(Sandy Sandfort takes an axe to my digital barter idea)
While interesting, I think his argument is muddled and ultimately not logical. It appears this is because his basic premises are erroneous. Mike wrote:
. . . Money can either be based on a standard such as gold, or it can be "fiat money" which has value only because people accept it.
Actually, Mike has this somewhat backwards. Fiat money has value mostly because the government says it does. Legal tender laws and the elimination of, or interference with, competing moneys artificially supports government's fiat money. Gold or any other form of non-governmental money has its value precisely because people--not the state--subjectively give it such.
As I said in the original message, the value of fiat money is dependent on trust in, and the competence of, the government which creates it. If the government fails or acts up, people (particularly outside the country which issued the money) stop accepting it, and it loses its value. In these cases, people usually start bartering and spending foreign money, like in Russia right now.
Standard-based money is dependent on the standard - if there isn't enough gold, the economy can't grow.
This is nonsense. Theoretically, all the world's economy could be based on a single ounce of gold. When the economy grows or shrinks, all that happens is that the relative value of a given amount of gold changes. You have deflation in an expanding economy; inflation in a contracting economy. An economy does not need more gold (or whatever) to expand.
And this can be very disruptive to an economy. It creates artificial limits on the market. Inflation is bad for an economy. There hasn't been too much deflation, but it would create problems too. If you had a lot of money, you might enjoy it, but if you owed a lot, you wouldn't.
. . . Money has been necessary to facilitate the operation of the market, but it also interferes with the "pure" free market. Perhaps money is no longer the best solution.
Instead of representing money, a digital certificate could directly represent a product or service.
I think these last two paragraphs represent the crux of Mike's misunderstanding about the nature of money. A certificate (digital or otherwise) that represents a product or a service *is* money, if people accept it as such. It is, in fact, just another form of commodity (or "standard") money. It is not some new critter. As former Secretary of the Treasury, William Simon, answered when asked to define money: "If the dog eats it, it's dog food."
It has an advantage over fiat money - no government to trust. And it has an advantage over single-standard money - you're not dependent on the standard. If, theoretically, everything of value is money, then why not use everything of value as money?
There is certainly nothing wrong with this form of digital money. Mike, however, took it one step too far, in my opinion:
Never happen in a million years. As Mike correctly pointed out in his post, money was created to eliminate the inefficiencies of barter. What Mike proposes is nothing more than the elevation of barter's inefficiencies to a computational nightmare of truly epic proportions. Even fiat money would be better than this.
The stock and commodities markets are computational nightmares. How does trading many different types of coins differ from trading many different stocks and commodities? The network could eliminate most of these inefficiencies.
By all means, let's have commodity or even serviced based (digital) money. But we don't smelt our own metal ores nor butcher our own livestock. Why, then, should we each issue our own money? Let's leave this banking function to the "bankers" and other specialists in the money business.
At one time, if you wanted to send someone e-mail, you had to write it down and take it to Western Union, and pay a specialist to tap out your message on a telegraph key, and another specialist at the other end to copy it down and deliver it. Now you can do it yourself, thanks to better technology. One of the advantages of computers is to allow you to do yourself, what others used to have to do for you. Bankers end up with a lot of power, and they often skim off a large cut for themselves. Their centralization lends itself to government regulation. If new technology can make them obsolete, and cut out the middleman, that's good for the rest of us. --- Mike