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The Forum > Article Comments > Reserve Bank > Comments

Reserve Bank : Comments

By David Leyonhjelm, published 27/7/2016

The Reserve Bank and our politicians should bear in mind what Einstein said: 'If you cannot explain it to a six year old, you don't really understand it.'

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Jardine,
"We've just established that your theory of money contradicts your theory of value. "
No we have not. Commodity value isn't what something costs to make (though it's one component of that); it's the value that could be released by destroying it.

"Perhaps you can explain why it would be stupid for the government to assign a lesser monetary value to an item with greater commodity value"
Firstly because it would be an inefficient use of government resources, and secondly because that would create an incentive to destroy it, preventing it from fulfilling the purpose for which it was created.
Posted by Aidan, Saturday, 30 July 2016 1:56:15 AM
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Economies are pyramid schemes.
They need newly borrowed money to pay the debt on the old.
Posted by Armchair Critic, Saturday, 30 July 2016 8:11:51 AM
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Aidan
You're contradicting yourself.

On the one hand you're saying - correct me if I'm wrong - that the value of money is whatever the government says it is, and gold, as gold, has no intrinsic monetary valuem

On the other hand you're saying that the value of money is *not* whatever the govt says it is, and (presumably) the government cannot by fiat make an ounce of bullion worth 5 cents, and the government can waste scarce resources by assigning a value to money by mere fiat.

So which is it?
Posted by Jardine K. Jardine, Saturday, 30 July 2016 5:13:39 PM
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Jardine, it's quite simple:

Money has face value, assigned by the government. This is whatever the government says it is.

Coins can be melted down, so they have commodity value. This is the value obtained by destroying them, NOT the cost of making them. Commodity value is usually much less than face value, though historically that hasn't always been the case. Governments can't destroy commodity value (they can legislate against melting the coins down, but that tends to be unenforceable).

There's also numismatic value. This is usually the same as face value (or commodity value when that's greater) but scarcity can drive it much higher.
Posted by Aidan, Sunday, 31 July 2016 3:02:58 AM
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You're contradicting yourself again.

On the one hand you deny that there's a disconnect between your theory of value and your theory of money.

But on the other hand you're telling us that there's a theoretical disconnect between the value of money and the value of what it exchanges for.
Posted by Jardine K. Jardine, Sunday, 31 July 2016 1:05:55 PM
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There's no contradiction.

Money, when used as money, has the value that the government assigns to it.

But it is possible to use money as something other than money, in which case it can have a higher value.
Posted by Aidan, Sunday, 31 July 2016 3:40:38 PM
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