Welcome to General Chat - GAW Community Area
This General Chat area started off as a place for people to talk about things that are off topic, however it has quickly evolved into a community and has become an integral part of the GAW experience for many of us.
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Rules for General Chat
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Be respectful to each other. This is of utmost importance, and comments may be removed if deemed not respectful.
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I keep hearing certain loud people go on and on about "the labor theory of value," that money should be backed NOT by gold, but by the labor of the people.
"For every industrial hour worked, a dollar issued. This way, the purchasing power of money-to-goods remains constant for the benefit of its people, while the nation's spending power continues to grow."
I am not an economist, but that has never sat right with me. Gut says this is bullshit that will fall apart easily, but can't place a finger on how. Maybe because not every job is worth the same per hour?
Can someone help me show why this is a bad idea?
At first glance it would appear that the possibilities for fraud are endless. Who WOULDN'T say their workers put in 1000 a day? When the total was 50.......
It's not a horrible idea. I believe Buffalo, NY had a local scrip system in wide use for many years, possibly still in use today, based on exchange of work. Maybe it's another town, but it was somewhere upstate NY. But pretty soon different labor has different value, in that a transmission mechanic may ask for more of the dollars created than a car washer, even if the job done by each takes the same amount of time. So it's labor-based, but market defines the value of labor freely, and differently according to demand and supply.
continued ...
so to answer your question in simple terms, by making the currency based only on the labor and not by gold etc, the economy will lack the liquidity that is necessary to fulfil its role - to allow people to exchange labor and resources. The same dollar has to compete for somebody's labor and also for someone's gold.
This is essentially the opposite of printing too much currency. You are now printing too little currency and will result in deflation (instead of inflation)
“Only on labor…”
…and what if you are retired? Or injured. Or lazy but good at bartering and trade. What if you write poetry or draw or paint?
Who decides what labor is? Or how long something should take to produce (to get paid)? Sounds like a camel nose under the “control tent” to me.
Ahem…sorry to butt into your convo. I hadn’t heard this theory and (assuming I’m understanding correctly) it started up my noodle. Thx for the explanation.
btw, this comment was a continuation. You have to read the previous comment as well.
Thats my point. Did you read the full sentence?
Yes, t/u. Very interesting.
At the core, this is a sound idea, but not entirely correct. Currency, ultimately, represents something. What is it?
Its a deep question and if you keep pursuing all lines of thought, you will ultimately arrive at the answer "It represents the willingness of someone to perform a specific action for the currency".
If I have currency, someone might be willing to climb a tree and collect an apple for me. Or dig in the ground and mine a piece of gold for me. Or sit in a corner and write a poem for me.
Or, I could be willing to part with an apple from my existing stockpile, without doing much work at all.
Ultimately, the only thing of value on this planet is the ability for a person to perform a work that is desired by someone else, including exchanging a resource.
From this point of view, the currency issued for a certain period of time should represent the potential for all the people who are willing to perform some kind of work in a given period of time and the resources they already own are willing to exchange.
There problems with the quantifying it based on "industrial hour worked".
Firstly, it only accounts of "industrial work" which is a subset of all the work and hence only a subset of the currency that should be issued. Specifically, non industrial work, and willingness to exchange resources, are completely ignored.
Secondly, it does not differentiate between what commodity is being produced or how scarce the skill required for that industrial work is. So it does not take free market into account
Thirdly, it does not account of the resources already present.
But once you account for the value for all the people performing all kind of work, and the resources available, creating a currency based on this is a sound idea.
The only way new currency is added is when the population grows.
The sound economic equation is: Economic growth = Population growth.
When the economic growth is faster than the population growth, we have a fiat system where the equation is imbalanced, and the only way to correct it is to extract value from people by force. As in slavery.