The idiomatic phrase "the penny dropped," literally means "I finally understand."
In this case, the Conservative government along with a slew of businesses that were lobbying them, finally understood that our money has devalued to such a great degree, that the penny was not only worthless as a currency, it cost more to make than it was worth.
Copper prices, like all commodities have experienced a boom, and copper is such a useful and important metal, governments have long ceased using it as coinage. The Canadian Mint last made pure copper pennies in 1996, a long time hold out.
In the US that happened in 1943, but they made bronze pennies up until 1982.
Canadian pennies are now made of copper plated steel with a bit of nickel, and US pennies are copper plated zinc.
The graph seen here, illustrates what has happened to the value of the Canadian fiat dollar over a very short time, and therefore the penny, all of it in just part of my lifetime (graphs for US dollars are very similar).
A fiat dollar, like any fiat currency, is only worth something because a government regulation says it is.
Paper currency once upon at time, represented or was "backed by" some amount of a real metal, like gold or silver. The metals were too heavy to carry around, hence paper.
I can recall that the penny once had value. It took 3 pennies to buy a daily newspaper when I was a child in Toronto. Penny candy, was just that, candy that cost a penny or two.
Today, most people would not even stoop to pick up a lost penny on the ground. Most view pennies as an annoyance. What happened? Well, it's a long and complicated story, here is where you can start if you really want to find out.
Not only is this an end for an historic coin in Canada, but a large hole is left in Canadian English, though it may take years to phase out. My young grandson will grow-up and he will be mystified by phrases like:
Penny Pincher, penny wise and pound foolish, pretty penny, penny for your thoughts, a penny saved is a penny earned, without two pennies to rub together, penny ante poker, and on and on. Here is an interesting article. It's a sad day.
The graph seen here, illustrates what has happened to the value of the Canadian fiat dollar over a very short time, and therefore the penny, all of it in just part of my lifetime (graphs for US dollars are very similar).
ReplyDeleteSo what? Your nominal income has also grown in that time. Your real income has, IIRC, increased about 3% per year, compounded.
A fiat dollar, like any fiat currency, is only worth something because a government regulation says it is.
Money is socially constructed. It's how we manage social relations of production and consumption. Even the value of gold as money has always been divorced from its relatively trivial use-value. So what?
I don't generally follow comments, and I follow your blog only through Planet Atheism. It's all the same to me either way, but if you want me personally to read your response, make a new post and email me. I'd love to read why you dislike fiat currency. (And yes, I've read von Mises.)
ReplyDelete"I'd love to read why you dislike fiat currency." Because I don't like having my savings frittered away by government edict.
ReplyDeleteThen save real assets. Buy interest-bearing bonds, government or private. Buy stocks. Buy a lot of canned food. Buy gold.
ReplyDeleteEverything is a trade off; with assets, the trade-off is between liquidity/nominal security on the one hand and growth/real security on the other. Because money has the highest (near perfect) liquidity and nominal security, it has the lowest growth and real security. Indeed, money has negative real security and grown precisely to encourage you to *invest* it in real assets rather than save it.
By asking for both liquidity *and* real security, you're essentially demanding a free lunch. As a Libertarian, I would expect you to know there ain't no such thing as a free lunch.
"Interest bearing bonds" = government edict (Central Banks) has set interest rates so low that holding bonds loses money because the "interest" (what little there is) is taxed. Inflation erodes the remaining gains. Stocks, good idea, but for retirees maybe not. A downturn could cause a large loss and time is not on the side of the retiree. Canned food and small arms, we're not there yet, but maybe soon. Gold and silver, good idea, but they too are manipulated by Central banks, though I suspect in the long run precious metals will be the "money" of the future.
ReplyDeleteI know there is no free lunch, but were the government to back off and let the economy function as it should, I would be better off - my saving could earn me some interest.
The Central Bank low interest rate acts like a signal to the market that there is plenty of savings around to be lent out. In fact the opposite is true. Lending for mortgages in the States is difficult, in Canada its easier unfortunately - we are in a housing bubble right now, that many fear will end like the States.
By rights we do not have real liquidity - its the mirage that the Central Banks have created. What NEEDS to happen, what should have happened is that misallocated and bad investments that failed during the crash should have been allowed to fail (no bailouts) and money should now be tight (high interest rates). This will encourage savings, yes back into recession or worse, but that will happen eventually and it will be far worse then.
I know there is no free lunch, but were the government to back off and let the economy function as it should, I would be better off - my saving could earn me some interest.
ReplyDeleteHow do you know that?
The Central Bank low interest rate acts like a signal to the market that there is plenty of savings around to be lent out. In fact the opposite is true.
How do you know?
By rights we do not have real liquidity - its the mirage that the Central Banks have created. What NEEDS to happen, what should have happened is that misallocated and bad investments that failed during the crash should have been allowed to fail (no bailouts) and money should now be tight (high interest rates).
How do you know that?
I know enough economics to follow most any argument. Don't be afraid to get technical; we're in comments, and it's just you and me, comrade.
I know these things because economics is a science, theoretical yes, but Austrian theory seems to work. Hayek got his Nobel in '73 or '74, so even economists believe it works.
DeleteI agree with Austrian economics, because for the most part it allows a free market, a market where individuals are allowed to make choices and their choices have consequences. Certainly human behaviour is involved, so there is a degree of uncertainty, but the market is not coerced. So whether "I know or not" I like that choice. Whenever government is involved so is coercion, that is ethically wrong. As for your questions, they are well answered on the Mises.org website, comrade.
I know these things because economics is a science
ReplyDeleteIndeed. I want to hear the specific, detailed scientific justification for precisely what you think you know.
Whenever government is involved so is coercion, that is ethically wrong.
Let's stick to economics here, and leave moral philosophy for another day.
As for your questions, they are well answered on the Mises.org website
I'm not reading the Mises.org website; I'm reading your website. My question is: Do you know? Do you understand the evidence and arguments? Or are you advocating positions you yourself simply take on faith?
Let's examine one specific idea in some depth:
The Central Bank low interest rate acts like a signal to the market that there is plenty of savings around to be lent out. In fact the opposite is true.
You assert there is not "plenty of savings around to be lent out." How do you know? Faith or science? What observations lead you to draw this conclusion?
I of course do not expect you to have a PhD in economics nor to be able to do the econometrics. But if you're going to make an assertion, I expect you to be able to at least cite the specific professional or scholarly sources supporting your opinion. "mises.org" is not sufficiently specific.
ReplyDeleteWhy?
ReplyDeleteYou don't have to believe my assertion. I don't really care if you do or not. I'm not here to justify myself to you, I don't care about you, I don't think about you and I am not looking for a debate. Debating is a waste of time.
I'm here to cast doubt on the system as it exists. The underlying philosophy and economics is predominantly collectivist in the USA, Canada and certainly Europe. The results are clear as day to anyone that cares to look at how things are going. You disagree? Fine. Anyone that does not disagree, anyone that sees what is happening, maybe looking for an explanation. If you are looking for an explanation, an alternate theory, then go to the source, don't take my word. Do your own digging. Learn some Austrian economics, you might think it more tuned in with reality. If you do, then do something about it. Get political, get off your ass, and write to your MP or Congressperson.
You are a self admitted and proud communist. Fine. Lets let reality be the judge of what works or does not.
You have no obligation to justify yourself. I was just curious: I can be persuaded by reason, arguments, evidence, and logic. If you were right, I really would want to know.
ReplyDeleteBut apparently that is not what you're about. You're here to proclaim the Gospel. Either one has von Mises in his heart or he does not.
It's your blog; far be it from me to tell you what you must or must not write. But now I know, straight from your mouth, that if I'm looking for evidence and arguments, this is not the place.
"I can be persuaded by reason, arguments, evidence, and logic." Thats a laugh.
ReplyDeleteWe both have very different world views, we only share atheism in common. I seriously doubt that I am going to have any impact on your collectivist tendencies, no more than your arguments will make me embrace Marx as a model for my life.
So who are you kidding? Your world is collapsing around you, even the once communist Chinese realize now how ridiculous their position was.
But you are absolutely right, it is my blog, I do have an agenda and you are not much help. I'm not really here to give evidence and arguments. The topics are far too complex for short posts. Readers are required to come to the blog with an appreciation for liberty, choice and individual rights. I will present my views, they may disagree or not. Persuasion is not going to happen, nor do I expect it. This not the place as you say.
You may read the blog or not, frankly I don't care. Those that choose to read it, are welcome.