Value of money

Value of money, inflation, central banking. If value is a subjective matter, the inflation indicators often used are de facto useless.


They say that beauty is in the eyes of the seer. Likewise, the value is in the eyes of the evaluator. Value in itself is subjective. It is in us, not in things. Goods and services do not have their "intrinsic value" in themselves, they only have the value that we ascribe to them.

Why would money be an exception? Even money has no intrinsic value, without people our value could not logically be attributed to them. The value of money is subjective.

The value of money is subjective. Only the individual decides whether the money brings benefits (has value for him) or not. Money is no different from other goods - their exchangeability is their specific property, just as the specific property of metals is their strength and formability. These specific characteristics are what the goods can satisfy our needs, making the goods useful. A specific feature of money is its convertibility into other goods. In essence, however, it is no different from any other farm.

If the value of money is subjective, it is nonsense to say that the value of money is given by what we can buy for it, that is, that the value of money is given by the price level. That's bullshit. The price level does not determine the value of money. There is no "objective determination of the value of money".

If people see money as more valuable than other goods, then people save money. If people do not see money more valuable than other goods, people do not save, but spend.


If people spend their money en masse, instead of saving, the money for a pile of people is less valuable than the goods they can now buy.

That wouldn't mean anything so bad. People spend, so they don't save. Their time preferences are low - people want goods now and not in a few years. The interest rate is so high because the supply of loan funds from which it is possible to lend to investors for investment is low and banks are thus willing to offer people a higher profit on their savings.

It is logical - if people want to spend now, it means that they are not interested in certain future goods. Interest rates are high, banks find it more difficult to find capital (people do not save) and so they pay more attention to who they lend to whom (resources are limited). When they already lend, they choose more carefully which investment to actually lend to - they promise savers high returns on borrowed deposits, high returns can only come from very successful investments.

General economic growth is slow with higher consumption and savings. There is no capital (savings -> investments) from which innovations would arise, which would increase work efficiency in the future and create new capital (machines, resources).

High interest rates make people's consumption more expensive - they are deprived of possible income from savings (opportunity costs). Saving (investment) a consumption are competitive opportunities to use money. Their competition is reflected in their "battle" for customers with the promise of higher returns - but as a result, they work hand in hand.

When people consume, interest rates and savings income rise until people start saving. Subsequently, projects will be invested that will bring us better goods and services worthy of our consumption in the future. The interest rate drops, people then start consuming. The competition for savings and consumption has brought better goods and return on investment - hand in hand.

So far we have not encountered any problem. Yet.

Inflation, deflation and central banks

The system we have described below is an ideal system that works according to the time preferences of consumers / savers and investors. Unfortunately, there is a state and his Ministry of Monetary Policy A central bank that changes a lot.

First, we explain what the Central Bank does on a system operating on the simplest gold standard, where 1 unit of money is directly covered by some amount of gold.

Imagine that 1 crown is covered with 10 grams of gold. What is money then? Money is gold here, not the crown. The crown (whether metal or paper) is just a voucher for gold. Nothing more, nothing less.

Why is money exactly gold? It is because of its properties that people see as useful. Gold is money because people have chosen it according to their preferences. It corresponds to the preferences of consumers / savers / investors about the properties of money. It is rare, it is beautiful, it is relatively easy to divide and most importantly - it is not easy to "print". In itself, gold is the perfect store of value.

People see value in gold, not in the vouchers themselves (crowns). If there is 10 grams of gold behind one crown, people see behind it gold (crown) some value. If, after ten years, there is only 1 gram of gold behind one crown, the value seen in those vouchers is logically lower (there is a lower amount of gold behind them, in which that value is seen). It doesn't matter how much or how many times the value is lower, the main thing is that it really is lower.

Ladies and gentlemen, this is inflation. It doesn't matter at all whether the price level has changed, if oil has risen or if speculators have started speculating "differently" than usual. This does not cause inflation per se, it does not cause inflation per se. Inflation is the loss of value of money.

What causes inflation? Imagine working hard all your life and saving for retirement. You will save honestly in your national currency. When you were 20 years old and you started saving, 1 crown was worth 10 grams zlata. When you retire at 70, 1 crown will be worth 50 gram of gold after 1 years. Within 50 years, the crown has lost 90% of its value.

Let's say you've saved 50 crowns in 100 years. In your 000s, that would mean 20 million grams zlata, in other words - tons of gold. Unfortunately, thanks to inflation, in your 70s you only have 100 crowns available 100 kilograms of gold, the equivalent of 10 crowns from your 000 years.

You saved "yourself" instead of 50 years for only 5 years. 45 years of renunciation were thrown out the window.

That's it is inflation. Inflation devalues ​​the time we all have limited. It makes our lives worthless.

The fact that the price level remains stable tells us almost nothing about inflation. If the pace of innovation continues and competition is sharply intensified, a decline in the price level can naturally be expected. The stable price level caused by the devaluation of the money supply is thus in fact inflation, because we are "in prices" depriving ourselves of the yield from the reduction of the price level.

A typical example of an "inflation-stable price level" was the 20s. The price level was stable, but innovations went at such a pace that the stability of the level was caused by the dilution of the money supply. The amount of "gold vouchers" in circulation increased several times, while the amount of gold in banks' reserves remained almost unchanged. I am talking here in particular about the situation in the United States and in the Fed's central banking system.

But how is it possible that the system does not work ideally, ie according to the (time) preferences of all participants?

Moral hazard of central banking

Here the central bank enters the whole carousel. It is a classic issue moral hazard. The central bank is the "creditor of last resort". In other words, if a bank runs out of money from its clients because it has lent recklessly to too risky projects, an "irresponsible" commercial bank can save itself from the run with a loan from the central bank, which turns on printing machines and sends new vouchers to the bank (or in now the national currency).

It doesn't matter if banks use this option directly or not. The main thing is that Central banking is thus a system of socialization of losses. If the central bank prints money for the bank, we will all pay for the bank's loss by losing the value of our own money and savings. An irresponsible bank also earns money as a result - it will receive money whose value will be perceived as the same as other money. An irresponsible commercial bank buys with new money, but at old prices. However, everyone else will start to lose money, they will start to lose weight. The value of money will gradually decrease, ie the price level will increase (or not decrease).

If Irresponsible Commercial pays the central bank less for that rescue loan than the resulting inflation, Irresponsible Commercial will earn - for all of us. It is a reward for incompetence and irresponsibility. Rewarding mistakes.

However, the problem of central banking is really systematic and principled. All this moral hazard is fueled by inefficiency caused by the lack of competition in the banking sector. The central bank often also performs "supervision" in the banking and financial markets. If not, there is usually another institution next to it that provides this.

In the interest of "consumer protection" (here savers, bank clients, depositors) there are usually very high requirements for obtaining a kind of "banking license". In fact, a "just someone" cannot come to the banking market. The banking market is a market where competition works very weakly because it has been replaced by artificial rules of regulation.

Inefficiency in the banking market means ill-treatment of depositors' funds - lending for non-viable projects. It is the feeding of moral hazard. The banking market is de facto not working due to the central bank. Giving the central bank additional powers to remedy this situation is naive. It's like giving an arsonist gasoline to put out a fire.

It is this great moral hazard that makes it possible raspberries, that is, bad investment. Inflation, created by the moral hazard of the regulated central banking system, is the primary cause of recent economic crises.

Commodity Growth - An escape from fiat currencies

Currently, the price of commodities is "rising" - butter breaks historical records, after gold and silver is literally a mania. What is it?

It is possible that the price of commodities is not rising, but the value is falling money (fiat currency). In recent years, large central banks have de facto competed in which of them will devalue their currency more. Fed-led quantitative easing was just the most visible example.

Thus, "bad" speculators, but rather central bankers, are not to blame for rising commodity prices. After all, all this growth indicates a loss of value for money, ie inflation. And until it is possible to pay for the construction of a production hall with butter, for example (the value of which is beginning to appear more stable than the value of money), monetary inflation will still cause economic crises in the spirit of Austrian business cycle theory.

Article for download in PDF: Value of money


  1. The greatest illusion of modern civilization is that money is of great value, when it can be easily exchanged for goods and services, can you buy health or immortality for money?
    What you can buy for money actually has no value here, you change worthless money, for worthless things and services.
    It is just a pathetic puppet show in which genetic human puppets control other genetic human puppets, and money is used as an economic system for easy control of puppets.
    Money is a mental energy used for manipulation in human culture, and this mental energy has no value here.
    Why did the cult of money arise here, and naive people worship and love money, when in fact money has no value here?
    Behind everything is sex, sex has created a belief in cults, and evolutionarily, cults change according to the situation.
    Instead of the old God in heaven, there is a new God in his wallet!
    People want sex, so they made money, and they use money!
    Every job for money is prostitution, and it doesn't matter if the prostitution is carried out by the intelligent Miloš Zeman as president, or if it is carried out by a Roma man, like a stupid digger digging with a pickaxe and a shovel.
    Where there is money, there is a consumer mess, full of career prostitutes and ideological pimps, the global crisis occurs when customers are greedy and no longer want to pay for sex in a consumer mess because they visit free porn sites on the internet!

  2. Paper currencies are really just fiat currencies.
    The first sign of distrust and you see what it does to the dollar - it flies like a kite, just look at the chart for about 10 years.
    Uncovered currency, or constant dilution, cannot end well - when it stops buying bonds and institutions of last resort, it will be painted.

  3. But of course, these are values ​​from the point of view of a normal human individual. Values ​​are subjective, those that you or you attribute to something. Value does not depend on cost or need for life.

    So meat is certainly an important thing, but explain it to a vegetarian that it has value - it has no value for him. At the same time, a vegetarian is a normal human individual, with only certain preferences (which everyone has).

  4. : )
    I assumed that these were values ​​from the point of view of a normal human individual. If you analyze it this way, then of course it has absolutely nothing worth. Neither our existence, the existence of life in general. And of course the existence of matter. In that case, however, I come to the conclusion that dealing with the term "value" has no value. 🙂

  5. Explain to white-eaters that meat has an objective value, explain to a diabetic that sugar has an objective value, explain to a person allergic to milk that milk has an objective value, explain to a vegan that animal fats have an objective value…

  6. Try to think that some "values" are necessary for life. I would dare call them objective.

  7. As long as someone accepted the papers as a means of exchange, it would be money. 🙂

    The value is subjective, not objective !! There is nothing like "real" and "unreal" value! There is nothing like "true value" and "faith in value" - value is only that faith !! Only a person evaluates from his point of view by believing in some benefit!

    So this statement: "Their whole value is based only on the inertial belief that they still have some value." It is not shocking - that's how it was, is and will always be. Otherwise, it can't even be the value of anything…

  8. I think I understand that very well. I just think that real value has little to do with the financial system. 🙂
    Just imagine a situation where the whole system would collapse overnight, banknotes would become pieces of paper, and virtual capital would be a pile of worthless zeros and ones on hard disks.

  9. I read the article, but unfortunately I don't have time to read all the comments. What I want to say has definitely appeared in them, but it doesn't give me:
    The author should study the system of partial reserves, ie a huge systemic error, which with the development of virtual banking pushes the entire financial system to ruin. When he understands all this and reads his article again, he finds it essentially insignificant and superficial. It is ridiculous to describe the coverage of a currency with gold, when in fact money has long been covered only by debt. And their whole value is not only relative as the article tries to say, but it's far worse. Their whole value is based only on the inertial belief that they still have some value.

  10. 2Zdenek: in the article it sounds really inappropriate, but it does not change the fact that it SHOULD be so 🙂 (and behind it "should" not look for any ideology, but for example similar to the word "have" in the statement that "thief should flat lost ”.

  11. @call me mr. kill joy

    Yes, some did. And they were punished for it, because people in the free market considered it a fraud. But then the state came and legalized these scams! That's the difference

    This does not change the fact that you MUST accept the state currency if someone wants to pay with it. The state will also want taxes from you on its behalf, and it doesn't care if you trade some other money for your community. It will convert your local currency profits into national currency profits and force you to pay your state currency taxes.

    That's the problem with mixing different schools. But different schools have different prerequisites. And if you have only two contradictory statements in the assumptions (which must be by definition, otherwise the schools would not be different but the same), then you will be able to prove any statement you will want in a logically correct way, so you feel that you are always right.

  12. ///"AND. The exchange of goods for a 'physical gold selection certificate' instead of exchanging goods directly for gold has nothing to do with the fractional reserve system. '

    I don't think so. goldsmiths began issuing receipts for gold, which they did not really have, otherwise there were more holders of receipts per unit of gold. this was the basis for the creation of the fractional reserve system.

    /// lobing

    it is enough for me that you have admitted it, trivialization is your opinion, which I do not take from you 🙂

    to B

    I do not intend to repeat to the round what I have already written

    to C

    ignorance? how come there are several local names in the usa and no one forbids or restricts their use! and since we have free movement of people and capital here, nothing prevents you from joining any of the communities.

    gold as an uncovered menu I have already described as follows:

    1. Inflation (understood as rising prices) occurs:
    a) The increase in the quantity of monetary units in circulation with the unchanged quantity of the "product".
    b) Decrease in 'product' with unchanged monetary units in circulation.
    c) If the growth of circulating monetary units is faster than the growth of the "product".
    d) If the decline in the "product" is faster than the decline in the amount of monetary units in circulation.
    2. Deflation (understood as a fall in prices) occurs:
    a) By reducing the amount of monetary units in circulation with an unchanged amount of "product".
    b) Increasing the "product" with an unchanged number of circulating monetary units.
    c) If the growth of a "product" is faster than the growth of the quantity of currency in circulation.
    d) If the decline in the "product" is slower than the decline in the amount of currency in circulation.

    it doesn't matter what money is.

    /// "But I'm very happy to read what you think will happen if people save."

    I will answer you with a quote hayeka, maybe you will understand:

    "As long as the amount of money in circulation changes continuously, we cannot get rid of economic fluctuations. In particular, any monetary policy which seeks to stabilize the value of money and therefore resorts to an increase in supply with each increase in production must cause exactly the fluctuations of the economy which it seeks to prevent. '
    Friedrich August von Hayek
    Profits, Interests, and Investment and Other Essays on the Theory of Industrial Fluctuations

    to the end

    I have a comprehensive economic theory. I try to get the best out of every school and what describes reality. I don't fix myself on one of the schools, because everyone has their flies and defects. for Austrian schools, for example, the theory of debt deflation is a Spanish village.

  13. @call me mr. kill joy

    A. The exchange of goods for a 'physical gold selection certificate' instead of exchanging goods directly for gold has nothing to do with the fractional reserve system.

    lobbying: In a free market, you have no one to corrupt or lobby to give you the privilege (ie monopoly) of money. Because no one has this right in the free market. "Corruption / lobbying" in a private company does not concern me at all if I do not own that company. Corruption in private companies is a small local problem that does not concern me at all, I do not bear any costs.

    B. The free market is NOT MANAGED in the sense that there is no one who can legally impose his opinion on anyone else and legally punish him for behaving contrary to his opinion. This is similar to saying that "you are driven by physics / chemistry and so on." These are simply natural laws with which you do nothing, they are mantineles from which you cannot deviate in any way, but it has nothing to do with management.

    C. YOU MUST accept today's virtual and paper money as money. You MUST NOT deny them by law, otherwise you will be physically / mentally punished by the state. This has absolutely nothing to do with the willingness to accept color images as money! This is ordinary violence! People accept gold / silver (unless the state forbids them to do so, for example in the USA about 40 to 80 years ago) as money VOLUNTARY, on their own, they would not have to do it, no one forces them to do so.

    Explain to me how gold can be an uncovered currency.

    ad knife: He may not need it today, but tomorrow he will! She may want him back tomorrow. He may not want it, he may give it to you. However, this does not change the principle at all.

    D. The Austrian school does not encourage anything. Just as physics does not suggest anything, it only describes the world. The Austrian school (etc.) describes what happens when people save and what happens when people do not save. The Austrian school does not tell anyone whether to save and how much. At best, it says, "If you want to be better tomorrow, you have to sacrifice something for it today." But it doesn't tell you you want to feel better tomorrow. I just want to get worse tomorrow, it's your business. You just can't get others involved.

    When everyone starts saving, nothing happens at all. Respectively, it happens that when you are unable to work, you will not die of hunger, because you have saved resources. But I'm very happy to read what you think will happen if people save.

    I don't mean it as an insult, but I think that you have a bit of hockey in economic terms and that you don't have any comprehensive economic theory according to which you would go and you react more or less ad hoc. I would recommend you work on that.

  14. @gofry
    A: I described a longer historical period and what I described are facts. People kept the gold from the goldsmiths for what they received from the goldsmiths. these receipts spread over time and people bought goods and services for them.

    ad lobing. I would recommend taking the illusion that there is no corruption or advocacy in the free market. this is the myth of the anarcho-capitalists and it is a delusion.

    B: The free market is governed! supply and demand. what you write below is also just one of the forms of illusion. it has always been and always will be that a larger dog is j * b *. you don't have to accept someone's money, but you won't do anything when 99% of people accept it. you wouldn't even eat by not accepting this money.

    C: gold and silver are uncovered currencies, even in the past they were also used as FIAT money. apply for them what for paper money, or muesli, stones, silk… as money.

    for example with legs. someone asked you, so it only means two things.

    he didn't need him
    I have enough of them.

    so you will have a big problem telling him on the next knife

    not even paper money is created as debt!

    money is what one is willing to consider money. as I write above, they were gold, silk satchels, mussels, stones, wood, etc. that people today are willing to use and consider plastic cards for money, a few numbers with zeros in a virtual, etc. are also the same money as mentioned above.

    the currency is covered by a particular territory and includes all means of indirect exchange. paper, metal, plastic cards, virtual numbers. it is not necessary to write the article 🙂

    D: "Inflation / deflation is absolutely irrelevant to the functioning of interest."

    you just think so. ku nabada rakuska skola? to save, to save. I'll save today so I can spend more minutes tomorrow. let us therefore wipe away all. you will see what happens next.

  15. Please, where did the author get the fact that the bank lends deposits to savers? This is what most lay people and even discussants think. The author apologizes for the fact that he is only in high school :)

    Quote: "Gold is money because people chose it according to their preferences." If you have not registered, gold no longer works as money for a long time. People do not see the value of money in gold, but in what they buy for them goods and services :) Inflation is a reduction in the purchasing power of a monetary unit, ie an increase in product prices. When the number of products increases and the amount of money grows, the real purchasing power of a unit of money is the same and there is no inflation (of course we have more kinds of inflation, etc.) Open some modern textbook of monetary economics and not all the time How the state destroyed our money from Rothbard 🙂

    "People see value in gold, not in the vouchers themselves" Do you see it as people or what? :) I'm fascinated by how you try to be scientifically positive, and then you swap such a fabrication and report it as a bare fact. Confusing people.

    Another note. When the central bank rescues a commercial bank, it does not print new money, it only allows the current money in KB not to disappear through the bank failure. KB's assets have been reduced (bad credit) and the CB is providing a loan to bridge the payment system, new money is not being created, but neither is it disappearing as in the event of a bankruptcy.

    Kosik: Precisely because money today is created by lending (credit in assets, at the same time liabilities in deposits), the bank no longer lends your deposits. But your deposit is already a product of the loan itself. The fact that the money was transferred from the debtor of the bank to you and you have it in your account does not change anything. You didn't understand the mechanism of making money at all. De Soto confuses it all the time in that book, and you probably experienced it accordingly. Less biffing by one author.

    Another arguer's argument that we all make money by lending to someone else is completely misguided, and perhaps it is not worth dealing with. When I borrow money as an individual, they leave my account to the debtor's account. My assets will run out of money and I have a claim. Only when the bank lends, the total deposits increase. She does not borrow from her assets like I do, but she increases her overall balance sheet.

    I guess I put everyone here, which wasn't entirely tactical, but I couldn't watch the nonsense anymore, sorry.

  16. They are definitely more professional than me, but this will not give me this:
    That's him: why should the value of money decrease? The more produced, the less rarity of the product produced and the lower the price (the less you pay, you give less "gold", you provide less covered banknotes)!
    To Vopruz:
    1) Move to another website if you have a problem with it
    2) gold has a value (ie subjective), which is accepted by the maximum number of people - in other words, for the largest number of people is the so-called "universally convertible equivalent" (which does not exclude that someone does not accept anything at all or has absolutely different priorities - hermit, Islamic suicidal terrorist, etc.).

  17. No offense,

    but this nonsense could not be read in the first few paragraphs. It is beautiful to deny your offspring several times in a row: There is no value, gold has value.

    Recommendations, do not write when weeding.
    If it wasn't out of weed, quit writing.

  18. @call me mr. kill joy

    "The fractional reserve system was created on the free market in the environment of private banks / goldsmiths at the time. it was even private banks and bankers who called for the creation of central banks, lobbied for them, corrupt, even murdered. "

    What you are describing is not a free market. In the free market, there would be no one to lobby, ask for the establishment of a central bank or corrupt. Murder is at odds with the free market directly by definition. All these activities were something that violated the rules of the free market.

    "It doesn't matter who controls it when the result is the same. the culprit will probably have to be found somewhere else. is he a bit alone? ”

    Nobody controls it in a free market. In a free market, you don't have to participate in fraud / bubbles. In the central banking system, you have to. The central bank can inflate the bubble long after it has burst in the free market and hit far fewer people with far less power. In a central bank-controlled territory, you cannot reject its currency. Free money cannot control any territory, a private bank would have no legal possibility to force anyone to use its money / currency.

    "Borrow 10, return 000."

    Yes, the uncovered currency system cannot work and is set to fail from the beginning. But gold / silver is not an uncovered currency. Gold / silver is a normal commodity like any other. Precisely because no existing (physical) gold / silver has been produced as a debt, but as a normal thing, there is no problem in borrowing it with interest. A simple example - I borrow a knife from someone, with which I am able to make other knives much faster. I can easily return two knives to the original knife owner. It is not a pyramid, his loan allowed me to streamline production and produce more goods in the same time. It is similar with real money (BUT NOT WITH CURRENCY! Current dollars, euros, crowns are NOT MONEY, ARE CURRENCY!). Unfortunately, the whole article would like a more detailed explanation.

    "[In a deflationary environment] people would gradually stop demanding urok, and urok would probably disappear naturally."

    No, they didn't stop. If my money buys me 1 liter of petrol more tomorrow than today, I would rather lend it today with such interest that they will buy me 2 liters more tomorrow! Inflation / deflation is absolutely irrelevant to the functioning of interest.

  19. To Dominik: The problem of today's economists (or those I meet and say about themselves) cannot separate money from the value measured by money. The farm has a value expressed in money, it is something like when the apartment has an area expressed in square meters. What we do not understand is that the scale may change over time, that what was today a meter, tomorrow will be two meters. However, the size of the apartment will not change, the scale will change.

    When I talk about the physical idea of ​​money, I mean mainly liquidity, or the amount of money involved in the trade. Again, but even here it does not have to be about money, but about the exchange of two goods having some measurable value in money. And this is usually the case, we exchange the bank's obligation to pay cash for goods and we call it electronic payment.

    With the printing of money, it is just a misunderstanding of the essence of money, because in principle no one prints money. Basically, only commitments are made, but commitments can be made by anyone. Not only a central bank, but also an ordinary bank, even I, as an individual, am able to create money. How? Simply. I will issue a bill of exchange and state it on the stock market. The bill enters the accounting of an entity and increases assets. If all people issued bills of exchange for CZK 10000, the amount of money in the economy would increase by CZK 100 billion (if I count pensioners and infants)… without starting a single printing machine. But everyone bears this commitment on their shoulders.

    As far as I know, the central bank (meaning the CNB) is not directly involved in the production of money "to order" (for example, politicians). The CNB can make money by the same mechanism as a commercial bank does, or as I do. But unlike other banks, she usually does not have to guarantee anyone, or rather, she guarantees the wealth of all citizens. Also, not everyone can borrow from her and there is still considerable interest. This is a loan, not a donation of money.

    Of course, this is where inflation comes into play, which is born where the amount of money in the economy is rising. The more loans are created and distributed among all citizens, the easier it is to repay the loan and the more each entity can borrow. Each loan can be extended and refinanced, and loan holders are able to hold such a loan for any length of time as long as they are able to repay the interest. And with inflation going hand in hand with the amount of these loans, the real value of the loan decreases because the money is easier to obtain.

    Without central banks, nothing would change. Banks would issue their own money (which they are already doing, they are issuing electronic money, you just see it in the information system converted to CZK), and they would cause inflation. The central bank sets a minimum interest rate. If this minimum did not exist, it would be possible for one bank to issue more money than the other, and inflation could occur more than the 2 planned percentages. Another tool is the minimum amount of required reserves. If this restriction did not apply, again, banks could issue any amount of money.

    Anchoring money to a commodity is not the answer. The effect of multiplication continues to work and money in the economy eventually increases. But unlike uncovered currency, people here have a legitimate sense of deception. Who wouldn't, if he has gold stored in the bank and borrowed several times. And how many times by mistake, because the money is not signed and the banker has no idea how many times the same money was borrowed and returned to the bank through another channel. This is the main and fundamental disadvantage of covered currency, where money takes such a schizophrenic form. They are a farm and at the same time an instrument of exchange. But money should not be a commodity, only a tool, so that its value is not subjective, but objective, or rather nominal.

  20. after the regulation of money in circulation, foreigners after not raising and not reducing the money supply called mises, hayek and others.

    "As long as the amount of money in circulation changes continuously, we cannot get rid of economic fluctuations. In particular, any monetary policy which seeks to stabilize the value of money and therefore resorts to an increase in supply with each increase in production must cause exactly the fluctuations of the economy which it seeks to prevent. '

    Friedrich August von Hayek

    Profits, Interests, and Investment and Other Essays on the Theory of Industrial Fluctuations

    Hayek, on the other hand, also described free money. In the case of free money, you cannot ensure the invariability of the amount of money. money could be spent by anyone, and that person would automatically stop working, money would cease to be "covered," because money is pushed more easily than value is produced. until the market cleared up and picked out the best money, hyperinflation would first ripen us.

    Furthermore, I dare say that the accusation of only the central bank is, in my opinion, dilettantism. The fractional reserve system was created on the free market in the environment of private banks / goldsmiths at the time. it was even private banks and bankers who called for the creation of central banks, lobbied for them, corrupt, even murdered.

    97% of all money is marketed by private banking. if the government also takes credit (it issues a bond), then commercial private banking will create 10/20/50 multiples of this new money created from nothing on the basis of the amount of fractional reserves.

    because of this, central banks were created so that the fraud of the fractional reserves of private banks could not be destroyed by a couple of "bank runs".

    to uroku:

    in order to be able to move on, we have to say something about the urok. it is not a problem to notice that the economy and the progress of mankind are advancing, especially when credit is cheap, foreign at a time of low interest rates and when there is demand for it. let us imagine for a moment that it is not the central bank that determines the level of the basic interest rate, but it is determined by the market.

    The theory is that a low, declining demand for money (debt) results in a decrease in interest rates and thus a low price of money, credit, debt. on the contrary, rising demand for money results in rising interest rates and the price of money is rising, it is high. if we put this state in the graph, the result is just as sinusoidal as in the case of the management of interest rates by the central bank. the effects would also be identical, as competition in the banking sector would always push for the lowest possible interest rates, which would inflate the bubble in the economy. it would burst after the collapse of several banks that failed to compete. it should be reminded here that if there were 100% reserves in the banks, or no fractional reserve system, it would not be possible to inflate the bubble to such monstrous dimensions as we are witnessing today. but you yourself, as small children, probably noticed that even those small bubbles released from your bubble blower :-).

    so if we compare it in the "rough" it doesn't matter who controls it, when the result is the same. the culprit will probably have to be found somewhere else. is urok alone?

    we know that the money intended to repay the interest was not put into circulation. I'm sure you know all those who have ever taken credit. you have always put and / or put into circulation only the principal. put into circulation 10 units, but you have to return say 000, maybe even twice as many as 15. Nobody has put this money there yet. In order to be able to repay the loan even with a certain amount of money, the banks must get the money you have withdrawn back into circulation in some way. either they invest them or they have to position them to someone else. and this is where it originates, or we are in the middle of a pyramid scheme.

    the skittles from the cartel around the Fed (and other privateers) have to put into circulation as much money as there are due in the calendar year, otherwise we are heading for a nice bust. money is repaid by repaying loans and interest from those who still manage to repay, they disappear from circulation and new positions do not increase, especially at high interest rates.

    time preference, which I am only interested in talking about in an inflationary environment. on the contrary, in deflation, people realize that their money will be "tomorrow" (in the future) more valuable than they have "today" (in the present), or as they had "yesterday" (in the past), simply that I will be able to buy more "tomorrow" for your money than "yesterday". people would gradually stop demanding urok, and urok would probably disappear naturally.

    PS need to be aware of the crucial thing. it is necessary to differentiate between goods (we can also include services here) - listed below as a product - inflation / deflation and monetary inflation / deflation. some time ago I worked it out like this:

    1. Inflation (understood as rising prices) occurs:
    a) The increase in the quantity of monetary units in circulation with the unchanged quantity of the "product".
    b) Decrease in 'product' with unchanged monetary units in circulation.
    c) If the growth of circulating monetary units is faster than the growth of the "product".
    d) If the decline in the "product" is faster than the decline in the amount of monetary units in circulation.

    2. Deflation (understood as a fall in prices) occurs:
    a) By reducing the amount of monetary units in circulation with an unchanged amount of "product".
    b) Increasing the "product" with an unchanged number of circulating monetary units.
    c) If the growth of a "product" is faster than the growth of the quantity of currency in circulation.
    d) If the decline in the "product" is slower than the decline in the amount of currency in circulation.

  21. @ Lukáš - that's exactly what I thought about half a year ago. That market regulation would be sufficient for functional partial banking. But the arguments of de Soto, Hulsmann, and the company quickly changed my view of the issue. that this is a crucial question of whether partial banking is a violation of the depositor's property rights (now I'm only talking about sight deposits). I say yes. That it is a fraud, like any other, and its enforcement does not require any special state regulation, but the classic enforcement of applicable laws. As with other business fraud.

    It took me a long time to look at it with common sense :). The sight deposit is only a service from the bank (safekeeping of money and facilitation of payments). Nothing else. Money has only changed form and is still in circulation. The bank simply has no right to manipulate them in any way.

    I recommend this interview with Guido Hulsmann (, which, among other things, deals with the situation where both parties agree to partial coverage. The problem is when these partially covered monetary substitutes fall into the hands of people who would not agree with it.

    btw. have you read Money, banks and economic cycles from Sota?

  22. @Kosik - I do not see a problem in fractional banking in the free banking market. I believe that for adventurers, banks with partial reserves (without fees and higher potential interest rates) would be created, as well as banks with full reserves (lower interest rates / higher fees, but with certainty - conservative accounts). I think the market would clean up the inefficient market (those who lend themselves to fractional banking on never-returnable investments).

    However, this system can only work without the moral hazard of central banks. Requiring necessarily full reserves leads to the need for state regulation, which I see as less effective than free market competition.


    (I will use the comment I wrote on another article on a similar topic).
    I think you're still missing something. In matters of money and banking, it is absolutely essential to understand the role of partial reserve banking. That this is nothing more than a violation of the depositor's proprietary rights. That the economy as a whole does not help in any way. That it exclusively helps bankers, the state and interest groups connected to them. When a person deposits money in a current account, he does not give up that money. It requires the bank to deposit and simplify the payment system in the form of monetary substitutes (banknotes or electronic deposits). Because the money did not become the property of the bank, it only changed its form and its owner intends to still use it. The bank therefore has no right to manipulate this money in any way, otherwise it would be a fraud. Unfortunately, during the 16th, 17th and 18th centuries, the state began to tolerate this deception because it was advantageous for it. This created a pernicious symbiosis of the state and banking. The state has "said": we will let you make money out of nothing, and in return we demand that you buy our bonds for part of the money that has been made. However, partial reserve banking is very unstable and prone to crises, which in time inevitably led to the emergence of central banks (which is a creation of the state) and then we know it as an unprecedented increase in money supply (illustrated here on the development of currency in circulation in the US).

    Lukáš: I just miss the mention of partial reserves and its creation of money out of nothing in the article, which is the main reason for the creation of central banks.

    And once again for everyone: MONEY CREATED FROM Nothing CREATES WEALTH! (carve it in stone and hit it in everyone's head, because this myth keeps appearing all the time and I'm slowly tired of refuting it)

  24. ON - Only the store of value will be generally accepted in the exchange, because the exchange is "value for value" (differently sized for both parties - both want to gain). If fiat currencies do not serve as a store of value, they will simply not be accepted in exchange (they will cease to be money).

    Something is money (generally accepted in exchange) precisely because it can preserve value. These two functions are inextricably linked.

  25. he: in principle I understand that and I have argued similarly before. it's a bit of a conceptual war, but "virtual money" is not a problem, the problem is "money made of nothing, loans without prior savings"…

    It is justified to claim that people retain value in anything, why it should be money - there is no problem with that. the problem is that no one (for many fundamental reasons) can have the power to create money from the air (and it's not just CB, no one)…

  26. Luke, I suspect you of a purposeful example. Investing in butter is probably not profitable. If I want to invest new capital creation in a covered currency system, I must first sell a roof over my head. In the uncovered currency system, I will take out a mortgage and give the roof over my head as collateral. In both cases, I am sure that I am able to start a business with a return, only in the first case I will rest in a tent.

  27. If you are going to save on goods (for example, by investing in butter), I want to see how in the fiat currency system you finance the creation of new capital from these savings (this clearly leads to ABCT).

  28. I don't like lump sum digging into uncovered money, because it's a strong simplification. Even a covered currency is not without its disadvantages, each system simply has its own.

    Inflation arises in such a way that when a lot of people borrow a lot of money, the price level rises and the value of money decreases. It is then easier to repay the loan or pay interest.

    On the other hand, in the system of covered currency, the value of money cannot be reduced and there is just a buried dog - this is the disadvantage. There will be a run and money will run out. In the uncovered currency system, the value of money is currently declining.

    I am a supporter of virtual money, as a person who deals with information technology. I have long overcome humanity's mistake that money has the function of a store of value. It is illogical, because preserving value other than money has huge costs, why should money have a different privilege? The cost of safekeeping is either inflation or bank fees (it's the same).

    Keep money in valuables, save money on farms. In economic theories, however, it will not generate savings because you will consume goods. But that's the mistake.


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