Which currency system do you think is best?

[Zygote]

If you want more info about the options just ask.

[Case Closed]

I voted free market money but I am by no means an expert in this area. I would like to look into more information about fiat money controlled by a computer structure.

[DcifrThs]

i haven't voted yet.

i think 3 may be the best option if it started from scratch. in "Money Mischeif" by Milton Freidman, he tells of the island of somethingorother somehwere. on this island, the wealth of the individuals was linked to large stones that had to be mined, shaped, and carried to a location.

the faith in this system was so strong that the richest person didn't even have possesion of his wealth. it was simply believed to be at the bottom of the ocean since it was so large it sunk the boat that attempted to carry it back to his home.

but the mere rumor of its existance was enough to grant him food, land, etc. since it was believed that the big stone wheel did in fact exist.

the problem w/ # is that we've been exposed to one type of money and that generating that type of faith in something new would be very difficult. i think that it would probably be ideal but impossible to move to now.

gold on the other hand, as worded in the first option, is another impossibility as has been proven in the past. governemtns cannot operate a gold standard without intervention in times of trouble. it has occurred in the past but always ends in disruption. the govt has such incentive to move the money supply that it will not stay locked to the production increases in gold.

additionally, a money supply linked to the production of the commodity, seems like would limit the productive capacity of an economy to the production of that commodity. a basket of commodities imo would have strange effects since some of the basket would be weighted differently than other commodities due to their availability/relative abundance.

typically, you could expect though that a well administered faithful single commodity based monetary system with known reserves and a predictable production capacity that can increase steadily around a band would be ideal. in that way, the money supply could increase at about the rate of growth of the economy.

the problem, again, is that some producers have huge incentives to overproduce and thus increase the money supply, so the govt or an over-arching authority would have to take control of the productive capacity for that commodity/basket of commodities.

so the question you asked is very difficult to answer. and the answer i'd give depends very sensitively on how it is worded.

if you ask "starting from scratch, which would be best"

i'd say the free market monetary system.

if you ask "given where we are now, which would be best"

i'd actually say the fiat monetary system. the reason is because faith in this system is so strong overall and the administration of it has widespread support.

to switch to a gold standard now would entail the govt taking control of all production and that would only be in the US. china and tons of other metals producers could influence the US monetary system as could importers. the world (productively speaking) would have to agree to a system of controls on production.

to switch to a free market system now would also be very difficult for faith and similar reasons as discussed above.

i'm much more comfortable w/ my answer to the question regarding "starting from scratch" than i am w/ my answer to the question "given where we are now."

aka, i'm open to disucssion on the vote for fiat system we have now and how to overcome the huge obstacles to a switch.

thoughts?

Barron

[DcifrThs]

[ QUOTE ]
I voted free market money but I am by no means an expert in this area. I would like to look into more information about fiat money controlled by a computer structure.

[/ QUOTE ]

look up "Taylor Rule"

i think that is the algorithm by which the computer would operate.

Barron

[GoodCallYouWin]

I think it might be Rothbard's 'The Mystery of Banking' in which he lays out the arguments for free banking and how it would necessarily result in 100% reserve standard (because as individual banks gave out notes they would quickly get redeemed by other banks, so any bank which used less than a 100% reserve standard would be broke fast). So that's what I'm for, the currency developed in a free banking system - 100% reserve gold standard undoubtably.

[Zygote]

[ QUOTE ]
the faith in this system was so strong that the richest person didn't even have possesion of his wealth. it was simply believed to be at the bottom of the ocean since it was so large it sunk the boat that attempted to carry it back to his home.

but the mere rumor of its existance was enough to grant him food, land, etc. since it was believed that the big stone wheel did in fact exist.

the problem w/ # is that we've been exposed to one type of money and that generating that type of faith in something new would be very difficult. i think that it would probably be ideal but impossible to move to now.

[/ QUOTE ]

I dont really see how this example explains much. He seems to be thinking money is some abstract psychology. This is not the case. The ability to redeem is very important. Gold would never have been dug out the ground for monetary purposes if that wasn't the case.

I also i disagree with the idea that switching entails massive costs. Society is much more maleable than you give credit for. We have seen many examples of industries in society move from socialist to private with nothing but success. We've also seen things in the other direction in that governments will change from gold standard to fiat money by the whim of a pen or design other odd structures and just impose them the next day.

IMO, with the entrepreneurial window open and the freedom of consumers and producers unveiled, on top of the necessity of maiting the division of labor and the vast economy, society will quickly adpot and continually improve on a monetary system.

[ QUOTE ]
gold on the other hand, as worded in the first option, is another impossibility as has been proven in the past. governemtns cannot operate a gold standard without intervention in times of trouble. it has occurred in the past but always ends in disruption. the govt has such incentive to move the money supply that it will not stay locked to the production increases in gold

[/ QUOTE ]

i agree

[ QUOTE ]
typically, you could expect though that a well administered faithful single commodity based monetary system with known reserves and a predictable production capacity that can increase steadily around a band would be ideal. in that way, the money supply could increase at about the rate of growth of the economy

[/ QUOTE ]

I dont like the way that last sentence is phrased. The money supply does not need to grow at all. As the demand for money rises the value of money rises which is all that is necessary. Since you said predictable though the market will make the necessary adjustments and this shouldnt be a problem.

[ QUOTE ]
additionally, a money supply linked to the production of the commodity, seems like would limit the productive capacity of an economy to the production of that commodity. a basket of commodities imo would have strange effects since some of the basket would be weighted differently than other commodities due to their availability/relative abundance.

[/ QUOTE ]

I dont see why your first sentence is true.

The different weightings are meant to provide a less volatile purchasing power for each monetary unit. The main basis of the system is the idea that surplus commodities represent societal wealth. Societal surpluses should be the basis of money by Graham's idea.

[ QUOTE ]
to switch to a gold standard now would entail the govt taking control of all production and that would only be in the US. china and tons of other metals producers could influence the US monetary system as could importers. the world (productively speaking) would have to agree to a system of controls on production

[/ QUOTE ]

aside from the governments having their hands tied i dont see this as so bad.

[DcifrThs]

i'd like to talk about this for a second:

[ QUOTE ]
I dont like the way that last sentence is phrased. The money supply does not need to grow at all. As the demand for money rises the value of money rises which is all that is necessary. Since you said predictable though the market will make the necessary adjustments and this shouldnt be a problem.

[/ QUOTE ]

why do you think the money supply does not need to grow? i guess in the sense that the economy doesn't "need" to grow at a certain rate, but i think it is best htat the economy grow as best it can within certain bounds. if the price of money rises as demand for it rises, the marginal use of it will fall and the economy will not grow as it would had the money supply increased by the rate of growth of the economy (about the "band" i was talking about).

imo the money supply SHOULD grow at the rate of growth of the economy.

Barron

[Moseley]

"The money supply does not need to grow at all. As the demand for money rises the value of money rises which is all that is necessary."

Even if the whole world had one currency, I don't see how this can be correct (probably because I'm not educated on economics) because, in my view, China, with a trade surplus of over 20 billion a month, would eventually have all the money.

That an extreme statement, as once consumers see they are on a dead end economic street, they'll start producing in their own country. Now that sounds like a win situation for the working class.

[Moseley]

"imo the money supply SHOULD grow at the rate of growth of the economy"

But at a much slower rate than the growth of the economy, since so much of that money is spent on foreign goods....right?

[Zygote]

[ QUOTE ]
why do you think the money supply does not need to grow? i guess in the sense that the economy doesn't "need" to grow at a certain rate, but i think it is best htat the economy grow as best it can within certain bounds. if the price of money rises as demand for it rises, the marginal use of it will fall and the economy will not grow as it would had the money supply increased by the rate of growth of the economy (about the "band" i was talking about).

[/ QUOTE ]

Think about techonlogy. Productivity has been inreasing faster than the money supply for ages. This doesnt stifle growth, innovation, or impose an negative costs on the industry. This what is known as benign deflation.