Money is kind of a funny thing. Not economics. Money itself. Isn’t it pathetic that people rob and kill one another over those little pieces of metal and paper? How weird is that?
Money is sometimes looked at as the third level of economic exchange. The first level is based on the family; everything is shared usually without regard to value. Teenage son is hungry – he goes into the refrigerator and walks away with almost everything that’s not a vegetable and drinks half of the gallon of milk (usually right from the jug.) No one calculates the exchange rate. Daughter needs braces – the family pays for braces. Mom wants a new purse – well, she might have gotten one except for those new braces…
The second level is barter. I have a fish and you have a bag of rice. I want rice and you want fish so we swap. Unfortunately it doesn’t always work out that way. I want the rice but you want fruit. I need to find someone with fruit who wants a fish so we can swap and I can then trade his fruit for your rice. Otherwise, as time passes, I need to find someone who wants some smelly plant fertilizer (aka spoiled fish.) While we think of bartering as archaic, bartering appears frequently on Craigslist. There have even been some clubs that assign points for goods or services which then could be traded for other goods and services. One of the original appeals of using such a barter system was that the participants believed they could bypass paying income tax on such transactions. The IRS reacted pretty quickly (for a government agency) and developed a method for calculating income tax to cover these situations.
The third level is money. Everyone agrees that a specific item will have a recognized value that can be used to exchange for whatever we need. This made buying and selling things easier as well as making the whole concept of wages much more logical. It’s easier to understand that for your labors you get six of these coins as opposed to getting paid with two lemons, a rutabaga and a slightly over-ripe fish.
Initially money was based on material that had intrinsic value. In most cultures, this included precious metals such as gold or silver. In fact the coins were made of the quantity of gold or silver that its value represented. A $20 gold piece weighed in at $20 worth of gold. Using precious metals seemed to work pretty well. Some believe that women began to wear jewelry because this gave them a way to easily carry their wealth with them. This is wise when living in a culture in which a man could divorce his wife on a whim and she was not entitled to anything. With her jewelry she had some protection and at least the possibility of trading up to a better husband than the jerk who ditched her.
Then we got modern and didn’t really trade with the precious metal, but used paper that said that if you wanted you could go to the government treasury and trade the paper money for a comparable amount of the precious metal. In the US gold became too precious, so we switched to silver. Of course this also meant that instead of the metal’s value remaining constant it could vary and the amount of silver you were entitled to on a particular day varied with it. (Please note that things are starting to get slippery.)
It was only a short step from there to go to fiat money (No it’s not based on Italian compact cars.) Fiat money means that through the government we declare that a piece of paper or a coin is worth a certain amount of money because we said it is. It’s our belief that it is worth the assigned value that gives it that value rather than any intrinsic value to the currency itself.
Coins are interesting as well. I remember when dimes and above were silver alloy and pennies were copper. (Trivia note – their proper name is “one cent piece;” penny is derived from the British coin of similar value.) Depending on the source being quoted, pennies cost just under a cent or several cents each to mint, which is why there are periodic moves to eliminate the penny and round everything in 5 cent increments. In fact the copper and zinc in older pennies can be worth more melted down and sold as scrap metal. To counter this, the government passed a law making it illegal to melt coins for their metal content. They also changed what materials are used for coins. Current pennies are no longer copper alloy but are merely copper plated. Silver is long gone from other coins in general circulation. So now we have fiat coinage.
Coins do have one advantage, though, in that they last much longer than paper money. Reports are that it costs 4 cents to print a dollar bill, which lasts for about a year and a half or eight cents to mint a dollar coin, which lasts for about thirty years. Unfortunately, people don’t like to use dollar coins so we’ve been through the Susan B. Anthony coin, the Sacagawea coin and the Presidents coins without any of them being accepted for general commerce.
So that, my friends is a brief view of money – a compendium of useless information brought to you by me because I couldn’t think of anything better to blog about.