A man after my own heart. I boycotted money once for 6 months. I found the experience very fulfilling.
Thanks, Saruman. That sounds pretty reasonable to me. 
I think that referring to my post about Wal-Mart issuing Wal-Mart dollars will clear up difficulties. Casinos are gaming businesses. Chips are a part of the game. They are used to cut losses. If I said that ‘you must accept the dollar as payment under all circumstances’, I was wrong, and the abovementioned post (hopefully) cleared that up. The whole point of money is this: A government is nothing more than a society pooling its resources for the common good. The people in government are trustees of those resources. The government strikes a deal with the people that goes like this: “We will defend your rights to property and liberty if you give us the resources to do so. As part of defending property is defending a stable economy we will issue currency we will back with all of the resources we hold in trustee for you, the taxpayer. One dollar shall be worth something as long as the government is stable enough to do its job, as the value of the dollar is based upon how much real value the assets of the taxpayers have. We will defend your economy by prosecuting those who make false currency, as false currency drives down the value of your assets. We will further defend your assets by making sure nobody else can print currency, as constantly having to deal with different exchange rates reduces the value of your assets.” As you can see, the dollar functions as a representation of the country’s total wealth. It is a highly abstract concept, which is what makes it so good at its job. A currency system is the polar opposite of the barter system, where two items of concrete value are exchanged. Concrete value is inefficient for the reasons Scylla explained so well. Abstract value, value based on the government’s ability to pay its debts and defend the assets of taxpayers, is better as it can be exchanged for anything.
What I don’t understand is why people are attached to the concept that money has to be gold, silver, platinum, or other precious metals. Using these items as money seems to me to be just as arbitrary as using little green rectangles of paper. Despite the fact that gold is pretty, rare, and so on, it has no value to me in my life. I have no use for gold, so why it should have “actual value” while green paper has “no actual value” confuses me.
Gold would only be useful to me if I could exchange it down at Albertson’s for bread and beer. In the same vein, little green rectangles of paper are only useful to me because I can exchange them for bread and beer.
Why should we feel cheated if we use green paper instead of gold, so long as both accomplish the same purpose? And isn’t using paper more efficient?
Wevets:
Precious metals such as gold have tradditionally been prized not just for theier rarity, but for certain properties like malleability, resistance to corrosion, shine, etc.
Most people who use gold coins probably don’t care much about malleability or shine (they may care about resistance to corrosion, but only if they’re planning on keeping that particular coin long enough for it to corrode). They care that they can buy bread and beer with those gold coins. Since gold coins can’t directly buy me bread and beer, why am I wrong to use paper money instead?
Both paper and gold have some intrinsic (I’m not an economist, so please forgive me if I’ve used this word incorrectly) value in that they can be used: but I use paper a lot and I never use gold (some industries do, though). I just don’t see what’s so important about using gold instead of paper when you’re not using it for its intrinsic value, but you’re just exchanging it for something that does; like bread.
The only time it makes sense to convert paper money into gold (or other valuable commodities) is when the inflation rate is so high that paper money is quickly becoming worthless. Gold is often the commodity of choice since it is durable, portable, and has a well established price (i.e. value) in every nation on earth. Whereas paper money can usually only be spent in the nation that issued it (unless you find a bank willing to exchange your foreign currency for local money), gold can be sold almost anywhere. Thus, you can convert all your soon to be worthless paper money into bread and have it go stale after a week, or you can convert it to gold and then convert the gold into bread whenever and wherever you want.
Wevets, you’re right in one sense but wrong in another. Gold has little to no intrinsic value. You can’t eat it, can’t make very good tools with it (pure gold is soft enough to bend with your hand), and you can’t use it for much of anything else that common metals can’t already do (Except for the fact that gold is a very good conductor and is used in that way in computers sometimes) cheaper. However, you are wrong in the sense that people have always valued gold just as we have always valued diamonds: It looks nice, we can make beautiful things with it, and if every other currency is going down the tubes gold will retain value simply because people like bright, shiny objects. Humans have developed a cult around gold that gives it a worth far beyond what reason would assign it. Removing that cult is not possible. Therefore, gold, the precious substance empires ran on, can be spoken of as having ‘intrinsic’ value even though gold has little to no value qua gold, the relatively rare metal.
This is the point I’m really interested in. Humans do assign value to gold, but for irrational reasons. If people ever chose to break with the past and act rationally, I don’t think very much value would be assigned to gold.
I know people won’t do this, but a guy can hope… 
As a numismatist (it’s all in a safe deposit box, stay away!) I’ve found the concept of “money” to be somewhat irrational. I mean, who’s going to pay $20 for a quarter? A coin collector!
But, to say that gold has no intrinsic value is only partially true. Compared to what? Pieces of green paper with dead presidents? You can’t eat paper, either.
While I am not a “Gold-bug” (see http://www.gold-eagle.com)
ponder this: Every paper currency ever issued has eventually become worthless. No expeditions are funded to reclaim some long dead monarchs checkbook. Essentially, the “gold-bug” argument is that only gold, and possibly silver, is “real money” anything else being a sham.
It is strange, when you think about this “barbarous relic” as John Maynard Keynes termed it. We go to great pains digging and refining gold out of the ground, casting into bars, and what do we do with it? Bury it back in the ground, ala Ft. Knox, or under the streets of Manhattan at the New York Fed (probably the largest pile of the shiny stuff extant in the world, countries store their piles in the U.S. for safekeeping)
Additionally, the “gold-bug” argument goes like this:
We accept paper money because it says “Legal Tender;” it’s so called Fiat money, because there is no intrinsic value, it is assigned an arbitrary value by someone, usually a government. Our founding fathers were so frightened of paper money, the specified that only gold and silver be used. This lasted until various panics (read runs on the banks) and the vast monetary needs of the Civil War caused Lincoln to railroad the issue of “greenbacks” to finance the war.
Now, counterfeiting paper money is highly illegal, and we go to great pains to ensure our paper money is the “real” thing. It’s not intrinsically valuable, so what’s the harm of me cranking out a few hundreds on my Hewlett-Packard Inkjet? Why is their paper money any “better” than mine? Power, I guess. He who can create value out of thin air has quite a lot of power indeed.
Next, imagine that I am in a country that uses gold coinage in their everyday affairs. I take care to use the same purity of gold, weight, and quality of minting and design for my counterfeits. Who would care? No one.
This is the real reason gold has long been prized, it’s not counterfeitable Essentially, it kept people, and governments, honest.
You’ve got some good points, but gold is counterfeitable. Painting with gold paint, plating with an outer layer of gold, and fool’s gold are ways of doing it.
But it is easier to churn out greenbacks with your laser printer.
Well okay, point taken. My idea was to express that one cannot arbitrarily increase the supply of a finite substance such as gold, while paper can be printed and called money ad infinitum. Again, while I am not a “gold-bug”, the arguments they use are fairly compelling
Personally, there is nothing wrong with paper money, or electronic money or whatever. I don’t care what we use, but other forms can be debased, however, and e-commerce will pose some very special problems.
One inherent feature of money is being a “store of value” something that gold does very nicely, as it does not corrode or rot. Now, we can say with some assurance that a form of money that’s been used for say, 3,000, 4,000 years is probably fairly good in that regard.
How long will electronic “byte” money last? What safeguards are there against copying or counterfeiting such a form of payment?
I’m not an economist, but isn’t it essential that people be able to increase the supply of money as the economy expands? If we have a relatively fixed supply of money (as we would if we used gold), wouldn’t we be in trouble as the limited amount of gold becomes demanded upon to purchase more goods, pay more salaries, build more houses and so on. The purchasing power of a single gold dollar would continue to rise as more and more people vie for the limited resource, resulting in deflation. Admittedly, in the modern era, with electronic and paper money, we have had to worry about inflation and haven’t had to think about the problems of deflation, since the money supply can expand as needed (and this brings with it the threat of the supply expanding too much). But wouldn’t deflation also carry dangers to the economy? People who have gold on hand would have an advantage, but people whose livelihood depends on producing goods, or who live from paycheck to paycheck would have trouble as their work becomes worth fewer and fewer of these gold dollars. It would be great for the goldsmiths, but why would it be good for people in general?
I’m not sure about the effects of deflation, so please tell me if I’m right or wrong, and tell me if what the effects of deflation would be if I am wrong. Thanks!
I believe that money is a contract by the federal government to the people. The government is to mint trade markers: coin, bills, etc. based on a value system that is backed by a standard. This standard is to be established by the government, be it gold, sugar, or the government’s word. The government is obligated to set such standards with integrity and trust. In return, the people will use these trade markers as the basis for valuating all other trade commodities. The value of the markers will fluctuate within reason, adhering to the rules set by the government. How’s that?
Tedster said
…Except the US currency since 1862. This is not to endorse the idea that the US dollar will be declared worthless some day. It probably has a better chance of surviving due to a fairly sound politcal system, a country blessed with tremendous natural resources, and a population that seems to adapt to change better than most that have come before it.
Currency printed on paper will become obsolete and will be replaced by non-counterfeitable electronic currency. And, eventually, all states decline and corrode as the local politics change. If you think our government is infinitely adaptable, you should look at our history and recall 1861-1865, when the North-centered democracy failed to avert a bloody conflict. Now, don’t let this become a political debate. The point I want to raise in this post is the issue of electronic currency: Currency with no intrinsic value can still function as currency if everyone accepts it. How does that impact some debaters here?
Derleth
You said “The point I want to raise in this post is the issue of electronic currency: Currency with no intrinsic value can still function as currency if everyone accepts it.”
And so does paper currency. As long as people have faith and accept it. What’s the diff?