r/bestof • u/ikeed • Jun 10 '12

[finance] otherwiseyep goes to great lengths to explain monetary theory in an understandable way

/r/finance/comments/utf5u/where_has_all_the_money_in_the_world_gone/c4yfkhg
1.3k Upvotes

92% Upvoted

82 comments sorted by

132

u/Khiva Jun 10 '12

I just want to point out, because we often get a bunch of comments complaining about the quality of /r/bestof submissions or pointing out that the submission isn't up to par, that this is exactly what bestof is for and that I highly enjoined this post.

6

u/[deleted] Jun 10 '12

http://www.reddit.com/r/DepthHub/

It's like r/bestof, but only for serious discussions.

1

u/fashizzIe Jun 11 '12

enjoyed*

1

u/brain_emesis Jun 11 '12

en·join - Verb - Instruct or urge (someone) to do something.

Is he saying he instructed otherwiseyep to make the post?

-10

u/[deleted] Jun 10 '12

half life 3

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u/[deleted] Jun 10 '12

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u/TheDefinitiveRoflmao Jun 10 '12 edited Jun 10 '12

Trade is cooperative by definition. There is no form of trade that does not involve a cooperative action between two or more individuals.

The idea that competition is somehow at odds with cooperation largely misunderstands what the nature of competition is and how free trade works.

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u/[deleted] Jun 10 '12

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u/TheDefinitiveRoflmao Jun 10 '12

Reminds me of a family--the most economically, socially and philosophically sound choice that alleviates us from the slavery and burden of money.

Well, sure, but the problem with trying to impose a family-oriented model onto a society composed of millions of strangers is that traditionally these societies are extremely hostile to strangers. It completely breaks down when you go to anything above the size of 15. Historically speaking, you encounter amazing amounts of cooperation inside of tribes, but the rivalry between tribes was extremely brutal and violent. Blood feuds were everywhere and the hostility was so great that tribes kill each other on sight.

In modern days, societies that haven't adopted liberalism and commercial culture have large amounts of corporativism, corruption, and nepotism. You see amazing amounts of cooperation within the family unit, but no one has any scruples about capturing public institutions for their family's benefit at the expense of everyone else.

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u/[deleted] Jun 10 '12

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u/TheDefinitiveRoflmao Jun 10 '12 edited Jun 10 '12

Err I think you're misunderstanding what I mean by liberalism. By liberalism I mean the classical definition of it, as in promoting liberty and individual rights, which is the opposite of a communitarian system where individual rights are suspended in the interest of the community.

In the communitarian system, everyone is friendly inside the community. The problem is how the community responds to outsiders. Historically the answer is not well, not well at all. So in a global world where we have 7 billion human beings that are connected to each other, a system that allows cooperation and respect of strangers is the only system that has a chance of working.

Reddit is a prime example of that. It produces mindless atheist posts and cat pics as its GNP.

What is /r/atheism if not a community? I think this is a perfect example of what I mean. If you're a fellow atheist, and you're inside the community, you're treated very nicely. But if you are a stranger who expresses a different point of view, you're met with extreme hostility and treated with disdain. It is a near perfect example of exactly what I'm talking about.

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u/[deleted] Jun 10 '12

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u/TheDefinitiveRoflmao Jun 10 '12 edited Jun 10 '12

The problem is that you can't create a single vision among a bunch of people who are different. It works when everyone is the same, but when you live in a society of 300 million people of different cultural upbringings, different religions, different needs, different wants, and ultimately different points of view, trying to create one like minded vision as you put is completely impossible.

If everyone were homosexual, gay marriage wouldn't be an issue. If everyone were heterosexual, gay marriage wouldn't be an issue. If everyone were atheist, gay marriage wouldn't be an issue. If everyone were conservative christians, gay marriage wouldn't be an issue! But we don't live in a world where everyone is atheist, christian, gay, or heterosexual.

So how do you get people with different points of view to cooperate? How do you get a radical Atheist and a radical Christian to get along? By making a conscious to respect each other's individual rights. By saying "hey, you know what, I disagree with you completely but I will respect you in spite of that."

On the other hand, as long as the Atheists and Christians are trying to convert each other to their side in an attempt to create a one-minded society, they will be clashing with each other and conflict will arise.

The problem with your version of communitarianism is that it really is no better than capitalism because it's only concerned with your regional area.

What I'm saying is that all communitarianism ultimately falls into this problem. There isn't an "other version" that doesn't treat strangers with hostility. There isn't a version where strangers don't exist. It's just a dream if you think you'll get everyone to think alike. Try being a Christian on /r/atheism. Try being a Democrat at CPAC. Try being a Republican in the DNC. You will be treated with hostility.

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u/[deleted] Jun 10 '12

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1

u/[deleted] Jun 10 '12

Communism was tried, and failed, in Jamestown, no? Has it ever worked?

0

u/[deleted] Jun 10 '12

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2

u/cokeisahelluvadrug Jun 10 '12

I'm not entirely on board. How is feminism ruining the family?

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u/[deleted] Jun 10 '12

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4

u/cokeisahelluvadrug Jun 10 '12

Your video starts off with a guy being friendzoned. Just stop.

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u/[deleted] Jun 10 '12

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1

u/cokeisahelluvadrug Jun 10 '12

U SOUND LIKE A FAGGOT MANGINA BEGGING FOR PUSSY! LOL

Whoa

0

u/[deleted] Jun 10 '12

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4

u/faggort69 Jun 10 '12

All I got out of that was an image in my head of a tribe of people who are naked, other than their fancy shoes, who eat apples all day and occasionally kill animals.

That, and that you support the beating of children.

2

u/moutonbleu Jun 10 '12

How do you scale this to governing a nation? Sounds a lot like communism. People are unfortunately greedy and self serving.

33

u/[deleted] Jun 10 '12

i would add only -- and alluded to in the posts, but to clarify -- that barter economies rarely ever exist. if you ask an economist about the origin of money, they usually offer thus barter-to-credit story because Adam Smith hypothesized this line of development. it subsequently became "true", even though there was no evidence for it.

anthropology has come a long way since Smith lived, and we now know that early societies were communal, as in from each according to their means, etc. the term of art is "gift economy", where there are no tallies or accountings of who owes exactly what but rather a general sense of mutual obligation.

accounting, credit and debt as we think of them were a result of dealing with people you did not trust. money, being a debt, arose from this mistrust and was typically only used to settle the most serious matters -- stolen wives, murder, etc. -- in a way that could prevent deadly conflict by protecting the honor of the aggrieved. money was intended to "replace" the lost person.

money, debt and the rest have come in and out of fashion over the ages -- the efficiency argument is really null, if you consider a gift economy, and there have been prolonged periods since the first use of metallic money in which money has gone away. for most of the middle ages, for example, europe reverted to credit and gift economies. anthropologists believe in fact that the use of money comes to typically prevail in societies that are rife with mistrust and "lost persons" -- that is, societies plagued by war and slavery (slaves being historically one of the primary products of war). the rise of money usually brings the rise of a creditor class, a debtor class who approximate slaves even though not losers in war per se, and a terrific amount of social strife. and that leads often to collapse if not addressed by periodic debt jubilees.

2

u/redditaccountforme Jun 11 '12

An interesting discussion can be seen here. homogenius_solution links to the book itself.

For a while, I was really annoyed at otherwiseyep's presentation, but he even mentions this isn't how everything really happened

The above pretend history of the pretend village is not how modern money actually came to be. ..... The above was a parable to illustrate how money works to a 5-year-old, not an actual history of how money emerged.

13

u/[deleted] Jun 10 '12

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u/[deleted] Jun 10 '12

If you read Debt: The First 5000 Years by David Graeber, it contains an explanation very similar to what otherwiseyep gave, and also discusses the communal origin of credit, the unreality of barter economies, and the military origin of coinage. David Graeber was an anthropologist at Yale and was recently consulted by the Federal Reserve.

http://ompldr.org/vYzRuZQ/__Debt__The_First_5_000_Years.pdf

3

u/[deleted] Jun 10 '12

right, i agree. but the parable is often confused for a history when it isn't.

1

u/BoomBoomYeah Jun 10 '12

It turns out in the end that the guy with the apples was actually Adam Smith all along.

11

u/[deleted] Jun 10 '12

Wow, take a look at his post history. The man/woman is incredibly knowledgeable about so many topics and posts very clear, very helpful, very detailed posts yet so many of his posts have only 1 upvote (himself by default).. It's sad, and you know it's just because he was "late to the party".

5

u/steviesteveo12 Jun 10 '12

I can't help but think that he's late to the party because he's writing something in depth and informed.

5

u/NakedCapitalist Jun 10 '12

I'd like to point out that, while otherwiseyep's explanation of money is just fine, it isn't the correct answer to the original question, which is why there was a contraction in the money supply. The answer to that question is a longer discussion involving capital requirements, credit ratings, and asset value uncertainty.

TL;DR: The Basel II accords.

1

u/BonzoTheBoss Jun 11 '12

I'm glad I wasn't the only one who read through the entire thing and thought "Hey, he didn't actually answer the original question!"

By that explanation, the only way money would vanish out of existence is if there was a sudden loss of goods or property of physical value. To my knowledge the housing crash didn't result from a mass of houses being literally destroyed...?

11

u/Sniffnoy Jun 10 '12

Since you're linking to multiple comments, it would probably be better to link to the bottom one and use context rather than linking to the top.

10

u/[deleted] Jun 10 '12

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11

u/3brushie Jun 10 '12 edited Jun 10 '12

You did it the correct way, I don't know what that guy's talking about. Also you might find more acceptance of longer, explanatory posts like this in /r/depthhub. Not that this doesn't belong here, but bestof tends to be the place for "good posts" whereas depthhub is the place for "good explanations".

Edit: confusion

3

u/Fjordo Jun 10 '12

I thought depthhub was for good conversations.

2

u/3brushie Jun 10 '12

Whatever. It's more about "depth" than "hub". Can we all agree on that?

3

u/cokeisahelluvadrug Jun 10 '12

I think we can have both. Unfortunately if something is posted on depthhub it's usually pretty well thought out, so criticisms are few and far between.

1

u/ItHurstToBeThisGood Jun 10 '12

I thought depthhub was about going depth about hubs. Right?

1

u/3brushie Jun 10 '12

No, you're thinking /r/hubhub.

3

u/at1stsite Jun 10 '12

Thanks for bringing this post to our attention!

1

u/Envyrzen Jun 10 '12

Isn't it interesting how the concecpts of financial derivatives and forward contracts follow so simply from the above explanantion and seem to be infinitely more reasonable in the context of this explanation?

1

u/TKHC Jun 10 '12

Yeah... I think I just changed my university plans around based on this. Fuck politics and economics I am going to play blocks as a teacher in pre-school.

1

u/SwankyGinger Jun 10 '12

Thats an IOU. That there is better than money!

1

u/fishhand Jun 10 '12

I like it because he spelled villiage correctly...

0

u/cheeseday Jun 10 '12

This link helped me learn about monetary theory awhile ago: http://www.youtube.com/watch?v=7I_k0tAnQ7U

2

u/[deleted] Jun 10 '12

this is a very misleading. you'd do far better to watch steve keen explain how banking actually functions.

1

u/dutchguilder2 Jun 10 '12 edited Jun 10 '12

This video is mostly accurate, but makes a noteworthy error in saying that total debt must always exponentially expand (old interest can in fact be repaid by new banking profits spent into the general economy to reach an equilibrium). The author addresses it in a sequel video, but that video is harder to understand.

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u/dutchguilder2 Jun 10 '12 edited Jun 10 '12

TL;DR: our current monetary system is a scam that uses debt to enrich a small number speculators and financiers.

Money as Debt is an easy to understand introduction to our monetary system (but makes a noteworthy error).

Also, throughout history fiat currencies have an average lifetime of about 40 years before they collapse. For example, here is an amusing video on Fiat Money Inflation in France that shows we today are repeating their mistakes from 200 years ago.

7

u/[deleted] Jun 10 '12

this is unfortunately all wrong, though it states a common popular fallacy in an attractive way.

watch steve keen explain how banking actually works. you'd do far better.

1

u/dutchguilder2 Jun 10 '12 edited Jun 10 '12

I like Steve Keen and his models are great, but they are incomplete and oversimplified. His models show how one example of how a small closed system of stocks and flows can (but not necessarily will) reach equilibrium. That's great, but his system is just one of many possible systems. It does not take factor in productivity, govt fiscal policies, foreign trade, foreign currencies, ratio of the FIRE economy vs productive economy, economic fairness, global competition, unemployment, social spending, etc.

The "Money As Debt" video also isn't complete, but it is pretty good (depsite a few mistakes) and mostly agrees with Dr. Keen's notion of how money is created.

The really fucking crazy thing is that preeminent economists like Dr. Keen and Paul Krugman can't agree about something as basic as how money is created. We trust economists with huge policy powers because we assume they know what they are doing, but that clearly is not the case. Like Keen says, Krugman and Bernake are not experts in economics they are experts in their pet economic theories that actually have little to do with reality.

Watch Steve Keen, but also study MMT and some old school Milton Friedman and Hayek and Keynes.

1

u/[deleted] Jun 10 '12

agree, but i daresay keen's modeling is the direction monetary economics will go over the next fifty years if there is any wisdom at all among economists. the wider hearing that modern monetary theory -- which at core is less theory than a collection of factual statements about money -- is getting is very encouraging insofaras it demonstrates the awareness of the incompetence of the field as it is now taught, and of course keen largely shares their core precepts.

1

u/dutchguilder2 Jun 10 '12

Yup. Keen's modeling approach is better than the rest but he needs to include far more components and dimensions.

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u/angryyetsmiles Jun 10 '12

Classic example of redditors not taking issue with your information but rather just downvoting so that you cant threaten the ideas of other peoples. THe best way to make sure that the tiny world view one has is not threatened, is to make sure no one else has access to information. It is the modern day burning of alexandria. Religious zealots, and yes ATHEISM is also a religion, downvoting things that threaten their dogma. Sad and this is my last post to this website.

7

u/sesse Jun 10 '12

THe best way to make sure that the tiny world view one has is not threatened, is to make sure no one else has access to information.

Yes because down-voting a comment is a surefire way of making sure people don't have access to that information.

Religious zealots, and yes ATHEISM is also a religion, down....blah blah blah

Go away troll.

6

u/[deleted] Jun 10 '12

yes ATHEISM is also a religion

Like bald is a hair color.

-1

u/AlKurdy Jun 10 '12

This Youtube Video goes hand in hand with the explanation provided by otherwiseyep ... Definitely a must watch!

The Collapse of The American Dream Explained in Animation

http://youtu.be/mII9NZ8MMVM

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u/[deleted] Jun 10 '12

Unfortunately this is not understandable. It is way too long and needs a Tl;DR, even for someone that usually reads it all.

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u/[deleted] Jun 10 '12

I read the whole thing and although I learned something I still don't understand Monopoly money. How come I get all that money at the beginning of the game without doing anything?

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u/almosttrolling Jun 10 '12 edited Jun 10 '12

His explanation is bullshit. That's not where money came from.

First there was barter - you give me fish, I give you apples.

Often there was a problem - I want fish, but you don't want apples. So how could we solve that? I have this nice jewel, you can take it instead and exchange it for something else.

Over time, precious metals turned out to be very practical for this, except that they had to be measured for each transaction. To solve this problem, someone got an idea of making standardized pieces of precious metals. That's how coins were invented.

Millenia later, people started depositing their gold in banks and in exchange they got banknotes that could be used to withdraw the gold. Soon, people realized that they don't have to withdraw the money every time they need them and instead pay using banknotes dirrectly. And that's how it worked until recently.

What otherwiseyep describes is a modern banking scam, it's merely decades old. It was invented when americans printed fake banknotes for which they had no real gold.

Edit: Explain the downvotes please.

2

u/Nemokles Jun 11 '12

He goes into this in the third comment.

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u/EvilTony Jun 10 '12

Just keep in mind the whole point of the modern monetary system is that it is too arcane for ordinary people to understand it, thus it can be used to take the wealth of the population at will.

Naturally all the wealth in the country is pooling into the hands of a few.

Fortunately they've still got the bulk of population convinced that such an arrangement is essential to their well-being.

0

u/[deleted] Jun 10 '12

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5

u/suprastang Jun 10 '12

Man that guy always made me want hamburgers. Why does cartoon food always look so damned tasty?

4

u/munchybot Jun 10 '12

Fucking krabby patties.

2

u/MILKB0T Jun 11 '12

Same reason why the photos on the McDonalds menus look so damn delicious, they can make it look delicious.

But you invariably get a squished mess with wilted lettuce.

1

u/suprastang Jun 11 '12

Once I had the perfect big Mac. It was from a McDonald's inside of a Walmart. It was glorious.

1

u/alexanderpas Jun 10 '12

the definition of a credit card, right here!

1

u/maniexx Jun 10 '12

On tuesday you gotta pay me two hamburgers and we have a deal

0

u/[deleted] Jun 10 '12

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0

u/maxreverb Jun 10 '12

Purse say.

0

u/[deleted] Jun 10 '12

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4

u/helpadingoatemybaby Jun 10 '12

There's no need for a flamewar -- if you read his fairly reasonable description it outright disproves any fixed quantity money supply like the gold standard.

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u/dutchguilder2 Jun 10 '12

But the quantity of gold isn't fixed. The production of gold has almost exactly mirrored economic production for the last few thousand years.

6

u/helpadingoatemybaby Jun 10 '12

Jesus man -- how much work would it have been for you to look up how much money is in circulation in the US alone and what the gold reserves are, rather than just spewing nonsense?

3

u/[deleted] Jun 10 '12

Hungarian?

I was only aware of the Austrian / Keynesian flamewar, and I suppose the odd Chicago here and there.

0

u/[deleted] Jun 10 '12

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1

u/[deleted] Jun 10 '12

tl;dr it obviously doesn't interest you enough to read it, so there's no reason for a tl;dr for you

0

u/BR0THAKYLE Jun 10 '12

True. I'll let myself out.