Re: The budget deficit creates wealth

On Fri, 27 Oct 2006 00:01:35 +0200, Herman Jurjus <h.jurjus@xxxxxxxxx>
wrote:

royls@xxxxxxxxx wrote:

[snip, snip, snip, snip]
Garbage. Paying back the debt only led to the Great Depression
because the US Federal Reserve money system _defines_ money as debt.
[snip, snip, snip, snip]

Just curious: how else would you suggest they define money?

Historically, there are three kinds of money: commodities, tokens, and
debt. Commodity money is defined as a form of wealth widely accepted
in exchange. Gold is perhaps the best-known commodity money, but many
other commodities such as cattle, cowrie shells, whiskey and wampum
have also been used. IMO gold makes an excellent commodity money, but
in the modern world, it would be economic suicide for any country to
adopt a gold monetary standard: it would be a guarantee of prolonged
deflation.

Token or fiat money is defined as a non-wealth medium of exchange
recognized (usually exclusively) for settlement of legal debts (taxes
and judicial awards). Tokens can function very well also, but because
of the temptation of capturing seigniorage, there must be strict
control of their issue, or inflation runs away.

Debt money is defined as a legal liability (often bearing interest)
that is accepted in exchange. One problem with debt money is that it
relies on social confidence in the debtors' ability and willingness to
redeem such obligations. Another is that it relies on someone to
assume increased debts in order to increase the money supply. Modern
debt money systems use government debt to smooth out the variations in
private confidence and willingness to assume debt.

-- Roy L
.

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