Tuesday, February 9, 2010
I lifted the above pics from a cool page that has lots of pictures and history of money. Go Here.
Here's a list of attributes that define money:
1. People, not governments, decide what money is. No legal-tender law can force citizens to accept a hyper-inflated currency. They switch to barter or foreign currencies.
2. Money has intrinsic value. That's why things like guns, gold, and cigarettes have all been used as money.
3. Money is limited in quantity. In order to coin gold, you first have to dig it out of the ground. I read something once that even the best gold mines have to dig a ton of dirt to find one ounce of gold.
4. A money that is finely divisible, like gold and silver coins in various denominations, makes transactions easier.
Did I miss anything?
Paper is not money. Paper currency is a money substitute, and it's only as valuable as what it represents. Even as recently as the 1960's, if you took a Silver Certificate(remember those?) to a bank, you could exchange it for the quantity of silver it represented. Remember the words, "Pay to the Bearer on Demand"? If the paper was a value in itself, why would those words be printed on the note? The U.S. has had two instances of fiat scrip rejected because the paper didn't represent anything of value; Greenbacks (Civil War funny-money) and Continentals (as in "not worth a Continental"). The third attempt to foist unbacked paper is disastrously unfolding right now with Federal Reserve Notes. I'm surprised that FRN's are still circulating. It just shows how bad other currencies are that we aren't using Zlotny's and Nuevo Pesos as alternative currency here.
Inflation is a slippery concept. You'd think that the "official" rate of inflation would be the amount of new bills printed expressed as a percentage of the previous total amount in circulation. But instead, inflation is given a number by opinion of government economists. If some commodity goes up in price too much, that commodity is ignored in favor of more "stable" prices. And price increases and decreases don't always follow the pattern of the printing press--two extreme examples are computers and health care. So I have to wonder who cares what the "inflation rate" is? Get your FRN wheelbarrows ready.