Sunday, October 20, 2013

Currency vs Money

Now that ain't working
That's the way you do it
Let me tell ya them guys ain't dumb
--Dire Straits

This video nicely distinguishes currency from money.

Currency is said to have the following attributes: medium of exchange, unit of account, portable, durable, divisible, fungible (interchangeable). Money is all of those things plus a store of value over long periods of time.

A US dollar is currency but not money, because the USD loses value over time due to inflation. An ounce of gold, on the other hand, is money, because it holds value over long periods of time.

One thing that I would revise in this video is the position that money is a tool for trading time. This is not precise enough. Money is a tool for trading productive time. Money reflects production. Before coins and currency, people traded their production directly in what today we call a barter system. Bread was money. Chopped wood was money. .

Because currency can be created at a whim, it does not reflect actual production. Instead, currency is a claim on someone else's labor. Someone who possesses one of these claims can call away production made by someone else without having to produce something and engaging in trade.

That currency enables people to take production from others without trading their own production is the reason why all currencies fail over time.

position in gold

1 comment:

dgeorge12358 said...

If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
~Thomas Jefferson in the debate over the Re-charter of the Bank Bill (1809)