Point of life is undefined, not nonexistent. It's an equation with many solutions.
Saturday, April 26, 2014
Thursday, April 10, 2014
Dollars
I think this is how it works with money: there's a slice of value that has been assigned to the pool of US dollars. If you assume (for the sake of discussion) value is indestructible, it always exists. However, it can shift from fiat currency to another. So, if US currency became unpopular, all of that value would likely shift to a different currency, or into some other investment or object.
So technically, a dollar has significant *value*, but there is nothing holding that value in place. It's like a sponge full of water and one day that water could easily just move to something else. Whereas a stock or a piece of gold is more like a share of the water itself.
The question of whether we should have gold backed dollars is one that I've though about and never totally came to a conclusion.
However, I think this may be the reason that non-backed currencies are more popular these days: You typically can't use the value when it's locked in currency. That is, you can't use a million gold bars for jewelry and electronics if they are just sitting in a vault and maintaining the value of a US dollar. So, your country becomes weaker than the country that just uses the gold.
By just telling people to assume that dollars are worth something and not backing them, you free up that supply of gold to be used in more useful ways.
There's a certain amount of value that a country should have for the purpose of trading but not using. (It's essentially the amount everybody has saved collectively.) It's OK to represent value with fiat because doing that means that you don't have to waist a bunch of intrinsically valuable stuff sitting in a vault. However, the downside is that the fiat currency can arbitrarily change price.
Perhaps the economy's level of demand for trade tends to define the value of its fiat currency.
Anyway, a conclusion from all of this is that "both are wrong." The the view that dollars have no value is wrong. The view that dollars have solid value is wrong. The truth (that everybody knows in the back of their mind) is that dollars have value, but because they are fiat currency, that value can shift anywhere for any number of reasons at a moment's notice. They are a completely unstable value-holder in theory. However, since their price fluctuation is slow, practically they are not a big risk.
So technically, a dollar has significant *value*, but there is nothing holding that value in place. It's like a sponge full of water and one day that water could easily just move to something else. Whereas a stock or a piece of gold is more like a share of the water itself.
The question of whether we should have gold backed dollars is one that I've though about and never totally came to a conclusion.
However, I think this may be the reason that non-backed currencies are more popular these days: You typically can't use the value when it's locked in currency. That is, you can't use a million gold bars for jewelry and electronics if they are just sitting in a vault and maintaining the value of a US dollar. So, your country becomes weaker than the country that just uses the gold.
By just telling people to assume that dollars are worth something and not backing them, you free up that supply of gold to be used in more useful ways.
There's a certain amount of value that a country should have for the purpose of trading but not using. (It's essentially the amount everybody has saved collectively.) It's OK to represent value with fiat because doing that means that you don't have to waist a bunch of intrinsically valuable stuff sitting in a vault. However, the downside is that the fiat currency can arbitrarily change price.
Perhaps the economy's level of demand for trade tends to define the value of its fiat currency.
Anyway, a conclusion from all of this is that "both are wrong." The the view that dollars have no value is wrong. The view that dollars have solid value is wrong. The truth (that everybody knows in the back of their mind) is that dollars have value, but because they are fiat currency, that value can shift anywhere for any number of reasons at a moment's notice. They are a completely unstable value-holder in theory. However, since their price fluctuation is slow, practically they are not a big risk.
What stock has intrinsic value even if it doesn't pay dividends
Ok, here's the distinction I was meaning to point out about stock when we were talking. I just thought of a better way to articulate it:
You can create shares of non-existent item X with a certain price, and you can just say that the shares are worth whatever you want. You can then buy and sell the shares. People can make money, loose money by investing, etc. However, the shares of item X don't really have intrinsic value. The investments in X have utility, but the shares have no real value.
If you have a business, and you sell shares, they (typically) do have intrinsic value. I don't mean that you can actually use 1/1000th of the business assets in everyday life. I just mean that the share has value. Even if the price of the share *never* fluctuates, it has a certain value.
True I practically wouldn't want to buy a stock that never fluctuated in price, however in some cases I would, like if I needed an alternative to buying currency that was inflating so fast that it was loosing value. People used to keep cows to maintain their wealth... because cows have value ... part of a company is like a cow, something with value.
So, I mean stock has intrinsic value. The exception is when the company is actually worth nothing at all, but the stock price is still high.
And, to give an example of something *without* intrinsic value: US dollars and bitcoins. However, they do have a price, like the item X above. You can't do anything directly useful with them* and they don't represent a share of anything useful. They actually are useful (for the purpose of trade) but they don't represent a share of anything useful.
*With bills, I suppose you could burn them for fuel or use them to clean your teeth, but that's about it.
You can create shares of non-existent item X with a certain price, and you can just say that the shares are worth whatever you want. You can then buy and sell the shares. People can make money, loose money by investing, etc. However, the shares of item X don't really have intrinsic value. The investments in X have utility, but the shares have no real value.
If you have a business, and you sell shares, they (typically) do have intrinsic value. I don't mean that you can actually use 1/1000th of the business assets in everyday life. I just mean that the share has value. Even if the price of the share *never* fluctuates, it has a certain value.
True I practically wouldn't want to buy a stock that never fluctuated in price, however in some cases I would, like if I needed an alternative to buying currency that was inflating so fast that it was loosing value. People used to keep cows to maintain their wealth... because cows have value ... part of a company is like a cow, something with value.
So, I mean stock has intrinsic value. The exception is when the company is actually worth nothing at all, but the stock price is still high.
And, to give an example of something *without* intrinsic value: US dollars and bitcoins. However, they do have a price, like the item X above. You can't do anything directly useful with them* and they don't represent a share of anything useful. They actually are useful (for the purpose of trade) but they don't represent a share of anything useful.
*With bills, I suppose you could burn them for fuel or use them to clean your teeth, but that's about it.
Wednesday, April 9, 2014
Business
Rephrasing: a business is a potentially immortal organism. The shares are a fraction of ownership of the organism. So zero dividend business really means building and selling organisms themselves. It's analogous to slave trade (with no negative connotations).
Cool thing about the organism is that it can be whatever it needs to be, more intelligent than the owner, whatever.
(The business can become autonomous and not so much controlled by the owner. Roughly speaking, laws that require corporations to act in their own monetary interest are analogous to anti-slavery laws.)
Cool thing about the organism is that it can be whatever it needs to be, more intelligent than the owner, whatever.
(The business can become autonomous and not so much controlled by the owner. Roughly speaking, laws that require corporations to act in their own monetary interest are analogous to anti-slavery laws.)
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