Sunday, 29 January 2012

The Evolution of Money

Of necessity any short treatment of the history of money leaves out many nuances and happenings, in many parts of the world. My intent today is not to give an extended history of money, but rather to paint in broad strokes the functional changes that has happened over the whole of human history.

For this purpose I shall use one of the definitions of money in use today, that describes it's functions.

I present the monetary triangle :



U – Unit of account
W – Store of Wealth
M – Medium of exchange

Central to the history of transactional means in contemplating the whole of human history is the element known as gold. Let us proceed.

The Era's

8000-6000BC

Gold discovered by humans.


Gold is wealth.



4000-BC-620BC

Gold used as simply another item of barter. Used as one of many items for measuring wealth. Evolved to be primary measure over time.

Money as we know it does not exist. Barter rules the day.



620BC-1400AD -

Gold is money.

Gold first coined in 620BC. Gold defined as money. Lines between gold as wealth and gold as money is blurred by the coining thereof.



1400AD – 1913AD

Paper transforms into gold. Gold is money.

Bills of exchange (Real Bills) are invented. Real bills circulate alongside gold, and transforms into gold ( after a 91 period).



1913AD – 1971 AD

Paper is money.
&
Gold is money.

Real Bills are discarded. Gold Exchange Standard is enacted whereby a fixed amount of paper money is exchangeable for a fixed amount of gold.



1971 AD – Present day

Paper is money.

Fiat currency standard. Gold is demonetized.



201? AD - ???

Gold is store of value
&
Paper is medium of exchange.

Freegold is instituted. Functions of money are split. Gold serves as store of value, divorced from the monetary realm. Fiat currency remains in use as medium of exchange. Gold and paper are exchangeable at a market determined rate.




Peace

The Fool
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18 comments:

  1. Aquilus30 January 2012 at 02:40:00 GMT+2

    I have to say (as a proud member of the choir being preached to - LOL): very clear.

    I will show this page as an economics lesson to the precious few that reach the level where they are interested enough...

    ReplyDelete
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    1. The Fool30 January 2012 at 07:16:00 GMT+2

      Haha. Thanks.

      I decided to go for clarity and brevity with this post. Initially I contemplated doing a complete history of money, but some quick research revealed that that would be many many pages, so thought that perhaps a view from up high would be better to share. :)

      TF

      Delete
  2. AdvocatusDiaboli30 January 2012 at 16:03:00 GMT+2

    1.) I wonder if a "store of wealth" or "store of value" can actually exist from the philosophical point?
    2.) How can a "store of value" exist without having any intrinsic value for humans at all?
    Greets, AD

    P.S. Adolf Hitler said once: "Money is only backed by the labour of its nation", sounds more wise than many accept.

    ReplyDelete
    Replies
    1. The Fool31 January 2012 at 17:34:00 GMT+2

      1. What philosophical point?
      2. Have you seen the dollar, and most other fiat, the last 40 years?

      Ps. Hitler was wrong on that (and many other things).

      Delete
  3. AdvocatusDiaboli30 January 2012 at 16:10:00 GMT+2

    One other thought experiment:
    When the spanish conquerors landed at the beaches of south america, they exchanged a couple of colourful glas perls against a couple of ounces of gold. Who made the better deal? ;)

    ReplyDelete
  4. Anonymous30 January 2012 at 21:51:00 GMT+2

    MF,

    I remember you months ago being upset about the American Think Tank BCG and their confiscation proposals for Europe.
    One of their main evil doers,Levin Hole, is now employed by Schaeuble.

    http://www.ftd.de/karriere-management/management/:abgeworbener-finanzfachmann-schaeuble-hievt-top-berater-auf-schluesselposten/60136385.html

    Original title from FTD:


    Schäuble hievt Top-Berater auf Schlüsselposten
    Ein Spitzenberater der Boston Consulting Group bekommt einen Schlüsselposten in der Euro-Krise: In Schäubles Ministerium ist Levin Holle künftig für Finanzmarktregulierung zuständig - sein Gehalt sinkt damit auf ein Zehntel

    ReplyDelete
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    1. AdvocatusDiaboli30 January 2012 at 22:37:00 GMT+2

      Hi,
      absolutely, I also read the study "Back to Mesopotamia". That's what i was trying to explain MF (and other freegold followers): THAT is NOT what the work of GIANTS look like. That's how the work of creepy socialist cockroaches looks like.

      Delete
    2. The Fool31 January 2012 at 17:32:00 GMT+2

      Hi anon

      I do not recall that; perhaps a bit more information? Though it does seem to be, as AD says, the "work of creepy socialist cockroaches".

      TF

      Delete
    3. Anonymous1 February 2012 at 02:27:00 GMT+2

      MT,
      here the link:
      http://www.bcg.nl/documents/file87307.pdf

      Of course it is a cockroaches-work, that is what Schaueble is, a hater!
      There is plenty to read about this perspective in inet.
      Enjoy the cockroaches!

      Delete
  5. zabba31 January 2012 at 18:25:00 GMT+2

    AD,
    You asked, "How can a "store of value" exist without having any intrinsic value for humans at all?".

    What intrinsic value is needed to be a store of value? The intrinsic value of gold is it's function as a store of wealth, so MF's statement that gold is/will be the store of value seems valid. Or am I reading you incorrectly?

    ReplyDelete
  6. AdvocatusDiaboli31 January 2012 at 18:33:00 GMT+2

    what is value?

    a glas of water has more value than an ounce of gold.

    ReplyDelete
    Replies
    1. zabba31 January 2012 at 19:13:00 GMT+2

      We are talking about holding value, right? I agree, gold has very little use (intrinsic value) to me other than the fact it is desired by others and has been desired by others for a long time! It's not magical and rather boring, btw.

      Only you can answer what is 'value' as everyone is different...

      Delete
    2. The Fool31 January 2012 at 22:18:00 GMT+2

      Value is subjective for any individual, based on their desire to possess a thing. So yes, a glass of water could have more value than a ounce of gold, depending on the individual and the circumstances.

      Delete
    3. AdvocatusDiaboli1 February 2012 at 09:52:00 GMT+2

      that's why I ask "what is value". for whom has gold value? At least nobody who is human.
      Let's put it like that: value is the unit of your wealth that enriches/improves your life, either in physical or spritural form, yes? Gold can be your property, but it doesnt contributes to your life in any form of value. Since it is backed into the (sick?) human mind to be desirable, it has the property to be the accepted as a "token of value" for other humans, yes?
      So we come to the conclusion, that the property of gold is only to be a "value reserve" aka "wealth reserve", but not value in itself.
      I dont want to play on the words, but I think that this is important to emphasize and important to understand for your life when you are holding gold.

      Delete
  7. mr pinnion31 January 2012 at 23:59:00 GMT+2

    Heard the 'cant eat gold' argument many times.But i think this is the first 'you cant drink gold' i ve heard.

    Regards
    Ozzy

    ReplyDelete
  8. mr pinnion1 February 2012 at 00:01:00 GMT+2

    This comment has been removed by the author.

    ReplyDelete
  9. Prospero28 January 2013 at 09:54:00 GMT+2

    How exactly do "store of wealth" and "store of value" differ?

    ReplyDelete
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    1. The Fool28 January 2013 at 16:17:00 GMT+2

      Prospero

      In the context of this post, those terms are essentially interchangeable.

      I will note that wealth is excess savings held in the form of possession of a physical item that is of limited quantity, generally stored for a longer timeframe. Whereas value saved may not necessarily be for a longer term.

      TF

      Delete

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