PBS investigates why a dollar has value.
It is not because of the gold in Fort Knox. There used to be gold behind the dollar, but not now. President Richard Nixon cut the last ties in 1971, effectively ending the foundation of the Bretton Woods international monetary system.
Rather, the ultimate reason that the U.S. dollar has value, at least in the opinion of some economists, and in my own, is that no one likes being in jail. And dollars are a get-out-of-jail-free card.
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(Score: 5, Insightful) by Theophrastus on Sunday April 13 2014, @10:25PM
money only has value because we believe that we can get something comparable with it later. if we can't assign that belief/trust in it then it has no value. and what could possibly be more ineffable?
(Score: 2) by Hairyfeet on Sunday April 13 2014, @11:44PM
Its because the majority of the world's oil requires dollars to trade (look up petro-dollar) and many of us believe the US government will use force when it has the option to keep that particular status quo. Of course none of this will matter in the long run as the government colluded with wall street [youtube.com] and have blown a MASSIVE bubble, one that when burst will make the depression look like a flash crash.
When this happens it'll be Germany 1929, where the value drops off right off the map so quickly prices change by the minute and it'll take a truck to haul enough money to get a weeks groceries.
ACs are never seen so don't bother. Always ready to show SJWs for the racists they are.
(Score: 2) by isostatic on Monday April 14 2014, @12:41AM
No will about it. Iraq was moving to sell oil in euros shortly before it was invaded (to get those Iraqi 9/11 perpetrators that came from Iraq and were camping out in saddam's WMD factories)
(Score: 1) by Daiv on Monday April 14 2014, @02:10AM
"Germany 1929, where the value drops off right off the map so quickly prices change by the minute and it'll take a truck to haul enough money to get a weeks groceries"
This IS still happening in countries throughout the world and even in Brazil as recently as about two decades ago. While your comment is great for drumming up cries of revolt, the US government AND US Federal Reserve and sneaky enough to avoid this in all but the most dire of circumstances. I'm absolutely not saying what they're doing is "right", just point out your comment reeks of FUD.
(Score: 1) by isaac on Monday April 14 2014, @08:17AM
1. Debit & credit cards make truckloads of banknotes obsolete, so I wouldn't invest in wheelbarrow and dump-truck futures.
2. Inflation benefits debtors, which is almost everyone. It hurts people (including corporate people) sitting on huge piles of cash.
Given that my net worth is negative (like a lot of homeowners,) inflation sounds like a good deal to me. Precisely for this reason, I actually expect deflation.
-Isaac
(Score: 2) by hemocyanin on Monday April 14 2014, @02:54PM
You assume that your earnings are going to rise with inflation. As long as that is true, inflation is OK. But real wages for regular people have been declining for decades, so inflation may not be all that great for you as you think.
(Score: 2) by sjames on Monday April 14 2014, @05:36PM
Given inflation alone, they will. The problem is that employers use inflation and inertia to sneak pay down steadily.
(Score: 0) by Anonymous Coward on Monday April 14 2014, @04:50PM
Inflation benefits debtors in the short term. Yay, debt is smaller with respect to financial situation!
In the long term, the creditors look around and realise they lost their shirts. They up their interest rate demands, and find other ways of investing their money.
Oops. Inflation not so good for the movement of capital, after all.
(Score: 1) by Nr_9 on Monday April 14 2014, @12:16PM
German hyperinflation happened in 1923. It happened because of irresponsible expansion of the German monetary supply to pay war reparations after the First World War, not because of the Great Depression of 1929 (which only severely affected Germany a couple of years later anyways.)
You seem to have missed the story on the Great Recession (2008) and its aftermath. The focus afterwards, especially in Europe has been on austerity politics. It seems pretty clear that the powers that be at the moment will rather make people starve on the streets than threaten the stability of their currencies.
(Score: 2) by sjames on Monday April 14 2014, @05:39PM
Sadly, they cling to austerity even after it was discovered that the paper recommending it had a serious math error which was fatal to the conclusion.
Upon it's announcement, they jammed their fingers in their ears and went "LA LA LA".
(Score: 0) by Anonymous Coward on Tuesday April 15 2014, @12:44AM
If you're talking about the paper which confirmed a link between government debt and reduced growth, you should check your facts.
There was an error in the researchers' spreadsheet, true. However, the conclusion actually was emphasised. Why? Because the original outcome predicted a growth cliff above about 90% debt, whereas the modified result was that increased debt kneecaps growth progressively, without a cliff, and it's still not good to carry that much debt.
If it's another paper you mean, please provide a citation.
(Score: 1) by monster on Tuesday April 15 2014, @08:27AM
There are two distinct papers which were used as the cornerstones for austerity in Europe: Large Changes in Fiscal Policy: Taxes Versus Spending [wikipedia.org] (The Alesina-Ardagna paper about "Expansionary Austerity") and Growth in a Time of Debt [wikipedia.org] (The Reinhart-Rogoff paper you talk about). The R-R paper was the basis for the "Debt Cliff at 90%" and was the one with serious math errors that made their conclusions invalid (yes, in normal conditions more debt may make you grow less because you have to put aside more resources to pay it, but there isn't such "Impending Doom" at a certain percent of GDP. Also, it fails to take into account the current situation of being in a liquidity trap). The A-A paper was the one that argued that austerity not only doesn't hamstring recovery but even promotes it. It has been debunked as flawed, both by analysis of their paper and by reality.
(Score: 0) by Anonymous Coward on Thursday April 17 2014, @01:07AM
OK, so you were talking about the growth and debt one in your original post. Got it.
I'm going to go ahead and stop you there, because while the math error was bad form, it actually didn't invalidate their central conclusion at all, except inasmuch as there is no cliff before which debt is effectively benign. It actually confirmed, once corrected, quite clearly the degree to which debt at any level is a progressively growing millstone and fundamentally anti-growth. Did you read their updated paper with corrections? It's quite interesting, I can recommend it.
As for the liquidity trap, their research was neutral with respect to it, covering nations which both had shrinking liquidity and without. If you want to differentiate the two, go for it; take the data, update it, separate the cases and compare graphs. Get published, we're all waiting for you.
Lots of papers are debunked by political groups all the time regardless of their veracity. The fact that a paper in economics annoyed somebody is hardly news. As for reality, some of the hardest austerity cases bottomed quickly and started to come back with increasing indications of health. Ireland is looking a lot more promising now than it did even a year ago, for example.
(Score: 2) by metamonkey on Monday April 14 2014, @02:50PM
Of course it will. And more brazenly. Recruitment commercials no longer talk about our soldiers "defending America" or "protecting freedom." They now literally say "protecting America's interests around the globe."
What exactly are America's "interests" around the globe? How well do you think those interests coincide with the interests of average Americans? How well do you think those interests coincide with those of the power elite?
Okay 3, 2, 1, let's jam.
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(Score: 4, Informative) by cosurgi on Sunday April 13 2014, @10:34PM
It's not that he gave a definitive answer. But the book was really enjoyable. And in the end, when the progenitor was asked "how do we know that these fancy papers are worth anything", he just pointed towards an army of golems indicating that if anybody disagrees, he can crush whole Ankh-Morpork on a whim.
#
#\ @ ? [adom.de] Colonize Mars [kozicki.pl]
#
(Score: 2) by geb on Monday April 14 2014, @11:17AM
When being used as currency, the golem army there wasn't as a military force, but as a labour force.
The whole point of money as a system of exchange is so that you can do work useful to society when society needs you, then save up some of the value you created to use when you need something back in return. That is to say, money represents a quantity of work.
Formalising that by explicitly saying "One Ankh-Morpork Dollar represents X hours of labour by one standard golem" was an interesting idea.
I'm not sure it's a great idea in practice, as it creates a sort of de-facto maximum wage for unskilled labour, and unless managed skillfully you'd run into over- or under-supply of physical money still, but it does help you to see what money really is.
(Score: 1) by Max Hyre on Monday April 14 2014, @07:45PM
His stroke of genius was to realize that you didn't even have to have them exchangeable for some fixed service, and *SHAZAM*, you've got money.
(Score: 2, Funny) by Horse With Stripes on Sunday April 13 2014, @10:38PM
(Score: 5, Interesting) by umafuckitt on Sunday April 13 2014, @11:14PM
I understand that it's easier to print new money than to make new gold, but ultimately even gold (or any other similar commodity) is only worth what we agree its worth. New events can potentially alter the value of an existing commodity. So saying that currency has value because it's backed by gold is really just a regress argument. Like money, gold is also just a proxy for value, because by itself it's not useful in most situations. Thus, the question isn't so much "what gives money its value?" but "what gives proxies for value their value?" I think the answer is that without such proxies we'd be reduced to barter and economies based solely on barter do not scale well (I can't send my chickens to you via Paypal in order to buy your widget), are inflexible, and grow slowly. So what gives money (or any similar proxy) its value is that without such a concept our lives would be very much harder.
(Score: 0) by Anonymous Coward on Monday April 14 2014, @12:19AM
But gold has intrinsic value because it can be used for stuff. So its total value is its intrinsic value + its ascribed value (as a medium of exchange). To that end it may not devalue as easily being that it's always worth at least its intrinsic value.
Now, granted, if a goldmine were discovered and made gold much more available to all its cost will decrease and this may reduce its ascribed value but not its intrinsic value. The fact that water is abundant doesn't reduce its value. Water is worth a lot more than gold being that you can't live without it. But water is cheaper and has almost no additional ascribed value over its intrinsic value. Its value is purely intrinsic and its cost is a factor of its abundance and its intrinsic value to you. What happens if water becomes more scarce isn't that its value increases just that the value of the last unit increases. The value of each additional unit of water decreases (the law of diminishing marginal returns/value). Finding more gold means we have more gold and so we, as a nation, are richer (being that wealth is measured by the quantity of goods and services we have with intrinsic value). The ascribed value of your gold decreases but the intrinsic value of your money increases being that you can now purchase more gold with it.
Money, on the other hand, has very little intrinsic value. Sure, I guess you can burn it for warmth or something but, by and large, all of its value is ascribed.
However, money is also subject to the law of diminishing marginal returns. As you get paid more each additional unit of money is worth less than the last. Eventually your leisure time is worth more than the next unit of money and so you work less as a result of higher pay. Property laws, of course, are supposed to serve the public interest and in order for them to do so the idea is that they should be based on your contribution back to society. No one is entitled to having a government giving them exclusive use of property (no one is entitled to the existence of property laws). Property laws are an artifact of government. If more pay results in relatively less work then the property laws are not serving the public interest because the laws are giving you more in return for less being given back to society. This is the whole idea behind tax brackets, to encourage you to give back more to society in return for more pay so that the government doesn't grant all these undeserved exclusive property rights (that no one is rightfully entitled to) to people not contributing much back in return. This is known as the backwards bending labor supply curve.
(Score: 1) by velex on Tuesday April 15 2014, @05:48AM
Attempting to cure insomnia with wine ATM, but here you go. Gold has several important properties that make it ideal for a currency that's difficult to forge. As the AC pointed out, the discovery of a significant gold mine would harm its scarcity and hence ascribed value, however, for most intents and purposes, gold is difficult to counterfeit and therefore a scarce token. (IANAE(conomist), but hopefully you get the idea even if I don't know the correct term). Gold is difficult to counterfeit because of its physical properties: specifically its color and low softness for a metal. Furthermore, if one is a fan of Euclid, one could also perform even more sophisticated tests in the ancient/post-apocalyptic world, such as measuring its density via water displacement for weight. It would be difficult, although I imagine not impossible, to mimic all these qualities. Although I imagine that unlike the ancient world, the powerful in the post-apocalyptic future might have access to things like spectrometers, tests of electrical resistance, etc.
Therefore gold has utility as a proxy for (scarce) value, given that there is no other item that includes sufficient properties that work against counterfeiting. These days, we have paper bills printed with special methods using rare machines one needs a permit to down. As my high school econ teacher put it, it's easier to carry around a wad of bills than it is chunks of gold. Bills and coins also can more readily break down into change when necessary than gold can (not saying gold can't).
In the event of societal collapse, I suppose from a practical standpoint, barter would reassert itself until gold were sufficiently distributed to be able to act as currency. Probably a similar problem bitcoin faces ATM, although gold has centuries of being a useful scarce resource while very large numbers and blockchains don't so much so. The paper bills would become worthless, even after barter would be phased out in favor of gold currency, because the paper bills rely on a governmental authority to be a proxy for value and counterfeiting them believably is easier than finding an alloy that mimics gold or else just performing the nuclear reaction to transmute gold.
In conclusion, gold relies on the fact that its physical properties are fairly unique for a chemical element, which makes it a candidate for a currency without the backing of a government on its inherent scarcity alone.
(Score: 2) by bd on Sunday April 13 2014, @11:31PM
Isn't that kind of a straw man? Does any reasonable reader believe that currencies are still precious metal backed?
So the dollar only has value because you can pay your taxes with it and thereby not go to jail? By that reasoning, a box full of platinum has no value, as you have to sell it in order to pay taxes to the government. If everyone had to convert dollars to postage stamps or twinkies before paying taxes, all else being equal, wouldn't the dollar still be valuable as long as you are able to buy all kinds of stuff with it?
(Score: 3, Insightful) by khallow on Sunday April 13 2014, @11:50PM
The idea is that it has built in value because one party, the US government will accept dollars as payment for taxes.
(Score: 2) by buswolley on Monday April 14 2014, @12:15AM
Thank you. That IS the point. We will use dollars instead of crypto currencies because in the end we'd have to trade those crypto-notes, for dollars so we can pay our U.S. taxes.
subicular junctures
(Score: 3, Insightful) by edIII on Monday April 14 2014, @01:34AM
I was thinking more along the lines of the motivation behind acquiring more and more money in of itself, and that does not relate to simply paying taxes. That implies we pay taxes simply to get the US gov off our backs, and that's the only reason why we would shift other mediums of value to the dollar to pay it. I don't think that's true.
It's a literal get-out-of-jail-free card. In that context it makes sense to me.
Meaning, that the more US dollars you possess, the less the real consequences of life apply to you. You didn't work hard enough today to feed yourself well at dinner? Doesn't matter, the $20 can make someone else do it for you. You don't want to suffer through bread lines to eat? The $100 gets you preferential treatment and people look the other way when the truck leaves with enough supplies for 10 families.
You don't want to suffer the consequences because you're an entitled little shit who never really paid attention to long term affects to other people for your risky and greedy investments? Just take a few million and have a talk with one of the old guys on the hill and your own problems go away.
You killed someone, and rather than face up to that like every other person would, you want to be spared the harsh brutality of prison? Give a few million to some lawyers and crooked judges and go on vacation in a minimum security facility.
Call me cynical, but people value money so damn highly because deep down they know people will do anything for the right price, and who needs to work hard and honest or play fair when money can change the rules of any game anywhere.
Obviously, some people can create things of great value, or provide services that require vast amounts of experience. It makes sense that they never have to work for food at all. They can afford to pay others to do that, and those others depend on them for the difficult stuff that we are fast forgetting like the hard sciences. There is value for societies in economies.
More and more though, it's people that produce absolutely nothing of value at all, but fear. The fear of losing a job for a one. How many truly detestable people are out there who couldn't convince a single person to put up with their shit, but since they have millions of dollars, everyone considers them respectable all of the sudden? How many people do we know like that who couldn't survive for 5 minutes with 99 other people in the middle of nowhere? It's like the Millionaire and his Wife from Gilligan's Island. Will you pay him with food you collected to hear his bullshit about how you didn't file your TPS report correctly? Yet these people survive every single day in our world providing us with nothing. They are only worth the money, and without it, they have no worth even as people. Might as well be adult children.
There is an awful lot of worthless baggage humanity drags around all day long simply because of money, and the true sociopaths take advantage of this and game the system. Those human beings that literally provide the world nothing positive a single day in their lives. No contributions towards science, no ditches being dug, no food being harvested or prepared. Just nothing but consumption.
Money and fear have more in common with each other than we would like to admit, and that's exactly how I see money and the entire concept of value. A dynamic of fear which makes perfect sense then how it's so amazingly exploitable.
Whether or not it's the US dollar, money will always drive us out of fear, and fear has amazingly high intrinsic value that does not require any forms of language to convey.
Fear is the currency of the world.
Technically, lunchtime is at any moment. It's just a wave function.
(Score: 0) by Anonymous Coward on Monday April 14 2014, @04:55AM
Fine theory, doesn't explain why anything besides dollars has value.
You can trade in the form of barter, or in multiple currencies, all of which have value based on a shared psychological attitude to the item in question, without touching dollars, but if the dollar gets turned into confetti by idiotic government moves (as per many, many currency crashes, a recent example being Zimbabwe) it is still just paper of no meaningful value.
So no. While SOME part of the dollar's value MAY rest in Uncle Sam wanting to be paid in it, that most certainly is demonstrably not the whole story and is most definitely not enough to prop up the dollar in the absence of the socially held trust which gives it its value; the trust that a buck today will buy about a buck's worth of stuff tomorrow.
Just the fact that PBS hosted the show does not mean that fiat currency can be solely meaningfully supported in a functional economy by a tax department and its paid legbreakers. That has not been proven to be true in any historic case.
(Score: 2, Informative) by dcollins on Sunday April 13 2014, @11:50PM
And dollars are a get-out-of-jail-free card.
Someone doesn't know their Monopoly game very well. Or the conventional meaning of the word "free". The normal rule for jail in Monopoly is that you either have to roll doubles or pay $50 to get out. The "Get out of Jail Free" card bypasses this, the point being, you don't have to pay any money.
So perhaps the better metaphor is that money is a "get-out-of-jail-at-all" card.
Monopoly Official Rules for Jail: https://en.wikibooks.org/wiki/Monopoly/Official_Ru les#Jail [wikibooks.org]
(Score: 2) by gringer on Monday April 14 2014, @01:07AM
Or a "don't-go-to-jail" card, or a "get-out-of-jail-quickly" card.
People aren't prevented from leaving jail if they don't have money, it just takes longer (and without money, will probably result in them ending up in jail again fairly shortly afterwards).
Ask me about Sequencing DNA in front of Linus Torvalds [youtube.com]
(Score: 2) by Subsentient on Monday April 14 2014, @01:39AM
Greed. The idea that it's OK not to help someone when you can with basic life supplies, unless they give you something.
"It is no measure of health to be well adjusted to a profoundly sick society." -Jiddu Krishnamurti
(Score: 1) by L.M.T. Spoon on Monday April 14 2014, @03:29AM
If people only used perishable goods for trading/bartering, they would only be able to amass approximately as much property as they could produce with their own labor. Money--gems, gold, silver, etc.--that is not perishable allows one to accumulate great amounts of valuable things that can then be converted into property or labour. Now, of course, in a an increasingly "equal" society (i.e. departing from serfdom), as money becomes an accessible means of interaction for the general population, it gains a quality of contractual worth--that of a promise. Taken together, in at least the modern Western world, money allows one to have a non-perishable means or guarantee of future agreements with people. Be it about property, service, or something else, this is a very valuable thing.
Naturally, one can imagine other valid societal systems.
(Score: 1) by bill_mcgonigle on Monday April 14 2014, @04:44AM
Yeah, so here's a decent documentary on youtube (208 min) that will give you a decent background to start exploring the question raised in TFS and those in some of the comments. It's a bit painful to read some of those comments, so let's just all agree to learn up to the next level and try again.
https://www.youtube.com/watch?v=HfpO-WBz_mw [youtube.com]
The narrator has his own ideas in the last 15 minutes, but the history stands on its own regardless of whether you agree with him or not on his proposed solutions.
(Score: 1) by ButchDeLoria on Monday April 14 2014, @06:45AM
The US used to back its currency with reserved gold. Nowadays, we back it with military strength.
(Score: 0) by Anonymous Coward on Monday April 14 2014, @09:23AM
There's one problem. The only running expenses of reserved gold are the need to store it somewhere, and the need to guard it so it doesn't get stolen. However military strength has huge running expenses just to keep it existing.
(Score: 2) by wonkey_monkey on Monday April 14 2014, @09:31AM
Money can be exchanged for goods and services.
systemd is Roko's Basilisk
(Score: 5, Informative) by Dr Ippy on Monday April 14 2014, @09:50AM
Two basic principles:
1. Money is debt.
2. Money has value because you can use it to pay taxes.
This is the way every fiat currency works. The government (or its agent) issues currency notes and coins, which are essentially just IOUs ("I promise to pay the bearer..."), i.e. they're debt. The government also imposes taxes, which may only be paid in this currency.
Citizens then need the money to pay their taxes, so they either have to work directly for the government (e.g. military, civil servants), which pays them in the currency; or they have to sell those people goods or services in exchange for the currency; and so on. Thus the currency spreads throughout the nation.
The currency has value not only because you can pay your own taxes in it, but also because you can do deals with other people who need the currency to pay their taxes.
The fact that there's always a willing party who will accept the money -- the government -- means that people trust the money.
It's hard to get your head around the fact that you use government debt (IOUs) to pay your debt to the government (taxes)!
There's a good book [wikipedia.org] by David Graeber, Debt: the First 5000 Years, which describes an actual historical case of currency introduction into a colonial state (I forget which).
The taxation principle is also one of the foundations of Modern Monetary Theory [wikipedia.org].
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(Score: 1) by Buck Feta on Monday April 14 2014, @02:15PM
1. Money is debt.
I'll take all your "debt" off your hands then.
- fractious political commentary goes here -
(Score: 2) by metamonkey on Monday April 14 2014, @02:55PM
You've got the debt going in the wrong direction.
Okay 3, 2, 1, let's jam.
(Score: 1) by Dr Ippy on Monday April 14 2014, @05:00PM
That's right. Don't forget, that for every debtor, there's a creditor. In the case of money, the government is the debtor and the person holding the piece of paper or the coin is the creditor.
The interesting thing is that any government that runs a fiat currency scam can always pay its debts: it just has to create more money out of thin air. (But it didn't help Zimbabwe much!) This is the "fiat" part -- Latin for "let there be [money]".
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(Score: 0) by Anonymous Coward on Monday April 14 2014, @05:45PM
Not really an adequate approximation. A better one might be: Money is a promise. It used to be an explicit promise that you could trade it in for a given amount of gold. Now it's an implicit promise that you can trade it for goods of equivalent value.
I can also trade it for a tasty hotdog with everything. Mmmmm, hotdogs. Wait, you're saying that doesn't give it value? I certainly value that. If I didn't, I'd only bother gathering enough cash to pay taxes and then do everything else in terms of a different commodity. Beer, maybe. Or bacon.
Then why does the government take stuff from people when they don't have enough cash to pay? Turns out, you CAN pay taxes in another form, by default if nothing else. If you look historically, there were many cases where taxes were paid in a form other than cash even when currencies did exist. Grain was common in many cultures. And yet, people used those currencies.
I keep seeing this meme lately for some reason, despite the fact that it has very poor matching with observed current and historic reality. I use cash because deer hides are tough to carry around. If you're smart about your taxes you don't have to deal in a single cent - and you can come out ahead. The government will even pay you money under some circumstances.
OK, now it all makes sense. These MMT guys are almost as bad as the anarchocapitalists. They have one half of one part of the story of monetary economics, and handwave away all the ugly stuff they don't want to deal with. It's so much easier if you don't have to deal with the fact that a currency is a commodity with a value which floats relative to other commodities. The fact that a government wants to be paid, and uses a regular unit of account to do so, and makes it one which is more accessible to citydwellers than grains of wheat does not a government valuation mandate make.
You know what? I shouldn't just complain. I should be a positive and active participant in the marketplace of ideas. So here goes:
MMT fails all three of the above tests.
(Score: 2) by skullz on Monday April 14 2014, @02:38PM
"What Gives Money Its Value?"
Bacon, clearly.
(Score: 2) by maxwell demon on Monday April 14 2014, @07:40PM
No, Muffins.
The Tao of math: The numbers you can count are not the real numbers.
(Score: 1) by chewbacon on Monday April 14 2014, @02:44PM
Many things, but namely: bad debt and increasing debt limits.
(Score: 0) by Anonymous Coward on Monday April 14 2014, @02:52PM
Anyone that didn't give this answer is wrong: Banks.
The answer might have been different in the past but that is the only correct answer today.
(Score: 1) by Dr Ippy on Monday April 14 2014, @05:05PM
Banks certainly create money by providing credit (and consequently, the borrower incurs debt), but they don't give value to that money.
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