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To: Ilaine who wrote (6173)	7/22/2001 6:42:56 PM
From: Maurice Winn	Read Replies (1) \| Respond to of 74559

CB, wasn't the point of Don's ham sandwich story that there was no need for two coins. Even though the economy doubled, the single coin was enough. If the bright young economically-literate guy did his job right, he'd tell them they needed more money to keep the system going. He'd produce the second coin, and buy a ham sandwich. The ham sandwich producer would think 'a sale's a sale, and that looks like another good coin', so he'd make another sandwich. Then he could get TWO coffees. The bright young guy would soon want a coffee so he'd produce another coin and hey presto, he gets a coffee and the coffee maker and ham sandwich maker each have two coins. Which is okay because they've decided to eat two sandwiches and two coffees a day. So what we have is a currency with the money-printer getting free coffee and ham sandwiches. There wasn't really any need for the extra coins. The bright young thing just goes on giving them extra coins for coffee and sandwiches and pretty soon there is a big stack of coins, and a happily-fed bright young thing. Of course somebody else comes along, an immigrant for example. Bingo, we have shoes, ham sandwiches and coffee. The coin guy is really coining it. So they get more and more people doing more and more stuff. The coin guy is happy as a pig in mud cos he gets free everything, he just has to give them more coins. He suggests he forms a government to license, police etc. It all makes sense because things are getting pretty hectic these days with a few wheels flying off here and there. But it's okay cos there's so much neat stuff to buy with the coins. So the government starts taxing them all - after all, they need to be able to run and the government is a service. Of course taxing and coining are a LOT of fun and the easiest job of all. So they get a bit greedy and pretty soon there is lots of inflation, lots of tax and the ham and coffee guys are working dawn to dusk and eating one ham sandwich and one coffee each - they can't afford the other good stuff due to taxes and financial shenanigans with those coin things. Another bright young guy sets up a good system = PayPal. Initially they use a record of the coins as payment, but pretty soon they use shares in the payment company as the currency. They also use shares of other companies which join PayPal as currency, in an indexed way so that a PP [the unit of currency] is exactly one share of the index. Since those holding the PPs own the currency and all the companies involved, there's no need for the smart young guy's coin printing trick. That's my theory anyway. Mq

To: Ilaine who wrote (6173)	7/22/2001 7:05:42 PM
From: Don Lloyd	Read Replies (1) \| Respond to of 74559

CB - The intended purpose of my story was to try to demonstrate that an increased level of economic activity does not necessarily imply a requirement for an increased supply of money. Be that as it may, I've come across a section of Rothbard, Man, Economy and State, Vol. II, C. SECULAR INFLUENCES ON THE DEMAND FOR MONEY, pg. 675-676, which appears to be extraordinarily clarifying. I'll quote at length, not finding an online text source. " Long-run influences on the demand for money in a progressing economy will tend to be manifold, and in both directions. On the one hand, an advancing economy provides ever more occasions for new exchanges as more and more commodities are offered on the market and as the number of stages of production increases. These greater opportunities tend greatly to increase the demand-for-money schedule. If an economy deteriorates, fewer opportunities for exchange exist, and the demand for money from this source will fall. The major long-run factor counteracting this tendency and tending toward a fall in the demand for money is the growth of the clearing system. Clearing is a device by which money is economized and performs the function of a medium of exchange without being physically present in the exchange. ... Thus when a clearing is made, and only the net amount of money is actually transferred, all parties can engage in the same transactions at the same prices, but using far less cash. Their demand for cash tends to fall. There is obviously little scope for clearing, however, as long as all transactions are cash transactions. For then people have to exchange one another's goods at the same time. But the scope for clearing is vastly increased when credit transactions come into play. These credits may be quite short-term. ... At the end of the period, the debts are cancelled and cleared, and the net debtor pays one lump sum to the net creditor. ... Clearing, then, is a process of reciprocal cancellations of money debts. It permits a huge quantity of monetary exchanges without actual possession and transfer of money, thereby greatly reducing the demand for money. Clearing, however, cannot be all-encompassing, for there must be some physical money which could be used to settle the transaction, and there must be physical money to settle when there is no 100% cancellation (which rarely occurs)." Regards, Don