4 ms·

Neither of these things is money. Money is by definition a purely financial asset, a liability on somebody's balance sheet. Gold (and bitcoin for that matter)

Neither of these things is money. Money is by definition a purely financial asset, a liability on somebody's balance sheet. Gold (and bitcoin for that matter) is a real asset, it is nobody's liability.

21 11y ago
If I hold a $100 bill in my hand, who is the someone else with the liability on it's balance sheet? The government?
- RobertoG 11y ago
  Yes, money is a government liability (the USA government in your example). If you don't believe that, try to pay your taxes with gold and see what happens.
  - logfromblammo 11y ago
    Not quite. A Federal Reserve Note is a debt instrument issued by the Federal Reserve Bank, which is as much "government" as the Post Office, Fannie Mae, or Amtrak--a tiny bit government, but mostly independent. In theory, a Federal Reserve Note should be redeemable in United States Notes or in coins stamped by the U.S. Mint, but thanks to legal tender laws, the note is a debt instrument, which means it may be discharged by tendering Federal Reserve Notes in place of whatever the debt actually calls for. So you go to the Fed and ask to redeem a $100 bill, and they will hand it right back to you. Technically speaking, they should give you a different $100 bill, other than the one you are trying to redeem, but really, if you get that far, you're already lucky they aren't physically throwing you out of the building. This is one of those "laws and sausages" things. You're far better off not looking at it too closely if you want to continue to enjoy the benefits unburdened by unnecessary knowledge.
    - RobertoG 11y ago
      Well, you have a point about the nature of the Fed, but it's not the normal case. Most governments own their National Banks. In any case, I don't think that changes the essence of what we were discussing.
- marvy 11y ago
  I think so.
- simonh 11y ago
  In practice I don't think it's useful to think about it in terms of liability. That $100 bill is a share in the net wealth of the nation. This is why when a country prints a lot if its currency to fund government spending, the relative value of that currency goes down. There are more 'shares' in the economy now, so each one represents a smaller slice of the pie than it did before. So if there is any liability, it's distributed across everyone else holding that currency. Of course the value of anything is only relative to what anyone is prepared to pay for it, it's a matter of sentiment, so the value of an economy can go up or down depending on perceived risks, liabilities or opportunities and thus is reflected in the value of the currency compared to other assets or currencies.
dzeanah 11y ago
> Money is by definition a purely financial asset, a liability on somebody's balance sheet. Maybe Econ 101 has changed, but I remember learning that "money" was: - A medium of exchange - A store of value - A unit of account When we were on the gold standard these were all true. Now that we're off the gold standard gold is no longer a medium of exchange or a unit of account, but one could argue pretty effectively that it's a better store of value than dollars have been, and it's done so for throughout history. (I'm talking time periods of decades, not the post 2008 crisis volatility here.) The fact that the system we're using now is debt-based rather than based on precious metals should't change the definition of money, however.
- RobertoG 11y ago
  During the gold standard the government promised a fixed quantity of gold in exchange for the money that they created. Money was a liability like now. It's just that the associated promise was different. Gold was not money then more than it is now.
  - tomp 11y ago
    > Money was a liability like now. It's just that the associated promise was different. Is there any promise associated with money now (except "you don't go to jail if you pay enough taxes in government's money")? If not, then I can't see money as a liability, only as an investment (i.e. the government prints money, sells it for other assets (FX, bonds, stocks, etc.).
    - kaonashi 11y ago
      The promise is to accept for settlement of tax obligations.
    - RobertoG 11y ago
      You can only pay yours debts with the government with money created by the government. And this is not something new. Government money is, also, a liability in a very real accounting sense too. When the government creates money (by crediting the accounts of their providers, for instance) it is also registered as a liability for itself. This same money always will be accepted back as a payment. That's the promise.
mistermann 11y ago
http://lesswrong.com/lw/nz/arguing_by_definition/ http://lesswrong.com/lw/nz/arguing_by_definition/
- nwah1 11y ago
  Relatedly: http://squid314.livejournal.com/323694.html http://squid314.livejournal.com/323694.html
  - yoha 11y ago
    Next on the line: http://slatestarcodex.com/2014/11/21/the-categories-were-made-for-man-not-man-for-the-categories/ http://slatestarcodex.com/2014/11/21/the-categories-were-mad...
- deleted 11y ago
  [deleted]

21 11y ago

If I hold a $100 bill in my hand, who is the someone else with the liability on it's balance sheet? The government?

RobertoG 11y ago
Yes, money is a government liability (the USA government in your example). If you don't believe that, try to pay your taxes with gold and see what happens.
- logfromblammo 11y ago
  Not quite. A Federal Reserve Note is a debt instrument issued by the Federal Reserve Bank, which is as much "government" as the Post Office, Fannie Mae, or Amtrak--a tiny bit government, but mostly independent. In theory, a Federal Reserve Note should be redeemable in United States Notes or in coins stamped by the U.S. Mint, but thanks to legal tender laws, the note is a debt instrument, which means it may be discharged by tendering Federal Reserve Notes in place of whatever the debt actually calls for. So you go to the Fed and ask to redeem a $100 bill, and they will hand it right back to you. Technically speaking, they should give you a different $100 bill, other than the one you are trying to redeem, but really, if you get that far, you're already lucky they aren't physically throwing you out of the building. This is one of those "laws and sausages" things. You're far better off not looking at it too closely if you want to continue to enjoy the benefits unburdened by unnecessary knowledge.
  - RobertoG 11y ago
    Well, you have a point about the nature of the Fed, but it's not the normal case. Most governments own their National Banks. In any case, I don't think that changes the essence of what we were discussing.
marvy 11y ago
I think so.
simonh 11y ago
In practice I don't think it's useful to think about it in terms of liability. That $100 bill is a share in the net wealth of the nation. This is why when a country prints a lot if its currency to fund government spending, the relative value of that currency goes down. There are more 'shares' in the economy now, so each one represents a smaller slice of the pie than it did before. So if there is any liability, it's distributed across everyone else holding that currency. Of course the value of anything is only relative to what anyone is prepared to pay for it, it's a matter of sentiment, so the value of an economy can go up or down depending on perceived risks, liabilities or opportunities and thus is reflected in the value of the currency compared to other assets or currencies.

dzeanah 11y ago

> Money is by definition a purely financial asset, a liability on somebody's balance sheet. Maybe Econ 101 has changed, but I remember learning that "money" was: - A medium of exchange - A store of value - A unit of account When we were on the gold standard these were all true. Now that we're off the gold standard gold is no longer a medium of exchange or a unit of account, but one could argue pretty effectively that it's a better store of value than dollars have been, and it's done so for throughout history. (I'm talking time periods of decades, not the post 2008 crisis volatility here.) The fact that the system we're using now is debt-based rather than based on precious metals should't change the definition of money, however.

RobertoG 11y ago
During the gold standard the government promised a fixed quantity of gold in exchange for the money that they created. Money was a liability like now. It's just that the associated promise was different. Gold was not money then more than it is now.
- tomp 11y ago
  > Money was a liability like now. It's just that the associated promise was different. Is there any promise associated with money now (except "you don't go to jail if you pay enough taxes in government's money")? If not, then I can't see money as a liability, only as an investment (i.e. the government prints money, sells it for other assets (FX, bonds, stocks, etc.).
  - kaonashi 11y ago
    The promise is to accept for settlement of tax obligations.
  - RobertoG 11y ago
    You can only pay yours debts with the government with money created by the government. And this is not something new. Government money is, also, a liability in a very real accounting sense too. When the government creates money (by crediting the accounts of their providers, for instance) it is also registered as a liability for itself. This same money always will be accepted back as a payment. That's the promise.

mistermann 11y ago

http://lesswrong.com/lw/nz/arguing_by_definition/ http://lesswrong.com/lw/nz/arguing_by_definition/

nwah1 11y ago
Relatedly: http://squid314.livejournal.com/323694.html http://squid314.livejournal.com/323694.html
- yoha 11y ago
  Next on the line: http://slatestarcodex.com/2014/11/21/the-categories-were-made-for-man-not-man-for-the-categories/ http://slatestarcodex.com/2014/11/21/the-categories-were-mad...
deleted 11y ago
[deleted]