Fiat Money Explained (Video)

From YouTube description: “Despite every effort by governments, the gap between rich and poor continues to grow. It is now the biggest it has even been in history. All sorts of reasons for this have been proffered, but few, however, seem to realise that is a simple, inevitable consequence of our system of money and credit. This video, a shorter version of which appears in the film The Four Horsemen, explains …”

, , , , , , ,

  • DeepCough

    You know what, that pyramid on the back of the dollar bill has a whole new meaning now.

  • DeepCough

    You know what, that pyramid on the back of the dollar bill has a whole new meaning now.

  • Tchoutoye

    As Bill Still says: It’s not what backs the money, it’s who controls its quantity.

  • Anonymous

    As Bill Still says: It’s not what backs the money, it’s who controls its quantity.

  • Gilligan

    “Despite every effort by governments, the gap between rich and poor continues to grow.” – What’s wrong with this statement?

    • Mr Willow

      The government (at least in recent years) has done nothing to narrow the gap between the rich and the poor, because the rich have paid all of our politicians (nearly) to turn a blind eye to their dealings that widen the gap. 

      Do I get a cookie, now?

  • Gilligan

    “Despite every effort by governments, the gap between rich and poor continues to grow.” – What’s wrong with this statement?

  • Mr Willow

    The government (at least in recent years) has done nothing to narrow the gap between the rich and the poor, because all the rich have paid all of our politicians (nearly) to turn a blind eye to their dealings that widen the gap. 

    Do I get a cookie, now?

  • Mr Willow

    Right, they go back to the banks, and the banks create more magic money, that they charge interest on, and so on and so forth. A vicious cycle, created by the wealthy, for the wealthy. 

    But even before that, when we were on the gold standard, was that money any more ‘real’? 

    Certainly, gold and silver have more worth than a rectangular piece of paper with a number and a historical portrait plastered on it or a computerised digit, but that value is in no way related to finance. Both are good conductors of electricity and heat. Gold is used in a variety of practical applications (http://www.gold.org/technology/uses/), and silver is used, most notably in batteries, as they have superior power output—in fact, because of environmental concerns, silver-oxide batteries are favoured over lithium-ion batteries (http://www.silverinstitute.org/silver_uses.php for further reading)—and, perhaps more importantly to some, they are aesthetically pleasing, which is why they have been used in jewellry for centuries. 

    One of the main reasons gold and silver are so valuable, in keeping with nearly every other commodity or invention, is because of rarity. This is true of everything from comic books to old military uniforms. The lower the number of any sort of item, they higher the value. But that really says something about value, doesn’t it? 

    If the value of anything can skyrocket because all the copies of said thing are suddenly destroyed or lost, then that says more of human ego than necessitating one’s survival, food, let’s say, which is surely of more overall value. Humans truly are fickle creatures. We would rather have the shiny rock than a few seeds that may be planted. I think that would be more a cultural thing, as a poor village in the third world would probably, given the choice, revere the seeds as a greater asset than the rock—of any colour, luster, or size. 

    Another thing that can affect the price of certain elements—as the value of a manufactured product could be more or less than another based upon the quality of such manufacturing, which is generally why older machines (everything from cars to firearms to clocks) are usually of more value—is the difficulty in acquiring the raw form of said element. This is why, until 1825, aluminum was more valuable than gold. 

    In all honesty, I feel we have been coaxed, coërced, and brain-washed into believing that a thing of rarity is of more worth than a thing of actual use.

    • Liam_McGonagle

      Re: the issue of the arbitrary value of money:

      I suppose it boils down to the fact that we just don’t know how to interact with one another.  We’re finite human beings, living in a finite world, possessed of a finite (albeit unknown) set of resources, capabilities and wants, the relative value of which isn’t always readily apparent to those we deal with.

      A short-hand is useful.  Even if it’s admittedly an imperfect medium of exchange, having some arbitrary but commonly accepted unit of value is handy is greasing the wheels.

      The problem is that we can never quite get beyond the arbitrary nature of money.  The ideal situation would be to accumulate the wisdom of humanity’s experience with the pros/cons of each type of money, and arrive at some collective mechanism to manage it; declare sharp preferences for those types of money that historically have proven beneficial to exchange and real production to improve living standards and enact sanctions against the creation of monies that are harmful.

      Somehow we keep falling victim to delusions of grandeur and fantasies of omnipotence that distract us from the real meaning of events unfolding before our eyes.  We have not recognized the housing bubble as a flawed experiment in commercial fiat money that had the salutory effect of circulating enough capital to raise a society’s living standards, but was ultimately undone by longer term dynamics in the system that led to grotesque and unhealthy accumulations by a group of people far too small to ever spend it productively.  Going on year # 4 now.  Has the light gone on yet?  Rebalance the freakin’ tax code to get the moolah moving.

      The answer is NOT the gold standard–not that you said it was.  You didn’t.  Gold is much harder to counterfeit, but relative to the supply of gold available in the world, (aggregate) human capacity for invention and productivity is (nearly) limitless.  All forms of money are ultimately based on the fiat principle.  Some are more flexible than others.  We just need to pay attention to what we’re doing and keep our eyes on the road.

  • Mr Willow

    Right, they go back to the banks, and the banks create more magic money, that they charge interest on, and so on and so forth. A vicious cycle, created by the wealthy, for the wealthy. 

    But even before that, when we were on the gold standard, was that money any more ‘real’? 

    Certainly, gold and silver have more worth than a rectangular piece of paper with a number and a historical portrait plastered on it or a computerised digit, but that value is in no way related to finance. Both are good conductors of electricity and heat. Gold is used in a variety of practical applications (http://www.gold.org/technology/uses/), and silver is used, most notably in batteries, as they have superior power output—in fact, because of environmental concerns, silver-oxide batteries are favoured over lithium-ion batteries (http://www.silverinstitute.org/silver_uses.php for further reading)—and, perhaps more importantly to some, they are aesthetically pleasing, which is why they have been used in jewellry for centuries. 

    One of the main reasons gold and silver are so valuable, in keeping with nearly every other commodity or invention, is because of rarity. This is true of everything from comic books to old military uniforms. The lower the number of any sort of item, they higher the value. But that really says something about value, doesn’t it? 

    If the value of anything can skyrocket because all the copies of said thing are suddenly destroyed or lost, then that says more of human ego than necessitating one’s survival, food, let’s say, which is surely of more overall value. Humans truly are fickle creatures. We would rather have the shiny rock than a few seeds that may be planted. I think that would be more a cultural thing, as a poor village in the third world would probably, given the choice, revere the seeds as a greater asset than the rock—of any colour, luster, or size. 

    Another thing that can affect the price of certain elements—as the value of a manufactured product could be more or less than another based upon the quality of such manufacturing, which is generally why older machines (everything from cars to firearms to clocks) are usually of more value—is the difficulty in acquiring the raw form of said element. This is why, until 1825, aluminum was more valuable than gold. 

    In all honesty, I feel we have been coaxed, coërced, and brain-washed into believing that a thing of rarity is of more worth than a thing of actual use.

  • Liam_McGonagle

    “Despite every effort by governments, the gap between rich and poor continues to grow. . . ”

    Don’t you think that’s a bit wide of the mark?  There have been very few real efforts by government. All they’ve done to date is re-align the feng shui of the abattoir.

    Everyone outside of the Fed and Wall Street knows what the problem is:  no capital circulating to the real economy.  Didn’t need to be a freakin’ detective to figure that one out.

    And that problem is hardly unique to cash economies with serious fiat components.  The problem is a structural disincentive to SPEND.

    Dumb*ss self-proclaimed “fiscal conservatives” all up in arms about government spending make me laugh.  Where the hell do they think that money goes?  It evaporates up to the M1 Fairy in the sky?  Sadly such poetic flights of fancy are much less likely than the simple reality:  it gets freakin’ spent.  By people.  AT THEIR discretion–not Charles Koch’s.  To do things THEY want to do.  Which often includes starting their own businesses.

    So of course the mandarins behind the Tea Party hate government spending.  It actually provides the real economy with the cash low folks would need to start businesses that might eventually compete with the Koch Bros’ oligopoly.

    “Thankfully”, they still have a lot of weapons at their disposal to defeat economic freedom.  True, a significant one is virtual ownership of Las Vegas-style financial markets to crank out fantasy M3 in exchange for your solid US Treasury-issued M1 & M2.  The siren lure of unrealistic returns and price / earnings ratios really makes most productive alternatives out of the question for most people, who rarely consider the actual GDP return on their investment.  The unrealized “gains” on this pyramid scam are called “commercial money” and constitute one component of the M3 aggregate money supply.  That is essentially fiat money–though generated by the private sector rather than the public.

    Which is the U.S.’s real problem with fiat money.  Not it’s mere existence, but that it’s been left completely unregulated in the hands of scabby financeer whoors who deride the very notion of the public good.

    http://dystopiadiaries.blogspot.com/2010/11/would-henry-i-have-castrated-goldman.html

  • Anonymous

    “Despite every effort by governments, the gap between rich and poor continues to grow. . . ”

    Don’t you think that’s a bit wide of the mark?  Everyone knows what the problem is:  no capital circulating to the real economy.  Didn’t need to be a freakin’ detective to figure that one out.

    And that problem is hardly unique to cash economies with serious fiat components.  The problem is a structural disincentive to SPEND.

    Dumb*ss self-proclaimed “fiscal conservatives” all up in arms about government spending make me laugh.  Where the hell do they think that money goes?  It evaporates up to the M1 Fairy in the sky?  Sadly such poetic flights of fancy are much less likely than the simple reality:  it gets freakin’ spent.  By people.  AT THEIR discretion–not Charles Koch’s.  To do things THEY want to do.  Which often includes starting their own businesses.

    So of course the mandarins behind the Tea Party hate government spending.  It actually provides the real economy with the cash low folks would need to start businesses that might eventually compete with the Koch Bros’ oligopoly.

    “Thankfully”, they still have a lot of weapons at their disposal to defeat economic freedom.  True, a significant one is virtual ownership of Las Vegas-style financial markets to crank out fantasy M3 in exchange for your solid US Treasury-issued M1 & M2.  The siren lure of unrealistic returns and price / earnings ratios really makes most productive alternatives out of the question for most people who rarely consider the actual GDP return on their investment.  The unrealized “gains” on this pyramid scam are called “commercial money” and constitute one component of the M3 aggregate money supply.  That is essentially fiat money–though generated by the private sector rather than the public.

    Which is the U.S.’s real problem with fiat money.  Not it’s mere existence, but that it’s been left completely unregulated in the hands of scabby financeer whoors who deride the very notion of the public good.

    http://dystopiadiaries.blogspot.com/2010/11/would-henry-i-have-castrated-goldman.html

  • Anonymous

    “Despite every effort by governments, the gap between rich and poor continues to grow. . . ”

    Don’t you think that’s a bit wide of the mark?  Everyone knows what the problem is:  no capital circulating to the real economy.  Didn’t need to be a freakin’ detective to figure that one out.

    And that problem is hardly unique to cash economies with serious fiat components.  The problem is a structural disincentive to SPEND.

    Dumb*ss self-proclaimed “fiscal conservatives” all up in arms about government spending make me laugh.  Where the hell do they think that money goes?  It evaporates up to the M1 Fairy in the sky?  Sadly such poetic flights of fancy are much less likely than the simple reality:  it gets freakin’ spent.  By people.  AT THEIR discretion–not Charles Koch’s.  To do things THEY want to do.  Which often includes starting their own businesses.

    So of course the mandarins behind the Tea Party hate government spending.  It actually provides the real economy with the cash low folks would need to start businesses that might eventually compete with the Koch Bros’ oligopoly.

    “Thankfully”, they still have a lot of weapons at their disposal to defeat economic freedom.  True, a significant one is virtual ownership of Las Vegas-style financial markets to crank out fantasy M3 in exchange for your solid US Treasury-issued M1 & M2.  The siren lure of unrealistic returns and price / earnings ratios really makes most productive alternatives out of the question for most people who rarely consider the actual GDP return on their investment.  The unrealized “gains” on this pyramid scam are called “commercial money” and constitute one component of the M3 aggregate money supply.  That is essentially fiat money–though generated by the private sector rather than the public.

    Which is the U.S.’s real problem with fiat money.  Not it’s mere existence, but that it’s been left completely unregulated in the hands of scabby financeer whoors who deride the very notion of the public good.

    http://dystopiadiaries.blogspot.com/2010/11/would-henry-i-have-castrated-goldman.html

  • Anonymous

    “Despite every effort by governments, the gap between rich and poor continues to grow. . . ”

    Don’t you think that’s a bit wide of the mark?  Everyone knows what the problem is:  no capital circulating to the real economy.  Didn’t need to be a freakin’ detective to figure that one out.

    And that problem is hardly unique to cash economies with serious fiat components.  The problem is a structural disincentive to SPEND.

    Dumb*ss self-proclaimed “fiscal conservatives” all up in arms about government spending make me laugh.  Where the hell do they think that money goes?  It evaporates up to the M1 Fairy in the sky?  Sadly such poetic flights of fancy are much less likely than the simple reality:  it gets freakin’ spent.  By people.  AT THEIR discretion–not Charles Koch’s.  To do things THEY want to do.  Which often includes starting their own businesses.

    So of course the mandarins behind the Tea Party hate government spending.  It actually provides the real economy with the cash low folks would need to start businesses that might eventually compete with the Koch Bros’ oligopoly.

    “Thankfully”, they still have a lot of weapons at their disposal to defeat economic freedom.  True, a significant one is virtual ownership of Las Vegas-style financial markets to crank out fantasy M3 in exchange for your solid US Treasury-issued M1 & M2.  The siren lure of unrealistic returns and price / earnings ratios really makes most productive alternatives out of the question for most people who rarely consider the actual GDP return on their investment.  The unrealized “gains” on this pyramid scam are called “commercial money” and constitute one component of the M3 aggregate money supply.  That is essentially fiat money–though generated by the private sector rather than the public.

    Which is the U.S.’s real problem with fiat money.  Not it’s mere existence, but that it’s been left completely unregulated in the hands of scabby financeer whoors who deride the very notion of the public good.

    http://dystopiadiaries.blogspot.com/2010/11/would-henry-i-have-castrated-goldman.html

  • Anonymous

    “Despite every effort by governments, the gap between rich and poor continues to grow. . . ”

    Don’t you think that’s a bit wide of the mark?  Everyone knows what the problem is:  no capital circulating to the real economy.  Didn’t need to be a freakin’ detective to figure that one out.

    And that problem is hardly unique to cash economies with serious fiat components.  The problem is a structural disincentive to SPEND.

    Dumb*ss self-proclaimed “fiscal conservatives” all up in arms about government spending make me laugh.  Where the hell do they think that money goes?  It evaporates up to the M1 Fairy in the sky?  Sadly such poetic flights of fancy are much less likely than the simple reality:  it gets freakin’ spent.  By people.  AT THEIR discretion–not Charles Koch’s.  To do things THEY want to do.  Which often includes starting their own businesses.

    So of course the mandarins behind the Tea Party hate government spending.  It actually provides the real economy with the cash low folks would need to start businesses that might eventually compete with the Koch Bros’ oligopoly.

    “Thankfully”, they still have a lot of weapons at their disposal to defeat economic freedom.  True, a significant one is virtual ownership of Las Vegas-style financial markets to crank out fantasy M3 in exchange for your solid US Treasury-issued M1 & M2.  The siren lure of unrealistic returns and price / earnings ratios really makes most productive alternatives out of the question for most people who rarely consider the actual GDP return on their investment.  The unrealized “gains” on this pyramid scam are called “commercial money” and constitute one component of the M3 aggregate money supply.  That is essentially fiat money–though generated by the private sector rather than the public.

    Which is the U.S.’s real problem with fiat money.  Not it’s mere existence, but that it’s been left completely unregulated in the hands of scabby financeer whoors who deride the very notion of the public good.

    http://dystopiadiaries.blogspot.com/2010/11/would-henry-i-have-castrated-goldman.html

  • Anonymous

    “Despite every effort by governments, the gap between rich and poor continues to grow. . . ”

    Don’t you think that’s a bit wide of the mark?  Everyone knows what the problem is:  no capital circulating to the real economy.  Didn’t need to be a freakin’ detective to figure that one out.

    And that problem is hardly unique to cash economies with serious fiat components.  The problem is a structural disincentive to SPEND.

    Dumb*ss self-proclaimed “fiscal conservatives” all up in arms about government spending make me laugh.  Where the hell do they think that money goes?  It evaporates up to the M1 Fairy in the sky?  Sadly such poetic flights of fancy are much less likely than the simple reality:  it gets freakin’ spent.  By people.  AT THEIR discretion–not Charles Koch’s.  To do things THEY want to do.  Which often includes starting their own businesses.

    So of course the mandarins behind the Tea Party hate government spending.  It actually provides the real economy with the cash low folks would need to start businesses that might eventually compete with the Koch Bros’ oligopoly.

    “Thankfully”, they still have a lot of weapons at their disposal to defeat economic freedom.  True, a significant one is virtual ownership of Las Vegas-style financial markets to crank out fantasy M3 in exchange for your solid US Treasury-issued M1 & M2.  The siren lure of unrealistic returns and price / earnings ratios really makes most productive alternatives out of the question for most people who rarely consider the actual GDP return on their investment.  The unrealized “gains” on this pyramid scam are called “commercial money” and constitute one component of the M3 aggregate money supply.  That is essentially fiat money–though generated by the private sector rather than the public.

    Which is the U.S.’s real problem with fiat money.  Not it’s mere existence, but that it’s been left completely unregulated in the hands of scabby financeer whoors who deride the very notion of the public good.

    http://dystopiadiaries.blogspot.com/2010/11/would-henry-i-have-castrated-goldman.html

  • Anonymous

    “Despite every effort by governments, the gap between rich and poor continues to grow. . . ”

    Don’t you think that’s a bit wide of the mark?  Everyone knows what the problem is:  no capital circulating to the real economy.  Didn’t need to be a freakin’ detective to figure that one out.

    And that problem is hardly unique to cash economies with serious fiat components.  The problem is a structural disincentive to SPEND.

    Dumb*ss self-proclaimed “fiscal conservatives” all up in arms about government spending make me laugh.  Where the hell do they think that money goes?  It evaporates up to the M1 Fairy in the sky?  Sadly such poetic flights of fancy are much less likely than the simple reality:  it gets freakin’ spent.  By people.  AT THEIR discretion–not Charles Koch’s.  To do things THEY want to do.  Which often includes starting their own businesses.

    So of course the mandarins behind the Tea Party hate government spending.  It actually provides the real economy with the cash low folks would need to start businesses that might eventually compete with the Koch Bros’ oligopoly.

    “Thankfully”, they still have a lot of weapons at their disposal to defeat economic freedom.  True, a significant one is virtual ownership of Las Vegas-style financial markets to crank out fantasy M3 in exchange for your solid US Treasury-issued M1 & M2.  The siren lure of unrealistic returns and price / earnings ratios really makes most productive alternatives out of the question for most people who rarely consider the actual GDP return on their investment.  The unrealized “gains” on this pyramid scam are called “commercial money” and constitute one component of the M3 aggregate money supply.  That is essentially fiat money–though generated by the private sector rather than the public.

    Which is the U.S.’s real problem with fiat money.  Not it’s mere existence, but that it’s been left completely unregulated in the hands of scabby financeer whoors who deride the very notion of the public good.

    http://dystopiadiaries.blogspot.com/2010/11/would-henry-i-have-castrated-goldman.html

  • Anonymous

    Re: the issue of the arbitrary value of money:

    I suppose it boils down to the fact that we just don’t know how to interact with one another.  We’re finite human beings, living in a finite world, possessed of a finite (albeit unknown) set of resources, capabilities and wants, the relative value of which isn’t always readily apparent to those we deal with.

    A short-hand is useful.  Even if it’s admittedly an imperfect medium of exchange, having some arbitrary but commonly accepted unit of value is handy is greasing the wheels.

    The problem I suppose is that we can never quite get beyond the arbitrary nature of money.  The ideal situation would be to accumulate the wisdom of humanity’s experience with the pros/cons of each type of money, and arrive at some collective mechanism to manage it; declare sharp preferences for those types of money that historically have proven beneficial to exchange and real production to improve living standards and enact sanctions against the creation of monies that are harmful.

    Somehow we keep falling victim to delusions of grandeur and fantasies of omnipotence that distract us from the real meaning of events unfolding before our eyes.  We have not recognized the housing bubble as a flawed experiment in commercial fiat money that had the salutory effect of circulating enough capital to raise a society’s living standards, but was ultimately undone by longer term dynamics in the system that led to grotesque and unhealthy accumulations by a group of people far too small to ever spend it productively.  Going on year # 4 now.  Has the light gone on yet?  Rebalance the freakin’ tax code to get the moolah moving.

    The answer is NOT the gold standard–not that you said it was.  You didn’t.  Gold is much harder to counterfeit, but relative to the supply of gold available in the world, (aggregate) human capacity for invention and productivity is (nearly) limitless.  All forms of money are ultimately based on the fiat principle.  Some are more flexible than others.  We just need to pay attention to what we’re doing and keep our eyes on the road.

  • Beltonaki

    Exactly. Bashing fiat money for this one form of use is not very honest. Fiat money can be good and would be if it’s quantity[3] was in our hands and it were debt-free. Monetary reform is in progress all around the world. Interest free banking in Scandinavia.[1] Public banks are coming up.[2] Nations must also be forbidden to borrow money.

    [1] http://vimeo.com/13544381
    [2] http://www.thepeoplesvoice.org/TPV3/Voices.php/2011/05/20/what-a-public-bank-could-mean-for-califo
    [3] http://en.wikipedia.org/wiki/Quantity_theory_of_money

  • Devil’s Advocate

    Yea they need debt to buy their Starbucks coffee or this years Toyota Corolla.  Stop borrowing money and stop spending it.

  • Devil’s Advocate

    Yea they need debt to buy their Starbucks coffee or this years Toyota Corolla.  Stop borrowing money and stop spending it.

21