The fiat money system came as a solution to the so called ‘problems’
of the gold standard.
We, at the time, thought we are now too cool for neo classical economics and started to vouch for classical economics (smh as if it raised us). But wait whoa! What am I talking about?
We, at the time, thought we are now too cool for neo classical economics and started to vouch for classical economics (smh as if it raised us). But wait whoa! What am I talking about?
I’m talking about
money.
Let me start off with a brief history of money. So we get on
the same page.
Let’s get into our imaginary time travel pod and let’s take
a sneak peak of the past.
By definition, money is a generally accepted medium of
exchange. We started this medium of exchange by bartering.
Bartering is a direct trade of goods and services - I'll
give you a stone axe if you help me kill a mammoth - but such arrangements take
time.
You have to find someone who thinks an axe is a fair trade
for having to face the 12-foot tusks on a beast that doesn't take kindly to
being hunted. If that didn't work, you would have to alter the deal until
someone agreed to the terms. One of the great achievements of money was
increasing the speed at which business, whether mammoth slaying or monument
building, could be done.
Slowly, a type of prehistoric currency involving easily
traded goods like animal skins, salt and weapons developed over the centuries.
These traded goods served as the medium of exchange even though the unit values
were still negotiable. This system of barter and trade spread across the world,
and it still survives today on some parts of the globe.
In Politics Book 1:9 (c.350 B.C.) the Greek philosopher Aristotle contemplated
on the nature of money. He considered that every object has two uses, the first
being the original purpose for which the object was designed and the second
possibility is to conceive of the object as an item to sell or barter. The
assignment of monetary value to an otherwise insignificant object such as a
coin or promissory note arises as people and their
trading associate evolve a psychological capacity to place trust in each other
and in external authority within barter exchange.
So let’s fast forward a bit- we ended up having notes (paper
and/or coins) that represented the amount of gold one had in their reserves.
Surely we all understand why walking around with gold in our pockets was the
human version of “Warning! –Abnormal load!!!”
Part two will be a brief breakdown of the gold standard.
Just because I can- let me define it here….
#dissapearsLikeBatman
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