I am not an economist, so pardon my ignorance… by education I am a political scientist. My question is the following… why do we have currency at all? Broad question, I know, so let me explain. Today in the US, we have worthless fiat currency, so there is a movement to return to posture of either tieing paper money directly to some item (gold/silver) with tangible value. Step back further and explain why have coin/paper money at all?
My understanding, however incorrect it might be, is that this currency provides convenience for us in economic transactions. For example, if in the bartering system you did not have a commodity in your possession that was desired by the party you were attempting to barter with, no transaction would occur. However, if you had some universal item whose value is directly tied to something of value (paper money with a gold standard) or was universally valuable in and of itself (gold coins), transactions would occur and would be more efficient.
You’re essentially on the right track. If we go way back to the days of barter it would have been difficult to sell one’s goods. For example, if I wanted to sell grain for shoes I would have had to find somebody who had shoes and wanted grain. As this was difficult some entrepreneurs figured out that they could trade their goods for a good that was in demand for whatever reason. As more and more people started doing this certain medium of exchange became more and more valuable, and others died away. Eventually gold and silver became the dominant MoE and became recognised as money. It’s unclear what would have happened after this had government not intervened.
There’s a few qualities a good must have to be money: high value to weight ratio, easily divisible, easy to transport, scarce, valuable for other purposes and more. Historically cigars, cows, shells have all been used. If you want to understand this I suggest you read Carl Menger’s Principles of Economics.
I personally think bartering could be augmented with a specialized Craigslist built for specific communities, not just specific cities or states. It would most certaintly be a useful tool to use in times of a recession/depression or in times where scarcity in given community/city/state temporarily jumps beyond normal rates.
Whose we? If you mean the government then no. That is still fiat currency.
I don’t really think it makes any sense to wealth a store of money. At the end of the day money is, and must always be, a good that is traded on the market (at least when it arises). It’s a good just like any other. Gold is more of a store of value then a house, but that doesn’t make any sense since any good is then a store of value. Value is purely subjective, so how anything can store it is beyond me.
Why is Gold/silver inconvenient in transactions? I don’t see why there couldn’t be a system to use the current debit card for dollar transactions with gold/silver instead. Gold/silver coins aren’t very difficult to carry either.
But you recommended Mengers Principles of Economics above right? You remember the bit where he talks about the difference between use value and exchange value… this giving rise to the category of goods that he calls commodities? When something has primarily exchange value and thus is highly saleable, it comes to be used in the market as a medium of exchange and as such can be used to acquire pretty much anything anyone wants (at least anything that is available for exchange). It can thus be accepted and held against all any any future possible needs, even before those needs are known.
Providing you can be reasonably well assured that goods which can satisfy all/most future needs will be available for exchange within the timeframes that you plan on holding money then, that money is for all intents and purposes a store of value (whatever value you attribute to those things that you can exchange it for, or its usefulness to you for that purpose).
fiat currency can be viewed as a commodity just like gold or silver or oil or anything else. the only difference is that it is an artificial commodity. its creation is entirely controlled by humans. just like communism, fiat currency works great in theory. specifically in a world in which you have perfectly benevolent government officials. In reality it is too easy a target for manipulation.
therefore, libertarians advocate a return to commodities that are decentralized in production. No one group can control all gold production. This makes it inherently more difficult to manipulate gold for individual benefit. (manipulation in this case means engineering a situation where profits are internalized and losses externalized).
Commodity trading is a fact of life, we all want to trade goods we personally value less for goods we value more to someone who feels similarly, but with reversed commodity preference (I want gold coins and have an excess of food, he wants food and has an excess of gold coins). Thus in a non-coercive market, all interactions are pareto improvements.
So, value is subjective, you can’t “store” it. What you’re really saying is that money is highly “liquid”. In which case you’d be right, but pointing out the obvious.
I’m not sure I follow you here. Gold itself can’t be “manipulated” as far as I’m aware. If you mean private banks issuing certificates of deposit on the basis of less than 100% reserves, without any implicit backing by government or a “lender of last resort” then I can see how “gold” might be manipulated in the absence of government. However such activities would be risky indeed in a free market for money - I think you’d find most banks either living short lives or, if they wanted to stay the distance, making their money instead from minting coins (for a fee), charging storage fees (for physical gold), transaction fees and finally on interest from their OWN money that they leant out (as opposed to the money of depositors, which is what banks do to make money today).
Banks with only 10% reserves probably wouldn’t last a year and almost definitely would not last a decade in a free market for money today. Their existence continues at present merely as a result of government use of force.
Another aspect of currency that i do not believe has been mentioned is its ability to measure the individual utility one derives from an item. I know i like apples, but i do not know how many apples a gallon of gas is. But since i know how many dollars each of them are, i then have the choice whether to trade my dollars for their use.
I think you’ve got that a bit backwards to be honest. If you saw me give someone a gallon of gas for 10,000 apples would you then “know” that that was what a gallon of gas was “worth” and therefore be happy to give me 10,000 apples for a gallon of gas?
Effectively, the only reason you “know” what the “price” of gas in dollars is, is because there is a large market for gasoline traded in dollars and therefore a market price for gasoline, as expressed in dollars, is reasonably easy to observe.
If apples were used as the medium of exchange, a market price for gasoline in apples would be equally easy to observe.
The market prices are just aggregates though - the average price that each of the many many market participants aggreed upon. In each case, where gas is traded for dollars it is because the person handing over the dollars considers the gasoline more useful that the dollars and the person giving over the gasoline considers the dollars more useful than the gasoline.
Below a certain exchange rate, the person with the gasoline would no longer consent to the exchange and above a certain exchange rate the person handing over the cash would no longer consent to the exchange. The actual “price” that the two parties agree upon might sit anywhere within this broad range however - it is not a precise figures and it doesn’t measure anything.
In the case of money, it’s value is mostly exchange value (it has very little use value) and this is one of the characteristics of money that makes it highly saleable and thus appropriate as a medium of exchange. If it were too useful then it would no longer be useful as a medium of exchange for smaller transactions (for example, for purchasing individual units of anything that was less useful).
Still, it is not the presence of exchange value or use value which makes it easier for you to price gas in terms of money, but the volume of readily observable exchanges (and thus “market prices” - averages across many people) that allow you to observe the relative values of gasoline and money to various market participants.
The fact that something has a “market price” doesn’t necessarily mean you personally (or any other individual) is willing to pay that price. I know what the going rate of Audi TTs is and I’m not willing to pay it. However the market price gives you an indication of the relative value that other people place on goods (or at least an idea of the value that “has” been placed upon these goods in the recent past - which is usually a fairly good indication of relative values for the near future asa well).