From: Ian Grigg <iang@systemics.com>
Date: Sat, 12 Dec 1998 07:40:48 +0800
To: weidai@eskimo.com
Subject: Re: alternative b-money creation
In-Reply-To: <19981211135656.A13424@eskimo.com>
Message-ID: <199812112248.SAA21792@systemics.com>
MIME-Version: 1.0
Content-Type: text/plain



> This argument is based on the misconception that people have no reason to
> want to accept fiat money. But actually fiat money is valuable because it
> performs a service for those who use it, namely the service of a medium of
> exchange. It's value derives from the fact that there is positive demand
> for a medium of exchange, and the fact that its supply is finite and
> controlled by a sufficiently benevolent agency.

It is true that there is positive demand for a medium of
exchange.

It is not true that fiat money is controlled by a
sufficiently benevolent agency, and it is patently
not true that there is a finite supply.

National monies are in effect, and in demand, because
they are mandated by a number of methods.  The us$ was
made the dominant form by punitive taxation of alternates
in the late 1900s.  Other countries like the UK managed
to destroy competitors, and in the course of this, bankrupt
honest note issuers, by subjecting the note issuers to

The notion that the current issuer of that money
is benevolent is easily tested by circulating alternate
monies.  Any casino in the US will tell you that the reason
they won't permit their chips to go outside is because the
feds have quiet words with them.  Disregarding journalistic
fairy tales like Hiawatha Hours (or whatever they were called),
pretty universally, you run the risk of being locked up if
you circulate something called money.

Of course, the Internet has changed all this.  But not as
much as you'd think, I'd lay 10 to 1 that if you started
an issuer of Internet money on the wrong side of the German
border you'd be finding out what bored prison guards talk
about.

The Federal Reserve of the US has said fairly plainly that
you can do this.  But the ABA, FinCen, the FBI, the DEA,
and any other moralistic department of the US government
that wants to get in the act are going to be looking at
this with jaundiced eyes.

The value of any monopolistic product can be simplistically
stated to be driven by supply and demand, but the truth is
different.  Only when there is free issue of money will we
know if a government can compete against the best and brightest
of the profit minded world.  In the past, the answer was a
resounding No, as otherwise, governments would not have had
to resort to legislation, taxes and other arbitrary punishments
in order to win the field.

> Think about it this way. In the case of commodity money, its value comes
> partly from the industrial/aesthetic value of the commodity and partly
> from the usefulness of the commodity money as a medium of exchange. In the
> case of fiat money and b-money, all of its value comes from its usefulness
> as a medium of exchange.

And a government enforced monopoly.  The value of that is
calculated at the seignorage, assuming that we agree that
no government could compete on fair grounds.  That makes
the US monopoly worth $25 Bn per annum.

iang