Your base gold supply + your extended money via credit can circulate an unlimited amount of times to support the transaction volume needs of the global economy.
> an endless supply of money (we know it's not truly endless, but a large influx of cash) allows commerce to occur and people can buy/sell more than commodities
I'm not an economist either, but I think the concepts you want to look up are 'money supply' and 'velocity of money'.
Milton Friedman meant monetary base, in your nomenclature. From Wikipedia's "Money Supply" article:
"MB: is referred to as the monetary base or total currency. This is the base from which other forms of money (like checking deposits, listed below) are created and is traditionally the most liquid measure of the money supply."
Think about it from first principles. What is money? Money is nothing more than a proxy for goods and services. So, how much money do you need in an economy? Well if money is a proxy for goods and services, it is no good for the supply of money to stay fixed while the amount of goods and services expands. Indeed, the money supply has to not only expand with the present volume of goods and services, but also with peoples' willingness to enter into contracts to trade goods and services over some future time frame (i.e. loans).
So the money supply must generally keep growing in a growing economy. How should that be effectuated? For a long time, we tied expansion of the money supply into how quickly we could mine gold and put it into vaults. Given the exponential growth of the economy, and the distinctly non-exponential nature of gold production, it's obvious that wasn't going to work for long. So we have what we have now, with a central bank controlling the money supply.
That's the justification for the existing system. Are there alternative mechanisms that don't involve someone with their hands on the big money supply dial? Maybe, but I haven't seen any convincing ones yet.
Money is in fact a commodity and currency. You can buy and sell money, as well as use it as a token for value transfer. This is a sincere fact, I don't know what's contentious about it. The supply of money is not "limited" but buying power is limited and money represents buying power.
Yes, commodity money. A commodity has intrinsic value; so if you use commodities as money (medium of exchange, store of value...), you have money with intrinsic worth.
Supposedly it's the original money, since it arises spontaneously in a barter system. Suppose you have a matching problem in a barter system (I want X from A, and A wants Y, but I only have Z...) The way to solve it is with a series of intermediate barters which cancel out, whose only purpose is to coordinate exchanges (I first give Z to B in exchange for Y, which I then trade for X with A). Some commodities are better at being intermediates than others: they have to be persistent, subdividable, popular (so it's easy to find counterparties who want it). So you have several commodities which end up universally used as exchange.
That's not a fact. Money can and will be created out of thin air regardless if your monetary system is built on central bank money, gold or even bitcoin.
A naive example:
Alice has a gold coin. she walks to a bank and makes a deposit. Now she has one gold coin in her bank account and bank is holding her coin.
Now Bob walks into the bank and says that he needs a loan of one gold coin to buy things. Bank happily lends the coin received from Alice to Bob.
Bob walks to Alice and buys things from Alice and gives the coin to Alice.
Now Alice has one gold coin and another gold coin at her bank account. Total amount of money she has is now two gold coins, even if only one gold coin exists in the whole universe!
And yes, that money at her bank account is as real money as money nowadays gets. And yes, the truth is even more weird, you do not even need to circulate the money as in the naive example, banks can and will just create money out of thin air to people's accounts. After all, the money at the account is literally, literally nothing more or less than a way for bank to say that it will pay you money some later date if you so wish. To make that promise, you do not need any money to exist anywhere. Even I can do that promise on any imaginable currency (what that promise is worth is another discussion). And as said, this has absolutely nothing to do with what "base money" the monetary system is built on. And of course, this is the reason why financial system is so heavily regulated.
Money is simply a tool used to facilitate the transfer of goods/services among people. You can use cryptocurrencies just as well or you can use direct barter but a common-use currency provides benefits that people enjoy.
Money is used for three things - transactions, store of value, and unit of account. For store of value, the long term (or at least medium term) value is quite important.
Money is just a generally accepted means of transferring wealth from one place to another. Currency is a subset of all money. Lots of things can take the place of money, as long as they have the right attributes (mutual trust, fungible, not easily debased or forged, transportable, etc.)
Money is not a "zero-sum game", and in particular, wealth has almost no relationship with money. Money is just the "working capital" in various ongoing wealth exchanges, the water in the pipes, as it were, if the economy was viewed as an interlocking system of flows. And currency, the printed stuff from a central bank, is not the total sum of this money.
Yes — iff your monetary base isn’t brought into being by payment of interest.
If interest must be payed in order for each unit of currency to exist, then growth is required. If not, then equilibrium between stock/flow of money and available goods/services/wealth for sale can be maintained.
If currency is brought into being by attachment of wealth (as is done in typical users based Fiat via Liens), then issuance/withdrawal of units of currency is accomplished across the entire base, to ensure absolute value stability vs. a reference basket of arbitrary commodities (or whatever)
To simplify a bit: the key difference between our thinking is that you think tbills and base money are different things. I think they're the same thing - because they are guaranteed to be always convertible from one into another, at unlimited quantities.
Okay, you're misusing a lot of financial terms, and then making some other terms up, such as "composability of money". Some things are composable but money isn't one of them.
What you describe as "tokenization" exists in traditional finance, and has existed for ages. For example, money market funds invest funds in money market instruments and then fractional ownership of the fund (and therefore of the underlying investments) in the form of shares can be bought and sold in the market. In short, this is not a DeFi innovation.
"Liquidity" refers to the easiness with which an asset can be converted into money. For example, a share is less liquid than money (because money is the most liquid asset, by definition) but more liquid than a house, because shares are sold easier than houses. Shares and bonds tend to be quite liquid. For example, some government bonds are so liquid that are considered a "money equivalent". And "tokenizing" an asset doesn't necessarily makes it more liquid. Finally, shares and bonds are used as collateral all the time. In fact, any financial and non-financial asset can be used as collateral. For example, a mortgage is a loan that is secured by real estate, even though real estate is relatively illiquid. It still used as collateral.
With regards to the velocity of money, you're misinterpreting something called the Quantity Theory of Money. The velocity of money is linked to the level of economic output but it doesn't really make sense to try to influence the velocity of money through economic policy in order to control the level of economic activity, it doesn't work like that. Also the velocity of money isn't being limited by some bottleneck in the financial sector, and specifically isn't being limited by money not being "composable" enough, whatever that means. Your whole argument about the velocity of money just doesn't make any sense.
I think you have good intentions but clearly you don't know much about finance, and if you're interested in DeFi you should definitely learn a little bit about finance, because right now you don't quite seem to grasp even the most elementary of financial concepts. I'm telling you that in good faith, don't take it badly.
"A currency (from Middle English: curraunt, "in circulation", from Latin: currens, -entis), in the most specific sense is money in any form when in use or circulation as a medium of exchange, especially circulating banknotes and coins." [Emphasis added]
"The money supply of a country consists of currency (banknotes and coins) and, depending on the particular definition used, one or more types of bank money..."
See also the caption on the first figure:
"A sample picture of a fictional ATM card. The largest part of the world's money exists only as accounting numbers which are transferred between financial computers. Various plastic cards and other devices give individual consumers the power to electronically transfer such money to and from their bank accounts, without the use of currency." [Emphasis added]
Your example of GDP is a flow. Gold in tons is a stock. Never compare a flow to a stock https://en.wikipedia.org/wiki/Stock_and_flow
The next concept to learn is velocity of money. https://en.wikipedia.org/wiki/Velocity_of_money
Your base gold supply + your extended money via credit can circulate an unlimited amount of times to support the transaction volume needs of the global economy.
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