What is the fiat currency?

Discussion in 'Economy' started by anotherlife, Mar 12, 2016.

  1. anotherlife
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    anotherlife Gold Member

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    The introduction of the fiat dollar, right after the federal reserve, was argued, that an underlying commodity is "really not necessary". I tested this on the economics teacher when I argued in that above stately fashion that a fiat currency too is really not necessary, and I suffered disasterous consequences.

    So, here is a question. If a commodity can raise a currency, then can a currency raise a commodity?

    I plan to argue to him, that fiat creates its own commodity, and that commodity is the number of people that you can put away if you wish to do so. I.e. fire power, prison capacity, refugee food management.

    Why would otherwise every citizen agree to exchange anything they have for nothing but printed paper? Especially if that paper is printed freely sometimes more sometimes less, plus it is freely and randomly invented how much of it you owe at any time?

    So, I would like to argue, that the fiat has completed the circle of human civilization, and has returned the freely migrating prospectors back to feudal land bondage. See if you get a visa to any country that is more than just a tourist visa. Unimaginable in the 19th century.

    Your take?
     
  2. Toro
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    Toro Diamond Member

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    You get an F.
     
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  3. pinqy
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    pinqy Gold Member

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    Are you sure there's no F-?
     
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  4. Dovahkiin
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    Dovahkiin Silver Member

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    Fiat money is worthless. Send all of it to me! Note the sarcasm.
     
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    Last edited: Mar 13, 2016
  5. oldfart
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    oldfart Older than dirt

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    This is why I don't regret no longer teaching.
     
  6. pinqy
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    pinqy Gold Member

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    I'm just trying to decide if I should actually correct his errors. It's literally Econ 101 (or 102, whichever is intro to macroeconomics)
     
  7. anotherlife
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    anotherlife Gold Member

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    Economics 101 calls this the "labor" base of the fiat. I am only pointing out the real nature of this underlying commodity that economics 101 calls "labor". I am pointing out what this scheme does to people.
     
  8. pinqy
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    pinqy Gold Member

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    Interesting. Because a fiat currency is not necessary. Currency itself isn't necessary. So it's interesting that you failed in what should have been a basic statement not worthy of discussion.

    That doesn't mean anything. What definition of "to raise" are you using?

    Then you're not understanding the words "commodity" or "currency." Slaves*, prisoners, or contracted labor could be considered a commodity, (though a very poor one) but potential use of labor? Not a commodity.

    Econ 101, Chapter 6: Money
    Money has three functions:
    1. A store of value--In a barter system, a strawberry farmer cannot trade his strawberries all year round as they are seasonal and perishible. He would need a way to store the value of his goods indefinitely.
    2. A unit of measure--If we agree that 10 chickens equal 1 goat, how many ducks can you get for a pig? A common unit eliminates that issue.
    3. A medium of exchange--Even if you have a unit of measure, you need to actually transfer the goods, which is usually currency.

    I have seen some authors add on "standard of deferred payment" as a fourth use, but I see that as a subset of store of value and unit of measure.

    Now, currency, the physical form of money, is of three basic types:
    1. Commodity: the medium of exchange has its own use, things that can be used for themselve, such as cigarettes (now cans of mackerel, I hear), or precious metals.
    2. Commodity backed: the medium of exchange is worthless by itself, but directly represents a commodity held in store elsewhere and for with the currency can be exchanged.
    3. Fiat currency: the medium of exchange is worthless in itself but has value because people choose to assign it value.

    All three forms of currency fulfill the 3 (4) uses of money. Monetary POLICY is where the difference lies as commodities are, by nature, scarce., meaning economic expansion is limited. Fiat currency is preferred because, in almost all cases, no one bothers to redeem commodity-backed currency and so for all practical purposes, it is indistinguishable from fiat currency but less flexible.

    So no, a commodity (backed) currency is not necessary, and neiher is a fiat currency.

    It is not clear what the hell you are talking about as far as people as commodities.



    *As a side, Nikolai Gogol's Myertvie Dushi (Dead Souls) does hinge on using deceased serfs as a form of money.
     
  9. anotherlife
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    anotherlife Gold Member

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    Aha. So my idea is not even new. I am not surprised.

    Also, people don't choose their fiat, their government forces it on them, not a free choice. And now, you trade as much on your credit rating as on your cash, so every high volume traded item can be modeled as commodity. This includes people's labor obligations to pay their taxes and national debts, including the imposition that they don't move countries.
     
  10. pinqy
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    pinqy Gold Member

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    even if that were true, so what? But it's not quite true:
    List of community currencies in the United States - Wikipedia, the free encyclopedia
     

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