MD: I had this dialog with someone calling themselves IMissLiberty on substack. We love to dissect these comments. In this conversation she is IML. I am TM (which is the same as MD). Here’s our dissection.
IMissLIberty
May 29
IML: The value of things is based on what you are willing to pay for them.
TM: Correct… sort of. It’s determined by negotiation…and that takes two parties. Once created (by making a promise spanning time and space and certifying it) money serves as any other object in simple barter exchange [SBE]…until it is destroyed (on promise delivery). In the interim it’s just stuff…like gold or dollars or pork bellies…or bottled water.
IML: Money is for saving the value of work and cost you already paid to produce something you sell today, not today’s cost to mine more.
TM: Money once created serves as the most common object in any SBE.
IML: Further, an ounce of gold found in your great grandmother’s treasure box is worth the same as the one mined and refined today–even though the costs were completely different in dollars or in whatever currency the older ounce was made.
TM: An ounce of gold is not different than a cement block…or money (after creation and before destruction) . It’s simply an object of SBE. It doesn’t matter who created it, when they created, where they stored it, what they paid for it. It’s just stuff. It’s not money. It’s just a primtive substitute…and hasn’t served as money in my nearly 80 year life time.
IML: The mining cost sets a floor but it doesn’t control demand.
TM: Supply and demand for each object (as viewed by the traders for that particular trade) dictate the trade. It’s the “negotiation” stage of all trades…SBE or otherwise. The other two stages are “promise to deliver” and “delivery”…which in SBE in the “here and now” happen simultaneously.
IML: Supply and demand are both involved in the future price of something you earn today.
TM: The so-called “price” is the exchange rate for two objects in SBE. It is set by the traders in the “negotiation” phase of the trade. The future price is estimated by “self proclaimed artists…like appraisers”…and Black and Shoals…and manipulated by governments and banks…and other imagination figments like LIBOR. It’s always a figment of someone’s imagination. However, if we’re talking about money in a “real money process”, it is always in units of HUL’s (Hours of Unskilled Labor). This simplifies the trade by twice: Both parties now know the “real undisputed value” of one of the objects. (a) It is in perpetual free supply; (b) it is in perpetual perfect supply/demand balance; (c) it is free of external loads…like interest; (d) it has no time value…doesn’t gain of lose with time or over space; (e) it costs nothing to create or destroy; (f) and cannot be counterfeited. They are left to agreeing on the value of the other object in the SBE. Ask a HUL to take an hour to make a hole; measure the hole; you will “always” get the same size hole (other conditions being equal) in all time and space.
IML:One could buy gas and store it, but gas is too volatile to carry in one’s wallet and has a limited shelf life and thus lose value.
TM: True, but irrelevant when it comes to money. Gas is not and never will be money. It’s just stuff…an object of SBE.
IML: Gold and silver have a non-perishable advantage as a store of your past costs/work.
TM: So do cement blocks. They’re all just stuff. Cement blocks have outperformed gold and silver over the last five years. When traded for dollars, gold and silver have gone up and down…cement blocks have only gone up.
IML: If I babysat for an hour in 1966 and got paid in two quarters I could spend that 50 cents to buy two gallons of gas any time in the future, and maybe more as the cost of extracting gas gets more efficient–as long as the quarters were silver.
TM: Great choice of examples. I hired baby sitters in 1966. They were paid 6 quarters per hour (I think my wife paid them 2 quarters)…same as my summer job in 1962. If we had real money then I would have paid them one HUL per hour. It was SBE.
IML: If they weren’t silver (counterfeit, paper, digital) they would barely pay the gas tax.
TM: In 1964 I paid one quarter (containing silver) for one gallon of gas (SBE). In 1965 I traded one quarter (containing no silver) for one gallon of gas (SBE). It proved the quarter itself traded for the gas. What it was made of (i.e. its intrinsic value) played no role. It’s even more dramatic today. You pay 10+ quarters (containing zero silver…or 90% silver) for a gallon of gas. You’re foolish to trade the silver quarters because they trade for more value in a different context…e.g. in making photographic film. That’s how money works. And why commodity money doesn’t work. In the case of coin: (1)the cheaper you can make it; (2) the more durable you can make it; (3) the more precisely you can control its dimensions (ie. weight, diameter, thickness); (4) and the more difficult you can make counterfeiting…the better. But it’s still just stuff when it comes to SBE.
IML: “Compared to the dollar” a decaying rubber-band yardstick is no better at measuring carpet than a dollar price over time, except it will fail much sooner and be replaced with something more useful.
TM: And this is the same for any object of SBE. An 1848 ounce of gold was worth more than an 1850 ounce. Supply changed dramatically in those years. At the end of the 1800’s the value of gold and silver gyrated…until by law they claimed silver was not legal tender…only gold and so-called gold backed paper was legal tender (another government imagination figment). In 1973 the French were owed some huge amount of money…let’s say it was $1B. The USA claimed an ounce of gold could be purchased for $35. The French knew by experience it cost $70+ to trade (SBE) for an ounce of gold. The French said, keep your dollars USA. You agreed to settle the debt in gold and we’ll take the gold. Tilt went the so-called “lie” called the gold standard. Nixon didn’t cause the failure. He just could no longer lie about it as his predecessors had. If we were on a “real money process”, the units of the debt would have been HULs and guaranteed never to change their value over time and space. Such fictions as gold stability have existed over all time and space.
An interesting exercise when comparing and contrasting two competing choices. If one of the choices is current practice and the other one is a claimed improvement, reverse their positions. Assume the new choice is the current practice, and vice versa. Now which one is harder to sell? This technique removes the inertial advantage all current practice has. It illustrates dramatically how ridiculous most “conservative” practices are. Electric cars vs ICE (Internal Combustion Engine) cars is a good case to practice on.
IML: If 1913 had been gold instead of a central bank, the income tax would still only tax the top 1% as promised, and it would be enough for peace and prosperity, but not enough for war.
TM: This is the Achilles heel of all government controlled money. Governments collect taxes to pay interest to the money changers who institute them. Governments sustain themselves through counterfeiting of money they claim to control. Central Banks are figments of the money changers imagination forced upon governments. They need them for another figment of their imagination…that being “reserves”. In a “real money process” there are no reserves. No one has to put their savings in a bank for the bank to loan out ten times that savings at a 4% spread (i.e.40% which doubles in less than 2 years) . And thus there is no such thing as a “run on the bank”. All trades are completely separate and isolated.
This is an interesting definition of a capitalist…i.e. two years. They create a bank; capitalize it; accept deposits; loan out ten times the deposits at 4% spread; double their money in 2 years; take 1/2 off the table removing all their original risk; and wallah…look mom, I’m a capitalist. What’s not to love about capitalism.
IML: The miners and refiners produce more when the price offered is higher than the cost of production. They stop when they are not offered enough, and then the supply drops. If they are hungry, they will produce enough for food or for dollars for food–it’s a market price.
TM: You can say the same for farmers growing corn or raising pigs. They’re just stuff in SBE.
IML: There is always demand for metals. Try to imagine life without them.
TM: Try to imagine life without food…or without water where it doesn’t rain much. Both are just stuff in SBE. In the case of rain it is genuinely free. In the case of food…not so much. And in times of food and water shortages, metals play second fiddle.
IML: Imagine filling your cavity with bitcoin or paper.
TM: I have. See this to know about Bitcoin: https://moneydelusions.com/wp/?s=bitcoin. Bitcoin dramatically illustrates that DEFLATION is even worse than INFLATION. The only “proper” level of each is zero. No process can measure it. And only a “real money” process can guarantee it to be zero…it’s the nature of the process: INFLATION = DEFAULT – INTEREST = zero.
IML: There is no similar floor under fiat currencies. The dollar and bitcoin are ultimately worth their weight in gold ($0).
TM: When you know what money is (i.e. a promise to complete a trade over time and space); when you know where money comes from (i.e. created by traders like you an me buying stuff with time payments); when you know where money goes (i.e. returned and destroyed with each time payment…or mitigated by INTEREST collections of like amount when DEFAULTed). The operative relation is: INFLATION = DEFAULT – INTEREST = Zero.
I value gold these days at roughly $2,000 per ounce. If you take all the gold in the whole world and divide it by the number of people, you get about one ounce per person as I recall…i.e. roughly $2,000…i.e. roughly 200 HULs. First, that’s not near enough for anybody’s need in trade…not in the near term…certainly not over time and space. But more importantly, the HULs are the only object guaranteed to have exactly the same value in every SBE. Gold goes up and down. Dollars go up…until they call the loans…then they go down dramatically. And as usual with all fake money…up is down and down is up when you think about it.
Your serve IML.
DM: Sorry for the latency on responding to your comment. It got lost in the spam for a little while.
IML: I don’t see much disagreement. Almost everything you said supports my positions as well. The store of value aspect of honest or sound money is an important one that survives between uses, from time to time, person to person. It is still a negotiation, but so is a HUL (from what I can see). Some of your examples are more stable than others, and gold is among the longest lasting historically.
MD: The key is how a HUL comes into being and ceases to be. Since it is guaranteed to never appreciate or depreciate over time and space it is a known quantity. The “foot” is a measure of distance. It’s roughly the size of a person’s foot. But when put to actual use there is a “standard foot”. There never will be a standard HUL. There will just be a standard way of creating one and destroying one. It will always be a perception of two traders at the time of a trade. And when it is destroyed, it will always be equal to the one that was created. It’s just a unit of counting.
IML: I disagree with your suggested definition of capitalism. Capitalism requires sound money without fractional reserves. That’s what worked, and the banks had bars on the windows and heavy safes. Think 1800s America, not the decline thereafter. “Capitalism” requires a free market and sound money so that buyers and sellers can negotiate to discover the price without distortion from politics and decay. Win-win, not win-lose.
MD: We would probably disagree about religion too. Capital is an alternative to labor. It’s that plain and simple. Both require a free market. Neither “require” money, sound or otherwise. Price is a perception between two traders at a specific place and instant in time… whether they’re trading capital, labor, or a combination of both. Money therefore is “not” capital. A shovel is a capital that leverages labor. Money leverages nothing. It’s just a score keeper. All are just “stuff”… except when it comes to creating and destroying HULs.
IML: If you believe an ounce of gold is not different than a cement block, I’ll gladly trade your ounce of gold for my cement block. Gold will fit in my pocket better. I agree they are both real things.
MD: When it comes to an object of trade there is no difference. When it comes to a trader’s desire to have or a trader’s desire to part with, that’s another matter. Based on prices of each, people want cement blocks more than gold over the last 10 years. But they’re not looking for something to put in their pocket.
IML: But you knew I value gold higher than its spot price in dollars. I bought my first gold eagle at $1,200 (equal to one mortgage payment), a few years later my mortgage payment was $1,500 and so was the coin. Then they were both $1,700 in dollars. The homes got gutted and renovated during that time, but the dollars just kept falling in purchasing power. I still have the coin, because I expect it to continue to outperform. I sold one of the houses and bought more ounces.
MD: I bought my gold at GoldMoney.com. I bought it with dollars. I immediately asked them to send me the gold… which they did. But I had to pay 10% duty plus some processing cost. So my round trip cost was too high. So I just let it sit there. They take away a tenth of a gram for a month’s storage. Now they won’t even tell me how much I have. They tell me regulations require me to have a bank. Their original pitch was they were a safe alternative to a bank. I have found banks to be unsafe so I don’t have one. Unless I comply, they are thieves… protected by the Canadian government.
IML: Farmers, pigs, and corn are real, too (although I consider corn toxic to health of humans, pigs, and cattle). Yes, gold is just such a thing, but if you think food is a good store of value, you haven’t seen the contents of my compost bin. Gold is barterable, but its status as money comes from being good at it over time and geography, and generally surviving the persons who earned it.
MD: What you think is toxic, another may think nutricous. If you were starving, I’m sure your feelings would change… at least in that moment. I know food is “not” a good store of value. But to me it’s better than a dollar or gold. I can my food. It lasts for years. My dollar and my gold have gone down over the same period. My canned food is not bartarable. But I can still eat it as well as fresh food. To replace it costs me more now than when I last canned it. To me my food canned now is equal to my food canned five years ago… and I prove it on a weekly basis. If I had put HULs on the shelf, that would likely also be true… dollars, not so much. If we had a “real money process” I would prefer to have HULs over gold and cement blocks. My canned food? … not so much. In such a system it’s about record keeping and preservation of records. In the olden days you had to have an “abstract” to prove your ownership of land. These days you buy title insurance. A shared ledger block chain of abstracts would be better than title insurance. A shared ledger block chain of HUL ledger entries would be better than those records on your computer.
IML: Yes, the value is determined at the point of agreement to exchange, but what if the thing is stolen? Was the value zero? Is it gone? Or is it still there to be rediscovered? What value last week’s lunch?
MD: What if your car is stolen. What if it is lost to fire? It’s gone. But if your HULs are proven in a distributed shared ledger, they can’t be stolen. They can’t be destroyed. The “process” guarantees it. The “transparency” assures it. But if you convert your HULs to some token or script, those can be lost… and gone forever. Such leaks are lost in the noise of price discovery. In the olden days if a ship went down loaded with silver, it could be a whole country down.
IML: As far as I can tell HUL’s don’t exist. The problem with abstract concepts is that half or more of the world population don’t think in abstract concepts nearly as much as they do weight, texture, color, smell, utility, and all the other characteristics of real things. When you use real money, the banks are made of marble and steel and concrete feet thick, and the bankers and customers both prefer it that way.
MD: That’s like saying “records don’t exist”. The legal documents representing your land are abstracts. Your land is concrete. If the courthouse burns down, your copies are your only backup. With the HUL, everyone has access to “your” backup… so you do too. I must challenge your estimate of people who don’t think in abstracts. I don’t know a single person who doesn’t think in that abstract thing we know as a “dollar”. I always wondered how banks afforded all that marble and steel. When I learned about their 10x leverage, it became very clear. Try this thought experiment: Assume we have been using the HUL and its process for the last 250 years. Make the case for replacing it with a new thing called the “dollar” and its process.
IML: HUL’s don’t seem to be in use even as currency, let alone money. Probably the highest hourly rate I was ever paid was for helping my Dad mix and pour concrete for a sidewalk at age 4 or 5 (I think I was paid in silver certificates). I remember getting tired of how long it was taking. The problem is, I didn’t know I would get paid, so there was no negotiation. But then he paid me, and it felt really good to have my work valued by him. HUL units sound disappointing in comparison. It is, we agree, important to link the work to the value, even though work varies greatly in its value to someone else.
MD: You are correct. HUL’s aren’t in use anywhere. There was a time when “dollars” weren’t either. In time people bought into the “backed by precious metals” myth. Now they buy into the “backed by the USA” myth. It works until it doesn’t. The HUL is backed by its transparency and permanent indisputable record. Our advanced ability to keep and disseminate records now enables that.
MD: Thanks for your comment. I’ve enjoyed the conversation.