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I raise chickens. You make websites. You want ten of my chickens. We agree that, in exchange, you will make me a website for my chicken farm. Then, you want t

by tjr 13y ago

I raise chickens. You make websites. You want ten of my chickens. We agree that, in exchange, you will make me a website for my chicken farm. Then, you want ten more chickens. But I don't need any more websites. However, you have a friend who knits llama wool scarves, and needs a website. You make your friend a website; your friend gives you five llama wool scarves; you give me the five llama wool scarves and I give you ten more chickens. When you want yet ten more chickens, you introduce me to your friend who grows corn. I wouldn't mind some corn, but the harvest hasn't come in yet, and I'd need to wait a few months. You want the chickens now. So you build a website for your corn farmer friend, who gives you an "I owe you" certificate for the corn. You give me the certificate, and I give you ten chickens. A few months later, I present the certificate to your corn farmer friend, who gives me the corn. Eventually this becomes a pain to keep track of, and it becomes increasingly difficult to arrange personal connections with people who need chickens or llama wool scarves or corn or websites. Money lets us exchange goods and services in the abstract. I give you ten chickens, and you give me money, which everyone else will also accept in exchange for goods and services. I can go across town and find somebody you don't know at all and buy a camera from them with the money you gave me for the chickens.

seoguru 13y ago
The theory of a barter economy as the origin of money has been debunked by David Graeber: https://www.youtube.com/watch?v=CZIINXhGDcs https://www.youtube.com/watch?v=CZIINXhGDcs (I find his talk fascinating). He gets into what money is around minute 19. Whether you buy his arguments or not, modern money works like this: The state requires payment of currency (fees, fines, taxes, etc), the state spends currency (of course it must spend it before it can ever collect it). The money derives its value via the demand for it from the soverign. I like this analogy that Warren Mosler uses in his "Seven Deadly Innocent Frauds of Economic Policy": http://goo.gl/mOj5no http://goo.gl/mOj5no The story begins with parents creating coupons they then use to pay their children for doing various household chores. Additionally, to “drive the model,” the parents require the children to pay them a tax of 10 coupons a week to avoid punishment. This closely replicates taxation in the real economy, where we have to pay our taxes or face penalties. The coupons are now the new household currency. Think of the parents as “spending” these coupons to purchase “services” (chores) from their children. With this new household currency, the parents, like the federal government, are now the issuer of their own currency. And now you can see how a household with its own currency is indeed very much like a government with its own currency. Let’s begin by asking some questions about how this new household currency works. Do the parents have to somehow get coupons from their children before they can pay their coupons to their children to do chores? Of course not! In fact, the parents must first spend their coupons by paying their children to do household chores, to be able to collect the payment of 10 coupons a week from their children. How else can the children get the coupons they owe to their parents? [...]
roymurdock 13y ago
What would your response be if I posited that money is memory? That money is a token that represents ("in the abstract") the memory of an exchange for goods and services? It is this memory that allows me to buy a camera from someone who doesn't know me. She knows that I earned the money somehow by giving something of value away to another member of society. Would this be harder or easier to explain to a 3rd grader, and do you think this explanation has merits?
- tjr 13y ago
  That's interesting. I suppose it's true; the money, be it in the form of paper bills or numbers in an account or whatever, is simply a record. If we all had perfect memory and perfect trust in each other, we could operate based solely on recalling the amounts credited to us. Is that what you're getting at? While perhaps a fine extension of the train of thought, I personally find that hard to think about, I suppose because, in practice, dealing in terms of memory money would be harder than exchanging documents, and the advantages of using money rather than direct bartering and trading become less clear.

by tjr 13y ago

seoguru 13y ago

The theory of a barter economy as the origin of money has been debunked by David Graeber: https://www.youtube.com/watch?v=CZIINXhGDcs https://www.youtube.com/watch?v=CZIINXhGDcs (I find his talk fascinating). He gets into what money is around minute 19. Whether you buy his arguments or not, modern money works like this: The state requires payment of currency (fees, fines, taxes, etc), the state spends currency (of course it must spend it before it can ever collect it). The money derives its value via the demand for it from the soverign. I like this analogy that Warren Mosler uses in his "Seven Deadly Innocent Frauds of Economic Policy": http://goo.gl/mOj5no http://goo.gl/mOj5no The story begins with parents creating coupons they then use to pay their children for doing various household chores. Additionally, to “drive the model,” the parents require the children to pay them a tax of 10 coupons a week to avoid punishment. This closely replicates taxation in the real economy, where we have to pay our taxes or face penalties. The coupons are now the new household currency. Think of the parents as “spending” these coupons to purchase “services” (chores) from their children. With this new household currency, the parents, like the federal government, are now the issuer of their own currency. And now you can see how a household with its own currency is indeed very much like a government with its own currency. Let’s begin by asking some questions about how this new household currency works. Do the parents have to somehow get coupons from their children before they can pay their coupons to their children to do chores? Of course not! In fact, the parents must first spend their coupons by paying their children to do household chores, to be able to collect the payment of 10 coupons a week from their children. How else can the children get the coupons they owe to their parents? [...]

roymurdock 13y ago

What would your response be if I posited that money is memory? That money is a token that represents ("in the abstract") the memory of an exchange for goods and services? It is this memory that allows me to buy a camera from someone who doesn't know me. She knows that I earned the money somehow by giving something of value away to another member of society. Would this be harder or easier to explain to a 3rd grader, and do you think this explanation has merits?

tjr 13y ago
That's interesting. I suppose it's true; the money, be it in the form of paper bills or numbers in an account or whatever, is simply a record. If we all had perfect memory and perfect trust in each other, we could operate based solely on recalling the amounts credited to us. Is that what you're getting at? While perhaps a fine extension of the train of thought, I personally find that hard to think about, I suppose because, in practice, dealing in terms of memory money would be harder than exchanging documents, and the advantages of using money rather than direct bartering and trading become less clear.