May 30, 2012 at 9:58 pm #16920
I’m still sort of new to Austrian Economics, but I find this stuff very interesting to think about! As I was listening to lecture 3, I thought of a few questions. I hope you can help me think through them.
In the lecture it was said that money is neither a producer good nor a consumer good, but rather a medium of exchange. Can money sometimes be both a medium of exchange AND a producer good? For example, let’s say Joe had a large collection of silver coins, and he decided to melt those coins down and mold them into a set of silver spoons. Would Joe not have seen his Silver coins as both a medium of exchange AND a producer good?
In fact, isn’t this the reason precious metals used as money continue to hold their value? Because of the fact that they can also be valuable producer goods?
If money does not have some value as a consumer or producer good, why would it hold any value at all? And if it does not have value as a producer or consumer good, then why do we categorize money into a separate category?May 31, 2012 at 10:33 am #16921tylor.slingerMember
Once the silver was melted down it would lose some of its value as a median of exchange, because it would no longer be of a specific weight and would be less recognizable, which is part of the benefit of coining silver and gold. It would still retain its value in silver, but you would have to find someone that was willing to trade their good/service for a silver spoon. Moreover, the value of a medium of exchange is it’s standard measure and uniformity. By melting the coins the weight changes, so every person that would get the spoon in exchange would have to verify its weight/ consistency and make the economic calculation with regard to their specific product.
As illustration of the reputation/recognition issue, Rothbard in his treatise “What has the Government Done to Our Money” reveals that the term Dollar is not in fact American in its origin at all but was derived from the Count of Schlick who lived in Joachim’s Valley. It was originally termed a “thaler”. It gained prominence because it had a good reputation for their uniformity. Currencies that are debased lose that reputation (in addition to the actual precious metal lost from the coin) and people will seek a better median of exchange (cows, salt, cigarettes) if one is available or if legal tender laws prohibit competing currencies, Gresham’s Law will pay out and only the debased coins will circulate.
Unfortunately, modern U.S. currency has no connection to precious metals. Precious metals continue to retain their value because they are scarce, meaning it takes time and effort to extract them and create useful products from them. In contrast U.S. Money can be created for little to nothing, and are not open to competition because of those legal tender laws. The government can increase the supply of money out of thin air, but they can’t mine, extract, and coin precious metals in the same manner, which added a level of stability and security.
Hope this helps. Rothbard’s book is short, easy to read and is much more cogent then I. I’m sure Tom and Dr. Herberner could have more to add, but thats the gist.May 31, 2012 at 2:43 pm #16922
Thank you for the answer! I’m really enjoying liberty classroom.
So if goods such as cows, salt, or cigarettes are treated as a medium of exchange, does that mean that an object can be a medium of exchange and a producer (or consumer) good at the same time? Is there an overlap between these categories of goods, or do good strictly fit into one category or another?May 31, 2012 at 3:26 pm #16923tylor.slingerMember
There is absolutely an overlap, with exception and the unfortunate reality of government imposed currency. In the Venn diagram of life, all mediums of exchange (that are not imposed by vicious and tyrannical governments) are goods, but not all goods are mediums of exchange. I haven’t seen the video yet, but medians of exchange share certain traits. Gene Calhoun’s book, Economics for Real People, has a great chapter on money (chp eight) where he lists qualities that would cause a good to be elevated to a medium of exchange. Here are a few; widely marketable, transports easily ( this one always makes me think of the walking the family cow to market, the only currency that walks itself, lol), relatively scarce, imperishable, easy to store, easy to divide. You get the idea.
Here is a link to a fun article about the clothes detergent Tide being used as a black market currency. http://bastiat.mises.org/2012/03/tide-as-money/
I’m loving Liberty Classroom as well! I really bought the sub for the economics, but the history courses have knocked my socks off!May 31, 2012 at 3:27 pm #16924
This classification of money arose in the attempts to explain the value of money. The value of a consumer good comes from the aid it gives in directly satisfying a person’s end. Money does not directly satisfy a person’s end. The value of money is in facilitating exchange. The value of a producer good comes from the aid it gives in producing consumer goods that directly satisfy a person’s end. Producer goods are used up in production. Steel becomes a fender for a car, labor services are used up in assembling the car and so on. Money is not used up when rendering its services. It trades from one person to another to another with its physical integrity intact.
The other issue you raise is the item used as money. Let’s start with fiat paper money. In that case, it should be clear that its value cannot come from it being either a consumer or a producer good.
In the case of silver or some market commodity, people will arbitrage the stock of silver across all the different uses that have sufficient value so that the value of a unit of silver is the same in each use. Even so, the value of a silver coin is determined by the value people place on it as a medium of exchange. Just as the value of silver spoons is determined by the value people place on silver spoons as a consumer good.
This does not create an overlap of categories of goods, but a diversity of classification of a single object (silver) according to its uses (consumer good, producer good, medium of exchange).May 31, 2012 at 5:46 pm #16925
Thanks y’allJune 2, 2012 at 8:47 pm #16926lrcammarosanoMember
CSA-An important point to keep in mind is that FIAT currency while a medium of exchange shares none on the characteristics mentioned above-it has zero intrinsic value.
Currency is not money. However, a currency that is represented by an asset or tangible good like gold or a warehouse receipt is a perfectly acceptable and for convenience often a preferable medium of exchange as the physical goods don’t have to be bartered or present at the point of sale.
The dollar is currency because the U.S. says it is due to legal tender laws. The world goes along with it because of the Bretton Woods agreement making the US dollar the world’s reserve currency-under the understanding that central banks could always redeem in gold.
Nixon reneged on that in 1971 -since then, the dollar while still the worlds reserve currency is backed by nothing other than the full faith and credit of the US and has lost much of its value as evidenced by the rise in oil, gold and silverJune 18, 2012 at 9:41 pm #16927
I understand your explanation regarding money and it not being either a consumer good or a producer good, but why cannot the accumulation or savings of a specific amount of money be an end? If I wanted to save $25,000, then why is money not considered a consumer good, since it is necessary to satisfy my end?June 19, 2012 at 9:00 am #16928
Consumer goods and producer goods are defined by their proximity to the attainment of an end. A consumer good satisfies an end in one action. A producer good takes more than one action to satisfy an end. Saving is done to earn interest which is a step toward attaining more valuable consumer goods in the future. Holding money (as money itself, i.e., the medium of exchange) is done to deal with uncertainty but does so only because money can be spent to accommodate unforeseen occurrences. Money’s usefulness (as money itself and not the general usefulness of the object used as money, like gold) is as a medium of exchange. But to obtain the use value of the medium of exchange, it must (eventually) be spent to acquire goods that then are used to satisfy ends.
In economic logic, we don’t refer to intermediate steps toward the attainment of an (ultimate) end as attaining (intermediate) ends. There is just the (ultimate) end attained at the end of all the necessary steps. If I wish to satisfy my hunger in the morning, then eating bacon and eggs directly attains my end. So they are consumer goods. The money I use to buy the bacon and eggs at the restaurant indirectly satisfies my hunger. The labor of the waitress and cook, likewise, indirectly satisfy my hunger. So neither money nor labor is a consumer good.June 19, 2012 at 9:12 am #16929
“If money does not have some value as a consumer or producer good, why would it hold any value at all?”
With this insightful question, you are on the verge of discovering Mises’ regression theorem.
“I understand your explanation regarding money and it not being either a consumer good or a producer good, but why cannot the accumulation or savings of a specific amount of money be an end? If I wanted to save $25,000, then why is money not considered a consumer good, since it is necessary to satisfy my end?”
Presumably you are saving money to use it at some point in the future. Of course, I have to admit the possibility of saving just to save. Generally though, I don’t think that needs to be given much attention to.June 19, 2012 at 9:41 am #16930
“Presumably you are saving money to use it at some point in the future. Of course, I have to admit the possibility of saving just to save. Generally though, I don’t think that needs to be given much attention to.”
I’m not trying to be difficult, by I’m still not completely sold. Why can’t the accumulation of money be like a little kid’s blanket? The money in and of itself could be a source of comfort and security. For that matter, a bag of leaves or a straw might serve a similar purpose. I thought what was important was in the mind of the actor, and economics, as being descriptive, made no value judgments regarding Human Action.
So, if in the mind of the economic actor, the end is to have a wad of federal reserve notes that are never intended to be spent, why are they not considered consumer goods?
Also, in a psychic sense, why would an individual in a barter economy who can grasp the idea of a medium of exchange and develops a money that is acceptable to other people, why is the money in that sense not an economic good, since it satisfies the end of the actor (discover/develop money)?
Thank you for your time.June 19, 2012 at 10:09 am #16931
No, I believe you’re correct. There’s no reason why money can’t be a consumer good like other consumer goods. Maybe someone just likes the color of them.
If the purpose of saving the money is security (i.e. safety from risk), I’m not sure if the money falls under the category of consumer good. In a sense, that’s still saving money with the purpose you may spend it, so perhaps money for that specific purpose still falls under the category of a medium of exchange.June 19, 2012 at 11:05 am #16932
Of course, the object used as a medium of exchange could also be valued for some other end. Gold could be valued for dental work or wads of FRNs for a keepsake or to light cigars. But in such cases the gold or the FRNs are no longer money. The person acting has reclassified the objects themselves as consumer goods. But money itself, the general medium of exchange, has its value as a good derived from the value a person attaches to the medium of exchange function.
So a person has an end he wishes to attain. He then identifies objects in the world as suitable means to attain his end. He perceives the structure of the means in a sequence of steps to attain his end. In analyzing his action, economists refer to the good that he chooses to directly attain his end a consumer good. The goods that are used to make the consumer good economists call producer goods. The general medium of exchange economists call money. The categories are fixed and universal. In his action, a person chooses what in particular is a consumer good, producer good, and medium of exchange. But that does not affect the definitions of the categories of goods.June 20, 2012 at 8:59 pm #16933
I understand what you are saying. Maybe I’m not conveying my question very well. What about money being a consumer good in its ability to satisfy and end in a psychic senses? For example, my goal is to have $10,000 in my checking account. How, in the attainment of that goal, is the money not a consumer good because without it, it would not be possible to attain my end?
My apologies if I’m being a bit dense about this. Am I just overthinking an abstract idea?June 20, 2012 at 9:03 pm #16934
He’s agreeing with you.
“The person acting has reclassified the objects themselves as consumer goods.”
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