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This 'money is just an agreement or a common belief' is a fallacy. Gold is scarce, divisible, verifiable, resilient, etc. It simply has good inherent properties

by Geee 4y ago

This 'money is just an agreement or a common belief' is a fallacy. Gold is scarce, divisible, verifiable, resilient, etc. It simply has good inherent properties to work as money, as a store of value and as a medium of exchange. No one decided or agreed to use gold as money. It just emerged in a free market as the best money, because of those properties. Same goes for bitcoin.

jgwil2 4y ago
Isn't "emerging in a free market as the best money" equivalent to a bunch of people collectively deciding/agreeing to use it as money?
- Geee 4y ago
  There's no communication needed among those people, so it isn't a decision or agreement in that sense. Thousands of years ago, each person individually found out that the gold they have been collecting is still as valuable as a year or 10 years ago, when used in barter. It was pure chance and survival first, and later it became a rational choice. This happens inevitably, because gold is very hard to produce, and it's very hard to destroy or consume. I.e. its inherent monetary inflation is lowest, compared to anything else. Those who collected sea shells or stones, found out that they lose value over time, and that's because they are easy to find and they are easily destroyed. Next, people started increasingly accepting gold in trade, just by their individual decision. Because of this, it made sense to try to obtain it yourself to take part in the economy. When the demand grows for gold as a monetary good, it becomes even more valuable, and therefore even more rational to save and use in trade, and at the same time demand for other types of money diminishes. At this point, the network effect is so strong that it becomes obvious to everyone that gold is money, i.e. it is the most wanted good in the market. That's also why money tends to converge into one, when there are no regional regulations or controls around money. Historically, gold has become money independently in many parts of the world. It has been money for thousands of years, and in many forms. King Croesus was probably the first who minted standard-weight gold coins, to make it easier to transact with.

by Geee 4y ago

jgwil2 4y ago

Isn't "emerging in a free market as the best money" equivalent to a bunch of people collectively deciding/agreeing to use it as money?

Geee 4y ago
There's no communication needed among those people, so it isn't a decision or agreement in that sense. Thousands of years ago, each person individually found out that the gold they have been collecting is still as valuable as a year or 10 years ago, when used in barter. It was pure chance and survival first, and later it became a rational choice. This happens inevitably, because gold is very hard to produce, and it's very hard to destroy or consume. I.e. its inherent monetary inflation is lowest, compared to anything else. Those who collected sea shells or stones, found out that they lose value over time, and that's because they are easy to find and they are easily destroyed. Next, people started increasingly accepting gold in trade, just by their individual decision. Because of this, it made sense to try to obtain it yourself to take part in the economy. When the demand grows for gold as a monetary good, it becomes even more valuable, and therefore even more rational to save and use in trade, and at the same time demand for other types of money diminishes. At this point, the network effect is so strong that it becomes obvious to everyone that gold is money, i.e. it is the most wanted good in the market. That's also why money tends to converge into one, when there are no regional regulations or controls around money. Historically, gold has become money independently in many parts of the world. It has been money for thousands of years, and in many forms. King Croesus was probably the first who minted standard-weight gold coins, to make it easier to transact with.