THIS BLOG IS MY BLOG. THIS BLOG IS MY BLOG. Welcome to the Home of Hyperopia.: On Funny Money (Yours and Mine) - Part 1

Wednesday, December 07, 2005

On Funny Money (Yours and Mine) - Part 1

The United States Dollar - those dollars that so many hundreds of millions of people around the world earn, covet, spend, save, wager, steal, find, donate, invest, and lose - is a fiat currency. A key characteristic of a "fiat currency" is that the value of the currency (measured in purchasing power) does not derive from a relationship between the currency and something having an intrinsic value commensurate with the value the government seeks to ascribe to the currency (e.g., a raw material like gold). Instead the value of a fiat currency depends completely on the people who own units of the fiat currency agreeing among themselves by buying and selling goods and services for quantities of units of the fiat currency as to the value of units of the currency from time to time. Again, value in this case is being measured by the amounts of goods and services that can be bought or sold in exchange for various amounts of units of the currency (i.e., by the purchasing power of units of the currency).

Our bills are also known as Federal Reserve Notes. The current currency regime was commenced in 1913, following passage of the Federal Reserve Act. If you click here you can see a history of paper money in the United States. I won't vouch for the accuracy of the history reported there. But I didn't see anything that was wildly inaccurate in there, based on my limited actual knowledge on the topic.

Ron Paul published this article recently discussing the relationship between gold prices and the United States Dollar and explaining some of the ramifications of fiat currencies in general. All humans living in regimes that have fiat currencies managed by central governments need to understand all the implications of the following two sentences (emphasis mine):

Governments by their very nature want to expand, whether to finance military intervention abroad or a welfare state at home. Expansion costs money, and politicians don’t want spending limited to the amounts they can tax or borrow.
That's the truth, Ruth.

IN GOD WE TRUST.

6 Comments:

Anonymous Anonymous said...

HIIII, HOW ARE ARE YOUUUU?

WEDGYYYYY!

8:19 AM, December 07, 2005  
Blogger Truth Girl said...

So, in a related tangent, I was pondering the over-use of gift cards, particularly the new McDonald's "Arch Card." If I am carrying around a Starbucks cards, a McDonalds card and a Gap card, what's the point of the dollar?

I know that all the cards based on the dollar and would be worthless without it. But when we use seperate cards for every store, the point of a unified currency, for ease and simplicity in transacting business, seems somewhat lessened. I'm rambling, I know.

Note the use of the html tag.

9:53 AM, December 07, 2005  
Blogger garrett said...

Very impressive HTML tag usage. I'm afraid that I have neither a clue or a view on your comment.

11:48 AM, December 07, 2005  
Blogger PDD said...

How about a penny for your thoughts.

When will they ever get rid of that copper?!

4:01 PM, December 07, 2005  
Blogger FLAMINGO1 said...

Are you suggesting that my money isn't worth the paper that it's written on?

4:04 PM, December 07, 2005  
Blogger garrett said...

PDD - U.S. pennies have only 2.5% copper in them today. Decades ago (1943 is one date when something seemed to happen) the U.S. Mint started making pennies from copper-coated zinc.

Flamingo - Your money is of course not worth the paper it is printed on. Assuming you are talking about United States Dollars, at the moment your money is worth materially more than what the paper it is printed on is worth.

8:33 PM, December 07, 2005  

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