The 50 dollar give-through-give-through (relay?) project. [Details inside].

Isn’t this the same as barter?

This is, in fact, how the economy already works. And yes, money is necessary, otherwise no one would trust the system. This is called the multiplier effect, and it shows the power of spending in an economy. This is why we want ordinary people to spend money, rather than giving it all to the so-called “job creators,” as Republicans prefer.

The banks just keep track of who owes whom. And they offer some protection against sharp practices – anyone who doesn’t honor his credit card debts doesn’t get to use it.

Where did John get the $50 bill?

@bkcunningham He found it :-)
Is there a flaw in ‘my’ system?

If he found it, that means someone lost it, @rebbel. Where does that leave the person who lost the money? I’m just asking trying to understand and look at it from all sides.

@bkcunningham Exactly why I asked the question, too!
I read a column with a similar example but I didn’t understand the premise of it.

Why are you whispering?

@bkcunningham Who, me?
For a reason I do that when I am writing responses in my ‘own’ thread.

LOL, I like you @rebbel. You are cool.

That’s actually a rather simplistic example of the way the monetary system works, but then you have to add in the taxes each person pays when they are paid, the printing of the money they use, what actually backs up the money to give it value, etc.

@CaptainHarley I don’t understand this concept of something backing up money. Money is backed by the stuff it is used to represent the value of. It is a convenient fiction that only works when enough people trust that others are using the system fairly—which is to say that $50 buys the same thing in NY as it does in NM. Or close enough, adjusted for prevailing market conditions. I.e., you can only get half the house per dollar in NY as you can in NM. On the other hand, NY gets all the glamour. NM gets all the rattlesnakes.

But having anything else “back” money kind of defeats the purpose of money, and is beside the point. Nothing backs up money other than the stuff we use it to buy. I don’t care if you use shells or paper or gold, the only thing that is real here is what we do and what we make that other people find valuable enough to be willing to transfer some of our accumulated value for.

It’s ironic to think that some of our work is worth a lot to others, and other work is worthless in that no one is willing to pay for it. People do a lot of work on fluther, but it is worthless in the market or in the economy. No one gets paid for it. Just a side observation.

This is a good description of the velocity of money(V), or how often it turns over. For a fixed money supply, increasing V will increase the size of the economy (T). The classic formula is T=V*M where M is the money supply.

Incidentally, @Skaggfacemutt‘s question about barter is why money works. If you notice, each person supplied a service to another, but not in exchange for the service provided by person that gave them the $50 bill. Peter got a cake, the baker didn’t get his flour from Peter, but paid the flour mill. That’s why money is a medium of exchange.

@wundayatta

Money as we know it today, is a medium of exchange because the government says it is. I strongly suspect that is about to change. Money backed by something, say gold, means that each unit of money is worth a set amount of gold, and can be redeemed for that amount of gold.

Of course. They all provided goods and services at your hypothetical price.

Obviously it can and it has and still happens like that in places.

I remember when dollar bills were actually “Silver Certificates”; it stated right there on the bill that any bank would pay to the bearer on demand, one dollar in silver.

@Yetanotheruser

Yep. And before that, they were gold certificates. Now they’re just “empty promise certificates!” : ((

@CaptainHarley It’s not the government that says money means anything; it’s people. If people didn’t think money was worth anything, they would stop using it. I doubt there are very many people who have gone that far off the grid.

The promise of gold will essentially drag our financial system to a halt. It is completely unwieldy unless people keep on going on using money exactly the same way as they have. If everyone tries to turn in money for gold and if they try to use gold as currency, our lives will be a complete mess. I suspect that people who call for a gold standard simply don’t trust anything they can’t see.

The fact of the matter is that most money in the world these days doesn’t even exist in paper… or on paper. Most money is in bits and bytes stored in the computers of big businesses and that is based on the faith we have in electronic transaction systems. The system only works because people trust that it isn’t all that corrupt or corruptible.

There are a group of people who do thing that big business and government are corrupt and suspect they are cheating us by manipulating the bits and bytes. These are the people, I believe, who call for the gold standard. This is mostly a symbolic call since our economy would crash if we went to the gold standard. I think it is a somewhat dishonest or at the very least, a misleading call, since people are not directly expressing their mistrust of these huge systems. I suspect that it is partly this way because people who call for the gold standard don’t know what they are calling for and how it would work out (or not) in reality. But it’s also dishonest because they aren’t willing to do the hard work to demonstrate that the system is corrupt.

No one is willing to be the forensic accountant to document this. In fact, it’s usually just the opposite. They want to close down the government agency in charge of trying to ferret out dishonesty in the banks. They want to eliminate the Federal Reserve. These two actions would actually dramatically increase corruption in the financial sector, because there would no longer be any checks on the large banks. They would be able to steal money hand over fist without the controlling hand of the Fed and the SEC.

@wundayatta

Son, you are definitely barking up the wrong tree. The Fed continues to print paper ( all that “Quantitative Easing” ) with nothing backing it up, the debt keeps climbing ( now higher than total American GDP! ), and now we are going to be asked to bail out Europe. I sincerely hope I am wrong, but I believe that the American economy is going to crash within, at most, a year.

@CaptainHarley Wow! I am staggered. What is all the stuff we make and do? Nothing? The whole point of money is to value that stuff. How do you not get that? The purpose of money is not to have any value of it’s own. It is to reflect the value of stuff and services in the world. It’s just a fiction. The real value is in what we do and make.

We don’t need to back money. You act as if money is a thing. It’s not. It’s just an idea. Going to the gold standard would not change that one whit. Gold is just an idea, too. There is no need for some literal backing for money. In fact, it is downright destructive to think there is.

There American ecconomy has already crashed. It may well crash more, but it will have nothing to do with money. It will have to do with what underlies money—a lack of trust that the stuff we make and do is worth what we thought it was worth, and a lack of a belief that people will want more of it. Going to a gold standard, as I said, will not change that.

I’ll say it again. Money is nothing but an idea. An agreement between all of us that we have a way of exchanging our work and stuff without having to barter. Work and stuff is what matters. Gold changes nothing. It adds no security. If we use it to back money it turns gold into a symbol the same as numbers on a piece of paper. Not only that, but it makes all gold worthless as gold, because each ounce will become worth a million dollars, at least. No one will ever wear that. Be interesting though, as you wouldn’t know who is married any more. Perhaps the incidence of infidelity would skyrocket! Or maybe people would substitute rings of other metals.

Just for fun, let’s take the original story, but using barter instead of money:

John goes to a bar and drinks a few. He agrees to give two chickens to the bar owner, Bert, who takes the chickens at the end of the day to Peter Painter, who accepted the chickens as payment for a paint job. Peter, on his turn, delivers the two chickens to the baker, Simon, for the birthday cake he ordered a few days before. Simon gives the two chickens to the Bill the Miller, to pay for flour. Bill the Miller had his car mended by John the bar visitor, so the next day he gives the two chickens to him.

So, all people got paid, with those two chickens, and all are debt free.

I contend that wealth based upon money is false wealth.

@Yetanotheruser So the currency in your world is chickens? That is not barter. Bert didn’t want the chickens, he wanted a paint job. But he couldn’t trade the bar tab for a paint job. Peter didn’t want the chickens, he wanted a cake, but Bert didn’t have a cake.

So tell me, what is the difference between the chickens and a gold coin? They are both a medium of exchange. But with chickens the money supply collapses if someone gets a cold and needs chicken soup.

@Yetanotheruser You go through that whole story and you conclude money is false wealth? What the hell is real wealth then?

Never mind. You have just demonstrated that money is an idea and it has nothing to do with actual stuff. No one wanted the chickens to eat. Although, after all that handing around, I have to wonder if they are still edible with no refrigeration. Of course, it doesn’t matter. If you preserved them in stasis, you could pass them around forever as payment, and everyone would be happy.

Money is an idea. Not a thing. Wealth is an idea, not a thing. If you expect reality of some kind, it will always be false. Money is an imagined thing, gold standard or not. All that makes money real is faith. Funny that. Just like God.