| I posted this because it is an interesting view, and it was written in 1913 and so a lot the ideas here got picked up and included in ideas of economics since then. But I do have some major disagreements with the author: "Credit and debt have nothing and never have had anything to do with gold and silver." The history goes that originally humans used things like shells and beads to signal debts and obligations ( http://szabo.best.vwh.net/shell.html ). The idea is you need to have some collectible that is very hard to produce or fake, otherwise someone could forge it and fake that you owed them a debt. Overtime, it turns out gold and silver make the best tokens, because they are rare, easily molded into tokens of various size, and are very hard to fake. Then the government makes coins out of these gold and silver, and tries to make the coins the official tender, and sets the value of the coins at premium over the bullion included. Finally, the government tries to debase the coins gradually so it can make money from seinorage. "Such legislation was, no doubt, due to the erroneous view that has grown up in modern days that a depositor has the right to have his deposit paid in gold or in “lawful money.” I am not aware of any law expressly giving him such a right, and under normal conditions, at any rate, he would not have it" It would have been news to the depositors that they did not have the right to withdraw the money they put in. If they were not given this right, would they still lend? Part of the problem with banking historically is that there needs to be a clearer distinction between a deposit to a vault and investing in a bond mutual fund. Banks are sort of a hybrid of the two, and the contradiction makes the system break down. "but there is overwhelming evidence that there never was, a monetary unit which depended on the value of coin or on a weight of metal; that there never was, until quite modern days, any fixed relationship between the monetary unit and any metal; that, in fact, there never was such a thing as a metallic standard of value." If this was the case, then why didn't the Roman emperors make their coins out of iron? Sure, the face value always exceeded the metal value. But the metal was irrelevant. If the government pushes it too far, people stop accepting the coin, as the author notes in other parts of the essay. "Money, then, is credit and nothing but credit." There is a sense in which this is true. It is like one of those optical illusions, where the image flips depending on how you look at it. But, from the point of view of a clean definition of terms, it only makes sense to call something a "credit" if you are promised something specific in return. If a token has no specific promise, then it is a collectible, not a credit. |