Monday, July 09, 2007

Dead Metal

I read about money all night.
I'm very confused.

At this point, I have come to find that there are three different kinds of money.

There is commodity money.
This is something that is a commercial commodity as well as a medium of exchange.
Historically, precious metals like gold and silver has been used as commodity money in addition to things like grain and livestock. In the 1800s most Industrial nations held to a gold standard. The gold standard saw to it that all bank notes produced were backed by gold and could be exchanged at any time for the gold they represented from the issuer of the note.

So far so good.
There was a time when bank notes represented actual stockpiles of commodities.
And if you wanted commodities instead of pieces of paper, you could demand them.

Now there's fiat money.
I'm still having great difficulty accepting this.
I was always pretty sure money was a very strange concept
but I really had no idea. It seems that fiat currency really has no basis in reality. Its value is absolutely dependent on its own legality. It's a government's promise. If at any time a people's confidence supporting a legal system backing a fiat currency collapses, so too will the currency. The gold standard got too silly, it just couldn't keep up and ultimately, there just isn't enough of it aboveground to reasonably ensure a complete currency backing. The gold standard has been largely ignored by the world since 1971.

Every nation in the world currently produces fiat currency.


The third type of money seems to make the littlest sense of all.
I wouldn't dare pretend I understand any underlying principle to it and I'd run from anyone who thought they did. From what I understand, credit money is future money. Banks create it when they're feeling optimistic and approving loans.

The most bizarre thing I have discovered is that this particular form of money has vastly overtaken both commodity money and fiat money in terms of abundance and activity in the global economy. A majority of the money we are exchanging for goods and services is credit money! Future money that does not exist yet!


Anyway, have a nice Monday.

Colouring book


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