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Monday, January 22, 2007

A Note on Currency

It's really quite simple.

You can't eat gold... and you can't burn it. If the conservative conspiracy theorists and certain libertarian economists are right, and "the system" DOES fall apart, holding on to gold won't save you.

You see, its all about what the other guy has that you want. In that situation, he may not accept gold for food, because then he has to find someone that will take gold for the water he needs. So basically, in the absence of "money" in any form--a complete collapse of "the system," the transactions costs savings over the barter system are made irrelevant by the inconvenience of money in a time of crisis.

To put it another way: the other guy has you over his knee in a complete economic collapse. You are at his mercy. Take your gold and chew on it... or eat your oil. I don't care.


Juris Naturalist said...

1. I don't believe the system is going to fall apart.
2. Gold has many and increasingly significant industrial uses.
3. You can't print more gold. (Though you can cook up a diamond - the cost of creating a diamond from carbon or whatever is fast approaching the cost of digging one up out of the ground. What does that do to the paradox?)
4. Any commodity will do for use in exchange, provided it is scarce, divisible, and transportable.
5. If one assumes that the state should have its hands in welfare, preventing unemployment, waging aggressive war, and regulating commerce, well, then Keynes was right.
I stand apart from even some of the Austrians in declaring the state to be pagan at its root, inimitable, and thus unethical.

Jeff said...

I'd sure like to continue this discussion. Point-wise, here are my thoughts:

1. OK
2. So do many other commodities.
3. That's a concession I'm willing to make. But I like discretionary policy. That's what makes it a policy. If Friedman was right and we can use machines, perhaps you should see the movie "Brazil" or for a more concise understanding of the limits of machines, please see any of the Terminator movies. Its a God-complex: we can't create anything greater than ourselves, yet it's our biggest fear. Hoorah for committees and discretionary policy. We can think. The Fed has "g."
4. This hurts your second point a little. Otherwise, any commodity will do if it meets those criteria AND is wanted. Under complete sociopoliticoeconomic collapse, you won't care what I have as long as you have a gun. If I want a gun, I have to give up something you want. My point is that traditional commodities will cease to be a medium of exchange for activity on a very macro scale (the Union for instance).
5. If the state has comparative advantage in violence, I'm fine paying taxes so they'll do the fighting for me, so to say. You're not going to see my obese ass on the frontlines. No sir, I have comparative advantage in desk job. And being smart. I think I've got "g" somewhere.

Anyway, I'm not dancing part time. Sir.