Which new systems will rise from the ashes?
Thursday, April 9, 2015, 2:02 PM
- Money functions as a store of value and a means of exchange, but it's possible to have 2 forms (or more) of money simultaneously serving as each
- Having complementary forms of money can provide more resilience to a monetary system - history has a number of examples of this
- A key success factor of such systems is that the forms of money are NOT issues and controlled by the State
- Which new forms of money will arise when the current State fiat money regimes fail
If you have not yet read Part 1: The Fatal Flaw Of Centrally-Issued Money available free to all readers, please click here to read it first.
Separating Money’s Two Functions
Money has two basic functions: it is a store of value (that is, it holds its purchasing power long after you obtain it in trade for goods and services) and it is a means of exchange: there has to be enough in circulation to grease the exchange of goods and services.
Though we are accustomed to one form of money playing both of these roles, there is no reason why each function can’t be served by separate kinds of money—that is, one for exchange and one as a store of value.
This is precisely what we find in the historical record, where bills of exchange, letters of credit (in essence, credit money), paper chits from retailers and other ephemeral means of exchange greased trade while gold and silver or other scarce materials served as stores of value.
As anthropologist David Graeber established in his book Debt: The First 5,000 Years, money arose not from barter—the usual assumption—but from the rise of credit-based exchange and debt recorded on clay tablets, notched sticks or parchment.
In Graeber’s view, the key feature of money used for exchange is that it always has an end buyer. The intrinsically worthless chit issued by a retailer can serve as money through dozens of transactions because everyone trusts that the issuer—the retailer—will accept the chit as being worth an established amount of goods, i.e. purchasing power.
If Joe’s Market issues a chit that can be traded for a can of beans, you and I can exchange that chit as payment of debt or purchase of some other good or service because we know we can always exchange the chit for a can of beans. The chit serves as money.
When gold and silver were scarce in... » Read more