These are always entertaining exchanges.  It’s like watching the lord of fiat money battle with the lord of metallic money.  In today’s Congressional Testimony Ron Paul lectured Ben Bernanke on the ways of the world and the economy.  He made some very interesting points along the lines that I generally make. The most important point was that the government should have focused on households rather than banks during the recovery process. Clearly, Ron Paul is right in this regards although I don’t believe I’ve ever seen him openly discuss the fact that this is a balance sheet recession (though I could certainly be wrong).

But his most interesting question was with regards to gold.  He asked:

“Do you think gold is money?”

To which Ben Bernanke replied:

“No, it’s a precious metal.  Well, it’s an asset.  Would you say treasury bills are money?  I don’t think they’re money either.”

Both men are wrong in a strict legal sense. What Ben Bernanke should have said is:

“Money is a subjective term.  It means different things to different people.  What matters to you and I is whether we can use gold to pay our taxes.  So, in this very strict definition as it pertains to what the U.S. government deems to be “money”, gold does not qualify whereas U.S. Treasuries do.”*

So naturally, it appears as though both men have a rather skewed perception of the reality of our fiat currency system.

Full video attached:





Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. I could be off on my definitions here, but it seems a differentiation between “money” and “currency” might help clear things up. Many, many things can be called ‘currency.’ Tulips, puka shells, gold, silver, etc. Hell, from a barter standpoint, anything could count. However, ‘money’ seems (from this conversation) to have a few traits – can be used to pay taxes, is considered “legal tender” by some ruling government (doesn’t have to be universally legal, just legal somewhere, and is issued by some ruling government. “Money” is a governmental and legal term – not simply applicable to anything that can be used to “buy” something else. Well, that’s my two cents (heh, heh) worth on the topic. It was too interesting not to jump in on. Thanks for letting me play.

  2. There is a difference between legal tender and money.

    Money is durable, divisible, scarce, portable, and has intrinsic value; legal tender is a concept imposed by the State. But legal tender does not equal money.

    Now, it doesn’t surprise me that Benny doesn’t know the difference. After all, he’s just a government hack. And living proof that intelligence is not a requirement when you are at the highest levels of government.

    • Money is durable, divisible, scarce, portable, and has intrinsic value Kevin Beck

      Commodity money, if used as a commodity is not money and vice versa. So much for intrinsic value.

    • “Money is durable, divisible, scarce, portable, and has intrinsic value”

      Federal Reserve notes have all of those qualities:

      Durable – better than durable, if it wears out you can get a new one for free
      Divisible – yep
      Scarce – from my perspective, yes – if you have too many, PayPal me some
      Portable – physical (paper and metal), electronic – sounds good
      Intrinsic Value – I live in a modern state, it has and will forever have taxes – I will have to pay them (reluctantly). If you live somewhere else and have a open, free spot, email me.

  3. Let me point to which seems to be the key to understanding the nature of money, by repeating a comment I made in another blog?

    May I suggest that the expression “fiat/trust money” or simply “trust money” be used instead of “fiat money”?

    The reason for such change is twofold: pedagogical and framing the debate in more precise terms.

    At root, the nature of fiat money is trust money:
    - Without trust it has no value.
    - Fiat is an operational aspect; it cannot be fiat without being trust.
    - It could be trust without being fiat.

    Actually, the expression trust money is redundant. It could not be money without trust. For example, taking gold for money amounts to taking a merchandise as a substitute for money; or to confuse barter with monetary transactions. Kind of using cigarettes in a prison or concentration camp as “the most liquid merchandise” and calling them money. Using cigarettes or gold as a substitute for money always happens – and only happens – at the social level when trust does not exist or has been abused.

    The concept of the nature of money as trust is not easy. Yet, there appears not to exist other explanation for why someone would surrender something directly valuable to others in exchange for a IOU. If that someone would not trust the IOU, then s/he would require that the “something directly valuable to others” be exchanged for “something directly valuable to her/im”. In a word, s/he would only engage in barter rather than in a monetary transaction.

    Because the concept is not easy, care, stress and perseverance should be exercised to make it clear.

  4. Walter:
    You make some great points about money should be a store of value.
    We seem to get all caught up in this mystique of unlimited debt, but not seem too concerned about what that debt represents.
    I have a feeling no one responded to you, because you tied their tongues behind their necks.
    And, Ren, husband and wife debt has no business being part of the government.
    If the government needs to borrow, let it do so from a willing outside buyer.
    What part of the Constitution allows one government agency to borrow from another?
    Don Levit

    • If the government needs to borrow, let it do so from a willing outside buyer. Don Levit

      But government has no need to borrow what it can create for itself debt-free.

      So government debt is actually a favour that government has (so far) extended to those who desire a risk-free return.

      But the fleas have forgotten their place and now think they are the dog.

  5. Why does everyone forget what the US Constitution says about ‘money’ Money of the account of the United States shall be gold or silver coins. How more clear can that be?

    • Money of the account of the United States shall be gold or silver coins. Paul M

      Just where does it say that in the US Constitution? I think you err.

      • I searched the US Constitution for “gold” and only found this:

        “Section. 10.

        No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”

    • The rich rules over the poor, and the borrower becomes the lender’s slave. Proverbs 22:7

      So. Shall the US Government be the servant of creditors that it has no need of in the first place? I think not. But let the fleas bite till the dog shakes them off.

    • What exactly IS your point other than that people who challenge your view are therefore wrong?

      • “The rich rules over the poor, and the borrower becomes the lender’s slave”

        That is a bizarre statement. Almost every rich person I know made money doing exactly the opposite by borrowing.
        Long term Inflation always favors the borrowers.Borrow now at reduced rates,pay back in 10/15/20 years in devaluated dollars.

        What went wrong recently is the exception, In a common sense world we are not suppose to borrow 110% with no payment for the first year or so.

        Put down 25% borrow 75% = The loan 25% devalues over time and the asset 75% retain its value or appreciate over time. Fiat money is a borrowers friend.

        In normal times Banks have a free ride since they have there horizontal 9X magic money creation machine, if that is what you mean I agree but I dont think that was invented when Proverbs 22:7 was posted .

        • This period of the past 30 years or so where the state actually regulated financial institutions is an exception to US history and I believe is coming to an end. In the past, financial panics/crisis were a regular part of life in the US.

          This recent financial crisis “exception” may become the rule. I think the game of put down 25% and watch your asset grow isn’t going to work anymore. A two-year deflationary period can easily wipe out the gains of 10 years of hard work. When you have crises every 8 years, you have to get lucky to get ahead.

          (BTW, a great free e-book is Money and Banking Illustrated by American History by Horace White).

        • Almost every rich person I know made money doing exactly the opposite by borrowing. first

          I don’t doubt it. However, the modern day application of Proverbs 22:7 is of the banks ruling over the rest of us.

          In the day when Proverbs 22:7 was written, savers and the banks had the advantage. Today borrowers and the banks have the advantage. The constant is that banks always have the advantage.

  6. After Bernanke replied that gold is not money didn’t Ron Paul then ask him something like, “If it is not money then why do central banks hold so much of it?” I think it is not a bad question. Either central bankers are absolutely clueless and they still think the gold standard is on, or Corrente was right in his post today about reflexivity and how even though MMT may be the right theory, interpretation of reality, if the authorities want you to believe something else, you will..

  7. to Anton’s point:

    exactly right! why was the ECB partly capitalized with member’s gold contributions?
    its a relatively new creation, yet it still followed tradition.

  8. Is gold money? What a question! If you handed someone from say 5000 years ago a gold coin they would have recognized it as such, while handing them a fiat $100 dollar bill and then trying to make off with the horse that they were trying to sell would have only have gotten you thrown into what would have been a prison or dead. Fiat currency has only been recognized as such for a tiny amount of that time say 3 or 400 years. Yes the dollar can purchase goods now but what about the future? My guess is that in a hundred years we are going back to what a person of 5000 years ago thought of it.

    • China was using paper money as early as 800 AD…

      Second, if there is no economy a gold coin is as worthless as paper. Money of any kind only has value so long as there is economic output. Money is nothing more than an IOU on future (or stored) output no mater what its made of.

      • Adam.

        I am no Gold bug but throughout history economies have collapse but not all at once and people would travel with there Gold. In Europe Gold moved from country to country during world war 1 and 2 and a lot moved in to Switzerland. As far as understand they all protected there wealth this way as compare to all the various funny currencies.

        Its a fact that fiat money history is one of abuse and miscalculation.

        • Gold as a commodity is fine to attempt to store your wealth in. But it still is only extractable if there is something to trade for.

          Anyhow, fiat currencies are easier to specifically abuse because they have fewer systemic constraints. That said if you have a government intent on being bad it doesn’t matter what the monetary system is, they will find the means. Peter the Great ran out of money to buy brass for his cannons. He confiscated church bells to end that problem.

    • Rocketman,

      Interesting facts, but I have to point out that if you think paper-fiat currency won’t be around in the future, than you specifically think the sovereignty of currency issuers will collapse and they will before forced back onto, at the very least, a commodity back paper (such as the gold standard). Is this correct?



    • We don’t live 5,000 years ago. We live in the USA where the US govt has deemed what “money” is. That is all that matters in the here and now.

      • It’s pretty clear what government money is. However, the private sector should be allowed to define what private money is ELSE there will be an unending battle over what a one-size-fits-all government/private sector money supply shall consist of.

        Government money is backed by force but private money could be backed by:

        1) commodities
        2) equity
        3) products
        4) future production
        5) labor
        6) who knows what else

        • Australia and New Zealand are pretty close to the system you want (not exactlly the same, because banking can extend credit nominated in national currency, but close): there is a big deal of monetary freedom there (only you have to pay taxes is the legal tender).

          However it looks like that is the government money the monopoly there. So much for private money, gold, or whatever (and it was Australia the country which had one of the more developed free banking systems too).

          I’m not against private currencies (I own some bitcoins, but I see them mroe as gambling than anything else right now, I also have paper gold), indeed I’m very close to your position, but the theory of state money looks like has the strongest empirical support right now. And money was borne in debt (not in gold, as goldbugs pretend) and credit backed by states, and since then looks like that essentially staid the same with periods of bullion dominance.

          • Whether private currencies were used much would depend on how well government managed its money supply. And the fact that people could use private currencies if need be would act to ensure that government managed its money supply well.

        • The capital gains tax on everything but FRNs is just one advantage over potential money competitors that FRNs have.

          Why should people be forced one way or another to use FRNs for private debts? The effect is to allow the stealth inflation tax to operate which infuriates many people. It is the main motivator for the hard money folks. They are serious about abolishing it by limiting government money creation to the mining rate of gold.

          • It might complicate tax collection a bit but separate government and private money supplies would avoid a lot of arguments about spending levels and the true inflation rate. It would allow government to spend at will without damaging the private sector. Furthermore, it is a principled approach to money creation.

        • Private money could be backed by force “hey Guido, ready to break some legs”.

          Private money could be backed by corrupting the government, but that sounds too much like a conspiracy theory, so it can’t be right.

          Private money could be backed by points that you get if you are loyal to a particular business. Maybe you could redeem the points for goods like TVs and flights and hotel rooms. You think that idea might catch on?

          Private money could be backed by promises on little pieces of paper you get in your newspaper that allows you to buy something for less than the list price?

          The problem isn’t that we don’t have private money – there is more than enough out there – it’s that everyone who wants to establish a private money wants to make it universal – that is PUBLIC. If it’s public then it should be controlled by the public. Unfortunately, right now that means our government.

          • The problem isn’t that we don’t have private money – there is more than enough out there – pebird

            Not really. The capital gains tax is measured in FRNs which means that if a private currency maintained its purchasing power but FRNs lost purchasing power then the owner of the private currency would register a capital gain when in real terms he had gained nothing.

          • If it’s public then it should be controlled by the public. Unfortunately, right now that means our government. pebird

            Government should be in charge of its money. Whoever else? But government money should not be required for private debts.

            And it’s not just my opinion. It is strongly implied in Matthew 22:16-22 (“Render to Caesar …”).

            • Government money is not required for all private debts. Depends on how we write the contract and how we want it enforced. We can contract for payment in a specific tender (say in foreign currency or gold or whatever). If the contract needs to be enforced in a US court, then I understand the courts have some discretion in how they interpret the contract terms.

              • Government money is not required for all private debts. pebird

                Perhaps not but FRNs are so privileged by government that they are a virtual monopoly for private debts too. For example, capital gains are measured in FRNS. If I used a private currency that merely kept its purchasing power but FRNS lost purchasing power then my private currency would register a capital gain even though in real terms I had gained nothing.

      • If the news hit the papers in the morning that Ft Knox was empty, you would find out very quickly what money is. You could use $20′s for toilet paper.

  9. Bernanke is hairy-lipped lying tool of the IMF and BIS who could NOT find his way out of a wet paper bag even with map and compass. The economy is a controlled train- wreck, designed to fail, with pretense they actually care, all to enter their satanic one world currency and total control for their master. They care NOTHING about regular Americans who have supported them through hard-earned taxes. Best to face the hard reality now.

  10. Why do central banks hold so much gold despite the abandonment of the gold standard? Because gold is an insurance policy for nations and individuals against a panic and catastrophic loss of confidence in fiat currency; it allows the possibility of a reset of the monetary system, albeit a primitive one. If instability and risk keep increasing in complex economic systems, gold as a prudent insurance policy (rather than sneering at it as the “fear trade”) is going to become increasingly popular as an investment allocation; it’s only about 1% of portfolios now. When Putin is calling Bernanke a “hooligan” and Ron Paul’s ideas are gaining traction, it’s time to pause and reflect.

  11. Gold has been a store of wealth – therefore ‘Money’ for over 5000 years. How long has the Federal Reserve Note been used for the same purpose? Answer – not very long. Just look how our debt has gone parabolic since we left the Gold standard. When the F.R.N. fails (and it will), Gold will still be a store of wealth with the new fiat currency that replaces the almighty dollar. Gold ‘WAS’ a way of keeping the politicians in check with their spending. Now there is no limit in sight. Since the Federal Reserve was created in 1913 it has devalued the dollar between 95-98% depending on what you use for comparison. How long till we run out of other peoples wealth to spend with our current socialist system? Ron Paul is right about one thing for sure – End the FED. Take the chains off the American people.

    • Agree with the end the Fed talk. But let’s be clear about the whole gold debate. The fact that it’s been a form of money for 5000 years is rather meaningless. First of all, none of us live 5000 years or care about anyone that did. Second, that doesn’t mean it will be a money in 5000 years. Thirdly, 10,000 years ago no one though gold was money. Does that mean it is not?

      • 10,000 year ago we resembled apes – how is that relevant? And yes – gold will always be money in one way or another.

    • I disagree with the End The Fed movement. The Fed is a compromise institution between powerful interests in a powerful nation. It is not just about bankers meeting in Jekyll Island.

      Yes, there is corruption (a lot of it) and it should be cleaned up, not just in the Fed but in banks, investment firms, hedge funds. There is corruption in Congress but I am not yet ready to End The Congress (not quite yet).

      We have a very good monetary operational apparatus in the US (of which the Fed is one part) that has been taken over by powerful interests. I don’t want to focus on the apparatus when the problem lies in people.

      There is no perfect system out there that cannot be corrupted – let’s not be fooled into destroying something that could work extremely well if we just had honorable, honest leadership.

      • PEBird,

        I could not agree more. This whole idea that the Fed has “devalued” the dollar all by itself is hilarious and so distorted I don’t know where to start. Number one, the “devaluation” has occurred via our trading partners. Number two, the reason for that is due to our out of control congress and spending habits.

        I want to start my own campaign that would read “Stop blaming the Fed for every f’ing thing in the world”. Look in the mirror and look at our “elected” aristrocracy.

  12. i think ron paul’s whole point was that ben bernanke has no conception of what markets are saying.

    it waqs quite interesting ben bernanke saying the price of gold was rising due to factors other than federal reserve policies. especially on a day where the fed announced more possible stimulus and at the same time gold was soaring.

  13. the conversation is a lot simpler if you just substitute the word “currency” for “money.” There are assets and there is currency. Gold is an asset but it is not currency. This is very simple. The confusion stems from the term “money” which is really a useless term. Some people would like to see currency tied directly to gold. Feel free to debate that issue but please end all the nonsensical discussion of “money.” And what you can pay your taxes with is really irrelevant to the discussion. Maybe the government will accept assets, maybe not. But the issue is currency and, yes, we have a fiat currency system. And, no, that does not mean there is some great government conspiracy just because we have a fiat currency system. We don’t tie our currency to a hard asset like gold because the effect is fundamentally deflationary. This is not difficult economics.

    • Right. But Ron Paul didn’t ask BB if he thought gold was currency. He used the exact term “money”. Hence, the discussion revolves around the rather vague term….And the USA does not consider “gold” to be money. Just as BB said. Although he got the UST part dead wrong…..

  14. Why all this fuss about gold, considering that a gold standard is not even a guarantee against inflation?

    Let’s say one ounce of gold is officially worth $35 under a gold standard (the pre-1971 value). Suppose new gold mines are discovered in South America – then the real value of gold in terms of the goods and services it can buy will necessarily go down.

    And if the government keeps the official gold standard rate at $35 the overall price index will have to go up.

    The inflation genie would be out of the bottle again – even under gold.

  15. no, fewer dollars in circulation would increase the value of the dollar.

    there have been gold discoveries. has that caused the price of gold to drop?

    • Same dollars in circulation, more gold – if the dollar value of gold is kept at the previous level (because the government is ready to exchange every ounce of gold fotr dollars at the old, official rate) the general price index has to go up.

      More supply of gold will mean a drop in its real price, via the “law” of supply and demand.

      And 18th Century Brazilian gold did cause an increase in the general price level in Europe.

        • James,

          That’s a misleading comment. Using a pure price index that doesn’t account for wage and productivity increases is a sure way to lead people to think that the dollar has collapsed. But the truth is that wages have kept pace with productivity over the last 100 years. In fact, they’re very tightly correlated. This implies that there has been very little to no destruction in the American standard of living over the last 100 years. This should be obvious to anyone who has looked at our enormous wealth, but the facts help….

        • And?

          Economics is not about currency; it’s about improving standards of living. Currency is merely just a tool to enable the market to function efficiently and allow for high standards of living. That’s it. Who cares what a dollar was worth a century ago? The important fact is that living standards have increased dramatically.

    • Gold is a nice and attractive metal so is silver there has been more demand than production even if production is up. The question his this demand rational ?

      Gold use to be an inflation hedge in the 70′s but now it is associated with economic fear or eventual hyperinflation.

      The price is completely out of proportion with eventual inflation and the extraordinary demand of the last few years is not related to industrial usage.
      The elastic is stretching more and more until………..

  16. Sorry, but one small point: What matters to you and I… —> What matters to you and me…

  17. If you watch kids play, there’s always an ‘accounting’ going on: when all ‘credits and debits’ are settled to everybody’s satisfaction, then the accounting is over. That’s money to me: it’s a human thing. Representing it numerically or physically is just an attempt to freeze something that is forever dynamic. Paying taxes with the numbers is a social plug-in that is rule based. Which issues in the Law. All under the auspices of Venus, according to the astrologers?? Sex, Money and the Legal System – strange bed-fellows. Human beings, human values and the skin of the earth and it’s resources are real – the monetary system could be anything! There are no excuses …

  18. It amazes me that both the question and the subject matter have been ignored by the article and many of the comments herein. The question almost certainly pertained to the fact that the US Constitution specifies(ied) that gold and silver were to be the “money” of the land at a specified ratio of 16:1. What Ron Paul was asking was whether or not the Fed Chairman believed in the US Constitution with regards to the definition of money, exclusive of any real or perceived changes since the US Constitution was originally written — it is still the law of the land, the foundation of our legal system, and must sworn to be withheld by elected officials. Since the Fed Chairman is an employee rather than an elected official, the question begs the fact that perhaps the most powerful person in the country probably did not have to swear to uphold the US Constitution and therefore either did not understand it or has chosen to completely ignore it.

    Personally, I have evolved to the point where PM have withstood the test of time and as such have held value for 5-6,000 years and I really do not expect any paper or electronic substitutes to do the same, unless they are somehow backed by the PM that do hold value. As to what one pays bills or taxes with, that is a simple matter of semantics since one assumes they can continue to exchange one for the other. In the event that PM are not legally allowed to be utilized, then other real, useful things will be substituted as long as the official paper money is being systematically devalued. Since an ounce of anything real PM or whatever is still an ounce now as it was then, it begs the question how to value what. Since paper is constantly increased and manipulated against all other values, should one not question how much paper an ounce can buy, rather than how many ounces so much paper will purchase?

    I visited a local coin shop awhile back and was taken back by the fact that the proprietor was only buying and did not want to accept paper money — they did eventually, but it served as a premonition to a future time when perhaps all businesses might begin to refuse to accept something paper that is devaluing at an increasing rate, which could easily happen if enough of the stuff is created. What bothers me is that with all of the increase in paper money creation, there has been very little velocity with regards to Main Street. So where has all this stimulus gone to? My guess is that most of it has gone to shore up the Euro via the multi-national banking system at the huge expense of our very own nation who much now suffer for not only paying the piper but also for nothing to show for it by way of jobs creation or real economic foundational growth.

    Meanwhile, at the expense of extremely high unemployment (real rate is somewhere around 22-25%), anticipated extremely high inflation (again the real rate is at least 12-15% and set to go much higher), and now they indicate that interest rates will start going up to accommodate hoodwinked investors who are still investing in paper despite the fact that the Fed’s actions speak louder than their words. Can’t really believe that that many people still think that everything is business as usual. I think that a very wrong turn was taken back in 2008 and now that that route has been chosen, we are committed to further QE ad-infinitum III, IV, V, etc., until the economy either recovers or becomes fatigued into worthlessness, or worse yet we achieve a state of anarchy.

  19. As long as people buy and sell gold with $, it is a hunk of metal.

    When the US Govt starts paying of tresuries in some other token, the tresuries stop being money.

    Paul and Benanke, two grown men acting as the biggest fools.

  20. Seems to me this whole discussion has demonstrated why nobody should ever use the word “money” except in a very vague sense, since that’s all it can be. Economists have done the world a huge disfavor by not understanding this, as they have been at the front of the line in terms of promoting very poor understanding of the concept of “money.”

    The questions are the following:

    1. Are you talking about that which settles tax liabilities? Then name it. In the US, this is reserve balances.

    2. Are you talking about what settles payments in the monetary system? Then name the liabilities (i.e., whose?) or at least specifically say this is what you are talking about. In the US, this is currency, deposits, reserve balances, and a host of other liabilities denominated in $US. Some cities have designed there own currencies that are used.

    3. Are talking about anything that might be used in settlement of a private transaction in the US? Then specifically say so. In the US, this can be virtually anything your counterparty will accept in payment.

    4. Are you talking about anything that can be used to obtain $US? Then specifically say so.

    5. Are you talking about anything that might be held as a store of wealth? Then say so.

    6. Are you talking about anything that might be held as a store of wealth but can be liquidated very easily? Then say so.

    And so forth (i.e., there can be many more questions depending on how far one wants to go). If one is not specific when one says “money,” then everyone ends up talking past one another, just as Paul and Bernanke demonstrated, and as many of the 170+ comments have demonstrated here.

    • And I didn’t even mention the unit of account yet. Obviously, in the US, this is “the $US,” though it is in a sense more vague since it doesn’t refer to a specific liability. That is, you don’t hold X ounces of gold worth of bank liabilities in your savings account, you hold $X worth of bank liabilities. We don’t denominate prices of goods and services in terms of ounces of ounces of gold, we denominate them in terms of $US. Clearly gold is not currently a unit of account.

      • I think THIS is the most proper definition of money: the unit of account used to incur and settle debts (between private entities or between private and public entities). This looks like to be a consistent fact along the history of “money”.

        • Yes, that’s a necessary first step, but not sufficient. You still have to specify WHOSE liabilities denominated in that unit of account settle payments. Legal tender laws set specific liabilities denominated in $US as legally enforceable media of exchange, for instance. Banks settle federal tax liabilities by delivering reserve balanced, Fed liabilities. And so on. But there can be others whose liabilities denominated in $US are accepted in payment.

          • Ok, agreed, but which is the unit of account of the reserves used to settle tax liabilities (and the denomination of these taxes)? US dollars, is not other unit (let’s say: ‘reserve units’ or ‘gold ounces’) (maybe I’m missing something).

            In essence it’s the same unit of account in a given territory, but it’s not exclusive off course. The unit of account usually is the one ‘supported’ by the authorities (accepted to pay taxes; or issued by them). Let’s say that authorities in a country accepted dollars, euros, and ‘ounces of gold’ to settle tax payments, then probably these would be three different forms of money in the same territory. But it’s not exclusive, if two parties agreed to accept a private bank-note to settle payments, and it was allowed by law (and supported by tribunals, probably, in case of liquidation), it could be an other form of money.

            Yes, it’s a complicated matter, but for a starting point I think the above in not a bad one, we may add that it’s acceptance it’s a matter of law (but I think this ex-post).

            • “but for a starting point I think the above in not a bad one”

              As I said, it’s an absolutely necessary starting point, and the one MMT’ers use.

              The $US is the “money of account” in the US.

              But if we’re going to talk of a medium of exchange, the $US often isn’t specific enough, so you have to then name whose liabilities denominated in the money of account (the government? banks? clearing institutions? etc.).

              Or it can go in reverse, as I did above, where the transactions of interest are named (settling taxes, paying rent, etc.) and the relevant liabilities denominated in the money of account can be said to be media of exchange.

              Hope that helps.

  21. A 100% reserve perspective on Scotts comments:

    1. Are you talking about that which settles tax liabilities? Then name it. In the US, this is reserve balances.

    “Taxes are paid in vertical money already spent into the economy. The spending amount is based on the law, and has legal penalties if the interest rate climbs outside of a window.”

    2. Are you talking about what settles payments in the monetary system? Then name the liabilities (i.e., whose?) or at least specifically say this is what you are talking about. In the US, this is currency, deposits, reserve balances, and a host of other liabilities denominated in $US. Some cities have designed there own currencies that are used.

    “In 100% reserve, only state money circulates. There is no horizontal debt money. The liabilities are already monetized with 100% reserves in advance. Therefore there are no credit bubbles or collapses”

    3. Are talking about anything that might be used in settlement of a private transaction in the US? Then specifically say so. In the US, this can be virtually anything your counterparty will accept in payment.

    “Yes, people can still barter and make marks. But, if they trust the money, because it is lawful, then they will transact using it.”

    4. Are you talking about anything that can be used to obtain $US? Then specifically say so. “I agree.”

    5. Are you talking about anything that might be held as a store of wealth? Then say so.
    “If money (or the circulating medium) doesn’t circulate back to labor, and if doesn’t serve as a store of wealth, then you will get widening class divisions. The idea is that the law, politics and money are closely related. Money is used to settle debts and contracts, and therefore should be stable and lawful. We will need a fourth branch of government to control the money power.”
    6. Are you talking about anything that might be held as a store of wealth but can be liquidated very easily? Then say so.

    “If money comes under control, then this point is moot. Real lawful money does both.”

    The points I made much earlier about what a ciruclating medium should be are succint, and describe how the system comes under control.

    Yes, this is a complex subject, so everybody piles on. TWINTOPT and other definitions are a good idea.

  22. Mug argument, money is anything that people accept as a ‘universal’ medium of exchange, that is anything that everybody will accept for exchange of goods/services.

    Gold used to work well because it was rare and easy to distinguish, fiat works perfectly for numerous reasons (many core to MMT principles). I tend to hope humanity has moved on from gold now, obviously there are some old schoolers who disagree, but its never coming back so why bother even arguing it Ron?

  23. Oh and I can’t read through the previous 200 comments, but regarding the treasuries as payment as taxes.. Does that mean you could purchase treasuries when trading at a discount then pay taxes at their full face value saving a couple % of tax?

  24. The US govt has deemed what money is and as long as people can trust it as the official medium to exchange goods and services it will remain this way. But even with the power of the law if the medium was to deteriorate rapidly money will be anything that people will agree to accept as a universal medium of exchange.
    Even the toughest tyrant would not be able to coerce people to work for valueless money. Autocratic or even dictatorship governments have never been able to prevent this and freedom will always win in the end.

  25. F. Beard wrote in 2 separate comments:
    1. Government money is backed by force (while private money is backed by stocks, land, etc)
    2.But Government has no need to borrow what it can create for itself debt-free.
    For a fellow who seems to know a lot of Bible verses, it does seem that you are assigning powers to the Government that only God has, supposedly.
    The power to create money out of thin air, the power to create debt that is debt free, the power to force its agenda throuigh its omnipotent will.
    Can’t you see how harmful it is for the Government to have such power, even if it was true?
    It’s like having blind faith versus faith based on evidence.
    I see evidence of God all around me.
    What evidence, other than force, do we have that the Government has earned the right to have such power?
    For only if the people believe the Government has earned the right, will it maintain these extraordinary abilities.
    Don Levit

    • There are serious limitations to the abuse of these ‘powers’ (specially in democracies):
      - Inflation.
      - Abusive taxes. (this what force and coercion means in this context, this is nothing new anyway so…).
      - Other laws (for example, property laws).

      Also there is a serious misunderstanding of some of the non-issues, like creating money free-of-debt, why should it be bad? Actually governments do this already, when they spend, the only ‘problem’ here is they issue bonds afterwards, which is totally unnecessary steep (because physical reality says that the money to pay these will have to be borrowed-into-existence by the private sector from banks, or created anyway by the government, so it’s actually inflationary: 14 trillion USD of money that will have to be spend-into-existence or unsaved from private sector, in both cases is a very harmful monetary policy: extremely inflationary or deflationary).

      Also F.Beard says that people should be free to create its own money and use it. So if you didn’t want to use government fiat, you could use other private money if you want to (the same way, you can save in other hard asset right now, buying gold for example). This whole non-issue of money and its problems, is a complete misunderstanding of the issues (mostly created artificially) of it, product of a dysfunctional system which cannot explain its users how it runs.

    • I am not arguing that government is good but only that so long as we have it, that government should not favor private interests such as by borrowing money from the rich or banks and paying them interest on it.

  26. Leverage and F. Beard:
    If you would ask me is it better to issue debt interest free or with interest, i would answer “Interest free!”
    However, debt requires interest due to the time value of money.
    It also requires 2 distinct entities, not one.
    To do otherwise violates all principles of accounting as well as common sense.
    It also provides a useful regulatory tool for an out of control government.
    Don Levit

    • It also provides a useful regulatory tool for an out of control government. Don Levit

      There is no need at all to control government spending. What is needed is genuine alternative private currencies so that IF government overspent relative to taxation then ONLY government and its payees would suffer. In fact, the private sector would benefit from government overspending since some taxes would be easier to pay with the cheaper fiat.

      What is required is that we be PRINCIPLED with regard to money creation. Government money is meant to pay taxes and fees with. That’s all. If people are also forced to use government money for private debts then government has overstepped its bounds.

    • However, debt requires interest due to the time value of money. Don Levit

      Moses disagrees with you: Deuteronomy 23:19-20.

      Also, usury is mathematically unsustainable since the debt normally compounds at a faster rate than the real economy.

    • Well here is where you are wrong: government buys products and “sells” purchasing power (aka fiat money), it’s not a debt from the government when it does. The money of the government is actually not a debt of the government, when you get money what you are getting is a unit of account backed by the infrastructure of the state and public institutions (specially law) in which you can settle debts in if you want to, and use to pay taxes with. Off course if private sector chooses to use public money and use it, there will be interests if money is lend (because money is not ‘free’ for anyone else, other than the producer of it, the government), set up by the own private sector. But the issuer of the currency having to pay interests over something it produces at will is just non-sensical (and inflationary), is basically free income to these which hoard money.

      This could be troublesome, if you’re forced to use it (and indeed for example in middle age France it was, when french kings or feudal lords tried to abuse their own fiat using inflation) and it’s abused, but most people is fine with it as long as it’s not extremely mismanaged and produces public good. But if you’ve the option to use other money (or currency) to settle your own debts, then it would be even less problematic and there would be a balance of power between the public and the private (which is a good situation for everyone who does not form part of the elites actually).