Money vs Currency. Explaining Gold.

[Steven Douglas]

Do you agree that two or more people who value an item will compete against each other to acquire that item?

No.

They will price that item to their value, and the one who holds the higher value wins the bid.

What a strange comment - you say no, and yet your response wasn't contradictory, or mutually exclusive in any way.

At an auction, I bid on an item. 16 more bidders want that item, all of whom place upward pressure on the price. We all have our ceiling - the price we won't go above, and the auction tends to test these ceilings as a) two or more people who value an item CAN, DO and WILL compete against each other to acquire the same item, AND b) even as each individual really does set their personal CEILING price to their personal value of that item. But it's not just that one item, nor is it all about a single buyer's willingness to pay more. Buyers are MORE WILLING to pay less, and will WORK to pay less.

Part of the ceiling price for each buyer is lowered by the knowledge that OTHER sellers are around with the same item. Or a substitute item. And buyers will WORK to seek out these alternate sellers - because they are also competing. When there are two or more sellers of the same item, they tend also to a) compete with each other for buyers, and can also b) set their FLOOR price, below which they are unwilling to sell.

Buyers compete with buyers, just as sellers compete with sellers, but once interest in an item is established, there is essentially no difference between buyers and sellers. They are just TRADERS of unlike items. Nothing more, really.

 

[Black Flag]

What a strange comment - you say no, and yet your response wasn't contradictory, or mutually exclusive in any way.

It is incomplete and specious to claim they "compete" - as if they are in a titanic struggle over a unique treasure. They are not.

They are bidding, and the loser does not lose a thing - he has what he started with, his money.

 

[Travlyr]

Black Flag makes a lot of strange comments.

 

[Steven Douglas]

It is incomplete and specious to claim they "compete" - as if they are in a titanic struggle over a unique treasure. They are not.

When I see the word "compete" I don't automatically think "titanic struggle over a unique treasure". That's an extreme characterization, but it is not specious, as it is accurate as a matter of principle, and differs only in degree. Some guy at a flea market wants $15 for a tee shirt, and I walk on by, as he continues to pick his nose. No "titanic" struggle, but that doesn't mean there isn't competition.

The actual "titanic struggle" is one most people have little control over, but can often be seen in the aggregate. Watch any commodities chart, reflecting what is happening in the trading pits, and you'll see a minute-by-minute tug-o-war - a titanic struggle between aggregate BIDS and aggregate ASKS - and a VERY blurry line between buyers and sellers, because they readily jump from one side to the other.

They are bidding, and the loser does not lose a thing - he has what he started with, his money.

Yes, so? The seller decides not to lower his price. He didn't lose a thing either - he still has what he started with, his item.

But both lost something in the process, because both were SEEKING something that they valued more than what they had, but were willing to give for it.

 

[Black Flag]

When I see the word "compete" I don't automatically think "titanic struggle over a unique treasure".

I see two people boxing each others head in for a prize.

Yes, so? The seller decides not to lower his price. He didn't lose a thing either - he still has what he started with, his item.

Exactly.

But both lost something in the process, because both were SEEKING something that they valued more than what they had, but were willing to give for it.

There was no loss.
They were not willing to give enough so they kept what they have.

They started with "X" and ended with "X" - no loss.

 

[RubySold]

Gold has a physical value where as money, as we know it merely has a trust based value, based on our trust in the government to maintain the value of that instrument of exchange. So all this printing of money is stealing from us essentially.

 

[Steven Douglas]

When I see the word "compete" I don't automatically think "titanic struggle over a unique treasure".

I see two people boxing each others head in for a prize.

And yet the term is routinely and accurately used in business to describe something else entirely. Only similar in principle. Somewhat. Your boxing scenario is more similar to a poker tournament, or racing for pink slips - winner takes all. That's a very different kind of competition, and not an accurate description of the free market. That's full-on gambling - heads up between two parties who want the same thing from each other - a rare and tiny portion of the market to the point of being a total exception to the rule.

Here's what dumb about free market competition being seen as boxing, or titanic struggles: Buyers and sellers don't want the same things, and engage in voluntary exchanges. Furthermore, the competition isn't between buyers and sellers at all! It's buyers competing with buyers, and sellers competing with sellers. THAT is the competition. Not the two people "in the ring" who aren't even fighting with each other - nor should they. The competition is all the other fish in the sea that both can fall back on - as the options "other side" has your counterparts and substitute counter parts lined up and ready to deal. And vice versa.

There was no loss.
They were not willing to give enough so they kept what they have.

They started with "X" and ended with "X" - no loss.

I didn't say they lost any of what 'items' they already had. That much is obvious. If I go fishing, and I come back with all my bait, I didn't "lose" any fish that I didn't catch. And I still have my bait. The only thing I lost, and it may or may not be important, was time.

 

[Black Flag]

Gold has a physical value

What physical value?

It is a hunk of metal that neither feeds you, warms you, or clothes you. It is nothing but a shiny piece of "rock"

At least I can use paper to burn or wipe my butt.

where as money, as we know it merely has a trust based value, based on our trust in the government to maintain the value of that instrument of exchange. So all this printing of money is stealing from us essentially.

The former is not true but the latter is true.

But that does not make it "not money" nor "not valuable" nor "more or less valuable" then gold

 

[Black Flag]

Your boxing scenario is more similar to a poker tournament, or racing for pink slips - winner takes all.

Umm.... what poker tourney is a winner take all?
2nd place in WSOP was a few million FRBN! Heck I did pretty well ... once you cross the bubble, its all profit.

Same with the runnerup in boxing - he can take a year off driving his Ferrari to heal....

That's a very different kind of competition, and not an accurate description of the free market.

I agree, which is why I do not see sellers 'competing' with each other.

A person who has money has an unimaginable array of goods he can trade for - if this one isn't just right, there is another one a bit better.

I do see sellers competing with each other, as they are after exactly the same good - money.

I am not competing with you to buy a car. You like Porsche, I like Ferrari.

Porsche is competing with Ferrari for our money.

PS: Even more, every seller is competing with every other seller for your money.
In a number of business I have consulted for, they say "We are after the customer's disposable dollar - if he doesn't spend it with us, he will spend on them"

The "them" they are talking about is anyone else selling a good aimed at the disposable income - which is pretty much every good from soup to nuts.

PSS: Thus, the customer is "king" - he holds what all sellers desire - money. They compete with each other for that one good - money.

 

[joshnorris14]

Disagree. Do you use a credit card or debit card? That is using electrons as money. Do you use dollar bills? That is paper money. Both are acceptable in exchange for labor or goods and services which is what you need money to do. As Travlyr says, money is simply a medium of exchange. It does not need to have its own intrinsic value outside its use as a medium of exchange as long as the parties involved agree to use it for a system of exchange.

The money transferred in both cases are FRN and yes, FRN's are valuable (If they weren't they wouldn't be traded).

And nothing in this universe has intrinsic value. ALL value is subjective.

 

[joshnorris14]

You can tell who has read Mises Theory of Capital in this thread.

 

[Travlyr]

The money transferred in both cases are FRN and yes, FRN's are valuable (If they weren't they wouldn't be traded).

And nothing in this universe has intrinsic value. ALL value is subjective.

Aren't some things more valuable than others because they are scarce?

 

[joshnorris14]

Aren't some things more valuable than others because they are scarce?

No. Scarcity affects price, not value. I value oxygen a lot, but I wouldn't pay one cent for it.

 

[Travlyr]

No. Scarcity affects price, not value. I value oxygen a lot, but I wouldn't pay one cent for it.

Hypothetically, how about if you were in a sealed box? Air becomes scarce ... the value goes up. Then would you pay for it?

 

[Steven Douglas]

No. Scarcity affects price, not value. I value oxygen a lot, but I wouldn't pay one cent for it.

I think the mugger who takes someone by the throat might be of a different opinion on both the price and the value of oxygen, and what some may be willing to pay for it.

That alone illustrates how artificial scarcity can do all kinds of things to both value and price simultaneously. Maybe not to you. You might mean it, and be willing to be choked to death the prove it. Most people, however, find that scarcity has a definite affect on both value and price.

 

[heavenlyboy34]

What physical value?

It is a hunk of metal that neither feeds you, warms you, or clothes you. It is nothing but a shiny piece of "rock"

At least I can use paper to burn or wipe my butt.



The former is not true but the latter is true.

But that does not make it "not money" nor "not valuable" nor "more or less valuable" then gold

One of the characteristics that makes something "money" is stable value. If paper money is so useless you can use it as toilet paper, it's not a very good store of value-and not a good substitute for money.

 

[joshnorris14]

Hypothetically, how about if you were in a sealed box? Air becomes scarce ... the value goes up. Then would you pay for it?

The value for air is the same in a seal box. The price goes up because it becomes scarce.

 

[joshnorris14]

One of the characteristics that makes something "money" is stable value. If paper money is so useless you can use it as toilet paper, it's not a very good store of value-and not a good substitute for money.

And another characteristic of money is a means of exchange. Because gold isn't a means of exchange it can't be considered money at this point either. And I agree with you. FRN's are currency, not money. But, they do have value.

 

[joshnorris14]

I think the mugger who takes someone by the throat might be of a different opinion on both the price and the value of oxygen, and what some may be willing to pay for it.

That alone illustrates how artificial scarcity can do all kinds of things to both value and price simultaneously. Maybe not to you. You might mean it, and be willing to be choked to death the prove it. Most people, however, find that scarcity has a definite affect on both value and price.

Scarcity does not affect value. I need air to live whether I have it or not, it is essential to me, and thus very valuable. When it becomes scarce, only price goes up.

 

[Steven Douglas]

Scarcity does not affect value. I need air to live whether I have it or not, it is essential to me, and thus very valuable. When it becomes scarce, only price goes up.

Yufei is one of my employees in China, and a dear friend. He talked to me about rural life when he was young. And poor. He said he couldn't wait for the holidays, and especially the Chinese New Year, because it would mean two things: He would eat lots of meat, and he would get lots of money (red bags).

Yufei said something strange happened to him since going to work for us. He said, "Now I have lots of both. I have a lot of money, and I can buy all the meat I want, even every day if I want it! But I don't care any more. I am not excited about meat the way I was when I was little."

So I disagree. Scarcity has a very profound effect on value -- including the air you claim that you value, but very much take for granted. To me that's like some of my wealthy friends who tell me that they don't really care that much about money. They're really telling the truth. They don't value things that are abundant. But they also don't realize that the change in their pocket, that they wouldn't miss if it spilled out, might be valued by someone else in an entirely different way. All based on relative scarcity or abundance.