Hold on to your seat for this one because today’s topic is in your pocket, on your mind and always a subject of controversy. In the spirit of quid pro quo we established earlier, today’s guest writer would like if you ever get cold in Tennessee to trust his HVAC company to get the heat back on for you with quality HVAC repair in Murfreesboro.
Long before money was invented people were happy making, doing and growing things for each other. In small communities the people living there could largely remember with and what was exchanged. Keeping tabs of these transactions was an important part of the process by separating and classifying those that had already been “paid” and those that were “owed. ” The best and worst part was that communities grew and the original simple transactions became more and more numerous, more and more complicated.
Rulers created things for the common good and began to impose taxes which added to the increasingly fraught style of exchange. Why not just start using I.O.U. notes you might say? The idea is a neat one but encounters a simple problem immediately. How could you verify the I.O.U. came from a certain issuer? The problem was surmounted by a medium of exchange like a whale’s tooth.
So I bring up my whale’s tooth as an I.O.U. of sorts and now everyone else with a whale tooth can rely that we all agree on a basic value of whale’s teeth. Now you could even start saving up your whale’s teeth for a later purchase. The concept is not lost on this author that at the same we created this “money” we created another concept : debt.
As people kept using their particular I.O.U. tokens some basic useful ideas about money began to grow. Scarcity, possibility of easy division, weight and intrinsic value began to narrow the variety of tokens and objects used as this early money. Shells weren’t that great because anyone could just pick them up off the beach. Whale’s teeth were huge and not easy to split into two. Barley was used as a token but was absolutely too heavy. Feathers were quite good because they offered a built-in value in uses of crafts and artistic purposes. Also outside of your communities who liked to trade whale teeth it might be difficult to convince a neighboring community that they should also use whale teeth.
Rulers and early kings got the message early : having lots of money gave your power and that power helped you get even more money. Money began to be minted from precious metals. Using this concept of money ticked off all the boxes that money needed. They even began to “debase” the money but mixing in lesser metals thereby lowering the actual value of the metal money while still retaining it’s face value. Sounds like the American penny, doesn’t it?
Early Chinese rulers got sick of transporting (or having their slaves and subjects transport) all this metal money. Global trade was growing so it was far easier to go back to a version of the original I.O.U. concept. A trader 500 miles from the king’s palace could be issued a piece of paper that promised the metal money upon presentation of the paper. Folks got nervous though because of how easy it seemed to just continuously print money so they attempted to nail down gold as the ultimate bearer of value. By the 1970s thought most nations have given up tying money to a real standard of gold value and the only thing distinguishing paper money from say, toilet paper is trust.
What happens if the precious metals become a little less precious? In the 16th century Spanish explorers brought back loads and loads of gold and other precious metals from the New World. Surely this is great for everyone and it’ll turn out well? Wrong. Traders just increased their prices to match this new influx of money. The returning explorers were no better of than when they left and the people without all that new gold were even worse off than before. Those that had previous debts were the only people that benefited as now their debts were smaller. The first lesson in inflation was a harsh one pointing out that too much money and too few goods is a major mess. The only way to alleviate the issue is either entice traders to create more goods or slow the dispersal of the new monies by savings.
The creation of America the American dollar is a great way to look at the international functions of money. Most nations today hold a reserve currency of American dollars which in turn cedes some amount of power back to America as long as that currency is held in reserve. The idea of fractional reserve banking also complicates the issue of “what is money?” as banks began to realize, as long as not everyone takes out their money at once, they could lend out substantially more than they actually had in reserve.
Since the last traces of a gold standard disappeared in the 1970s, the world has carried on trading in U.S. dollars despite they are not backed by anything of actual worth. Why does the dollar retain it’s value? Perhaps because so many people have reserve U.S. dollars they believe that all those other people like them will too retain faith in this glorified I.O.U. system. Minted coins and paper money were once the cutting edge of technology. Those actual physical elements are now only used in two percent of all transactions having been replaced by electronic banking and the use of credit & debit cards. Linden Dollars, Bitcoins and other crypto-currenices are examples of how the tech of money is still evolving and changing.
Now the only thing we have to worry about is when the government lets you pays taxes in these emerging currencies and the banks start issuing loans in them – that’s the start of all the trouble, wasn’t it?