[OwenKellogg]

My question: "Every textbook discussion of currency that I've ever seen always lists "a store of wealth" as one of 3 primary functions of currency. When did this change?"

Your answer: ...With the advent of government-issued paper currencies.

Discussion: it is impossible to change the function of currency with the advent of currency.

Or did you intend to imply that currency is no longer a store of wealth with the advent of fiat currency? In that case I agree. But Friedman and the Austrians still maintain that currency should serve as a store of value. Are they off base?

[Southack]

"Or did you intend to imply that currency is no longer a store of wealth with the advent of fiat currency? In that case I agree. But Friedman and the Austrians still maintain that currency should serve as a store of value. Are they off base?"

The *reason* that Freidman is wrong is that you want to encourage the increase in speed of the velocity of money.

...And people *hoard* cash if they perceive it to be a good store of money...an action (i.e. hoarding) that is antithetical to speeding up the movement of money.

Your economy becomes more robust as money churns through more and more transactions at ever faster rates. Paying a bill online, paying for a book online, trading stocks online instead of mailing in market orders, all of these things speed up the velocity of money...and that has the effect of increasing the wealth for everyone involved.

The counter-example is South America. In South America the billionaires hoard money. It's cultural. The billionaire's wife has to haggle. When she shops she has to get the absolute best price deal or else she loses face. To avoid losing face, she won't consumate a deal that doesn't give her a lower price than anyone else...so deal after deal fails to get done. The store-keepers know that she's rich...they know that she doesn't deserve a lower price than the starving peasants who shop there, so they don't want to cut her a better deal than everyone else. Again, it's cultural. They would lose face if they caved to every rich shopper.

So enormous amounts of everyday transactions fail to happen in South America. The end result is that money doesn't move very fast down there...and if money doesn't move, your economy acts as though no one has any money...as if you lived in a time before money was even invented...stone age poverty. Hyperbole added for effect, of course.

Compare. Contrast. Money moves enormously fast in the U.S. and we are all prosperous. Money in South America, though, moves so slowly that those nations have very lethargic economies.

But, those South American billionaires love to store their wealth in the form of cash (though often in cash form other countries). They "see" their wealth in terms of cash on hand. To them, money should store wealth.

To me, that's precisely what moeny should *not* do. Money should merely facilitate retail and wholesale trades, not act as a store of wealth.

If you want to store your wealth, then you should use money to purchase traditional stores of wealth such as real estate, mineral rights, oil itself, gold, factories, licenses, etc.

Freidman wants your money to store wealth. That's the South American recipe for economic stagnation. There are better ways to store your wealth than cash...

[tortoise]

But Friedman and the Austrians still maintain that currency should serve as a store of value. Are they off base?

Currency should reflect value, not store it. ANY store of value will necessarily be unnatural simply by the fact that it has to reflect the product of the rest of the economy if used as currency. The value of fiat currency is that you can explicitly control the reflected value -- there are many lessons in history of the result when the supply of value stores used as currency (e.g. gold) suddenly shifted. Not pretty. Granted, idiots can still screw up fiat currency, but at least that always stems from an explicit decision. When you tie currencies to stores of value, you suddenly have the case where the value of currency is effectively beyond human control due to shifts and sourcing of supply.

For example, if gold was the currency of record today, not only would it be ridiculously expensive to reflect the total value of the economy, but South Africa and Russia would own huge fractions of the world's money supply. The ability to produce gold does not reflect the production of value any more than the ability to produce paper money does. But it makes it a hell of a lot more arbitrary and uncertain. Sure there is some minor real value in gold, but that is already reflected in the market as a miniscule fraction of the total value of human wealth. Fake value is not worth any more than paper is.

No thanks, I'll take fiat money over physical stores of value. Unlike the "store of value" case, the government can manage the effective value because they explicitly control the supply.