------=_Part_33577_26720596.1164642321216
Content-Type: text/plain; charset=ISO-8859-1; format=flowed
Content-Transfer-Encoding: 7bit
Content-Disposition: inline
Very interesting answers.
I accept and understand points made by Michael and Steve and Kevin about how
the supply of a currency affects the value of that currency, and can affect
inflation. And while I agree that controlling supply is part of what gives a
currency value, it seems to me that it is not sufficient; one must also have
a demand for the currency for a value to be set.
The problem in my mind is not understanding the effect of supply, it is
understanding where demand comes from, and what puts the demand curve for a
currency for an individual in one place as opposed to another place. Clearly
demand for yootles is determined by their utility; but what determines the
utility of a yootle to an individual?
Kevins answer addresses some of this. His argument that demand is set by
peoples expectations; they expect it to be worth something, and so it is.
But it begs the question of how their expectations get set, and how
everyones expectations are synchronized to be the same. If I have one
expectation for the value of a yootle, and you have another, the currency
system will break down because one of us will be surprised at what we can or
cannot buy. Kevin's summation is somewhat convincing to me:
> As far as fundamental value goes, I think a yootle needs to be tied
> to something else of value to have any real value in itself, at
> least until people become accustomed to the system
I agree that it seems that a yootle must be tied to something at some point,
to set the expectations of its utility. I could accept that a currency could
be "not tied" to anything if people have a general expectation of how much
that currency is worth. But the expectation must be set in the beginning,
somehow, and synchronized and maintained. Once it is untied, I am unsure how
synchronization of peoples expectations of the utility of a yootle is
maintained.
As a point of curiosity/interest, I was taught that the dollar is 'tied' to
something of value even today and that something is banking transaction
services.
As it was explained to me: One of the Feds functions is clearing checks
between large banks. This service indirectly backs your ability to write
checks on your checking account, because small banks use larger banks to
transfer funds, and largest banks use the fed. So it is a useful service.
The Fed clears a finite number of checks a day which correspond to some
amount of currency transfers and some amount of labor. You can get the Fed
to do this by paying them dollars.
This labor backs the value of the dollars in circulation, because the fed
guarantees that you can always exchange dollars for banking transaction
(check clearing) services. Conceptually, if you give the Fed a few pennies,
they will clear your check for you. That is a guaranteed exchange, and that
is how dollars are tied to or backed by banking transaction services.
So it used to be that the Fed guaranteed an exchange of
dollars gold
and now it guarantees an exchange of
dollars banking transaction services
There is nothing special about banking transaction services; they are just
the service that the Fed guarantees you can buy with your dollars. There is
something special about the Fed, since it issues those dollars and this is
what creates the "tie."
That was the source of my resistance to a tie-less currency, because that is
how I thought peoples expectations about the amount of value a particular
currency holds were set and maintained and synchronized.
Mabye, as Kevin suggests, once the expectations are set, they remain
synchronized without necessarily having a tie.
So mabye I can summarize my remaining questions thus:
A: If we have tied yootles to something of value, how do we prevent someone
who has an abundance of this resource from getting their way every time? Is
it necessary to prevent someone from doing this to have a fair system?
B: If we have not tied yootles to something of value, how do expectations of
the utility of a yootle get set, synchronized and maintained for individuals
(specifically referring to the demand side of the yootle-value equation)?
It is entirely possible that the answer is B and someone can point me to a
theory or paper that describes this mechanism..
-Yanni
------=_Part_33577_26720596.1164642321216
Content-Type: text/html; charset=ISO-8859-1
Content-Transfer-Encoding: 7bit
Content-Disposition: inline
Very interesting answers. I accept and understand points made by Michael and
Steve and Kevin about how the supply of a currency affects the value of that
currency, and can affect inflation. And while I agree that controlling supply
is part of what gives a currency value, it seems to me that it is not
sufficient; one must also have a demand for the currency for a value to be set.
The problem in my mind is not understanding the effect of supply, it is
understanding where demand comes from, and what puts the demand curve for a
currency for an individual in one place as opposed to another place. Clearly
demand for yootles is determined by their utility; but what determines the
utility of a yootle to an individual?
Kevins answer addresses some of this. His argument that demand is set by
peoples expectations; they expect it to be worth something, and so it is. But
it begs the question of how their expectations get set, and how everyones
expectations are synchronized to be the same. If I have one expectation for the
value of a yootle, and you have another, the currency system will break down
because one of us will be surprised at what we can or cannot buy. Kevin's
summation is somewhat convincing to me:
> As far as fundamental value goes, I think a yootle needs to be tied >
to something else of value to have any real value in itself, at > least
until people become accustomed to the system I agree that it seems that a
yootle must be tied to something at some point, to set the expectations of its
utility. I could accept that a currency could be "not tied" to anything if
people have a general expectation of how much that currency is worth. But the
expectation must be set in the beginning, somehow, and synchronized and
maintained. Once it is untied, I am unsure how synchronization of peoples
expectations of the utility of a yootle is maintained.
As a point of curiosity/interest, I was taught that the dollar is 'tied' to
something of value even today and that something is banking transaction
services. As it was explained to me: One of the Feds functions is clearing
checks between large banks. This service indirectly backs your ability to write
checks on your checking account, because small banks use larger banks to
transfer funds, and largest banks use the fed. So it is a useful service.
The Fed clears a finite number of checks a day which correspond to some
amount of currency transfers and some amount of labor. You can get the Fed to
do this by paying them dollars. This labor backs the value of the dollars in
circulation, because the fed guarantees that you can always exchange dollars
for banking transaction (check clearing) services. Conceptually, if you give
the Fed a few pennies, they will clear your check for you. That is a guaranteed
exchange, and that is how dollars are tied to or backed by banking transaction
services.
So it used to be that the Fed guaranteed an exchange of
dollars <==> gold and now it guarantees an exchange of
dollars <==> banking transaction services
There is nothing special about banking transaction services; they are just the
service that the Fed guarantees you can buy with your dollars. There is
something special about the Fed, since it issues those dollars and this is what
creates the "tie."
That was the source of my resistance to a tie-less currency, because that is
how I thought peoples expectations about the amount of value a particular
currency holds were set and maintained and synchronized.
Mabye, as Kevin suggests, once the expectations are set, they remain
synchronized without necessarily having a tie. So mabye I can summarize my
remaining questions thus: A: If we have tied yootles to something of value,
how do we prevent someone who has an abundance of this resource from getting
their way every time? Is it necessary to prevent someone from doing this to
have a fair system?
B: If we have not tied yootles to something of value, how do expectations of
the utility of a yootle get set, synchronized and maintained for individuals
(specifically referring to the demand side of the yootle-value equation)?
It is entirely possible that the answer is B and someone can point me to a
theory or paper that describes this mechanism.. -Yanni
------=_Part_33577_26720596.1164642321216--
|
