-----BEGIN PGP SIGNED MESSAGE----- ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SANDY SANDFORT Reply to: ssandfort@attmail.com . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Primates (think about it), Mike Ingle has been discussing the issues of barter, digital cash and "real" money. He has proposed a variant of commodity money to serve as a basis for digital exchange. He asserts that this could perhaps lead to the elimination of money, altogether. 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. 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. . . . 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." There is certainly nothing wrong with this form of digital money. Mike, however, took it one step too far, in my opinion: . . . Everyone would, in effect, print their own money. Its value would be determined by their reputation. If you work for one company, you would be paid in coins representing the products or services of that company. If you are self-employed, you would create your own coins for whatever type of work you do, and spend them directly. . . . The buying and selling would be done through a huge, distributed international network, similar to the over-the-counter stock market. The value of all coins would be determined by the market, using reputation banks. . . . The negotiation and reputation lookups involved in any purchase would be far too complex for the person to handle in real time. . . . 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. 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. S a n d y
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