Most of the atoms in the world are either hydrogen or helium. Hydrogen, of course, is the simplest of atoms. One electron circling one proton. The Ockham's razor of atoms. Helium is what you get when a lot of hydrogen atoms are tightly compressed together in a star. It is the consequence of the process of fusion in that context. What about all the other elements? Most of them can be explained as themselves also the products of nuclear fusion in the stars, increasingly rare as they get heavier. But there are a few elements that scientists think require a more complicated explanation, and gold is one of these. These problem elements are neutron heavy and they could only have come into existence in an environment that allows rapid neutron capture, known as "the r process." The usual theory has been, for decades now, that the r-process is created when neutron stars merge with each other, since a dense soup of neutrons, is the most plausible source for gold and ...
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I was attempting to explain the creation of money by the Federal Reserve to this young person -- at least he projects youth, one can never know on the internets -- and I was having trouble, He had the idea that the only way the Federal Reserve could inject money into the economy was by borrowing it from somewhere. I think he thought of 'money' in overly physicalist terms, like a stack of bills and/or coins. I'll try the explanation again here. The Federal Reserve injects money into the economy by, in essence, creating it as a matter of law. Most money has no physical form at all. It is the set of the numbers we assign to bank accounts. The Bureau of Engraving creates paper money, but that is only a small portion of the total supply of dollars (I've heard around 8%). But that is the tail not the dog. The dog in this situation consists of the idea of money, and numbers that are re-assigned at the tap of keys or the swipe of a plastic card fr...
Yesterday, I began a discussion of the work of Professor Guillermo Calvo, now of Columbia University’s School of International and Public Affairs, in an effort to answer the question in the headline of this blog entry, and I got so far as to introduce the word "stickiness." Let's proceed from there. Calvo does acknowledge that fiat money contains within itself the principle of its own destruction. But ... why does its destruction take so long? Even if deliberate government buttressing of the use of its money were "completely absent," he says, this factor would slow the aforementioned destruction. Stockiness is simply a convenient name for the behavioral fact that suppliers of goods and services "broadcast, far and wide, their willingness to take fiat money in exchange" for what they are selling. Further, private sellers often "reaffirm their willingness to do so over extended periods of time." The suppliers find it useful as a mar...
Why haven't we gone to barter? Or adopted systems such as bitcoin much more widely? Few people really trust the fiat money created by governments, their printing presses, and their captive central banks. The distrust has been growing in intensity ever since people came to understand that the official money isn't backed by anything and isn't going to be backed by anything. So ... why haven't people abandoned it? Because the government forces us to use its money? No, it doesn't not really. We must be able to convert some of our wealth into its money at tax time. just as you must be able to pay for your trip on the subway with a subway token. But you can make that conversion just before your subway ride. So other than that: why do people still value the US dollar and other examples of fiat money? One thinker who offers a provocative answer to this question is Guillermo A. Calvo, a former chief economist with the Inter-American Development Bank. The instit...