From: Sandy Sandfort <sandfort@crl.com>
Date: Wed, 4 May 94 09:24:48 PDT
To: Blanc Weber <blancw@microsoft.com>
Subject: Re: The Value of Money
In-Reply-To: <9405040700.AA09737@netmail2.microsoft.com>
Message-ID: <Pine.3.87.9405040840.A23866-0100000@crl.crl.com>
MIME-Version: 1.0
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C'punks,

On Tue, 3 May 1994, Blanc Weber wrote:

> One bill makes you larger, two bills make you small, and the ones that 
> Uncle gives you aren't worth anything utall.......

This is brilliant.  I love it!  But . . .

> . . .  How did the gov. decide how much to "create" (print) and 
> then assign a "value" to, from their gold reserve (back when it meant 
> something).

The idea is to create a unit of currency whose value is convenient for 
typical transactions.  Some amount that is easily grasped by the average 
person.  Originally the US dollar was 1/20th of an ounce of gold.  That 
amount of gold, today, has the buying power of US$18, or so.  A bag of 
groceries more or less.  The amount of gold determines the total value of 
the money supply, but the number of people and transactions in which it 
must take part determines the number and denomination of bills and coins 
to be printed and minted.

> Too much or too little currency in circulation, and you have either 
> inflation or deflation;

No, no, no.  This is a common falacy.  It is the *change* in the amount 
of money in circulation that constitutes inflation or deflation.  If 
there were only one ounce of gold in the whole world, it could easily 
back any amount of economic activity.  Just the ratio of gold to currency 
would change.

> The act of assigning abstract numbers to a concrete substance like 
> gold:  someone made the initial associations and established an 
> understanding among the intended users. . .

There is nothing anymore abstract here than, say, using different systems
of weights to measure your gold.  1 troy oz. = 31.103+ gms.  Just like
saying, "US$1 is defined as 1/20th troy oz. of gold."  Nothing too abstract
about that. 

> . . .
> I understand this much:  there is some gold and other actual metal 
> located in a vault, sitting there as a symbolic standard of wealth, 
> worth, value.

Nothing symbolic about it.  Gold has value because people value it.  Just 
like potato chips and romance novels.

> Everyone stakes a claim to it, and they exchange that 
> claim to others in substitution for something else (dog, rifle, gas in 
> the car, baby-sitting).  

No, the owners own it.  The owners may exchange certificates of ownership 
for other property.

> These claims can circulate as fast as a 
> computer can calcualte & transfer them, and that is all that circulates 
> while the standard continues to sit in the vault, not being used for 
> anything by anybody.  

Not being used?  I thought the gold was supporting commerce.

> As long as you hold a claim to this lump of 
> stuff, you're Somebody  -  a force to contend with in the Market Place. 

Or other lumps of "stuff."  Property is wealth.  But in the Market Place of 
Ideas, for instance, other "currencies" are paramount, and so it goes.
 

 S a n d y