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February 7, 2022/ 19 views

What Is Money, Anyway? Commodity Edition

Content Stages of Evolution of Money Join millions of people in learning anywhere, anytime Fiat money is even more elastic than credit money because governments can create or destroy it at will for very little cost. This tremendous elasticity, however, means governments can cause inflation if they issue more fiat money than the current price level requires. In other words, unlike commodity and representative monies, fiat money is not self-equilibrating. A central bank or other monetary authority must decide how much to circulate at any given time. Monetary authorities choose wisely at times, but other times they do not, either as an honest mistake or quite purposefully. In some regions, such as New England and the Carolinas, the bills depreciated significantly and there was a hike in commodity prices as the bills lost value. During wars, countries turn to fiat currencies to preserve the value of precious metals such as gold and silver. In other words, I would need to find a mechanic who would be willing to exchange car repairs for a private bassoon concert by 9 AM tomorrow so I can drive to my next orchestra rehearsal. Similarly, corn has been used as money throughout Europe from the time of the Ancient Greeks right up to the period of the industrial revolution. Most early money systems were based upon a commodity, or valuable good. You would need to load up a truckful of items the grocer might accept in exchange for groceries. Some advantages of commodity money are like the raw form of the commodity can be redesigned into commodity money, the government never controls the commodity money, etc. This chart depicts changes in the price level in the United States between 1865 and 1900, when the country’s unit of account was defined in gold. The Wonderful Wizard of Oz, a children’s book by Frank Baum made legendary by a movie version starring Judy Garland as protagonist Dorothy, is an allegory depicting the major political divisions of the era. Oz is of course the abbreviation for ounce; the yellow brick road refers to the gold standard; the Emerald […]

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