Trust in financial institutions.
Jan. 17th, 2013 05:04 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
xiphiasThe problem I see with the "platinum coin gambit" (in short: the US Mint, part of the Executive Branch and therefore subject to the direct control of the President, has the right to mint commemorative platinum coins which are technically legal tender. They, theoretically, could print a platinum coin with a value of "ONE TRILLION DOLLARS" on it, and then the Executive Branch would suddenly have an extra trillion dollars with which to pay its debts, even if Congress doesn't raise the debt limit -- it's not clear that this is legal, but it's not clear that it isn't. . .) is that it blatantly rubs people's noses in the fact that we've got fiat currency.
Originally, people had "gift economies" -- if you were a cobbler, I'd probably mention in passing that my kid could really use a pair of shoes, and, in a couple days, you'd drop by with some shoes, and, if I were a shepherd, and you happened to mention that your grandmother was coming over and one of her favorite dishes was lamb, I just might swing by with a lamb for your dinner. In gift economies, there isn't an exact quid pro quo, but everybody has a sense who is generous and who is stingy, and people are generally more generous to people who are generous, and people sort of mention and drop hints about what sorts of things they need and/or want, and it all kind of works out. It only works within ongoing stable-ish communities, though. When strangers come through, you have to rely on hospitality codes and the like, which are outside the range of the gift economy. A stranger either has to move on pretty quickly, or start helping people out to become part of the community.
It used to be assumed that "barter economies" came next, but there's been recent archaeological evidence that suggests that currency, in the form of coins of some sort, and market economies started to develop concurrently. Specific weights of precious metals were assigned specific values of items. The idea that you have two items to trade, and a fair trade is when those two items have equal value, requires you to have an idea of "value" as a numerical quality, and that requires a way to measure "value" in a consistent way, and THAT requires currency.
So, even though you can just do straight barter without money -- "I'll give you two sheep if you fix that wall for me" -- it requires the idea of fungible value, which requires the idea of money.
In Western society, from the beginning of recorded history through the 1960s, the value of money was tied to some sort of precious metal. And then, the industrialized world switched to fiat money -- "this money is worth this because We Say So."
Money is, however, a collective delusion jointly and willingly held by a society. Our money can be traded for goods and services because we say so.
The story of the Brazilian Real is an example of this. 1994, Brazil was going through rampant inflation, of the kind where you tried to do your shopping early in the day, before the shopkeeper found out how much prices had gone up overnight. Indeed, shopkeepers could not, physically, keep up with marking up their prices. So the government stated that, "As of this point, everyone will mark prices in 'Units Of Real Value', and then you can just post how many cruzeiros reais equals one URV, and you only have to change one number." This made everybody much happier. And then, people started asking to be paid in URVs instead of cruzeiros reais, because that would be easier, and the government began issuing URV certificates, and shopkeepers started accepting URVs. . . and the "real value" became the modern Real. ("Real" means both "royal", which is a perfectly acceptable name for a currency, and, y'know, "real.") And, pow, inflation stopped. Just ... stopped, and the economy stabilized. This was the plan -- and it worked.
Nothing changed, except that everybody decided that the Real was real in a way that the reis wasn't.
This is the sort of thing you can do with fiat currency.
The thing is: precious metal-backed currency is just as much a fiat as pure fiat currency. It lacks flexibility -- but it's just as much a collective delusion jointly and willingly held by a society.
From the beginning of Western civilization, we've agreed to pretend that gold has a specific value. And that silver has a specific value. And, sometimes, copper. For convenience's sake, we started printing certificates that could be traded for those items. And then, in 1971 in the United States, we decided to skip the middleman in our Let's Pretend game, and just pretend that the paper itself had that value.
This was a brilliant move, and allows so much more flexibility in the management of economies than specie currency.
But it's a slightly harder suspension of disbelief than the specie currency -- even though, logically, they're exactly equal Let's Pretends.
The danger of minting a platinum coin that we say is worth ONE TRILLION DOLLARS is that it totally sticks a mirror up behind the magician's back. For some people, it might make it harder to buy into the game. And THAT would be a disaster of potentially civilization-ending proportions.
Logically, it shouldn't be a problem like that. We've been working on the Pretend Money idea since we invented money, some five thousand years ago or so. It's just that we used shiny rocks to make it LOOK like there was something there. We've been skipping the Shiny Rock stage for the past forty years, which works just as well, with the addition of the ability to adjust inflation rates (which is a feature, not a bug). But if people don't make those two logical leaps, It Would Be Bad. And I worry that the platinum coin gambit might encourage some people to end up there.
Anyway.
That actually wasn't what I was originally going to post about. But I got distracted.
What I ACTUALLY wanted to write about was banks.
As we all know from IT'S A WONDERFUL LIFE, banks don't actually have money in them. They have a LITTLE money -- enough to hand off the money that people are going to need on any given day -- but MOST of their money is out in loans, out doing stuff. When people don't trust in their banks, you get a run on the bank, when everyone starts withdrawing their money, until there just isn't any of the money on hand left, and then everything goes pear-shaped.
The way we prevent that in modern America is with the FDIC -- Federal Deposit Insurance Corporation, which insures that, even if a bank goes under, you are guaranteed to get at least your first quarter-million dollars back. For the vast majority of people, that's more than we can ever hope to have in our bank account, so we have no reason to panic about a bank failure, ever. By preventing panic, we allow people to trust banks, and make things just plain work better.
And, from what I've heard, when a bank DOES fail, the FDIC takeover process is one of the smoothest and well-run government processes they do. Bank closes on Friday, and, by Monday morning, the entire bank is up and running again under new management -- and they even have grief counselors because of the emotional trauma. (And a certain number of the agents running the thing were part of banks that went under, so the agents themselves are sympathetic and emotionally helpful.)
So FDIC insurance is one of the best ways we have in the modern world to ensure trust in banks. But the old-school method?
Architecture. Why were 19th century banks so ornate? Such Temples to Mammon? Why were they so impressive and imposing?
Because it inspired trust. If they looked like THAT, they COULDN'T fail, could they? And it really worked.
Until it didn't. Once banks that looked like that started failing, their architecture stopped being any sort of an asset, and nobody builds them like that any more.
So what DOES inspire trust? (And this is what I've been trying to get to -- boy, I'm easily sidetracked.)
When I drive Lis to work, we drive past SaugusBank. And we currently bank with a credit union that is far away from us, and we can only do stuff by mail, which is inconvenient. So I'm vaguely thinking about switching. And SaugusBank attracts my attention.
Why?
Because they have funny marquee signs. "Not Too Proud to Beg For Facebook Likes." "Banks With 'Saugus' In Their Name Are Awesome." "Bank With Us Any Time (Unless We're Closed.)" "Try Our Mobile Banking (Not Right Now -- You're Driving.)"
And to me, that inspires trust.
I don't believe that Big Imposing Architecture means that someone's more stable. But I DO believe that "wit" goes with "intelligence" goes with "actually being able to deal with stuff when it hits the fan." I actually find myself trusting the bank more, believing that they'll not get into financial messes, because they've got funny messages on their marquee.
Originally, people had "gift economies" -- if you were a cobbler, I'd probably mention in passing that my kid could really use a pair of shoes, and, in a couple days, you'd drop by with some shoes, and, if I were a shepherd, and you happened to mention that your grandmother was coming over and one of her favorite dishes was lamb, I just might swing by with a lamb for your dinner. In gift economies, there isn't an exact quid pro quo, but everybody has a sense who is generous and who is stingy, and people are generally more generous to people who are generous, and people sort of mention and drop hints about what sorts of things they need and/or want, and it all kind of works out. It only works within ongoing stable-ish communities, though. When strangers come through, you have to rely on hospitality codes and the like, which are outside the range of the gift economy. A stranger either has to move on pretty quickly, or start helping people out to become part of the community.
It used to be assumed that "barter economies" came next, but there's been recent archaeological evidence that suggests that currency, in the form of coins of some sort, and market economies started to develop concurrently. Specific weights of precious metals were assigned specific values of items. The idea that you have two items to trade, and a fair trade is when those two items have equal value, requires you to have an idea of "value" as a numerical quality, and that requires a way to measure "value" in a consistent way, and THAT requires currency.
So, even though you can just do straight barter without money -- "I'll give you two sheep if you fix that wall for me" -- it requires the idea of fungible value, which requires the idea of money.
In Western society, from the beginning of recorded history through the 1960s, the value of money was tied to some sort of precious metal. And then, the industrialized world switched to fiat money -- "this money is worth this because We Say So."
Money is, however, a collective delusion jointly and willingly held by a society. Our money can be traded for goods and services because we say so.
The story of the Brazilian Real is an example of this. 1994, Brazil was going through rampant inflation, of the kind where you tried to do your shopping early in the day, before the shopkeeper found out how much prices had gone up overnight. Indeed, shopkeepers could not, physically, keep up with marking up their prices. So the government stated that, "As of this point, everyone will mark prices in 'Units Of Real Value', and then you can just post how many cruzeiros reais equals one URV, and you only have to change one number." This made everybody much happier. And then, people started asking to be paid in URVs instead of cruzeiros reais, because that would be easier, and the government began issuing URV certificates, and shopkeepers started accepting URVs. . . and the "real value" became the modern Real. ("Real" means both "royal", which is a perfectly acceptable name for a currency, and, y'know, "real.") And, pow, inflation stopped. Just ... stopped, and the economy stabilized. This was the plan -- and it worked.
Nothing changed, except that everybody decided that the Real was real in a way that the reis wasn't.
This is the sort of thing you can do with fiat currency.
The thing is: precious metal-backed currency is just as much a fiat as pure fiat currency. It lacks flexibility -- but it's just as much a collective delusion jointly and willingly held by a society.
From the beginning of Western civilization, we've agreed to pretend that gold has a specific value. And that silver has a specific value. And, sometimes, copper. For convenience's sake, we started printing certificates that could be traded for those items. And then, in 1971 in the United States, we decided to skip the middleman in our Let's Pretend game, and just pretend that the paper itself had that value.
This was a brilliant move, and allows so much more flexibility in the management of economies than specie currency.
But it's a slightly harder suspension of disbelief than the specie currency -- even though, logically, they're exactly equal Let's Pretends.
The danger of minting a platinum coin that we say is worth ONE TRILLION DOLLARS is that it totally sticks a mirror up behind the magician's back. For some people, it might make it harder to buy into the game. And THAT would be a disaster of potentially civilization-ending proportions.
Logically, it shouldn't be a problem like that. We've been working on the Pretend Money idea since we invented money, some five thousand years ago or so. It's just that we used shiny rocks to make it LOOK like there was something there. We've been skipping the Shiny Rock stage for the past forty years, which works just as well, with the addition of the ability to adjust inflation rates (which is a feature, not a bug). But if people don't make those two logical leaps, It Would Be Bad. And I worry that the platinum coin gambit might encourage some people to end up there.
Anyway.
That actually wasn't what I was originally going to post about. But I got distracted.
What I ACTUALLY wanted to write about was banks.
As we all know from IT'S A WONDERFUL LIFE, banks don't actually have money in them. They have a LITTLE money -- enough to hand off the money that people are going to need on any given day -- but MOST of their money is out in loans, out doing stuff. When people don't trust in their banks, you get a run on the bank, when everyone starts withdrawing their money, until there just isn't any of the money on hand left, and then everything goes pear-shaped.
The way we prevent that in modern America is with the FDIC -- Federal Deposit Insurance Corporation, which insures that, even if a bank goes under, you are guaranteed to get at least your first quarter-million dollars back. For the vast majority of people, that's more than we can ever hope to have in our bank account, so we have no reason to panic about a bank failure, ever. By preventing panic, we allow people to trust banks, and make things just plain work better.
And, from what I've heard, when a bank DOES fail, the FDIC takeover process is one of the smoothest and well-run government processes they do. Bank closes on Friday, and, by Monday morning, the entire bank is up and running again under new management -- and they even have grief counselors because of the emotional trauma. (And a certain number of the agents running the thing were part of banks that went under, so the agents themselves are sympathetic and emotionally helpful.)
So FDIC insurance is one of the best ways we have in the modern world to ensure trust in banks. But the old-school method?
Architecture. Why were 19th century banks so ornate? Such Temples to Mammon? Why were they so impressive and imposing?
Because it inspired trust. If they looked like THAT, they COULDN'T fail, could they? And it really worked.
Until it didn't. Once banks that looked like that started failing, their architecture stopped being any sort of an asset, and nobody builds them like that any more.
So what DOES inspire trust? (And this is what I've been trying to get to -- boy, I'm easily sidetracked.)
When I drive Lis to work, we drive past SaugusBank. And we currently bank with a credit union that is far away from us, and we can only do stuff by mail, which is inconvenient. So I'm vaguely thinking about switching. And SaugusBank attracts my attention.
Why?
Because they have funny marquee signs. "Not Too Proud to Beg For Facebook Likes." "Banks With 'Saugus' In Their Name Are Awesome." "Bank With Us Any Time (Unless We're Closed.)" "Try Our Mobile Banking (Not Right Now -- You're Driving.)"
And to me, that inspires trust.
I don't believe that Big Imposing Architecture means that someone's more stable. But I DO believe that "wit" goes with "intelligence" goes with "actually being able to deal with stuff when it hits the fan." I actually find myself trusting the bank more, believing that they'll not get into financial messes, because they've got funny messages on their marquee.
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(no subject)
Date: 2013-01-17 10:25 pm (UTC)1. You say Originally, people had "gift economies" --…
Do we know this (presumably by studying "primitive" societies)? or is it just a case of "Sure, what else could it be? It's obvious." (Cf. sunrise, which is both obvious and illusory.)
2. And So, even though you can just do straight barter without money -- "I'll give you two sheep if you fix that wall for me" -- it requires the idea of fungible value, which requires the idea of money. I don't see that at all.
Say I have a sense of what effort and materials it would "cost" me to do the wall myself, and what ditto I've put into raising those sheep. That lets me decide that it's worth it to me to "spend" those sheep for your labor. And I may also have an idea of what those are worth to you, because I know (as everyone in the community knows) that you have only a few sheep of your own, or none. So these two sheep would be more valuable to you than they would be to our neighbor uphill whose flock is much bigger than mine, let alone yours. And even though his son is more experienced in masonry than you are and would probably do a better job, I can't make it worth their effort, and you keep your own walls in decent shape.
Sure, modern-we can translate that into terms of money, but why should we? Why should the villagers need some fixed equivalence?
(no subject)
Date: 2013-01-18 06:58 pm (UTC)What we can see is that there has never been a barter-based economy among a population that wasn't familiar and comfortable with using money. Barter just doesn't exist without money. That's an observation, not a conclusion. My statement that barter requires the concept of fungible value, and fungible value requires the idea of money -- that's a conclusion I'm drawing to explain the observation that barter doesn't exist without money.
Your paragraph sets up a situation that simply would not exist in a pre-money economy. If I know you to be a decent person, I'd mention that I just plain had too many sheep to take care of, and you'd be doing me a favor if I took these extra sheep of my hands. Except, if you did that, it would totally be a visible slap in the face to the neighbor uphill, since everyone would know that HE had even MORE sheep, and you were showing him up by proving that you were a more generous person by giving sheep even though you had fewer -- which would make people less willing to deal with that neighbor.
The fact that said neighbor uphill hadn't already given me sheep is a sign that there's something wrong in the social fabric. Perhaps I'd already slighted him somewhere, and people would be aware that this was an interpersonal conflict between the two of us, rather than a sign of that neighbor's stinginess. Otherwise, if I was perceived as a decent person, this would be an economic attack on that neighbor, by you, using me as the method.
In a pre-monetary gift economy, you're not trading with me: you're establishing yourself as a valuable member of the community to whom everyone feels well-disposed, and who is perceived as someone worth keeping in the community.
Trade is required when you're dealing with people outside your community, with whom you do not have an ongoing relationship. This is handled on an ad-hoc basis, and may be the subject of specific negotiation. But there are no universal, general methods that form a standardized trading concept, until you have taxation, which comes along with money, which comes along with market economies. Those all develop together -- along with, oh, cities, writing, large-scale stable-population agriculture, and all that stuff.
And barter, in the sense that you're talking about, comes along as part of THAT package.
(no subject)
Date: 2013-01-17 11:58 pm (UTC)(no subject)
Date: 2013-01-18 02:02 am (UTC)And it turns out that fiat economies are not a new thing. Just this particular fiat economy.
(no subject)
Date: 2013-01-18 02:02 am (UTC)(no subject)
Date: 2013-01-18 03:49 am (UTC)(no subject)
Date: 2013-01-18 01:23 am (UTC)(no subject)
Date: 2013-01-18 01:38 am (UTC)(no subject)
Date: 2013-01-18 01:38 am (UTC)He also wants to know if it's okay to post it to his Facebook if he credits it to you....
(no subject)
Date: 2013-01-18 06:36 pm (UTC)Yeah, my FB username is Xiphias and real name is Ian Osmond, and I don't know which way is easier to look things up this week, since FB always switches it around. I have a twitter, but I've never used it.
(no subject)
Date: 2013-01-22 05:54 am (UTC)My niece is taking macro economics in a program offered to inmates in certain state prisons in Texas. Texas doesn't allow prisoners access to the internet, so there are only two ways I could share this with her. I could download it to a text file and attach it to an email message which would be printed out and handed to her or I could print it and mail it to her via snail mail. Either way, it likely would move beyond anyone's ability to check attribution when used by others.
(no subject)
Date: 2013-01-22 12:45 pm (UTC)(no subject)
Date: 2013-01-18 08:36 am (UTC)(no subject)
Date: 2013-01-18 06:38 pm (UTC)But my emotional side feels that "wit = safety", in a way that "big impressive walls" don't.
(no subject)
Date: 2013-01-21 06:11 pm (UTC)Not all banks in Massachusetts are members; their website (https://www.difxs.com/) lists the ones that are.
To me, choosing to be a member of this organization is a better sign of "intelligent money management" than witty advertising; it doesn't just satisfy my logical side, but my emotional side as well.
C.
(no subject)
Date: 2013-01-22 12:50 pm (UTC)