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06/30/2005 Archived Entry: "The Nature of Money Yesterday"

by guestblogger Silver

Less than 35 years ago money was fundamentally different from the consensual mass illusion we call money today. During the 10,000-plus years since the invention of money, it has always been a commodity.

The commodity used as money has varied over time, places, and peoples. An amazing array of commodities have been used: cattle and other livestock, sugar, salt, copper, iron nails, tobacco, grain, tea, shells, feathers, beads, carved stones, various kinds of tools such as knives or spades, even fishhooks. Metallic coins were introduced in Asia Minor fully 600 years before the birth of Christ; King Croesus introduced coins of pure gold and silver about 550 B.C.

There are many properties that make a commodity suitable for use as money. One of the most important is durability. You donít want your money rotting, walking away, dying, or being eaten by rodents and insects. Another is marketability; money is of little use if it is not widely accepted. A third is portability; carved stone money, with ďcoinsĒ that were sometimes meters across, were not very good on this score. There are many others, and the process of free market competition and refinement that led to the near universal use of gold and silver as money is an interesting one. I promised to keep these essays short, so I will defer telling that tale.

One nice thing about commodity money is that its value canít go to zero. The value of commodities certainly changes with supply and demand, but unless demand goes to zero, or supply becomes so plentiful that no one wants any more, there will always be some value to your commodity. If your commodity begins being used as money, its value tends to go up, as there are now two sources of demand: one for use as a commodity, and one for use as money. But even if the second source of demand vanishes, you are not stuck with something worthless, just something worth less.

The fact that money has always been a durable commodity has some very important implications for those who want to live free. There are few things that curtail freedom more effectively than debt; free men and women adjust their lifestyles to their means, and the wiser among them invariably save some part of their money. The savings are used to make large purchases such as houses or educations, to cover expenses when illness or job loss curtails income, and to provide for oneís old age. Free people take care of themselves, and that means saving.

Saving money is impossible if the money is not durable. Cattle money is problematic because it takes a lot of work to feed, water, and tend the animals, things you canít do so well as you get older. Grain money is likewise subject to rot and infestation. That is why, for thousands of years, the frugal, the wise, and the free have saved gold and silver coins.

It is possible to save this way today. It has never been easier to buy gold and silver bullion coins; a few mouse clicks or a phone call, send a paper check or some electronic bits to the merchant, a short while later the postman gives you a small and curiously heavy package. You have turned hallucination into cold hard reality. You can even do so in IRA and 401(k) accounts, although you have to find someone you trust to hold the coins until our masters say you can have them. You have to trust the masters not to change the rules before that day comes. Readers of this blog have reason not to be so trusting, but you can save directly, without the IRA/401(k) tax benefits.

Durability was lost when money became a consensual mass hallucination. It was not lost by accident. Future essays will explore who profits, and how, from non-durable money that makes saving by free people all but impossible.

Posted by Silver @ 04:16 AM CST

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