‘It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.’Henry Ford
We are taught from a young age to work hard to earn money, save money, spend money, borrow money and retire with money. Perhaps the question which first needs to be answered however is —
What is money?
Put simply – money is a medium of exchange.
More specifically – money is a unit of exchange to facilitate and record the transactions incurred by individuals and businesses in the trade of products and services. It is then the movement of money, which represents the transfer of value from one party to another.
Technically anything could be money. However, to be considered ‘good money,’ your money must contain ALL the following characteristics — 8 in total.
- A store of value – if you are going to exchange your time and labour for money, you need it to store this value for your future economic benefit.
- Scarce and difficult to create – you should not exchange your time and labour for money which can be replicated easily by others.
- Generally acceptable – giving you the ability to easily exchange your time and labour for other goods and services.
- Trustless – money which requires you to rely on a third party to retain its value, is not good money. Meaning good money should not be someone else’s liability – not government, not bank or financial institution, not other.
- Durable and indestructible – money which might rust, decay, decompose, be easily destroyed, devalued or willed out of existence – is useless to you as money.
- Portable – transportation of your money should be easy and safe.
- Divisible – your money should be easily divisible into smaller denominations to fund smaller purchases.
- Homogeneous and fungible – good money will be identical in form and substance and be interchangeable in the settlement of accounts. Works of art do not make good money as each work of art is different.
You will find that there are very few elements in this world that meet all these characteristics of ‘good money.’
Rocks, stones and seashells are not scarce or homogeneous. Oil might be a store of value, homogeneous and divisible, but it is not conveniently portable. Uranium is also a store of value and homogeneous, but it is radioactive and therefore unsafe for use.
Foodstuffs and vegetation decay. Copper, lead, nickel and steel are too common and rust.
Salt is common. Water evaporates.
The list of substances which would not make for ‘good money’ would go on forever. In the end there have only ever been two elements which have held all the characteristics of good money throughout history and still do to this day.
The first and foremost is gold. The second is silver. Both have served mankind as instruments of financial stability for many millennia. Interestingly enough, we may soon have a third.
I imagine these characteristics you have just read make perfect sense to you – it is common-sense even. Of course money needs to be all these things. And all our paper DOLLARS, these hold all the characteristics of good money… yes? Right?
Well no – they don’t. And if you are like most people you will be shocked to discover why. Please visit the category ‘Good Money’ to find out why.
Good Money and the Dollar
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