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this post was submitted on 20 May 2024
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For a while now, I've had a hypothesis that money does have a real, tangible underlying asset attached to it, in the exact same way as it used to be backed by gold or oil.
The underlying asset is human capital and the value is derived from human labour.
The reason for my belief is because private banks actually create 80% of the money in circulation. They create this money when they issue loans.
How do we determine the amount of loan we can take? The amount of money we earn. We earn money either via our own labour or someone else's. Ergo, money is created at the value human labour you own, like how we used to do so with gold and oil.
Money here acting as both an iou and as a labour token, in the same way a British Bank note was both an iou for gold and affected gold prices, we have been buried under a labour debt our great grandkids would come close to paying off. Printing of future Labour ious also depresses wages for everyone who works for their money.
Imo, its much worse than monopoly money.
Every currency's value is "potential to convince others to do labor for you", that doesn't make fiat different, it would be a chicken and egg problem otherwise.
The value of a currency is "what makes people want to accept this currency?". The answer is taxes. You live in a state. That state requires you to pay taxes in a currency (or set of currencies). Doesn't matter how much gold you have, if you want to keep your house in country X, you have to pay it for property taxes in a currency that that state accepts, otherwise that state's police will revoke your ownership of the property.
States have a monopoly of violence, therefore currencies have value because it's the only way to preserve your ownership of property via taxes.
The difference being, like in the roman times you're referring to, the coins at least had some other kind of underlying value.
I agree that was heavily inflated and, eventually, the value of the coins became more than the value of the metals the coins ended up as after clipping etc.
However, now there isn't even that pretence. Human labour is the underlying asset here imo.
It's not that I dont know how money works. Its that I think about it differently. To me, it makes a lot more sense than just that we believe in it really hard, with extra steps. Its that now, the rich get to keep hold of the gold too.
A way to think about the idea is the financial crash. "Sub prime mortgages" means "fraudulent loans to people who didn't exist" (money creation). The money created by those loans was spent a thousand times over, all due back to bigger banks who leant them money, with new loans and made with them as collateral and all packed into toxic financial instruments. When it was found out that those people didn't exist, the money literally disappeared. Thats how "companies balance sheets just vanished." Thats whys Governments had to print money: because the money had vanished and there was a gapping money void due to it.
There was no one to work off the value of the money that had been created and, just like if you found out thr bank didn't have any gold (back in the gold standard days), the IOUs (money) would be worthless.
To me, it point to seeing the world as a human labour farm and the currency is human labour IOUs, in the same way cotton, sugar and steel nails and their IOUs in Virginia, the Caribbean and the North East of England respectfully were also used currency or were the equivalent of currency.
Uhhh that's not what the sub-prime mortgage crisis was. What you're describing was extremely risky mortgages being rubber-stamped to borrowers who shouldn't have received them, then bundled into Mortgage Backed Securities (basically a type of bond backed by, say, 500 mortgages containing a variety of risk profiles designed to balance out into a low risk but decent yield investment) and the fraud was that too many of these high risk mortgages were bundled into these securities and the risk level was misrepresented to investors, so when people defaulted on their mortgages in large numbers this caused the MBSes to rapidly devalue (which given they were treated as a way to protect capital against instability this greatly damaged many funds such as retirements and bank investments, 2 things that are heavily regulated to make safe investments because the risk is too high should they fail)
Or just go read the Wikipedia page for far more detail: https://en.wikipedia.org/wiki/Subprime_mortgage_crisis
Thanks, I've read it. None of what you said is wrong and none of it refuted what I said about it all either. They're not mutually exclusive.
Plenty weren't simply "risky loans." That's corporate speak. Technically true in all instances but not incriminating. After all, what loan could be riskier than one made to someone who doesn't exist etc.?
https://publicintegrity.org/inequality-poverty-opportunity/at-top-subprime-mortgage-lender-policies-were-invitation-to-fraud/
https://www.theguardian.com/news/2022/feb/21/tax-timeline-credit-suisse-scandals
But the important part is that you're not cross referencing that with how money is actually created and destroyed these days or, it would seem, or acknowledging the level of fraud involved on the issuing of the mortgages, bundled up into those MBSs.
https://www.bankofengland.co.uk/explainers/how-is-money-created
The BoE is the UK fed and its not going to be different in America. Both countries have the same monetary policy.
Money is created - human labour - money goes back and is destroyed.
Back to the banks, they created money when they issued those mortgages. They wouldn't me mortgages otherwise. As a bank, in a system of fractional reserve banking, they're as good as money. Those mortgages didn't get parked on some balance sheet in the sky. Not trying to be patronising but to really crystallise it.
When the people couldn't pay it off with either their own work or someone else's, either through being dead or just not being able to pay, the money already created, already in the system, vanished. Just like if it turned out the bank of England had no gold at all, back in the gold standard days.
Well yeah. If you trace it backwards, before fiat, what was commodity backed currency? What inherent value is there to gold and silver? Back then there was little industrial use, it was just useful as something to trade for other things.
So going back further, at it's core, currency is just a middle man to bartering. Instead of trading the grain you labored to grow for shoes from the cobbler, when you don't need shoes right now, you take gold/shells/beads knowing you can use them to trade for repairs to your plow from the blacksmith. Currency has always been a social construct, not inherent to the commodity.
This is actually one argument against the hoarding behavior of the ultra wealthy. It disrupts the natural economy and creates unhealthy power dynamics. The rich person can distort labor away from productive things healthy for future development of the society, say by using their vast wealth to pay a ton of farmers to build statues of the rich guy, until suddenly there's famine because no one is growing food.
This is what David Graeber calls "The Myth of Barter" and has no basis in history or anthropology. Trade was happening for thousands of years before the first currency was invented in the 6th Century BC. There are other ways to arrange trade that don't require currency as an exchange of value.
For example, if I were a barley farmer in ancient Mesopotamia and I wanted to get drunk before harvest, I could write an IOU for part of my barley harvest to the bar owner. Then, if he needed to buy something he could take my IOU and trade that for whatever it was. This IOU would go round and round the economy, but it also made them pretty unstable if the barley crop didn't meet expectations.
If this is interesting to you I highly recommend the book Debt: The First 5,000 Years which goes into a lot of detail about many different economic systems that have existed.
Think the point is that alternative strategies were in play when the biggest, most overwhelming cities in the world were maybe 100k people, the world population was 1% of what it was today, and economic activity was relatively limited in what sorts of goods and services were for trade.
Currency came about because as the indirect bartering relationships became overly complex and the number of participants exploded.
Though the currency situation did set up a sort of 'meta' of gaming the numbers for sake of the numbers themselves, which grew out of control until breaking the gold standard. Of course it's still out of control, but what we see is nothing compared to the instability of a gold standard currency trying to tackle current day human activity.
IIRC it had a lot more to do with exerting central control on trade. That's why going back to their invention coins had pictures of rulers on them.
I'm not an expert and really a bit of a moron, but it's nice to actually see something I "thought of" taken seriously. I've argued with friends that money really is just "human potential energy." The only thing you do with money is "inspire" others to do work. I usually just get laughed at though lol
Ultimately, the question is: "What is the dollar a unit of?". The answer is roughly "energy" in the physical sense, or effort/labor in more human language.
What I think is interesting is that then, the social and physical definitions of the word "power" collapse into the same thing; one with more "power" is able to expend more "energy", the labor of others, in a shorter time.
If you're really interested in the topic, read the book "Energy and Civilization: A History" by Vaclav Smil, published in 2017. It covers the efficiencies of tool use and how innovations in technologies that caused increased labor efficiency have catalyzed societal changes and revolutions, even going so far as to discuss GDP in units of Joules.
Sorry to hear that. Personally, and I might be a millions miles off here, i find its usually only stockbros who react that way. You know, the kind who get their financial advice from wallstreetbets.
I know that it's a radical idea to lots of people and I may end up being ultimately wrong but I think its a position I can a least logical argue. I think better than the "power of friendship" or infinite debt loop of debt that isn't owed to anyone, nor does it ever have to be repaid (making it, by definition, not debt).
For me though, money would be an IOU for human labour, exactly like the old British pound was a literal IOU for gold. Its not far from what you said at all, tbf, but I think its more sound wording. Kind of the technical long form of that which could exist in our society.