But who gets it at the start after you issue it? In exchange for what?
If there is already an established private money, then the governments money will be set to a certain value and taxes will be owed in the new coin, and since this will force a market for the coin, people will happily work for the coin. Nobody has to work for the governments coin but those that do will see the value in doing so, where their will be no shortage of people with goods and services wanting the government coin.
If there is already an established private money, then the governments money will be set to a certain value and taxes will be owed in the new coin, and since this will force a market for the coin, people will happily work for the coin. Nobody has to work for the governments coin but those that do will see the value in doing so, where their will be no shortage of people with goods and services wanting the government coin.
I'll buy that. So essentially, there has to be established non-fiat money in existence before you can start issuing fiat money.
Sort of like the first lathe lead screw had to be carved by hand.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
The financial system works on faith, so long as enough people believe it will work, it works.
Quote:
The notes were examined with much care and solemn discussion.
'It's just an IOU or marker, really.'
'All right, but supposing you needed the money?'
'But, correct me if I'm wrong, isn't the IOU the money?'
'All right then, who owes it to you?'
'Er… Jack here, because… No, hang on… it is the money, right?'
Moist grinned as the discussion wobbled back and forth. Whole new theories of money were growing here like mushrooms, in the dark and based on bullshit. But these were men who counted every half-farthing and slept at night with the cash box under their bed. They'd weigh out flour and raisins and hundreds-and-thousands with their eyes ferociously focused on the scale's pointer, because they were men who lived in the margins. If he could get the idea of paper money past them then he was home and, if not dry, then at least merely Moist.
'So you think these could catch on?' he said, during a lull.
The consensus was, yes, they could, but they should look 'fancier', in the words of Natty Poleforth: 'You know, with more fancy lettering and similar.' Moist agreed, and handed over a note to every man, as a souvenir. It was worth it.
'And if it all goes wahoonie-shaped,' said Mr Proust, 'you've still got the gold, right? Locked up down there in the cellar?'
'Oh, yes, you've got to have the gold,' said Mr Drayman.
There was a general murmur of agreement, and Moist felt his spirits slump.
'But I thought we'd all agreed that you don't need the gold?' he said. In fact they hadn't, but it was worth a try.
'Ah, yes, but it's got to be there somewhere,' said Mr Drayman.
'It keeps banks honest,' said Mr Poleforth, in that tone of plonking certainty that is the hallmark of that most knowledgeable of beings, The Man In The Pub.
'But I thought you understood,' said Moist. 'You don't need the gold!'
'Right, sir, right,' said Poleforth soothingly. 'Just so long as it's there.'
'Er, do you happen to know why it has to be there?' said Moist.
'Keeps banks honest,' said Poleforth, on the basis that truth is achieved by repetition. And, with nods all round, this was the feeling of Tenth Egg Street. So long as the gold was somewhere, it kept banks honest and everything was okay. Moist felt humbled by such faith. If the gold was somewhere, herons would no longer eat frogs, either. But in fact there was no power in the world that could keep a bank honest if it didn't want to be.
- Terry Pratchett - Making Money
I know, I quote Pratchett a lot, but he was so damn ferociously intelligent. The Disc is both ‘a world and mirror of worlds’, filled with different countries and cultures which have more than a passing resemblance to our own, his recreation of Australia, a place called 'Fourecks' is awesome. The Discworld series is technically for mature teens, but they are a great read for anyone.
"If man is to survive, he will have learned to take a delight in the essential differences between men and between cultures. He will learn that differences in ideas and attitudes are a delight, part of life's exciting variety, not something to fear." - Gene Roddenberry
"Balloon animals are a great way to teach children that the things they love dearly, may spontaneously explode" -- Lee Camp
Interesting point. This is assuming the whole system started at a time when things were not "full fiat".
How would you start a fiat currency monetary system today? It is very interesting question of bootstrapping.
The Holey Dollar and Dump makes a nice money printing story in the pre-fiat world
Quote:
The holey dollar was created to address a shortage of coins in the new colony. Governor Lachlan Macquarie imported 40,000 Spanish reales in 1812 and had convicted forger William Henshall cut the centre out of each, to double the number of available coins. The coins were counterstamped and the outer ring became known as the holey dollar, with the centre renamed the dump.
Macquarie set the value of the holey dollar at five shillings, with 15 pence for the dump. These coins went into circulation in 1814 and were replaced with sterling coinage from 1822. The National Museum's holey dollar is one of about 300 in existence.
'Holey dollars speak eloquently of the creative and improvisatory attempts to create an orderly administration in colonial Australia,' said National Museum Director Andrew Sayers. 'The holey dollar we have acquired for the National Museum is a finely preserved example of this iconic object from the era of Macquarie'.
Governor Macquarie and Australia's first minted currency
Foreign coins were common in the early years of the New South Wales colony. British coins circulated with Dutch guilders and ducats, Indian mohurs and rupees and Portuguese johannas. Much of this coin left the colony as a result of trade with visiting merchant ships.
In 1800 Governor Philip Gidley King issued a proclamation giving fixed values to the most common coins in circulation in New South Wales. This helped to ensure a ready supply of coinage for local trading and stabilised the value of each coin used in the colony. King fixed the Spanish dollar at a value of five shillings but many still left the colony as payment for goods arriving on ships from the Americas, Asia and the Cape of Good Hope.
Governor Lachlan Macquarie set out to secure a reliable supply of coins for the colony. A special shipment of 40,000 coins arrived in the colony from Madras aboard the Samarang on 26 November 1812. These coins were Spanish silver eight reale coins, known as 'pieces of eight', and they were commonly used as an international trading currency. It is likely Macquarie was aware of an earlier system used in another British colony, the West Indies, where captured Spanish dollars were cut and counterstamped so they could not be re-exported. By having the centres stamped out of these coins, Macquarie distinguished them as belonging to the colony of New South Wales and prevented them from going straight out again. In doing so, he created the first currency minted in Australia.
It's all a dream. If the people stop dreaming it's over. The human imagination is the true engine behind all of what you see. Just look around you right now. Everything you see is because someone had an idea of making it. The coffee cup, the coffee in it. The milk the sugar, the computer the desk. The carpet on the floor. It was all someones dream. To make make carpet to make the computer, to make the factory that makes the coffee cups. It is but a dream. Peter From Perth :pop: So dream.
The financial system works on faith, so long as enough people believe it will work, it works.
I know, I quote Pratchett a lot, but he was so damn ferociously intelligent. The Disc is both ‘a world and mirror of worlds’, filled with different countries and cultures which have more than a passing resemblance to our own, his recreation of Australia, a place called 'Fourecks' is awesome. The Discworld series is technically for mature teens, but they are a great read for anyone.
I love Pratchett. And he has his way of hitting the nail on the head.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
I'd like to put forward a scenario where a single bank exists to keep things simple. I want to understand the issuing of government bonds and government debt.
My understanding is as follows 1 Government issues $1B bonds for sale. 2 Bank purchases $1B bonds with money that existed as customer deposits. 3 Government runs $1B deficit and the money ends up back at the bank as customer deposits. 4 The following year the government sells another $1B of bonds purchased by the bank and the cycle continues until the government balances its budget.
The overall effect is that the total money in the economy has increased by the size of the government debt, and there is an equivalent amount of bonds in circulation.
1. Private banking families corrupt governments and take control of their currencies. 2. Private banking families create vast sums of money in the form of debt to enrich themselves. 3. The debt money creates massive distortions in what would otherwise be slowly growing economies. 4. Distortions include overspending, resource depletion, pollution, eco-system destruction. 5. Eventually the debt grows so large it cannot be serviced, the economy collapses.
Examples. 1. The banking families that hold the shares of the federal reserve and thereby control money creation. 2. The 40 Trillion US. private debt and the interest the banks make off it. 3. The creation of massive new shopping malls that leave others idle. 4. The global consumer goods binge that flows through homes and into landfills ever faster. 5. What we now see happening all across the western world, slowed a tad by money printing bailouts.
I'd like to put forward a scenario where a single bank exists to keep things simple. I want to understand the issuing of government bonds and government debt.
My understanding is as follows 1 Government issues $1B bonds for sale. 2 Bank purchases $1B bonds with money that existed as customer deposits. 3 Government runs $1B deficit and the money ends up back at the bank as customer deposits. 4 The following year the government sells another $1B of bonds purchased by the bank and the cycle continues until the government balances its budget.
The overall effect is that the total money in the economy has increased by the size of the government debt, and there is an equivalent amount of bonds in circulation.
No, I disagree. I say the result in your example is no change to the money supply aggregate.
Step 1 - the government issues $1B in bonds.
The money for the purchases has to come from private sector accounts (which are a part of the money supply) regardless of whether those purchases are made by banks or any other entity. The government issue of bonds results in accounts being debited in the private sector to pay for those bonds.
This results in a reduction in the money supply in the same way that CB selling of bonds is the traditional tool used to reduce the money supply and put downward pressure on inflation.
Step 2 - the government spends $1B (ie an amount equal to the receipts from the bond sale).
This returns to the private sector the money taken in step 1 and restores the money supply to what it was before step 1.
In summary, step 1 actions reduce the money supply and step 2 actions increase the money supply.
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