Danny: Money is not created by laws. It is created by a free society choosing whether or not to accept this or that as a medium of exchange.

Martin: Money is a record of credit from an exchange. I give you a gallon of milk. Rather than returning something of comparable value, you return documentary evidence that I have parted with this value. I am then entitled presently to something of comparable value elsewhere in the market. You possibly obtained the entitlement similarly, but people obtain these entitlements in many different ways.

In other words, you are making the case that money is whatever the state says it is.

"Please be more specific. Precisely, what coercion have I supported?"

You have supported state coercion to penalize spending that is not directed towards state approved "investments". You have supported state coercion to force children to care for their parents. That was a few months ago. I haven't really read your money posts above critically, but I would be willing to bet that the bottom line on them is a preference for some form of state coercion. Am I wrong?

It looked so good, I thought I'd post it again

I actually think that, depending on where I lived, your government would prevent me from doing all three of those things if it knew about it.

I was very happy with my privately run trash pickup, before the city compelled us all to use theirs.

Is there a law where you live that forbids transportation other than your personal gas-powered automobile, or is your analogy flawed?

Ordinarily, muirgeo, you are stupid. Someime you rise to the level of being merely wrong. Today, you have exceeded your previous best effort; you are spectacularly wrong. Economists describe laws, not opinions. If you think politicians can vote on the valued of pi to make it a rational number, you are sadly muirgeo. Just as 'boycott' used to be a name, your name has become here a noun meaning 'spectacularly wrong, with fireworks'.

Posted by: Russ Nelson

No inconsistency at all in what I wrote. Maybe the word economies could be substituted for economics but the obvious point was that economies depend dramatically on the political systems in which the operate. This is a critical issue in discussing economies and politics but of course the fact is you're simply more interested in a chance to flame then really discuss anything of substance. Vacuousness is the noun that comes to mind.

And you are not compelled to use the public roads, treated water or the public sewer system. You could simply fly to work, catch rain on your roof top and share your kitty's litter box.

I don't know, Martin. In the few discussions we've had you always seem to find a reason to support more coercion by the state. You call yourself a libertarian… I think not. Your rhetoric is difficult to decipher, but your inclination comes through loud and clear.

Please be more specific. Precisely, what coercion have I supported? Writing "loud and clear" is not actually a loud and clear statement. We aren't speaking at a political convention here.

It is only money if it is recognized by the counterparty as acceptable.

Truisms are true.

Credit is NOT money. It can be, but it is most certainly NOT money if the credit-worthiness of the recipient is questionable.

All money is credit insofar as it accounts for my entitlement to a good of a value comparable to a good I've surrendered without an exchange of goods previously.

I return a defective product to a store, and the store gives me a $10 credit at the store rather than a $10 Federal Reserve Note. If this store sells everything I'll ever want at market rates, this credit is equivalent to the $10 FRN. I'll happily accept these credits in exchange for other goods in lieu of $10 FRNs or $10 gold pieces for that matter. I'll prefer the $10 store credit to the $10 gold piece for that matter, because I have less use for the gold.

Case in point, the current mortgage crisis.

A worthless mortgage obligation is not negotiable. This fact is not controversial and has no bearing on the point. If the store above sells nothing anyone wants, then its credit is not money either, but that's also irrelevant.

Confusing credit with money is an even worse mistake to make.

No. You confuse "credit" with worthless mortgage securities. That's your mistake. "Credit" does not solely describe bonds sold by financial institutions. Credit is extended any time anyone exchanges current value for an entitlement to similar value later. It's "money" because it's a placeholder for something I expect to obtain later; otherwise, the word we want is "barter".

Money tokens do most certainly not signify credits.

Certainly, they do.

I will accept gold coins if they represent value, and are useful as a unit of exchange.

Right. I'll also accept silver coins or silver bullion or diamonds or pearls. If I'm competent to judge the value, I'll accept comic books and baseball cards. That's called "barter". However, if I walk into WalMart or practically any other merchant in my neck of the woods with any of these things, including gold, I can't expect the cashier to accept it for anything I might want to purchase, so it ain't money 'round here. When there's a Danny's on every corner selling everything imaginable, maybe gold will be money then. I'll let you know when it happens.

If the state says to use dollars, even as they are debased, participants can, and most likely will, begin to engage in exchange via some other mechanism.

If pigs fly, pig shit falls from the sky, but pigs don't fly. The problem here is that your hypotheses are false.

Why, in Vietnam, do they now price real estate in gold, instead of dong?

Presumably because prices in dong are not stable. Since I don't live in Vietnam, I wouldn't know. It is possible to price everything relative to the value of gold. This pricing convention does not equate gold with money, but it is the meaning of "gold standard". A gold standard is a fixed price of gold. It is not the identification of gold with money. If a gallon of milk of standard quality has a stable price, we may also price everything in terms of the value a gallon of milk, but this convention doesn't equate milk with money either.

Gold has NO credit risk, is not a responsibility of the government, it has its own intrinsic value and acts as a unit of exchange.

Let's see how risky gold tokens might be. I'm wearing a white gold closing pin (a skydiver's charm) around my neck right now. It was a gift from my fiancee. It claims to be 14k gold.

Is the charm 14k gold? If gold has no credit risk, you must know the answer to this question. Right?

Suppose I find that the charm contains no gold at all. Someone just took a conventional stainless steel closing pin, etched "14k" into the surface and sold it to my fiancee for a nice markup. Suppose I want to recover the price of this scam from the seller. Do I call the police, hire an attorney or just fight it out with the scammer and let the stronger man win?

It does not signify credit, no matter how many times you may say it does.

I nowhere ever say that your gold signifies credit. On the contrary, I say that money is credit and that your gold is not money, so I say that your gold is not credit.

I say instead that your gold is a commodity with a price, just as a gallon of grade A, 3% milk is a commodity with a price. If you give me the gold today in exchange for some token signifying your entitlement to anything of equivalent, current value in the market tomorrow, that's "currency" as well as "a credit". This token is not the gold, because it's money instead. Get it?

And no, your A/R is not essentially money.

It can play the role of money insofar as it's negotiable, and it's more like money than your gold. Your problem here is that you deny the hypothesis that the account is negotiable.

If you had to sell your A/R to a collections agency, they most certainly would not pay you full face value.

They would pay full value as they assess value. My accounts receivable are not certain to be received, so they'd discount them for the risk, of course. Measuring the risk that my accounts receivable are really receivable is a bit more difficult than measuring the gold content of my closing pin, but the principle is the same.

If we're using gold closing pins as money, you'd want to measure the gold in my closing pin. Right? Suppose I'm very clever, and my charm is 14k gold only one millimeter deep. If you exchange the pin for something worth the pin's weight in 14k gold, how risky is your credit then?

Answer: The risk has little to do with the purity of my closing pin and much to do with the willingness of other people to accept the pin as a token of credit.

You are constantly misrepresenting the core of a commodity based standard because you, yourself, don't understand what money is, and is not.

No. I'm fully aware of what a commodity based standard is. You erroneously believe that a commodity based standard identifies the commodity of standard value with money, but it doesn't. It only fixes the price (the nominal value) of the commodity. The supply of money under a gold standard may far exceed the total value of all banked gold. This was always true under every gold standard that ever existed, even when the system operated smoothly without runs.

I most certainly do not believe what you say I, a believer in free-banking, and presumably a commodity based currency, believe.

I have no idea what you believe and don't presume to say so.

You employ cheap, rhetorical tricks, say they are not pedantics, and then say they are necessary to understand how markets work, while, at the same time, constantly confusing money and credit.

Actually, I say one of my statements is pendantic above. I nowhere say that any statement is not pedantic. Understanding that money is credit is necessary to understand the role that money plays in a market. Markets can exist without credit, if we always exchange valuable goods for valuable goods (as opposed to valuable goods for abstract tokens of value) in every transaction. That's called "barter".

Ordinarily, muirgeo, you are stupid. Someime you rise to the level of being merely wrong. Today, you have exceeded your previous best effort; you are spectacularly wrong. Economists describe laws, not opinions. If you think politicians can vote on the valued of pi to make it a rational number, you are sadly muirgeo. Just as 'boycott' used to be a name, your name has become here a noun meaning 'spectacularly wrong, with fireworks'.

So is there a point at which you would oppose coercion?

Of course. I oppose most coercion. I am a libertarian. What I'm not is a bullshit artist pretending to oppose all coercion. The "good guys" force is still force, even when I really agree that they're the good guys. I'm always skeptical that any armed men are the good guys, but I'm not about tell the statesmen to go home when the thief is at my door and I'm entitled forcibly to repel him but not vice versa.

"I can't meaningfully favor property and oppose coercion, so I don't bother pretending to oppose coercion absolutely."

There's a lot of room for discretion in that word "absolutely". So is there a point at which you would oppose coercion?

It is only money if it is recognized by the counterparty as acceptable. Credit is NOT money. It can be, but it is most certainly NOT money if the credit-worthiness of the recipient is questionable. Case in point, the current mortgage crisis.

"Confusing money with capital is like confusing a yardstick with a yard of cloth or even confusing the yard itself (abstracted from the stick) with the cloth."

Confusing credit with money is an even worse mistake to make.

"In reality, the monetary tokens signifying credit are created by states enforcing debts, including the obligation to pay taxes."

No need to beat the same old horse. Money tokens do most certainly not signify credits. I will accept gold coins if they represent value, and are useful as a unit of exchange. If the state says to use dollars, even as they are debased, participants can, and most likely will, begin to engage in exchange via some other mechanism. Why, in Vietnam, do they now price real estate in gold, instead of dong? Gold has NO credit risk, is not a responsibility of the government, it has its own intrinsic value and acts as a unit of exchange. It does not signify credit, no matter how many times you may say it does.

"Since my record of accounts receivable essentially is money"

And no, your A/R is not essentially money. If you had to sell your A/R to a collections agency, they most certainly would not pay you full face value.

You are constantly misrepresenting the core of a commodity based standard because you, yourself, don't understand what money is, and is not. I most certainly do not believe what you say I, a believer in free-banking, and presumably a commodity based currency, believe. You employ cheap, rhetorical tricks, say they are not pedantics, and then say they are necessary to understand how markets work, while, at the same time, constantly confusing money and credit.

You obviously have never worked in finance, or understand even rudimentary principles of finance.

Or possibly you don't understand rudimentary finance. I understand how people presuming to describe finance often describe it, but I may describe it differently here.

The time value of money refers to the fact that I would rather receive $100 today, rather than $100 next year.

I haven't denied this preference. I've only called it a statutory artifact. I'd rather have $100 today than $100 next year, in no small measure, because I expect to consume less with $100 next year. Most libertarians agree that inflation is a statutory artifact. Don't you?

If I give up using that $100 now, I will need to be reimbursed with a greater sum a year from now, to make up for my giving up that $100 in consumption at that earlier time.

No, it's not the earlier consumption. As Methinks says, it's more the opportunity to employ an entitlement to invest over a period. Earlier consumption isn't necessarily any more valuable than later consumption, even if I'm consuming the same real value at both times. What I lose by consuming or investing now rather than later is the option of consuming or investing otherwise between now and later.

I most likely am giving up that consumption in order to 'put my money to work', and invest in a productive entity that will provide me with returns on that money.

No, you don't earn returns on money. You buy something with the money and earn the marginal value of what you own for the time that you own it. You earn a return only by ridding yourself of money. This point bears much repetition.

That is how savings is then used for capital in the classic Hayekian triangle.

Well, that's how we account for capital in monetary terms.

To ignore the time value of money is to ignore a major premise of capitalism and its workings.

It's not the time value of money. That's a misnomer. It's the marginal value of capital. If we imagine that money itself has value, we're subject to the illusion that statesmen may produce as much value as they like simply by expanding the nominal supply of money.

I never said money was capital.

I never said you said it.

Money is a unit of exchange.

Money is a record of exchange, yes. A unit of currency measures a unit of current, market value, and we record these values. That's money. We could do it all in accounting ledgers in principle.

Capital, and all other goods for that matter, are usually measured in this unit of exchange.

We measure the relative value of capital this way. I agree.

But that does not take away from the fact that understanding the time value of money is essential to understanding the function of capital.

Capital has a marginal value, and durable capital has this value over time. That's true enough. We should not confuse this value with a value of money though. The value of a hammer is not the value of two dollars any more than it's the value of four dollars or eight dollars. I might pay any of these prices for the same hammer.

The very idea that "four dollars" has a value is a misconstruction. "Four dollars" is a value. Three feet is the length of a yard stick, but three feet is not the length of a yard. Rather, "three feet" is a synonym for "a yard". We might as well say that three feet is the length of three feet. What use is that?

Because you dismiss the time value of money as a 'statutory artifact', …

I don't dismiss it this way. I describe it this way.

… you misunderstand the role of capital in society, …

No. I understand the role of capital in society. I don't confuse the role of capital with the role of money. That's what you're doing.

… and this rather common lack of understanding leads to justifications for socialism, which seem to be pretty standard in your posts.

Nonsense. The problem here is that you don't know the meaning of "socialism". Where do I advocate central planning? I advocate it less than most of the nominal "libertarians" here in reality.

No, not really. Maybe in this temporary era of paper money, you are right, but this is an anomaly, rather than the way things normally are.

Yes, really. Much money has always existed primarily on paper or in similar form. Paper money is nothing new. Money also existed on clay tablets or, more precisely, as little indentations in clay tablets signifying credit extended. Gold has the benefit of durability, and it's difficult to counterfeit, but as money, it's still primarily a recording device.

Money is a unit of exchange plain and simple.

True enough. It's a record of exchange, a measurement of value exchanged, and it has units.

The fact that it may or may not be a record of credit is moot, that is not the distinguishing feature.

No. It's always a record of credit. As a commodity, gold itself is never money. It's a thing with a value that can be measured monetarily in a market.

The distinguishing feature is that it has a certain value among market participants and is accepted for purposes of exchange.

That's right. It must be accepted as a record of credit to be money, but it can't only be a record of an obligation to exchange gold or some similar, durable good, because we want to exchange values far exceeding the value of all the gold on Earth, and the values we want to exchange are continually in a dynamic state of flux. Sometimes, we want to exchanges things that disappear almost as soon as we exchange them.

I always find it ironic just how much more confident libertarians are in human nature than statists. We allow for things like greed, lust, etc., and realize the 'human condition'. But it is the statists who proclaim that, 'without the state, life will be nasty, brutish, and short'.

I don't know which straw man you're describing here, but I nowhere ever suggest that life is nasty, brutish or short in the state of nature. I like the state of nature myself, but I can't deny that people typically live longer in artificial states. I don't observe anyone anywhere living very long in an "anarcho-capitalist" utopia, because these states are imaginary. The system isn't stateless, but it is imaginary.

The state does not have a monopoly on cooperation, only on violence.

A state is a monopoly of lawful coercion by definition. Cooperation occurs within constraints imposed by this coercion. All systems of property whatsoever fit this pattern. I can't meaningfully favor property and oppose coercion, so I don't bother pretending to oppose coercion absolutely.

Black markets are rampant, and people voluntarily agree to contracts within those markets without the state lording over their transactions.

Well, if you want to do all of your exchange without any right to call upon the uniformed, armed men to enforce your rights, you can do that. You don't behave so though. Do you? You actually collect the records these men expect to see before they'll enforce your rights, particularly their bills of credit. Don't you? The problem with this utopian idea is that you don't mean what you say at all.

Your totally incorrect vision of capital and money leads you to make totally absurd statements, like comparing a politician to an entrepreneur. I don't even want to get into how totally stupid that comparison is, it'll just aggravate me. Life is too short.

Here again, you waste much space addressing your own absurdities. I've not compared a politician to an entrepreneur. I compared politicians to uncommonly wealthy people. I've known lots of entrepreneurs over the years, and very few of them are uncommonly wealthy, so the confusion is yours and not mine. You've confused entprepreneurs with uncommonly wealthy people. Why would you do that?

You wrote:

Let's get money out of politics by making politicians less powerful.

I'm reminded of a contrary quote:

"A belief in "limited government" is as naïve as believing that one can place a large bowl of candy in front of a group of young children, direct them to take only "reasonable" amounts, and expect the contents of the bowl to be only minimally reduced by day’s end."

– Butler Shaffer

b.t.w. – I just read you new book and thoroughly enjoyed it.

you will be able to buy fewer goods with it than you will today.

Right. So I suppose something else has the time value.

"Time value of money" is opportunity cost. All else held constant, you would prefer to receive a fixed amount today than at some point in the future.

I'd rather control an entitlement to consume or invest over a given period than not to control it, because this control is valuable. That's right. Interest is more than this opportunity cost though. It's more of a risk premium.

This is similar to the exchange we had about you receiving payment for the widget you sold me today rather than extending credit to me for the purchase. Given the choice, you would prefer payment today because of the time value of money.

I might prefer payment today because I might miss an opportunity to employ the entitlement between now and the time you pay me. That's true.

Because you can invest the money I give you today into your widget making business (or something else), you would prefer to have it today.

I don't invest money in my business. I invest things I purchase. Money is a record of my entitlement to purchase things. This point may seem pedantic, but it's critical to understanding the role of money in markets.

If you allow me to take your widget home today and pay you over time, you will also require that I pay you for the time value of money (you'll charge me interest).

Well, I'm charging you for the lost opportunity to exercise an entitlement, but I'm not sure I'm charging you for the money. I also lose the opportunity to employ the widget myself, so we might speak of the "time value of widgets" as well. This usage makes a lot more sense to me than "time value of money", because holding the money itself typically is not valuable, even if the opportunity to spend it is. Am I charging you for my lost opportunity to use the money or my lost opportunity to use the widget?

Furthermore, since money is only a record of my credit to you, I don't need currency from you to exercise the entitlement. I expect you to pay me, and I can bargain with this expectation. My record of accounts receivable, if trusted by others, is negotiable. Essentially, it is money. You made this point yourself. Extending credit to you without an exchange of bank notes deprives me of an opportunity to invest only insofar as others trust some banker's note more than my record of accounts receivable.

Since my record of accounts receivable essentially is money, the idea that all money must correspond to gold in a vault or some other commodity somewhere is absurd. Money must account for the value of everything traded over time, not only the value of gold in vaults. This point bears repeating, because many people, particularly people in this forum, clearly accept the identification of money with some commodity like gold. Money is not at all like a durable commodity. Money obeys no conservation law. It spontaneously appears and disappears continuously, whenever people exchange indirectly.

Once again, George – you are not compelled to drive. This is your choice. If you want your kids to go to soccer practice in a rickshaw, you could choose that. I don't know how many times you'll have to read the same thing over and over to understand it, but experience leads me to believe that number is infinity.

you will be able to buy fewer goods with it than you will today. "Time value of money" opportunity cost. All else held constant, you would prefer to receive a fixed amount today than at some point in the future. This is similar to the exchange we had about you receiving payment for the widget you sold me today rather than extending credit to me for the purchase. Given the choice, you would prefer payment today because of the time value of money. Because you can invest the money I give you today into your widget making business (or something else), you would prefer to have it today. If you allow me to take your widget home today and pay you over time, you will also require that I pay you for the time value of money (you'll charge me interest).