Like you, I cannot see how the present system can be successfully defended, considering how many problems currencies have had in the past decades. Often a currency seems to be on a tight rope, in danger of falling off on one side or the other.
As you pointed out, the values of currencies, including the dollar, have eroded over many decades. We use them because they're there, so the system remains because we are lazy or ignorant. Meantime, we are being robbed by what is little more than an additional undisclosed tax.
The problem is always the same in any discussion of money. The two functions generally attributed to money are in conflict with each other. Gold or some other commodity can be an excellent yardstick for a currency to relate to. In other words, gold can be an excellent measure of value, but not a good medium of exchange.
Using bits of paper is a much more convenient and useful way to buy and sell. In fact Gresham always is present. If you had pieces of gold and pieces of paper in your pocket, you will keep the gold and get rid of the paper. However, those bits of paper aren't so good as a measure for the reason above. There values can easily change, either incidentally, or by deliberate political action.
Most of the purchasing nowadays is done with checks, credit card slips, and other pieces of paper. They are now the exchange medium of choice, so properly can be called money. However, economists wriggle out of this by calling them substitute money. Yet, they don't change their definitions, which specifically say money is a medium of exchange.
Economists tend to take disparate things, throw them in a bowl, give the mixture a good stir, then try (a trifle desperately) to make something of the result.
Yet, what can be done?
Harry
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Henry George School of Social Science
of Los Angeles
Box 655 Tujunga
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From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On Behalf Of Keith Hudson
Sent: Saturday, November 22, 2003 5:46 AM
To: Ed Weick
Cc: [EMAIL PROTECTED]
Subject: Slightly extended (was Re: [Futurework] David Ricardo, Caveman Trade vs. Modern Trade
I'm a bit non-plussed by your answer, I'm afraid. Let me try again -- see below. (This is slightly extended from the one I sent you and forgot to copy to FW.)
At 07:13 22/11/2003 -0500, you wrote:
Keith:
> Today, currency has no value, except as much as the confidence that people have in
> their respective governments to maintain printing to sensible quantities.
> Exchange rates and trade balances are thus now complicated by all sorts of
> political factors besides trade. Hence we have currency speculators (rather
> than the more benign currency arbitragers.)
I know we've been over this again and again and again, but I guess we need one more round. How can you say currency has no value when it very clearly has value against other currencies, which is why we have speculators, and against all goods and services, which is why my local grocer will give me something for it? Like everything else, its value changes, but value is there. Your real complaint may be that value has become much too fluid, that you can't count on something having the same value tomorrow as it has today, and that this buggers up all kinds of transactions. This can be worked on (and central banks do work on it) without reverting to something as archaic and inherently unworkable as the gold standard.
If people have confidence in government (as they generally did at the turn of the last century) then they'll accept their government's word that the un-backed pound is the same pound as it was a fortnight previously when it was backed by gold. And once by far the greatest economic power in the world (as the UK was at that time) had done so, then foreign investors and traders would also have confidence and other governments followed suit. And that's what's happened ever since -- unless one individual government or another plays hanky-panky with its economy (e.g. Argentina, the fourth most prosperous country in the world 100 years ago), and its currency takes a nose dive in comparison with others.
We've also had this out before. Yes, gold was patently insufficient as a practical money-in-your-pocket currency by around 1870 'cos there wasn't enough of it physically. In its place, a paper currency is perfectly practicable for day-to-day transactions -- so long as it was transferable into real value (e.g. gold) if necessary. When it's not transferable into value then it's at the mercy of governmental policies.
Despite the ups and downs of finding new resources such as gold or platinum which had effects on the valoue of currency, money has never inflated as much as paper-only currencies have in the last half century. Even when the Spanish brought heaps of South American gold into Europe in the 17th century money only inflated about two-fold -- in the 1970s, when all our paper currencies inflated 24-fold! (This is ignoring bouts of hyper-inflation which individual countries can bring on themselves.)
I think we're probably gradually proceeding towards a world-wide currency -- namely the US$. The quicker we get there the better because there'll be no currency fluctuations and if there's inflation or deflation then the currencies of all countries go up and down in step. In effect, we'll be in a similar siutation to when we had a gold-backed currency. (This is not to say that inflation or deflation won't still remain important -- they still will be -- but one major factor of international stress will be eliminated.)
Keith
Keith Hudson, Bath, England, <www.evolutionary-economics.org>
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