,000 you can ask a very legitimate question - where would those $50,000,000,000,000,000,000,000,000,000,000 come from? So, if you see the economy is good, people are working (=producing lots of goods and services) you can believe that government and otherwise (just to be on the safer side) you would demand MORE 'promising notes' in exchange for your goods and services just in case some of those promises wouldn't work out. That is another source of inflation. Moving those considerations into the international arena (because some dress-makers are just better than the others) creates a very complex system with the interest and the inflation in the heart of it. I hope I answered your question. Phew!

Originally Posted by Crocodile

The long story short,

That's your idea of short?

Originally Posted by Crocodile

I hope I answered your question. Phew!

Croc, I would hate to disappoint you, but that really was a rhetorical question. (trollface). Thanks for the story anyway, thought it's a bit naive and incorrect, but it describes the main things pretty well.

Now, I'll try to cover what's missing in your story.

You were right when you said that people started to use promissory notes as the prototype of paper money. You were right when you covered where inflation comes from.
Everything is correct, but just one thing. The situation you've described has nothing to do with the principles the modern banking system works on). Before the middle of XX century, the powers used paper money simply because they were more convenient than carrying a heavy bag of gold with you, BUT if you really needed, you could ALWAYS exchange your paper money for a FIXED amount of gold (or any other value which was used to secure the paper). This was stamped on any banknote of every state. That stood for reason and helped to avoid the inflation.

Even in your story, every paper (or legal obligation) used for a payment was backed up with something. Something fixed. That tailor knew exactly what was the price for that dress and when he exchanged that paper for gold coins he willingly accepted the discount. It was his choice. Feel the difference with the present situation - money are just paper and nobody guarantees you that tomorrow they will be worth something useful.
When I say about golden currency I don't actually suggest that people deal again with real golden coins and/or bars. You can still use paper or even electronic money, but they must have a FIXED value. FIXED, something that cannot be changed in time and there must be a free acceptance of the discount. If the market situation changes, it's not money which should be depreciated, but goods and services instead. That's the idea.

P.S. And a final side note - in Middle Ages, usury was considered morally wrong, it was a state crime as well as a religious sin.

Originally Posted by Ramil

That's your idea of short?

It's really short considering the length of the entire story,

Originally Posted by Ramil

Croc, I would hate to disappoint you, but that really was a rhetorical question. (trollface).

Yes, I got that. I'm only saying the system we see today has evolved historically. It's not like someone evil had something really bad for breakfast, felt sick and started to cut the paper into pieces, write some arbitrary numbers on them and sign them by "666".

Originally Posted by Ramil

Thanks for the story anyway, thought it's a bit naive and incorrect, but it describes the main things pretty well.

Мысль изречённая - есть ложь. А мысль изречённая, сильно укороченная и с вырезанным контекстом - есть короткий рассказ.

Originally Posted by Ramil

Before the middle of XX century, the powers used paper money simply because they were more convenient than carrying a heavy bag of gold with you, BUT if you really needed, you could ALWAYS exchange your paper money for a FIXED amount of gold (or any other value which was used to secure the paper). This was stamped on any banknote of every state. That stood for reason and helped to avoid the inflation. Even in your story, every paper (or legal obligation) used for a payment was backed up with something. Something fixed.

Aha! Got you! The golden equivalent was already inflation prone. What you're saying helped to avoid a CATASTROPHIC inflation to a certain extent, but nothing more than that. It's true the gold stood behind the paper, but what stood behind the gold? In my example that was the CROP! That was the ultimate value which stood behind the golden bars. Or the villages as the direct means to produce the crop. For example, I personally do not like to wear gold, so the gold by itself worth nothing to me. However, if I can exchange the otherwise useless gold for food (as promised by the government) then I would agree to do some work for you in exchange for gold as I know that is just a temporary measure. And when the food is scarce, it would worth 10 golden bars and not 1 golden bar (=>inflation!) as those who have the food would prefer to eat it rather than share it with me. However, if I'm optimistic and I believe that the scarcity of food would be over then in the meantime I could eat the bark off the trees as well as the unlucky snails and snakes and do not exchange my 10 golden bars for food. And if that happens and the food scarcity is over, the food would cost 1 golden bar again. And I would be able to exchange them for 10 times more food that when the food was scarce. Yay! That is the only fundamental difference between the golden currency and the paper currency. In theory. But in practice, people are not ready to eat the bark and they prefer to stop spending and start collecting the golden bars because maybe the food scarcity would become worse and they would need more golden bars to pay for it in the near future thus effectively removing the golden bars from the circulation. So if you're the government what would you do? You have no golden bars to pay those in your service, and you have no golden bars to exchange for food and feed them directly. What are you going to do? You can either start promising them everything will be ok (=start issuing "promissory notes" = paper money) or stop paying. The later option was exactly the situation in the Middle Ages. They could afford themselves to call the usury the sin, because they got the service done for them FOR FREE!! Most of their servants (the ordinary people) were obliged to do free work for their masters or be imprisoned (=made to work for free anyways) or being killed. As soon as the serfdom was left behind (due to some other reasons) the governments were left without that cool choice, so they had to start issuing promises (=the paper). It had just happened historically that way. Whatever is the most practical survives in the long term.

Originally Posted by Crocodile

Aha! Got you!

Croc, I think it's pointless to compete in casuistry with you. If you have the arguments which can prove to me that the modern banking system belonging to FRS is better than the fixed value currency I'm ready to hear them.

Originally Posted by Hanna

Ok, I am pretty sure Eric C. is not a native speaker of English now.

He's Russian. I'm 99% sure of it judging by some mistakes he makes. And I get the feeling that he's been known here before by a different nick.

Originally Posted by Eric C.

That's awful. But how many people had been killed by "the initiator of the golden dinar" before that? He had to be stopped...

Much less. According to the various news sources the number is about 27 people. Even the most anti-Lybian news sources say only about less than 200 people killed.

Originally Posted by Ramil

Croc, I think it's pointless to compete in casuistry with you.

Ahm... casuistry... sophistry... I would prefer you address the points I'm making rather than sticking the labels. That would help the discussion move forward.

Originally Posted by Ramil

If you have the arguments which can prove to me that the modern banking system belonging to FRS is better than the fixed value currency I'm ready to hear them.

Wait-wait-wait... I was under impression we were discussing the pros and cons of the golden currency and not the FRS ownership of the entire world, so to speak. What Hanna usually refers to as Bretton Woods system is actually not part of the Bretton Woods accord, but was introduced much later in the 70s and is known as Nixon Shock (the unilateral disconnect between the USD and the golden standard). And that was a very bad thing at the time. And I'm not arguing about that. What I'm trying to say is that for the ordinary people (the producers and the consumers) it DOESN'T MAKE ANY PRACTICAL DIFFERENCE whether the governments use the golden standard or don't. All I'm asking you to realize that the golden standard made sense as long as gold ACCUMULATED the value HISTORICALLY as a capacitor of all previously produced goods and services. But as soon as the disconnect between the paper money and the golden standard had happened (and many people lost the value associated with their legal tender), there's no practical point to go back. Just to remind why that disconnect had happened: in the 1970-71 the US was in the Vietnam war and had a lot of expenses (and people were collecting the paper USDs as they knew the USDs were covered by the golden standard), so the US had to print more dollars thus diluting (=>inflation!) the golden value. And when people saw that, they started to accumulate more USDs just to make the government print more and causing more inflation. So, in the end the US had no choice, but to just stop the coverage and plain promise things would turn out well. That was a catastrophic point and the US deserved to being military punished at that point, but as soon as that point was over, there would be much greater issues to go back. How on Earth the conversion to golden standard would happen today without a great devaluation of all the currencies worldwide?! That situation would inevitably cause those tho won and those who lost. And those who lost would want their money back: first the economic war and the the military campaign. And the worst point is that as soon as the countries would start the war and run out of cash, they would start to print more money diluting their golden backing and so the situation would happen once again! So, what's the point to go back at this point? Just to benefit the raw material-exporting countries? That would make the goods-producing countries lose and inevitably start the war. Why to go to that trouble? Just to punish the evil FRS? If you call that simple and history-proven layout a casuistry I'm not sure what's not casuistry.