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>The only possible source for the value of a widely-used currency is the wealth that it represents. I disagree and I think most economists would too. You provi

>The only possible source for the value of a widely-used currency is the wealth that it represents. I disagree and I think most economists would too. You provided a tautologic "definition." I would say a currency has value as a currency iff it meets the three criteria that define a currency. These have to do with utility or fungibility not representation. A currency has value because it is useful as (1), (2), (3). A currency is defined by its use and functions. You can say monopoly money represents real wealth but if nobody agrees with you then it is not too useful. I think you don't understand what a currency is.

antonvs 5y ago
What I'm describing is what any economist would tell you. You made your misunderstanding clear when you write this: > You provided a tautologic "definition." No, I didn't. Money itself is not "real" wealth. It's an agreed-on abstraction which is used to represent wealth. It's a measure of wealth, in the "unit of account" sense. Wealth exists in the form of things like property, other tangible assets, the output of services, etc. To understand this better, consider a barter economy. Someone might trade a cow for some swords or whatever. The cow and the swords are assets which have value because they're useful to someone. But not every asset is useful to everyone. I have no use for a cow or a sword, but some people do. This makes it difficult for pure barter systems to work well, because the assets I have may be of no use to the people who have assets that I want to trade for, and vice versa. Money solves this problem. It is used to represent wealth. Typically via a market system, assets are valued in terms of an amount of money. This allows people to trade assets for money without having to match assets that both sides are interested in. Once you understand this basic fact, a lot of economics follows quite obviously. For example, it become clear that the amount of money in a society needs to grow to match the underlying wealth (total assets) in that society, otherwise the value of money will either increase (deflation - prices drop making money more valuable) or decrease (inflation - prices increases making money less valuable). This is why central banks pay attention to, and manage, the money supply. Bringing this back to crypto, we can use this fundamental understanding to understand why cryptos like Bitcoin are deflationary: since they have a limited supply, as the amount of wealth they represent increases, the value of the currency has to increase. > I would say a currency has value as a currency iff it meets the three criteria that define a currency. You can say that, but it's pointless because you're not using "value" in the economic sense. It's more accurate and less misleading just to say that some instrument can serve as a currency if it meets those criteria. Your description doesn't help explain how much actual economic value a currency has. To find that out, you need to look at how much underlying wealth it represents. > A currency has value because it is useful as (1), (2), (3). You could say "it is possible for a currency to have value because..." But that doesn't help you identify how valuable it is. > You can say monopoly money represents real wealth but if nobody agrees with you then it is not too useful. That's the point. Money has to actually represent real wealth for it to have value. Its value is largely determined by how much real, non-money wealth it represents. > I think you don't understand what a currency is. You've been reading definitions without a full understanding of the bigger picture.

antonvs 5y ago

What I'm describing is what any economist would tell you. You made your misunderstanding clear when you write this: > You provided a tautologic "definition." No, I didn't. Money itself is not "real" wealth. It's an agreed-on abstraction which is used to represent wealth. It's a measure of wealth, in the "unit of account" sense. Wealth exists in the form of things like property, other tangible assets, the output of services, etc. To understand this better, consider a barter economy. Someone might trade a cow for some swords or whatever. The cow and the swords are assets which have value because they're useful to someone. But not every asset is useful to everyone. I have no use for a cow or a sword, but some people do. This makes it difficult for pure barter systems to work well, because the assets I have may be of no use to the people who have assets that I want to trade for, and vice versa. Money solves this problem. It is used to represent wealth. Typically via a market system, assets are valued in terms of an amount of money. This allows people to trade assets for money without having to match assets that both sides are interested in. Once you understand this basic fact, a lot of economics follows quite obviously. For example, it become clear that the amount of money in a society needs to grow to match the underlying wealth (total assets) in that society, otherwise the value of money will either increase (deflation - prices drop making money more valuable) or decrease (inflation - prices increases making money less valuable). This is why central banks pay attention to, and manage, the money supply. Bringing this back to crypto, we can use this fundamental understanding to understand why cryptos like Bitcoin are deflationary: since they have a limited supply, as the amount of wealth they represent increases, the value of the currency has to increase. > I would say a currency has value as a currency iff it meets the three criteria that define a currency. You can say that, but it's pointless because you're not using "value" in the economic sense. It's more accurate and less misleading just to say that some instrument can serve as a currency if it meets those criteria. Your description doesn't help explain how much actual economic value a currency has. To find that out, you need to look at how much underlying wealth it represents. > A currency has value because it is useful as (1), (2), (3). You could say "it is possible for a currency to have value because..." But that doesn't help you identify how valuable it is. > You can say monopoly money represents real wealth but if nobody agrees with you then it is not too useful. That's the point. Money has to actually represent real wealth for it to have value. Its value is largely determined by how much real, non-money wealth it represents. > I think you don't understand what a currency is. You've been reading definitions without a full understanding of the bigger picture.