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Gold and silver coins are said to be "commodity money". When there's an economy, these coins can be exchanged for goods the usual way. Otherwise they get traded one time for goods - and are melted down.
I see that the confusion persists. There can be no such thing as “commodity money.” Gold and silver cannot be money, since gold and silver are physical commodities, whereas dollars, pounds, euros, etc are non-physical units of account that only exist in human minds by agreement.
Gold can be traded (bartered), but not spent like money. You cannot "buy" a gallon of milk with a piece of gold, although the store may agree to trade the milk for your gold. To trade or barter is not to buy or spend.
In modern monetary systems, accounts are credited in some monetary units of account. If there were no monetary systems, then a mountain of gold would not be worth a single penny (or a pound, or a drachma, or a yuan, or whatever).
But wait. If money is non-physical, and only exists in human minds by agreement, then what about gold and silver coins? These, like currency notes, are tokens that represent money, just as marks on a sports scoreboard represent points. The tokens, marks, and symbols are not money or points in the strictest sense.
When we spend a dollar, we hand over a token (a note) that we and the other party agree represents a dollar. The dollar only exists in our minds. No one has ever seen his bank account, for example. We only see symbols that represent dollars (or pounds or whatever). Likewise no one has ever seen the number “2.” We only see a symbol that represents the number “2.”
I can give you a currency note that symbolizes a dollar, or a million dollars, if you agree that it is worth a million dollars. I can create a platinum coin that is worth a trillion dollars if you agree with it. The amount of physical metal in the coin is irrelevant. What matters is human agreement. Everything in society runs on human agreement. Indeed, what we call "reality" is a product of human agreement.
In the past when people used twenty-dollar gold coins, for example, these again were just tokens. Their actual gold content (if any) didn’t matter. If society agreed that the coin was worth twenty dollars, then the coin was worth twenty dollars. No more and no less.
But wait. If money is non-physical, then why are some governments stockpiling gold? The reason is that humans can agree with each other that the monetary worth of physical gold can be measured in non-physical units of accounts, like dollars. Therefore gold can be a symbolic store of value that the West cannot steal or sanction. The West stole hundreds of billions of dollars in Russian assets by simply pressing a button on a computer keyboard,
THE POINT OF ALL THIS that in modern societies (from the ancient Greeks onward) power ultimately rests not with who has the most gold, but with who controls the money game. If I control the money game, then I can depreciate or devalue your gold. I can potentially make your gold worthless if I change my society’s currency, and society agrees to the change.
To use a sports analogy, power rests not with who has the strongest team, but with who controls the scoreboard.
Coins and physical notes are used to this day. Their denomination and purchasing power doesn't change anymore than electronic tokens do. To the currency user, the form doesn't matter. The metal content doesn't matter unless the coin is worthless, or the metal is worth more than the face value. When that happens, that is a sign the formal economy has gone down the tubes.
What's so special about non-physical tokens? Power goes out at the bank or ATM and your money is inaccessible. What is a reliable backup method to magnetic storage? Paper.
I'm old enough to remember when banking was done by hand. Transactions in my bank pass were written by the teller. There was no such thing as electronic payment. All exchanges were made with notes, coins and cheques.
A number system exists in human minds by agreement. It is a conceptual invention. Numbers can be used to represent many types of quantities, including money. Without numbers and arithmetic, monetary systems wouldn't exist.
That which is exchanged and difficult to counterfeit can be defined as money. When it loses its function as a medium of exchange, then it becomes a commodity. When coins are melted, they're being transformed into another commodity.
There are places in the world where tattered USDs are exchanged (or traded if you prefer) within an informal economy. Those physical notes are used as a store of value until they fall to pieces. They are an alternative to tally sticks.
“Power rests with those who lock up the food and control access to it.”
As long as monetary, political, and social systems are running, power belongs to whoever controls the scoreboard. When the systems break down, power belongs to whoever controls the food, as you say.
And indeed this describes world affairs today. The USA has dominated the world via the dollar system. Now that the USA is increasingly disintegrating, power in increasingly shifting to those who control physical commodities.
And I repeat that gold is not money. Never has been. Never will be. Without a monetary system, gold is almost worthless. You can't eat it, wear it, hunt with it, or sleep under it.
“Coins and physical notes are used to this day. Their denomination and purchasing power doesn't change anymore than electronic tokens do. To the currency user, the form doesn't matter. The metal content doesn't matter unless the coin is worthless, or the metal is worth more than the face value. When that happens, that is a sign the formal economy has gone down the tubes.”
Does this invalidate what I said about commodities not being money? Please explain.
“What's so special about non-physical tokens? Power goes out at the bank or ATM and your money is inaccessible. What is a reliable backup method to magnetic storage? Paper.”
What’s non-physical is money. Tokens are physical, such as coins or currency notes, or tally sticks, or written or printed marks that symbolize dollars or number or sports points.
And yes, cash has many advantages such as anonymity. When society still uses cash, the government has slightly more difficulty paralyzing you if you say the wrong thing. Of course, the currency notes are only good as long as people agree to use them as currency notes. I’m not seeing how this invalidates any of the points I made above.
“I'm old enough to remember when banking was done by hand. Transactions in my bank pass were written by the teller. There was no such thing as electronic payment. All exchanges were made with notes, coins and cheques.”
I’m not following you. We can represent or symbolize money with hand-written marks on paper, or with tally sticks or digital signals, but money has never been physical, just as number systems and sports points have never been physical.
Some ancient societies did not use money, but most of them nonetheless had non-physical systems of accounting and ledgers that functioned as proto-monetary systems. This was especially important at key times of year (e.g. major crop harvests) when debts and accounts were settled with money and / or with ledger entries.
This was why ancient calendar systems were so important. They were a central part of the agriculture-based economy. Many calendar systems were integrated with the local ledger or monetary system, plus the local religious system. Special calendar-temple-banks were built for this, like Stonehenge.
“That which is exchanged and difficult to counterfeit can be defined as money.”
We treat them as “money,” and we casually refer to them as “money” but they are not actually money. They are tokens that symbolize or represent money. Actual money has no physical existence.
Does this invalidate what I said about commodities not being money? Please explain.
A commemorative coin that isn't used as a medium of exchange is a commodity. Coins that are used for exchange can be defined as money. The Canadian 50 cent coin is an example of a coin that is legal tender, yet is treated as a collectible: https://en.wikipedia.org/wiki/Canadian_fifty-cent_coin
What’s non-physical is money. Tokens are physical, such as coins or currency notes, or tally sticks, or written or printed marks that symbolize dollars or number or sports points.
An NFT (non-fungible token) is non-physical. It is unique, a property that prevents it from being used as money. The definition of token can include physical items like money, game pieces, or non-physical entities such as GUIDs.
The definition of money as a medium of exchange doesn't specify the medium. However, the medium should be convenient, and not easily counterfeited.
I’m not following you. We can represent or symbolize money with hand-written marks on paper, or with tally sticks or digital signals, but money has never been physical, just as number systems and sports points have never been physical.
Imagine you don't have a bank account. You're a subsistence farmer who sold some food in exchange for some coins and paper notes. You keep these to use in exchange at the local market. You don't have a ledger and have no need for a ledger. The coins and notes are denominated. You know how to count. Why wouldn't you consider those physical tokens to be money? In that situation they represent themselves without the need for accounting.
Money as a 'store of value' is another definition that only exists under certain economic conditions. For the subsistence farmer with no bank account, their store of value can be their land, their skill, or physical money. They have no choice but to work with tangible possessions.
Gold can be traded (bartered) for money, or for something else if someone will trade with you, but gold is not money. Never has been. Never will be.
ReplyDeleteOnly money can be spent. Gold is a commodity that can be traded, but not spent.
Most people do not realize this. They falsely think that only gold is “real money.”
Gold and silver coins are said to be "commodity money". When there's an economy, these coins can be exchanged for goods the usual way. Otherwise they get traded one time for goods - and are melted down.
ReplyDeleteKonrad,
ReplyDelete100%
@ Peter Pan
ReplyDeleteI see that the confusion persists. There can be no such thing as “commodity money.” Gold and silver cannot be money, since gold and silver are physical commodities, whereas dollars, pounds, euros, etc are non-physical units of account that only exist in human minds by agreement.
Gold can be traded (bartered), but not spent like money. You cannot "buy" a gallon of milk with a piece of gold, although the store may agree to trade the milk for your gold. To trade or barter is not to buy or spend.
In modern monetary systems, accounts are credited in some monetary units of account. If there were no monetary systems, then a mountain of gold would not be worth a single penny (or a pound, or a drachma, or a yuan, or whatever).
But wait. If money is non-physical, and only exists in human minds by agreement, then what about gold and silver coins? These, like currency notes, are tokens that represent money, just as marks on a sports scoreboard represent points. The tokens, marks, and symbols are not money or points in the strictest sense.
When we spend a dollar, we hand over a token (a note) that we and the other party agree represents a dollar. The dollar only exists in our minds. No one has ever seen his bank account, for example. We only see symbols that represent dollars (or pounds or whatever). Likewise no one has ever seen the number “2.” We only see a symbol that represents the number “2.”
I can give you a currency note that symbolizes a dollar, or a million dollars, if you agree that it is worth a million dollars. I can create a platinum coin that is worth a trillion dollars if you agree with it. The amount of physical metal in the coin is irrelevant. What matters is human agreement. Everything in society runs on human agreement. Indeed, what we call "reality" is a product of human agreement.
In the past when people used twenty-dollar gold coins, for example, these again were just tokens. Their actual gold content (if any) didn’t matter. If society agreed that the coin was worth twenty dollars, then the coin was worth twenty dollars. No more and no less.
But wait. If money is non-physical, then why are some governments stockpiling gold? The reason is that humans can agree with each other that the monetary worth of physical gold can be measured in non-physical units of accounts, like dollars. Therefore gold can be a symbolic store of value that the West cannot steal or sanction. The West stole hundreds of billions of dollars in Russian assets by simply pressing a button on a computer keyboard,
THE POINT OF ALL THIS that in modern societies (from the ancient Greeks onward) power ultimately rests not with who has the most gold, but with who controls the money game. If I control the money game, then I can depreciate or devalue your gold. I can potentially make your gold worthless if I change my society’s currency, and society agrees to the change.
To use a sports analogy, power rests not with who has the strongest team, but with who controls the scoreboard.
@ Konrad
ReplyDeleteCoins and physical notes are used to this day. Their denomination and purchasing power doesn't change anymore than electronic tokens do. To the currency user, the form doesn't matter. The metal content doesn't matter unless the coin is worthless, or the metal is worth more than the face value. When that happens, that is a sign the formal economy has gone down the tubes.
What's so special about non-physical tokens?
Power goes out at the bank or ATM and your money is inaccessible.
What is a reliable backup method to magnetic storage?
Paper.
I'm old enough to remember when banking was done by hand. Transactions in my bank pass were written by the teller. There was no such thing as electronic payment. All exchanges were made with notes, coins and cheques.
A number system exists in human minds by agreement. It is a conceptual invention. Numbers can be used to represent many types of quantities, including money. Without numbers and arithmetic, monetary systems wouldn't exist.
That which is exchanged and difficult to counterfeit can be defined as money. When it loses its function as a medium of exchange, then it becomes a commodity. When coins are melted, they're being transformed into another commodity.
There are places in the world where tattered USDs are exchanged (or traded if you prefer) within an informal economy. Those physical notes are used as a store of value until they fall to pieces. They are an alternative to tally sticks.
Power rests with those who lock up the food and control access to it.
ReplyDelete@ Peter Pan
ReplyDelete“Power rests with those who lock up the food and control access to it.”
As long as monetary, political, and social systems are running, power belongs to whoever controls the scoreboard. When the systems break down, power belongs to whoever controls the food, as you say.
And indeed this describes world affairs today. The USA has dominated the world via the dollar system. Now that the USA is increasingly disintegrating, power in increasingly shifting to those who control physical commodities.
And I repeat that gold is not money. Never has been. Never will be. Without a monetary system, gold is almost worthless. You can't eat it, wear it, hunt with it, or sleep under it.
“Money” is an Art degree figure of speech …
ReplyDeleteUSD is a Science degree abstraction…
@ Peter Pan
ReplyDelete“Coins and physical notes are used to this day. Their denomination and purchasing power doesn't change anymore than electronic tokens do. To the currency user, the form doesn't matter. The metal content doesn't matter unless the coin is worthless, or the metal is worth more than the face value. When that happens, that is a sign the formal economy has gone down the tubes.”
Does this invalidate what I said about commodities not being money? Please explain.
“What's so special about non-physical tokens? Power goes out at the bank or ATM and your money is inaccessible. What is a reliable backup method to magnetic storage? Paper.”
What’s non-physical is money. Tokens are physical, such as coins or currency notes, or tally sticks, or written or printed marks that symbolize dollars or number or sports points.
And yes, cash has many advantages such as anonymity. When society still uses cash, the government has slightly more difficulty paralyzing you if you say the wrong thing. Of course, the currency notes are only good as long as people agree to use them as currency notes. I’m not seeing how this invalidates any of the points I made above.
“I'm old enough to remember when banking was done by hand. Transactions in my bank pass were written by the teller. There was no such thing as electronic payment. All exchanges were made with notes, coins and cheques.”
I’m not following you. We can represent or symbolize money with hand-written marks on paper, or with tally sticks or digital signals, but money has never been physical, just as number systems and sports points have never been physical.
Some ancient societies did not use money, but most of them nonetheless had non-physical systems of accounting and ledgers that functioned as proto-monetary systems. This was especially important at key times of year (e.g. major crop harvests) when debts and accounts were settled with money and / or with ledger entries.
This was why ancient calendar systems were so important. They were a central part of the agriculture-based economy. Many calendar systems were integrated with the local ledger or monetary system, plus the local religious system. Special calendar-temple-banks were built for this, like Stonehenge.
“That which is exchanged and difficult to counterfeit can be defined as money.”
We treat them as “money,” and we casually refer to them as “money” but they are not actually money. They are tokens that symbolize or represent money. Actual money has no physical existence.
Does this invalidate what I said about commodities not being money? Please explain.
ReplyDeleteA commemorative coin that isn't used as a medium of exchange is a commodity. Coins that are used for exchange can be defined as money. The Canadian 50 cent coin is an example of a coin that is legal tender, yet is treated as a collectible:
https://en.wikipedia.org/wiki/Canadian_fifty-cent_coin
What’s non-physical is money. Tokens are physical, such as coins or currency notes, or tally sticks, or written or printed marks that symbolize dollars or number or sports points.
An NFT (non-fungible token) is non-physical. It is unique, a property that prevents it from being used as money. The definition of token can include physical items like money, game pieces, or non-physical entities such as GUIDs.
The definition of money as a medium of exchange doesn't specify the medium. However, the medium should be convenient, and not easily counterfeited.
I’m not following you. We can represent or symbolize money with hand-written marks on paper, or with tally sticks or digital signals, but money has never been physical, just as number systems and sports points have never been physical.
Imagine you don't have a bank account. You're a subsistence farmer who sold some food in exchange for some coins and paper notes. You keep these to use in exchange at the local market. You don't have a ledger and have no need for a ledger. The coins and notes are denominated. You know how to count. Why wouldn't you consider those physical tokens to be money? In that situation they represent themselves without the need for accounting.
Money as a 'store of value' is another definition that only exists under certain economic conditions. For the subsistence farmer with no bank account, their store of value can be their land, their skill, or physical money. They have no choice but to work with tangible possessions.
https://en.wikipedia.org/wiki/Commodity_money
ReplyDeletehttps://en.wikipedia.org/wiki/Representative_money
Copper crisis: Watch "Panama explodes in protests against Canadian copper mine" on YouTube
ReplyDeletehttps://youtu.be/eV6_LeIUtF8?feature=shared