Non-monetary Trade

AlpinLuke

Ad Honoris
Oct 2011
24,685
Lago Maggiore, Italy
#51
First of all, you absolutely can. If there is 100% inflation from one point in time to the next, you can sustain that a 10 Dollar banknote you had before, now only represents a value of 5 Dollars.
Second, there is no law that forces you to accept that a piece of paper values 10 Dollars, in fact, if, in my eyes, it doesn't do so, I will reject it.

Again, you are talking about the measurement scale, not about value. Value is the subjective satisfaction someone receives from consuming a good. We can measure that value on a continuous scale we represent on our currency, usually by taking past prices as our baseline and than compare how these prices match up to prices of other goods and the subjective satisfaction they grant us. If this subjective benefit we receive from a good does not match the measurement on the monetary scale, we will make a new measurement and hence, the value money represents changes even if the measurement scale remains the same.

What you are saying is the same as claiming that the length of piece of wood doesn't change depending on humidity because its measurement before and after the change still lies on the SI scale. You are the one confused here because you mix up the two different usages of "value".


Yeah, and you are the one who is having the misunderstanding here. The value of money is not the number printed on it. In fact, the subjective satisfaction one receives from consuming money is (often) negligible - in the end, its just a piece of paper, or even just an idea "existing" as a bunch of zeros and ones on a computer. Money represents a value, a value that only comes to pass if you actually exchange it for a good you can consume. What you call price is nothing but a measurement of this value and under certain circumstances, the numbers written on a piece of paper called currency do match this measurement.
It's this the point which seems to be difficult to understand. Money had invented.

"Fisher, since you don't want my cows ... what can I give you to obtain 5 wooden boats?"
"Nothing that you own ... you cannot obtain my wooden boats."
"What do you need?"
"Big hooks."

Now, our good guy with 500 cows has to look for an other guy who needs something from cows and who is ready to barter big hooks.

At a certain point of our history, someone had an idea ... what if we use something with an intrinsic value to buy goods and services?

Money was born.

Ok, but why gold should value so much? And which is its value? Who states it?

The market.

When the gold becomes a metal coin with "1 dollar" printed on it becomes proper money. The intermediate phase when they used pieces of gold required to weight the pieces, to negotiate about their value [value of a kg of gold ...].

So far, it's clear. Now it comes the difficult part.

Inflation ... [think to Weimar Republic as extreme example].

Printed or coined money represents a stated value [modern metal money has got a nominal legal value, not a real value], but when the real value of the system is constant or decreasing, printing money you generate inflation. If a market counts 100 rich customers and 900 poor customers, the producer of smartphones will produce 50 smartphones per year. If the "state" prints a lot of money, giving it to the people in some way, making also the poor customers able to buy a smartphone, causing a remarkable increase of the request [+900%!!], the producer won't increase the production in the brief term and if there are not capabilities of investment this will never happen. The result will be to see the price of the smartphones increasing. A lot of demand, a few offer = increasing prices. So that the poor customers won't be able to afford a smarthphone despite they get more money.

[Deficit spending works when the system is able to increase the offer, in that case the system will grow = +GDP].

When this phenomenon happens we say that "the money loses value". It's a semantic matter. Reality is that the system increases its prices, since the demand increases.

It's like when we say that a Ferrari car is expensive. It's about market rules: there is a great demand of Ferrari car, so the price of a Ferrari car is well higher than its realistic value. Also considering that a Ferrari is partially handmade and the intrinsic value of its parts ... it shouldn't cost around 200,000€ - 250,000€ ...

But this doesn't mean that when you buy a big Range Rover spending 65,000€ your money values more than when you buy a Ferrari spending 210,000€.
We should know the intrinsic value of the two cars to compare it with the price we pay, to evaluate the effect of the demand.

More easy ...

in a supermarket we observe butter cookies. They are equal, in similar boxes, with same net weight. The box A costs 4€, the box B [famous brand] costs 5€.

Does my euros value less when I buy box B?
 
Dec 2011
1,290
#53
When this phenomenon happens we say that "the money loses value". It's a semantic matter. Reality is that the system increases its prices, since the demand increases.

I actually expected you to say this because, frankly, there aren't many ways left for you to argue your case otherwise. However, if you say "it's a semantic matter" than you are basically saying that you agree with me, as whatever one calls it, the substance is the same. Your point was that in a barter transaction, the value of the goods exchanged is determined by the partners to the transaction, while in a transaction involving money, the value of money is fixed. My argument is that this is wrong. If you say "the system increases its price" you are agreeing because if the system in question evaluates a good's worth in units of money and the representational value of money is the amount/quality of goods it can buy, saying the value of money changes or saying the system increases or decreasing the prices is essentially the same, indeed, a matter of semantics! The implications is, quite simply, that your starting assumption is wrong.

Now, before you proceed to your next fall back position, namely, "the 'system' actually is independent of money", let me say this: This system you speak about is the market and the market consists of myriads of individual transaction where buyers and sellers negotiate prices. Prices are not objectively given, but the result of specific behavior by market participants.


in a supermarket we observe butter cookies. They are equal, in similar boxes, with same net weight. The box A costs 4€, the box B [famous brand] costs 5€.

Does my euros value less when I buy box B?
Well, my point is that the value of money and goods is determined within transactions, i.e. if you actually buy Box B for 5€, and I assume intentionally rational decision making, that is, you don't buy things you don't like for no particular reason, then yes, you used your money to gain satisfaction you deemed acceptably represented by 5€. That is irrelevant, however, because your and my original point regards the process happening before the finalization of a transaction. You might decide not to buy any cookies, but what then is the worth of your money in that moment? Zero! Its representational value with regard to cookie boxes is zero, because you don't deem the boxes on offer worthy of that price. You might also decide to negotiate another price, say 2.5€. What is your money worth then, two boxes! Well, negotiation in a supermarket isn't maybe the best example, but when buying a care or a house, or before firms conclude long-term contracts, or on a weekly market, negotiation is still widespread today. And at the very least, you always have the one negotiation option of opting out, i.e. not to buy or sell, which might bring about future price changes, even in supermarkets, too.

Of course, you will say that even if I don't buy box B, I still can use my money to buy another thing I deem worthy of my 5€, and this is true. And I already agreed with you that money, in this regard, is definately more universal than any other good. But you will have the same problem, namely, to actually find a good you value at that price and then to find a seller that sells it at that price. And here's the deal: what you deem worthy of a certain number of units of money is subject to change, too. If you are incredibly thirsty you will buy a glass of water for thrice the amount you would buy it when you just drank so much your gut is all wobbly. Again, this is only natural and the reason why value is deemed a subjective category. This is, btw, why economists don't construct models of concrete (objective) values, rather, they assume that whatever a certain amount of money buys was worth what the buyer bought at that moment in time and this can change.
 
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Ichon

Ad Honorem
Mar 2013
3,453
#54
Negotiation is still a big part of large transactions because of what AlpineLuke is saying about nominal vs relative value of money. Hardly any large transactions are conducted at face value of the actual 'monetary units' denoted in the transaction because debt is involved. Debt is a forecast of future markets valuation of goods and services over a certain time period. If negotiations only involved the current relative value of money it would be much easier to make large transactions.

Barter is actually closer to this concept most of the time where goods that entail future production are inherently more valuable than past production in most circumstances (famines etc excepted).
 
Apr 2018
454
Upland, Sweden
#55
Negotiation is still a big part of large transactions because of what AlpineLuke is saying about nominal vs relative value of money. Hardly any large transactions are conducted at face value of the actual 'monetary units' denoted in the transaction because debt is involved. Debt is a forecast of future markets valuation of goods and services over a certain time period. If negotiations only involved the current relative value of money it would be much easier to make large transactions.

Barter is actually closer to this concept most of the time where goods that entail future production are inherently more valuable than past production in most circumstances (famines etc excepted).
This is probably an aspect many laypeople (including myself) would not even consider - very interesting. A bit similar to how Einsteinian physics becomes relevant when calculating launches of spaceships and the trajectories of large stellar bodies etc...
 

sparky

Ad Honorem
Jan 2017
3,384
Sydney
#56
What is the price of a newspaper , what is the price of last week newspaper
an exchange is based on the desire of one party to obtain satisfaction , that is the "price"

when in 2010 the end of year stocks of wheat dropped to less then two weeks , the price soared
many country use the subsidized price of basic food as welfare ,they have a limited budget to do so

in the north Africa and middle East the doubling of the price of wheat resulted in halving of the subsidies
families on the bread line suddenly had half the bread they needed .

it was not only young men rioting in the streets , mother were there too and pretty irate
they called it the Arab Spring .....it was a food riot
they were priced into famine
 
Dec 2011
1,290
#57
Negotiation is still a big part of large transactions because of what AlpineLuke is saying about nominal vs relative value of money. Hardly any large transactions are conducted at face value of the actual 'monetary units' denoted in the transaction because debt is involved. Debt is a forecast of future markets valuation of goods and services over a certain time period. If negotiations only involved the current relative value of money it would be much easier to make large transactions.

Barter is actually closer to this concept most of the time where goods that entail future production are inherently more valuable than past production in most circumstances (famines etc excepted).
Debt is only one aspect of the larger issue of uncertainty and transaction/information costs left untouched, but this is a can of worms I didn't want to open because it isn't necessary to make my point. Suffice it to say that if the future figures prominently in the transaction process, or if the number of variables (i.e. the aspects related to transaction/information costs) is large, the price becomes even more bound to a specific transaction. And this is my point: price formation and thus the value of money is determined within the context of transactions and is not independent of them.
 

specul8

Ad Honorem
Oct 2016
2,531
Australia
#58
What is the price of a newspaper , what is the price of last week newspaper
....
It seem to change over time ; at the local country store they dumped the old newspapers in a small open shed along with the cardboard. If I asked to take the old newspapers ( to go under the mulch on the the pathways in my veggie garden to suppress weeds ) they would say please do . When the room was full they would, or they would pay someone to take them away to recycling.

..... various changes of owners, and the ways of running the shop, up until today where ...

The shop has a 'rustic' woven cane basket near the counter, in this are bundles of 3or 4 newspapers each, rolled and tied and a sign; 'Old newspapers for mulching $1' .
 

sparky

Ad Honorem
Jan 2017
3,384
Sydney
#59
Before being a virtual medium created by keyboard ,
money used to be a standard of barter based on a set of commodity , precious metals

this was embodied in piece of metal with universal desirable ( if variable ) content
then it was considered that as long as the issuer of paper had some of the stuff somewhere
that was more convenient to take a paper IOU

so the real question is .. what kind of back up is your good words having

Central banks bought more gold in 2018 than any year since 1967: WGC | Reuters
 

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