The Euro, why can't it fail??

[qeipl]

As gold was the de facto currency until the advent of income taxes, maybe you can explain why the world wasn't a prosperous place.

Gold wasn't a currency, it's a commodity and access to it was restricted by it's scarcity, which was an impediment to trade.
Money was developed as an alternative to gold in order to make trading easier and more widespread, resulting in increased prosperity.

That's so wrong! Gold most certainly has been a currency and has been extremely widely used as money for thousands of years. Please just look up the meaning of the words to save Contadino and me the time of repeating them. You are right that gold is also a commodity, as is barley, which was also used as money (shekel) and many other substances. But just because something is a commodity, doesn't stop it being used as money. The fact that gold was and still is made into coins ought to be a pretty strong hint.

My statement above is clumsy and inaccurate, gold was indeed a form of currency, and you're right to take me to task over it.

Taking your advice, I've been doing some reading to help clarify my point...

Gold is described as 'commodity money'.
Many other things have been used as commodity money - barley, wine, copper, rum, cattle, salt - all things that have intrinsic value.
Gold became popular as commodity money because of its rarity and density - small quantities of it were valuable, which made wealth portable.
Even when gold was turned into coinage it was still commodity money - the coin was valued for the material from which it was made, not because it was a coin.
But gold's rarity, even in coin form, meant that it was not universally available. In an economy based on commodity money trade is restricted to those who hold the commodities.

Money, as we know it today, ascribes a value to a coin, or a note - a value which has no relationship to the value of the material from which it is made (copper, nickel, paper).
Money, instead of being a commodity, has become a promise of future payment - a credit note to cover a debt.
So our economy now operates using the currency of trust, instead of the currency of commodities.
This development makes it much easier for more people to participate in trade - not everyone has access to gold but everyone is capable of trusting and being trusted.
Anyone with something to sell (labour, expertise, commodities) can easily participate in the exchange of trust.
Trading in trust means that we no longer need a physical representation of money to pass from hand to hand, which makes trading even easier.
And that is why the world is a more prosperous place now than it was in the days of commodity money (e.g. gold).

The downside of using trust as currency is that it's very easy to con people out of their money, which is what the banking system has done in recent years.

[Contadino]

Money, instead of being a commodity, has become a promise of future payment - a credit note to cover a debt.
So our economy now operates using the currency of trust, instead of the currency of commodities.

Again, this is nonsense. Your wealth is the sum of your assets, minus your liabilities. So racking up a chunk of debt alongside a list of assets doesn't make you any more prosperous.

This development makes it much easier for more people to participate in trade - not everyone has access to gold but everyone is capable of trusting and being trusted.

...and placing your trust where it is not merited.

As an aside, I grow Lupini (Sweet Lupin) beans in bulk each year. I take them to my local mill, or to the farmers market and exchange them for flour or other beans that I've struggled to grow successfully (borlotti, chick peas mainly.) Where's the trust there? And where is my lack of gold impeding my ability to trade?  I can do the same with Origano, almonds, walnuts, figs, etc...

No, money was standardised for one purpose - taxation.

The gold standard (which was the Trust you alude to) was abandoned for one purpose - to allow bankers & governments to claim 'growth' beyond that permitted by the limits of real wealth. So, for instance, when the US (amongst others) was claiming double-digit growth in the mid-90's, was it real growth when underlying it was a USD1tn debt bubble?

[qeipl]

 

Money, instead of being a commodity, has become a promise of future payment - a credit note to cover a debt.
So our economy now operates using the currency of trust, instead of the currency of commodities.

Again, this is nonsense. Your wealth is the sum of your assets, minus your liabilities. So racking up a chunk of debt alongside a list of assets doesn't make you any more prosperous.

You're equating wealth with prosperity, which nonsense.

I spent the first 20 years of my working life with wealth (assets minus liabilities) that hovered around zero, but I was always prosperous - I always had plenty money for food, drink, entertainment, etc.

My widowed auntie lives in a huge house that would probably sell for more than £1 million, but she struggles to keep herself warm and fed on her pension. She's wealthy but not prosperous.

All companies, when they start up, have zero assets.
Their initial funds come from shareholders and banks - shares and loans that are both effectively debt, so the company now has negative wealth.
A company can trade successfully for years - prosper - in this condition of negative wealth based on the trust of the shareholders and the banks.

[qeipl]

As an aside, I grow Lupini (Sweet Lupin) beans in bulk each year. I take them to my local mill, or to the farmers market and exchange them for flour or other beans that I've struggled to grow successfully (borlotti, chick peas mainly.) Where's the trust there? And where is my lack of gold impeding my ability to trade?  I can do the same with Origano, almonds, walnuts, figs, etc...

No, money was standardised for one purpose - taxation.

Good for you.

I trade oak shavings for fish.
But when I run out of oak shavings I give the fishmonger money for fish.
I don't always have oak shavings but I always have money, so he can always sell fish to me and I can always buy fish from him.
That's why money became popular - it makes trade easier.

Yes, money makes taxation easier, but commodity taxation was just as popular when commodity money was the norm.

[Contadino]

Well, my dictionary defines wealth and prosperity as the same thing. If you provide me with a definition for each from your dictionary, I'll explain how neither you nor your Aunt are either wealthy or prosperous.

[qeipl]

Well, my dictionary defines wealth and prosperity as the same thing. If you provide me with a definition for each from your dictionary, I'll explain how neither you nor your Aunt are either wealthy or prosperous.

Your definition of wealth in the context of this discussion is explicit: assets minus liabilities.

My dictionary defines 'prosperity' as 'the state of being prosperous', and 'prosperous' as 'thriving, affluent, successful'...

We can bandy definitions to and fro, but whatever you want to call it I can have a thriving and successful economic life without having any net assets, as long as I have plenty money flowing through my hands.

Liquidity is the key to a successful economy, and a common currency creates more opportunities for trade (liquidity) than dozens of different ones.

[Contadino]

OK, clearly you have individual definitions for trade and liquidity too, so you'll have to provide those definitions as well if we're going to be able to discuss the subject further.

[qeipl]

I doubt either of us will prosper from continuing the discussion, so I hereby bow out gracefully and wish you every success with your Lupini.

[spaces]

Some would say the euro has failed already, but artificially propped up by the determined bureaucratically motivated politicians who set it in place. I think internal liquidity benefits are outweighed several fold by the costs of subsidising poorer countries when a Europe-wide interest rate and the lack of ability to devalue a regional currency is the case. 

Here are the final few paragraphs from an article in Der Speigel called "A Possible Scenario for the End of the Euro", by Henrik Müller   http://www.spiegel.de/international/europe/0,1518,790352,00.html

"There is, of course, still a very real possibility that the euro will be saved. The economic and political problems are certainly solvable -- with a huge step toward greater European integration. But, at the moment, it is difficult to imagine European politicians embracing a kind of "United States of Europe," just as it is hard to imagine them letting the euro crash and burn.

Much more realistic is a slow and agonizing degradation of the euro zone. It would be a silent failure: a slow erosion of the rules (which is already well under way), countries growing apart and a corrosion of the institutions holding it together.

It has happened before, for example to the World Trade Organization. Just a few years ago, the Doha round of trade talks, aimed at further liberalizing global trade, threatened to collapse. Developing countries were demanding that rich nations cut agricultural subsidies, whereas the industrialized countries, for their part, wanted the developing world to cut import tariffs on their products.

In answer to the question as to how one would know when the talks had failed, WTO head Pascal Lamy laughed before saying: Diplomats are good at making things sound good. But they can't make fools out of people.

That was four years ago. Since then, the negotiations have made no significant progress. But nobody has declared them to have failed."