Category Archives: Money

You can tell all you need to know about a country by the quality of its money. Fiat debt instruments whose usage must be compelled via legal tender laws are pure garbage, the last resort of corrupt and dying governments. From Jp Cortez at soundmoneydefense.org:

Money is one of the most misunderstood topics of our time, and we’re seeing the implications of this play out every day.

To understand money, one first must first understand that human beings have always been incentivized to participate in exchange. If humans could not, or did not, trade, the majority of people would die young: whether by starvation, disease, or exposure to the elements.

The survivors would be left with an extremely low standard of living; not a world any of us would want to live in. This means that exchange is a necessary condition, not only of our economy, but of human flourishing.

Origins of Money

Before there was money, there was barter (also known as direct exchange) – a system in which every good is traded directly against every other good.

A small island economy could function this way: a couple of coconuts traded for fishing line, or a bushel of bananas in exchange for bamboo with which to build a shelter.

As Tho Bishop from the Mises Institute illustrates, imagine that a farmer wants to buy a pair of boots, so he visits the town cobbler and tries to trade a dozen eggs in exchange. However, the cobbler in town doesn’t want eggs. The cobbler might want beef, but the farmer isn’t willing to slaughter his cow for boots.

A trade where both parties are happy is now difficult. It’s easy to see how unmanageable this system is as populations grow, and as needs and wants expand.

Let’s revisit our farmer: Instead of offering eggs, he realizes that what the cobbler really wants is butter. So he goes out and trades for butter, and then uses that butter to trade for boots. If enough people also want butter, our farmer may buy more—not to use it, but to exchange it for other goods and services. This is called indirect exchange.

Many goods throughout history, with varying degrees of effectiveness, have filled the role of “butter.” Salt, wampum, and tobacco have all been used as money, just to name a few. However, gold and silver emerged as universally accepted monies by the free market because of their durability, transportability, fungibility, and scarcity.

Emerged is the key. The process through which money is “created” is not one of central planning or of creation at all, but rather one in which money is “discovered” by markets.

Continue reading→