The Economics of a P.O.W. Camp or What is Money?

”I do not ask that you place hands upon the tyrant to topple him over, but simply that you support him no longer; then you will behold him, like a great Colossus whose pedestal has been pulled away, fall of his own weight and break in pieces.” -Étienne de La Boétie

Fiat Currency

Do you see any flaws in the author’s argument. If not, then read the next article on the Economics of a P.O.W camp.

http://www.theatlantic.com/business/archive/2012/02/a-short-history-of-american-money-from-fur-to-fiat/252620/

What do animal pelts, tobacco, fake wampum, gold, and cotton-paper bank notes have in common? At one point or another, they’ve all stood for the same thing: U.S. currency.

IN DOLLARS WE TRUST

The dollar, meanwhile, remained the anchor currency of the world: the one ring that kinda rules them all. Other governments hold on to dollars and use them for paying debts, and in the aisles of the global supermarket of goods, most items are priced in U.S. dollars.

This is what’s so weird about commentators in the U.S. proudly declaring that the dollar is the most stable currency in the world, as if this were because of American economic policy today, when it’s really just the result of negotiations a few generations ago that made it the backbone of the whole system. The greenback is stable because the U.S. economy is huge and the United States is a terrific republic–OK. But it’s also stable because everyone else’s well-being depends on it, and on belief in its stability. That may be changing, though.

As for paper money itself, the end of the gold standard meant that cash had become a total abstraction. Its value now comes from fiat, government mandate. It’s a Latin word meaning let there be. In God we better trust.

From The End of Money: Counterfeiters, Preachers, Techies, Dreamers–and the Coming Cashless Society by David Wolman. Reprinted courtesy of Da Capo Press.

The Economics of a P.O.W. Camp

http://mindhacks.com/2008/07/06/the-economics-of-a-prisoner-of-war-camp/ and PDF article here (excellent!) http://www-rohan.sdsu.edu/~hfoad/e111su08/Radford.pdf

Commodity money is money whose value comes from a commodity out of which it is made. It is objects that have value in themselves as well as for use as money.[1]

Examples of commodities that have been used as mediums of exchange include gold, silver, copper, peppercorns, large stones (such as Rai stones), decorated belts, shells, alcohol, cigarettes, cannabis, candy, barley etc. These items were sometimes used in a metric of perceived value in conjunction to one another, in various commodity valuation or price system economies.

Commodity money is to be distinguished from representative money which is a certificate or token which can be exchanged for the underlying commodity, but only as the trade is good for that source and the product. A key feature of commodity money is that the value is directly perceived by the users of this money, who recognize the utility or beauty of the tokens as they would recognize the goods themselves. That is, the effect of holding a token for a barrel of oil must be the same economically as actually having the barrel at hand. This thinking guides the modern commodity markets, although they use a sophisticated range of financial instruments that are more than one-to-one representations of units of a given type of commodity.

Since payment by commodity generally provides a useful good, commodity money is similar to barter, but is distinguishable from it in having a single recognized unit of exchange. (Radford 1945) described the establishment of commodity money in P.O.W camps

Logic Course

To learn more about avoiding fallacious thinking* take a course in logic from an outstanding professor, David Gordon. I have taken this course–recommended for those who have never taken logic. http://academy.mises.org/courses/logic/

Baseless Assertions

The author in the first article makes an assertion without logic or evidence to back up the statement. Money doesn’t have value just because the government says it does. Obvious proof of that is the German Hyper-Inflation in the 1920s when the currency went to worthlessness. A monetary crack-up.

5 responses to “The Economics of a P.O.W. Camp or What is Money?

  1. I recall reading some time ago that Ben Graham proposed an “Ever-Normal Granary”, in which a currency was backed by a basket of commodities, like coal, grain, and soforth.

  2. Von Mises in Money and Credit on Fiat Money: Government can’t make something money! Rather it can perform some operation to set a particular subset of items apart from their peers. But community must still accept these desingate items as a common medium of exchange.

    “It can hardly be contested that fiat money in the strict sense of the word is theoretically feasible.”

    • Mohammed, I read about Graham’s idea over a decade ago. I’m not sure of the source – although I do recall that I was in a launderette at the time.

      I think Graham’s idea is that instead of being backed by gold, the dollar should be pegged against a basket of commodities. You could theoretically walk into a central bank and demand your pieces of coal and wotnot in exchange. As production of commodities rose, then the money supply could be increased to match production.

      I am now more sceptical about any asset-backed currencies. It’s not so much that I think that the flawed per se, but I think it’s an idea that will never work in practise over the long term. Look at what happened to Britain at the end of the war. They realised that they did not have enough gold reserves to back the currency in circulation. So what did they do? Simples! They took the currency off the gold standard.

      I believe that this kind of thing has happened before, and was chronicled in a famous book (The Madness of Crowds??).

      So, my contention is that it’s not that the idea of an asset-backed currently is inherently bad, but there will always be political, commercial, or just outright fraudulent imperatives that will make it fail eventually. It’s just so darned easy to print money and never mind the consequences or rules.

      Take ex-British PM’s Gordon Brown’s “golden fiscal rules” – a set of budget “rules” (like not running up budget deficits) that were ultimately abandoned when the economy turned sour.

      Humans are all too weak and fallible.

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