5 ms·

All economy is fragile because it is based on perception. The value of a company, of an asset, security, labor, whatever is completely subjective. Yes frequent

All economy is fragile because it is based on perception. The value of a company, of an asset, security, labor, whatever is completely subjective. Yes frequently valuations sound realistic because some people have gambled a ton of money on them (e.g. Tesla is Trillion Dollar Company, or a software engineer’s labor is worth 10 times the labor of a teacher ), but at the end of the day it’s a completely arbitrary valuation. I am really surprised that the system works at all.

User23 4y ago
The value of fiat is subjective until the IRS knocks at your door and then suddenly it has the very objective value of keeping you out of prison. Taxes drive money.
- eru 4y ago
  That's only a small portion. Perhaps a bootstrap at most. Most of the value comes from network effects.
  - imtringued 4y ago
    And those network effects can be marketed in the form of a liquidity premium which is paid to the saboteurs of the money system in the form of an artificially high interest rate and now we have invented capitalism...
    - eru 4y ago
      Saboteurs?
chrispeel 4y ago
It's imagination and turtles all the way down. Welcome to humanity
worik 4y ago
> All economy is fragile because it is based on perception. There are several ways of looking at it. Rather than "based on perception" I prefer "based on relationships" The economy is a network of relationships concerning material goods and services (is one definition). One of the mistakes a lot of dry economists make is to forget that. As Maggie (in)famously said: "There is no such thing as society there, are just individuals". Wrong This was illustrated in the Asian Financial Crises in the late '90s. Thailand and Malaysia were badly effected. Thailand, that has hardly been colonised, did better than Malaysia (according to Joe Stiglitz) because the ancient communal ties still existed and people, hence the economy, could fall back on them when the money system collapsed. In Malaysia those ties had been broken by colonisation and there was more misery.
jrm4 4y ago
Why? That's all money ever was. Gotta remember, money literally has never been objectively anything. It feels like it should be because there are numbers involved, but it's always been wildly subjective.
- brutusborn 4y ago
  Many societies used money with inherent value, maybe even most societies. Are gold and silver objectively nothing? Sure, high trust societies used IOUs successfully, but modern society is not high trust so we have traditionally used things with inherent value for trade, and any IOU-based money needs to be ultra-regulated to function well (which always ends in failure). Notice how people escaping a collapsing country can always spend their saved gold, but as soon as society has a crisis, hyperinflation destroys fiat currency. That’s because the first case is a currency with inherent value, and the other is an IOU from a society that doesn’t exist anymore. Thinking all money has never been objectively anything is a mistake.
  - awesome_dude 4y ago
    Gold, especially, only has one valuable property, which is why I believe it was used as a representative "money" - it's an inert metal. It doesn't degrade, ever, not for thousands of years. The amount of gold in a blob can change/be diluted, but touchstones revolutionised that - people could easily discover what the percentage of real gold was in a given blob. We haven't used gold for currency in centuries, because it's not actually very good as a currency. Why not? Because the amount of gold in circulation doesn't reflect the size of the economy. It's value sharply drops when a new discovery is made. And it's value tracks upwards between discoveries because the economies are growing (when economies collapse the local value of the gold drops too)
    - eru 4y ago
      Your understanding of the classic gold standard is flawed. First, in the long run the value of gold had been rather stable. That's because the supply of gold isn't random: it takes effort to mine gold. If the gold price is higher than usual for a longer time, people will put more effort into mining. (More formally: even more marginal mines will be worked.) Similar for periods of low gold prices. Of course, these adjustments happen over long time periods only. Second, in anything but a very naive gold standard the amount of gold in circulation doesn't need to reflect the size of the economy. At least not directly. Gold was mostly a unit of account, but people seldom exchanged physical gold coins. Which fractional reserve banking, there's no simple relation between the amount of money in an economy and the amount of gold, even if every note is redeemable in gold on demand. During its free banking era, Scotland was famous for having both a very strong and stable banking sector (one of the reasons it manage to mostly catch up with the England during the Industrial Revolution), and also scarcely any gold in the country. In Scotland during that time, typical banks held about 2% of their as assets as gold reserves, the rest was invested in the real economy. However, they also had much thicker equity cushions than was is common today: about 30% instead of 8%. That's equivalent to saying that Scottish banks were much less leveraged.
abigail95 4y ago
If it were arbitrary, it would be random. It's not, you can build a consistent model that applies to a microbusiness as well as it applies to Tesla. Should a farm that can feed 100 people be worth more than one that can feed 20? That's not an arbitrary distinction. How about a farm that will feed 100 people in 10 years vs one that feeds 100 now but is eroding? Also software engineering is only 1.4x teaching.
deleted 4y ago
[deleted]
hsn915 4y ago
> I am really surprised that the system works at all. I hold the same view, but IMO it's proof that we don't actually understand how the system works. Whatever mental model of it we're holding is probably a mere caricature of the actual thing. If it wasn't, we'd understand exactly how and why it works, and we'd be able to take advantage of it. Just like the philosophers/nerds who are not successful with women and often punt that women are a mystery.
- isitmadeofglass 4y ago
  [dead]
dools 4y ago
> All economy is fragile because it is based on perception. Not really, it’s based on laws, specifically taxation.
- bradwood 4y ago
  Taxation is what defines fiscal policy, which is only half the story. You need to take both fiscal and monetary policy into account to get a full picture of the economy as a whole.
yxhuvud 4y ago
Everything you say about the economy can also be said about the civil society as a whole.

User23 4y ago

The value of fiat is subjective until the IRS knocks at your door and then suddenly it has the very objective value of keeping you out of prison. Taxes drive money.

eru 4y ago
That's only a small portion. Perhaps a bootstrap at most. Most of the value comes from network effects.
- imtringued 4y ago
  And those network effects can be marketed in the form of a liquidity premium which is paid to the saboteurs of the money system in the form of an artificially high interest rate and now we have invented capitalism...
  - eru 4y ago
    Saboteurs?

chrispeel 4y ago

It's imagination and turtles all the way down. Welcome to humanity

worik 4y ago

> All economy is fragile because it is based on perception. There are several ways of looking at it. Rather than "based on perception" I prefer "based on relationships" The economy is a network of relationships concerning material goods and services (is one definition). One of the mistakes a lot of dry economists make is to forget that. As Maggie (in)famously said: "There is no such thing as society there, are just individuals". Wrong This was illustrated in the Asian Financial Crises in the late '90s. Thailand and Malaysia were badly effected. Thailand, that has hardly been colonised, did better than Malaysia (according to Joe Stiglitz) because the ancient communal ties still existed and people, hence the economy, could fall back on them when the money system collapsed. In Malaysia those ties had been broken by colonisation and there was more misery.

jrm4 4y ago

Why? That's all money ever was. Gotta remember, money literally has never been objectively anything. It feels like it should be because there are numbers involved, but it's always been wildly subjective.

brutusborn 4y ago
Many societies used money with inherent value, maybe even most societies. Are gold and silver objectively nothing? Sure, high trust societies used IOUs successfully, but modern society is not high trust so we have traditionally used things with inherent value for trade, and any IOU-based money needs to be ultra-regulated to function well (which always ends in failure). Notice how people escaping a collapsing country can always spend their saved gold, but as soon as society has a crisis, hyperinflation destroys fiat currency. That’s because the first case is a currency with inherent value, and the other is an IOU from a society that doesn’t exist anymore. Thinking all money has never been objectively anything is a mistake.
- awesome_dude 4y ago
  Gold, especially, only has one valuable property, which is why I believe it was used as a representative "money" - it's an inert metal. It doesn't degrade, ever, not for thousands of years. The amount of gold in a blob can change/be diluted, but touchstones revolutionised that - people could easily discover what the percentage of real gold was in a given blob. We haven't used gold for currency in centuries, because it's not actually very good as a currency. Why not? Because the amount of gold in circulation doesn't reflect the size of the economy. It's value sharply drops when a new discovery is made. And it's value tracks upwards between discoveries because the economies are growing (when economies collapse the local value of the gold drops too)
  - eru 4y ago
    Your understanding of the classic gold standard is flawed. First, in the long run the value of gold had been rather stable. That's because the supply of gold isn't random: it takes effort to mine gold. If the gold price is higher than usual for a longer time, people will put more effort into mining. (More formally: even more marginal mines will be worked.) Similar for periods of low gold prices. Of course, these adjustments happen over long time periods only. Second, in anything but a very naive gold standard the amount of gold in circulation doesn't need to reflect the size of the economy. At least not directly. Gold was mostly a unit of account, but people seldom exchanged physical gold coins. Which fractional reserve banking, there's no simple relation between the amount of money in an economy and the amount of gold, even if every note is redeemable in gold on demand. During its free banking era, Scotland was famous for having both a very strong and stable banking sector (one of the reasons it manage to mostly catch up with the England during the Industrial Revolution), and also scarcely any gold in the country. In Scotland during that time, typical banks held about 2% of their as assets as gold reserves, the rest was invested in the real economy. However, they also had much thicker equity cushions than was is common today: about 30% instead of 8%. That's equivalent to saying that Scottish banks were much less leveraged.

abigail95 4y ago

If it were arbitrary, it would be random. It's not, you can build a consistent model that applies to a microbusiness as well as it applies to Tesla. Should a farm that can feed 100 people be worth more than one that can feed 20? That's not an arbitrary distinction. How about a farm that will feed 100 people in 10 years vs one that feeds 100 now but is eroding? Also software engineering is only 1.4x teaching.

deleted 4y ago

[deleted]

hsn915 4y ago

> I am really surprised that the system works at all. I hold the same view, but IMO it's proof that we don't actually understand how the system works. Whatever mental model of it we're holding is probably a mere caricature of the actual thing. If it wasn't, we'd understand exactly how and why it works, and we'd be able to take advantage of it. Just like the philosophers/nerds who are not successful with women and often punt that women are a mystery.

isitmadeofglass 4y ago
[dead]

dools 4y ago

> All economy is fragile because it is based on perception. Not really, it’s based on laws, specifically taxation.

bradwood 4y ago
Taxation is what defines fiscal policy, which is only half the story. You need to take both fiscal and monetary policy into account to get a full picture of the economy as a whole.

yxhuvud 4y ago

Everything you say about the economy can also be said about the civil society as a whole.