Why money is only an IOU

[4est_4est_Gump]

By

Underguyx:

In 250 words or less...

 

[hashtag45]

You too and your figurative biceps measuring are always entertaining to watch.. .

 

[oggbashan]

On English banknotes the Chief Cashier of the Bank of England states:

"I promise to pay the bearer on demand the sum of" (Ten Pounds or whatever sum the note is for).

That is the form of an IOU.

He/she doesn't say what Ten Pounds is worth or HOW he/she will pay.

 

[Conager]

On English banknotes the Chief Cashier of the Bank of England states:

"I promise to pay the bearer on demand the sum of" (Ten Pounds or whatever sum the note is for).

That is the form of an IOU.

He/she doesn't say what Ten Pounds is worth or HOW he/she will pay.

I don't know UK notes like I do US Notes and Federal Reserve Notes, but I bet that at one time they promised to pay in actual Sterling or Gold.

 

[Adre]

I don't know UK notes like I do US Notes and Federal Reserve Notes, but I bet that at one time they promised to pay in actual Sterling or Gold.

Funny, I never knew anyone who was able to get the metal for the paper.

 

[oggbashan]

I don't know UK notes like I do US Notes and Federal Reserve Notes, but I bet that at one time they promised to pay in actual Sterling or Gold.

They did before we went off the Gold Standard in 1931. It had been effectively suspended during WW1 and returned until 1931's depression and a run on UK sterling.

 

[oggbashan]

Funny, I never knew anyone who was able to get the metal for the paper.

Anyone could in the UK before 1931. But few did because gold was heavy. If you knew the banknote COULD be changed for gold you didn't want to.

Dorothy L Sayers story Have His Carcase published 1932 has the shortly-to-be corpse changing notes for gold coins. That wasn't possible when the book was published, but was when she wrote it.

 

[underguy1]

Money in a trading economy is created by the simultaneous creation of a credit and a debit.

Like a bank 'loan'. The bank creates a liabilty (a deposit in the borrower's credit) whilst simultaneously creating a credit in the form of the borrowers promise to pay.

New (horizontal) money.

When the government spends it creates its own liabilities ($) as assets of the private sector (reserves in the payments system).

New )vertical) money.

Simple accounting identities.

As Minsky said "Discipline your thinking with balance sheets."

 

[Conager]

Funny, I never knew anyone who was able to get the metal for the paper.

Not any more. I'd still love to get my hands on a US Gold note. I have some silver certificates.

 

[Conager]

They did before we went off the Gold Standard in 1931. It had been effectively suspended during WW1 and returned until 1931's depression and a run on UK sterling.

According to underguy that wouldn't be actual money. That's simply bartering. Money did not get invented according to him until those of his ilk convinced the uneducated population that fiat currency was just as good or in his case better.

According to him the only "real money" is accounting sleight of hand.

Apparently if you and I do business in Spanish Reales, we are not dealing in money.

 

[oggbashan]

According to underguy that wouldn't be actual money. That's simply bartering. Money did not get invented according to him until those of his ilk convinced the uneducated population that fiat currency was just as good or in his case better.

According to him the only "real money" is accounting sleight of hand.

Apparently if you and I do business in Spanish Reales, we are not dealing in money.

After the French Revolution of 1789 the French Government issued Assignats, paper banknotes, that were supposed to be backed by the property and land that the Revolutionary Government had seized from the executed and fled aristocrats.

People soon knew that the Government had sold the property to 'friends' for low prices and that the Assignats had no backing assets.

So the French Government announced in the official newspaper how many Assignats had been withdrawn from circulation and burned each week. That was an attempt to maintain the value of the banknotes.

But the French Government even lied about that. The withdrawn Assignats weren't burned. They were sold to English factory owners who used them to pay their workers. In England they had absolutely NO value but the employees could use them to pay the factory owners rent for their housing and purchase food and goods from the company store - but nowhere else!

The company store set high prices so the workers were fucked. They were paid in worthless money and could only use it where the factory owners said they could. Even then they were fleeced again.

Assignats in England were Fiat currency.

In the 21st Century there are more 18th Century Assignats in England than have survived in France. I have some.

Eventually the UK Government decided that using Assignats to pay workers was illegal. Workers had to be paid in sterling.

 

[Conager]

After the French Revolution of 1789 the French Government issued Assignats, paper banknotes, that were supposed to be backed by the property and land that the Revolutionary Government had seized from the executed and fled aristocrats.

People soon knew that the Government had sold the property to 'friends' for low prices and that the Assignats had no backing assets.

So the French Government announced in the official newspaper how many Assignats had been withdrawn from circulation and burned each week. That was an attempt to maintain the value of the banknotes.

But the French Government even lied about that. The withdrawn Assignats weren't burned. They were sold to English factory owners who used them to pay their workers. In England they had absolutely NO value but the employees could use them to pay the factory owners rent for their housing and purchase food and goods from the company store - but nowhere else!

The company store set high prices so the workers were fucked. They were paid in worthless money and could only use it where the factory owners said they could. Even then they were fleeced again.

Assignats in England were Fiat currency.

In the 21st Century there are more 18th Century Assignats in England than have survived in France. I have some.

Eventually the UK Government decided that using Assignats to pay workers was illegal. Workers had to be paid in sterling.

Fascinating. Someone should use retired Iraqi denars as script somewhere. They're beautiful looking notes. Well except for saddam's face but the actual printing is pretty good.


All the little mining towns in Arizona have a mercantile that was owned by whatever company ran that mine. They often own all the houses in town as well. Miners were paid in script and script was redeemable at the Mercantile. Rent was taken right out of your check. This was still true for me just a few years ago but it was a heck of a bargain- three-bedroom little block house for $210 a month.

At one time, rent ate a huge portion of the miners' salary, but as salaries rose, and companies practices came under scrutiny, they just simply quit raising the rent. By the time I left they were finally starting to raise the rents to about half of what the market rent should be.

 

[4est_4est_Gump]

You too and your figurative biceps measuring are always entertaining to watch.. .

There's a difference in measuring dick length.

His degree is in subjective measurement, i.e., social studies.

Mine are in objective measurement, i.e. subjects where there are only true and false...

 

[4est_4est_Gump]

On English banknotes the Chief Cashier of the Bank of England states:

"I promise to pay the bearer on demand the sum of" (Ten Pounds or whatever sum the note is for).

That is the form of an IOU.

He/she doesn't say what Ten Pounds is worth or HOW he/she will pay.

Tai hau le!

You get to the nut of the kernel.

Or is that kernel of the nut?

 

[oggbashan]

All the little mining towns in Arizona have a Mercantile that was owned by whatever company ran that mine they often on all the houses in town as well workers were paid in script and script was redeemable at the Mercantile. Rent was taken right out of your check. This was still true for me just a few years ago but it was a heck of a bargain three-bedroom little block house for $210 a month. at one time rent it up a huge portion of the miners salary but as salaries rose and companies practices came under scrutiny they just simply quit raising the rent. By the time I left they were finally starting to raise the rents to about half of what the market rent should be.

The difference is that it was 'redeemable'. Assignats weren't. They couldn't be converted into anything else.

Two examples of Fiat currency:

1. 1920s Weimar Germany.

The hyperinflation of the 1920s made the German Mark effectively worthless. The German Government issued notes in higher and higher denominations but they were just waste paper within a week of issue. German cities and towns started issuing their own banknotes based on rental income but those notes too became worthless. I have 1920s German Government banknotes for Millions of Marks, then Milliardes (1,000 Million) and a town's banknote for a Billion Marks. That's a European Billion = A Million Millions.

2. D-Day Normandy

The Allied Armies that landed in Normandy in 1944 needed to buy goods and services from the French. They printed their own banknotes in French Francs with the legend (in French) "Printed in France" - which they weren't. They brought the banknotes with them. But US and British Army Pay Corps would exchange those "Freedom Francs" for French Francs or US Dollars or British Pounds so they were redeemable.

 

[4est_4est_Gump]

Ogg, you're on fire!



It's like you really do have an economics degree...

 

[4est_4est_Gump]

Money in a trading economy is created by the simultaneous creation of a credit and a debit.

Like a bank 'loan'. The bank creates a liabilty (a deposit in the borrower's credit) whilst simultaneously creating a credit in the form of the borrowers promise to pay.

New (horizontal) money.

When the government spends it creates its own liabilities ($) as assets of the private sector (reserves in the payments system).

New )vertical) money.

Simple accounting identities.

As Minsky said "Discipline your thinking with balance sheets."

No it is not.

It is an exchange of goods or services.

Money is a substitute/fungible 'commodity.'

It is a substitute for chickens, potatoes, milk, tea and nothing more.

All of that came well before accounting as you describe it and government as you wish it, "the sole possessor of money."

When government spends what it has not taken by force of gun from the populace in their behalf, it is called inflation. Inflation never works out for anyone but the government and its attached elite. They profit. Everyone else is awarded higher prices for goods and services with less access to the newly minted "wealth."

 

[NOIRTRASH]

Anything can be money, and moneys utility is its easy transport.

 

[oggbashan]

Anything can be money, and moneys utility is its easy transport.

It is a lot easier to pay a Bride's Dowry in money instead of cows.

 

[4est_4est_Gump]

Anything can be money, and moneys utility is its easy transport.

No!

Damnit!

Aren't you keeping up?

Money is created by government accounting!!!

 

[4est_4est_Gump]

It is a lot easier to pay a Bride's Dowry in money instead of cows.

But, considering fiat money, if I had the opportunity, I would demand the cows...



Steak seems to hold its value.

 

[Liar]

It is a lot easier to pay a Bride's Dowry in money instead of cows.

And these days, money is easier to milk.

 

[oggbashan]

But, considering fiat money, if I had the opportunity, I would demand the cows...



Steak seems to hold its value.

But you wouldn't want to eat meat from the cows living in the countries that use cows as dowry. Even there, they use 'virtual' cows instead of transferring real ones.

Back in the 1980s and 1990s because of an anomaly in EU rules on subsidies and exports there was profit to be made in Ireland from exporting pigs from Northern Ireland into the Republic of Ireland. There was more money from a different EU fund for bringing the pigs back again.

So Ulster/Irish pigs were constantly on the move across the open border. Once the appropriate paperwork had been filed, the pigs would move back across the border again. Farmers on both sides of the border were making more money than they would get by selling the pigs.

Eventually they got tired of loading and unloading the pigs so they just transferred the paperwork and still got the money.

The shit hit the fan when farmers who didn't own ANY pigs tried to profit from the scheme.

 

[4est_4est_Gump]

True, but there was still a cow(s) backing the dowry of the 'cow.'

But here's the thing underwear cannot and will not explain...

If government can print the money it needs to spend as long as it is balanced on the books (against a debt that it will never have to repay, because it is a debt to itself), then why the hell do we have to give it back in the form of taxes and why the hell do we sell government bonds and pay interest on them?

Once an economy is not based on gold, cows or any other commodity, then any crises in government becomes a crises in money. Those like underwear have never lived through the crash of one, or the other and never understood that the basis of economy is not accounting, but physical goods...

... I grew up around people who suffered from government money printing and its collapse.

 

[oggbashan]

...

Once an economy is not based on gold, cows or any other commodity, then any crises in government becomes a crises in money. Those, like underwear have never lived through the crash of one, or the other and never understood that the basis of economy is not accounting, but physical goods...

Largely a country's currency is based on that country's GDP (Gross Domestic Product) which includes goods and services.

The UK's GDP is about twice that of Putin's Russia. That makes the UK pound worth more than the Rouble.

US Dollars are different because it is a trading currency. Although the US's GDP is large, the use of dollars for trading between countries makes the US dollar partly independent from the US GDP. If I (a country) want to buy oil, I have to use US dollars even if my country and the country selling me the oil use different national currencies.

That is also true to a lesser extent for the UK Pound and the Euro. They too are trading currencies.