It’s oddly obvious what creates the real value of money. People get confused, about it because it seems hard to connect logical theories with how the real world works. It’s the real world that gives our theories whatever reality, relevance and meaning they have, of course. The real value of money is as a unit of credit, for a share of anything the whole economy can do in exchange for money. It makes money a direct measure of what people want and the whole economic system and its networks of parts can do for them, its real value.
Below are two related comments from the Systems Thinking World “Where does the Money Go” conversations. They focus on why the value of money goes bad, and why that’s NOT that the money supply expands with expanding credit in the economy. The real problem is the viral process of multiplying bets allowed, a different feedback loop.
For further discussion of this natural systems view of how the money economy works, and why it fails, see the reference page “Concept$.htm” and the Natural Economy posts here. The classic failure of the money system occurs as permitted viral circles of betting demand unreal growing returns from the rest of the economy. That “betting economy” drains credit from the “productive economy” and the “grants economy” (aka the “Love Economy”) it supports, the original economy in which people use what they have for purposes other than money.
1) On STW 11/7/12
Duane – You pointed out that a very early use of money was cowrie shells. I think earlier evidence of money use were notches on sticks and wedge marks in clay, accounting for natural units and credits for them. But the questions remains, what is the actual seat of their value?? No artifact has a value without a use of value in relation to other uses of things, right?
So how do you then define what gives monetary markers value, if both the marker and the things of value themselves, have no independent defining characteristic making them valuable at all? Don’t they seem to only have value in relation to their how they are used in a whole system of other things of value?
My experience is that simple observation is one that is not considered in the discussion of fiat currency as a problem. I’ve looked at dozens of popular books and blogs on the subject. That question is missing from every one as far as I can tell. The whole question of money may then really be about whether the plastic-coins-paper-shells-notches, whatever, offers “good credit”, as a promise for one equal share of anything the economy produces. That makes money’s seat of value the whole economy’s ability to provide value, its organic capital, right? Doesn’t that also mean that money, in any form, is itself credit, too?
The question is then how the goods of society can continue to have value in exchange for each other, to maintain the value of one equal share, so the society doesn’t default on its debts. On way to try to do that is to base your prosperity on consuming your resources ever faster till their prices go through the roof, and masses of people become unable to produce value and are left to languish or starve, like today. That shows one of many ways the money problem and the economy are connected with the environment. Stabilizing a self-defeating system gives illusory value until it defeats itself…
That link to my work on it, again, is: http://synapse9.com/issues/concept$.htm
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2) On STW 11/9/12
Gene – The core question on STW seems to keep drifting back to “what is money in the first place” and “why does it seems to have no inherent value”. Non-intellectuals would, of course, just screw up their noses and say “what???” knowing perfectly well that money is pretty reliably exchanged for things of mostly equal value.
They see money is a *token of exchange* because that is the operational meaning, and the conceptual meaning doesn’t matter. If you leave out the word “of” is when money becomes valueless. So the same with austerity/prosperity. It could have little to do with your units of measure, but what (of value) you can do with them.
Duane pointed out that a very early use of money was cowrie shells. I think earlier evidence of money use were notches on sticks and wedge marks in clay, accounting for natural units and credits for them. But the questions remains, what is the actual seat of their value?? No artifact has a value without a valued use in relation to other uses of things, right? So, it seems there must be networks of related uses of artifacts for either money or an artifact to have any value. That means that value derives in relation to a whole system of other things of value.
That elementally simple observation is generally missing from the discussions of fiat currency as a problem. I’ve even looked at dozens of popular books and blogs on the subject, and argued for years with other groups about it. People tend to keep arguing and arguing in abstractions, over things that are rather easily answered by the reality being referred to.
The whole question of money/value/austerity/prosperity could just be about whether the bites-cards-coins-paper-shells-notches, whatever, offer “good credit”, as a promise for one equal share of what the economy produces. Reality gives you that simple answer. The seat of value for money has to be the whole economy’s ability to provide value, its organic capital.
That dramatically changes the questions being asked, to something real too, doesn’t it? It also says, I think, that money in any form is itself inherently a form of credit too, right? The question is then how the goods of society can continue to have value in exchange for each other, to maintain the true value of one marker as an equal share of the whole, so the real economy doesn’t default on its credits.
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JLH