Monday, April 11, 2011

The History of Money - Setting the Standard

Here's the picture I took of the first important aspect of how to understand what money is.
(courtesy of The British Museum, London)
Standards are the most import aspect of what money is. If there isn't an accurate measure, on an ongoing basis, of what a good or a service is worth, then markets will function in an environment of confusion.

Throughout history, it could be argued, when markets used gold or silver standards (as the basis of measurement) then those markets functioned well. People knew that the value of what they were buying and selling would be the same yesterday, today and in the future. They also knew that if they added value to those items, then they could make more money.

So stability of the weight or measure is key to functioning markets. It may also be a justice issue if those weights and measures are arbitrarily changed. Inflation can be unjust when standards change and it eats away your hard earned cash.

This has occurred in history for as many times as there has been attempts at setting a metal standard. The latest being the dropping of the Bretton Woods gold standard by President Nixon in 1971. Governments cannot keep there noses out from controlling economies for their own gain.

From 1971, all currencies have been floating against each other and value has been fluid (to say the least). This is why we see a huge correction coming in regards to debt.

Will we ever get back to just weights and measures? Will this include gold or silver as standards? What do you think?

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