Quote from: Atdhe on December 04, 2014, 06:24:19 AM

Well it is necessary feature of any money. All money can be seen as debt and debt is the reason why money exist. Today I do my work as car washer for example and because of specialisation, I am not directly rewarded. I get money instead. Form of IOU in special way that everyone accepts. Later I will pay to third party. That is the basics of economy and even thousands years ago it worked like that.

I understood that that was the "debt based" view on money, and I also saw it like that earlier on. When you receive money "society owes you something". When you spend money, you owe society something. Wait. No. You already did something for society ! If you give money to somebody, you have already earned it ! You don't have anything to do for him anymore ! Yes, you can argue that you just transmit the debt society owed YOU when you earned it. I also understood money that way, long ago.

You could then think that money is just the accountant of all the partly indirect trades that are underway:

I would like apples for eggs. I give you eggs. You give me a piece of paper "good for apples from Joe". With that paper, I go to Jack, and give him that paper, in return for eggs. Jack gives the piece of paper to Jeff, to repair his car. Now Jeff is entitled to obtain the apples from Joe. But that piece of paper goes on and on and on.
As nobody really trusts Joe, we replace it by a "generally recognized piece of paper" that we call money.

That was my view on money long ago. Money is the debt society owes you when you earn it, and the one giving it to you is just transmitting something society owed HIM, so it is not himself who is liable, but "society".

It sounds nice, and I saw it that way for a long time.

And then comes the problem: you cannot explain any behavior of money that way. You cannot explain inflation or deflation. You cannot explain exchange rates between different monetary assets. If society owes me "a loaf of bread", but then they don't really owe me a loaf of bread, but rather whatever they are willing to give me in return for my unit of money, the concept of IOU with money goes beserk. There is no possibility to have inflation or deflation with such a view, as what society owes you can only do two things:
- remain constant (if society owes me a loaf of bread, then hell, it owes me a loaf of bread !)
- inversely change with economic growth (if society owes me a billionth worth of what is produced, hell, it owes me a billionth worth of what is produced).

There is no way in which one could "determine the price of money" by looking at it as a debt.
Hell, hyperinflation is not possible in that case: a debt is a debt !

By viewing money as an asset, of which the price is set by offer and demand, the behavior of money is much, much, much more understandable. In other ways, it is a much more useful theory. One can understand mechanisms concerning money which are well explained by price setting arguments, which are totally mysterious when seeing it as a debt.

"Debt" is the Ptolemaic theory of money ; "asset" is the heliocentric theory of money. Both can explain why we see the planets move in the night sky. However, the Ptolomaic theory falls on its face when we see the moons of Jupiter !

There are aspects of money that can be explained by both theories. But the price setting of money can only be explained by money as an asset for which there is demand and offer.

When debt-based, you would then think that any form of inflation or deflation is "robbery". It isn't if you understand that the price of money can be volatile. That it depends on the desire of people to store value, or not (which can change according to mood). That it depends on the production of it, and the eventual destruction of it. That it depends on how much the asset is chosen as money over another asset or not.

You could explain the course of the west-German Mark circulating in Czechoslovakia in the good old Soviet days. You can explain the course of cigarettes in a prison. All that is not possible with the debt based view. At a certain point, you have to recognize the superiority in explanatory power of the heliocentric model, even though you can add as many epicycles to the Ptolemaic system as you want.