OK, Anti-FRBers, What Do You Make of This?
I think you're going to have to work to outlaw Ripple, since it can effectively create money "out of thin air."
(I've noted before that I find that complaint bizarre: if someone managed to create steak or smart phones or sweaters out of thin air, we would think it was fantastic. Why is it supposed to be bad if someone can do the same with money?)
(I've noted before that I find that complaint bizarre: if someone managed to create steak or smart phones or sweaters out of thin air, we would think it was fantastic. Why is it supposed to be bad if someone can do the same with money?)
re:I've noted before that I find that complaint bizarre: if someone managed to create steak or smart phones or sweaters out of thin air, we would think it was fantastic. Why is it supposed to be bad if someone can do the same with money?
ReplyDeleteWe tend to think steak, phones, and sweaters provide utility. Even the staunchest proponents of "money in the utility function" wouldn't argue that money (in the modern fiat sense) directly provides utility (unless you're a collector). I can think of a reason or two why costless replication - given this distinction - would not be welfare enhancing.
The obvious one is a collapse in the currency. If you can create steak costlessly, great, it becomes a free good like the air, and presumanbly we're all better off. The benefit of money rests on its scarcity - once that's gone, it loses it's value; society has to start with a new medium of exchange. I have trouble imagining how this would be welfare enhancing.
"Even the staunchest proponents of "money in the utility function" wouldn't argue that money (in the modern fiat sense) directly provides utility..."
DeleteNor do manufacturing plants. Yet if we could create them out of thin air, wouldn't that be nice?
So, you're saying that the person making this stuff is producing something with no marginal value, that doesn't circulate as a medium of exchange... and yet you are calling that "creating money"?!
No, Jim, the person creating it would obviously have to make sure it still functioned as money, or what he was doing would not be creating money!
"Nor do manufacturing plants. Yet if we could create them out of thin air, wouldn't that be nice?"
DeleteNow were going down the road where we get to the definition of money - surely you knew this, so why not anticipate where I'd go next?
We tend to think of a manufacturing plant as a producer good. We tend to think of money as medium of exchange. If you want to say that this is the same thing as the capacity to produce something, fine, but I think the distinction is meaningful and important for certain questions.
To reiterate, money's utility relies on it's scarcity. The same cannot be said for your plant or the goods you mentioned.
"No, Jim, the person creating it would obviously have to make sure it still functioned as money, or what he was doing would not be creating money!"
Countless examples of countries generating hyperinflation demonstrate otherwise.
More fundamentally, there's no way of knowing at what point an additional unit of money would generate runaway inflation. How is the person supposed to know this?
This is still Jim? Or someone new taking up Jim's mantle? In any case:
Delete"Countless examples of countries generating hyperinflation demonstrate otherwise."
Ah, I see. So if I said, "People either live to be 100, OR die at a younger age," it seems you would respond "Countless examples of people dying at a younger age demonstrates otherwise"!
Yeah, what these folks were issuing ceased to be money, right? I think that ILLUASTRATES my point, rather than "demonstrating otherwise."
"More fundamentally, there's no way of knowing at what point an additional unit of money would generate runaway inflation. How is the person supposed to know this?"
Yeah. And there is no way of knowing when one more drink will kill us, or one more unit of output will result in less profit, or one more mile per hour will cause our car to skid out. The future is uncertain. We can try to be prudent.
Gene, I could see the next stage of the 100% gold vs FRB war being waged on the Ripple/Bitcoin axis.
ReplyDeletePlease pardon the ignorance as I'm not an economist, but you seem to me saying, 'If the Fed could produce an unlimited supply of currency from air that would still be accepted as money things would be peachy.'
ReplyDeleteMy thought is, "Well, yeah, but that's not possible - at least not indefinitely." At some point, once enough of the currency has been produced, it would start to lose its status as a medium of exchange, right?
No, Steve, I didn't say "unlimited," did I?
Delete"At some point, once enough of the currency has been produced, it would start to lose its status as a medium of exchange, right?"
Of course it would, as I say several times above!
I am saying low costs of production are a positive thing.
"I am saying low costs of production are a positive thing."
DeleteWell certainly no economist or rational person would argue against that. Aside from the ethical and logical arguments to the contrary, I've found that promises are just as acceptable as any other form of exchange, but one must hold the same standard for all parties.
Unfortunately this has not often been the case when dealing with banking institutions and the state. That, I think, is the primary problem regarding this issue.