Commodity money: Difference between revisions
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Commodity money is widely believed to have originated in [[Sumeria]] where small baked clay tokens in the shape of sheep or goats were used in trade. Over time, they were sealed in clay vessels which contained a certain number and had that number written on the outside - but it was only possible to verify the number of tokens inside by shaking the vessel or breaking it. At which point, the number written on the outside originally became subject to doubt. Apparently, however, this system was good enough to have discouraged much [[counterfeiting]] - penalties for "short-sheeping" or selling the same goat twice were quite severe. |
Commodity money is widely believed to have originated in [[Sumeria]] where small baked clay tokens in the shape of sheep or goats were used in trade. Over time, they were sealed in clay vessels which contained a certain number and had that number written on the outside - but it was only possible to verify the number of tokens inside by shaking the vessel or breaking it. At which point, the number written on the outside originally became subject to doubt. Apparently, however, this system was good enough to have discouraged much [[counterfeiting]] - penalties for "short-sheeping" or selling the same goat twice were quite severe. |
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Historically the [[gold standard]] was by far the most widely recognized, as gold was compact, easy to work into more beautiful jewelry, had decorative and functional utility as a finely strung wire or thin foil leaf, and most importantly, could always be traded for other metals to make weapons with. A political enterprise with sufficient gold and reputation for protecting it, e.g. the [[Fort Knox]] gold repository long maintained by the [United States Government]], could reliably issue certificates to substitute for the gold and be trusted to actually have it. Until 1970, U.S. currency was technically worth exactly 1/35 of an ounce of gold. However, actual trade in gold as a precious metal within the United States was banned - presumably to prevent anyone from actually going up to Fort Knox and asking for their gold. |
Historically the [[gold standard]] was by far the most widely recognized, as gold was compact, easy to work into more beautiful jewelry, had decorative and functional utility as a finely strung wire or thin foil leaf, and most importantly, could always be traded for other metals to make weapons with. A political enterprise with sufficient gold and reputation for protecting it, e.g. the [[Fort Knox]] gold repository long maintained by the [[United States Government]], could reliably issue certificates to substitute for the gold and be trusted to actually have it. Until 1970, U.S. currency was technically worth exactly 1/35 of an ounce of gold. However, actual trade in gold as a precious metal within the United States was banned - presumably to prevent anyone from actually going up to Fort Knox and asking for their gold. |
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Historically, the [[gold standard]] (and sometimes a [[silver standard]] if gold was scarce or monopolized) traded places in most nations as the [[store of value]] and [[unit of account]]. |
Historically, the [[gold standard]] (and sometimes a [[silver standard]] if gold was scarce or monopolized) traded places in most nations as the [[store of value]] and [[unit of account]]. |
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Revision as of 02:30, 8 April 2002
Commodity money refers to any abstract-but-trusted representation of a given amount of a commodity useful to human beings. It may be units of any commodity that is generally agreed upon, historical examples include sheep, goats, pigs, rare seashells, weight units of gold or silver. Uranium, oil, or kilowatts of renewable energy, have also been suggested in more recent times.
A key feature of commodity money is that the value is directly perceived by the users of this money, who recognize the utility or beauty of the tokens as they would recognize the goods themselves. That is, the effect of holding a token for a barrel of oil must be the same economically as actually having the barrel at hand. This thinking guides the modern commodity markets, although they use a sophisticated range of financial instruments that are more than one-to-one representations of units of a given type of commodity.
Commodity money is widely believed to have originated in Sumeria where small baked clay tokens in the shape of sheep or goats were used in trade. Over time, they were sealed in clay vessels which contained a certain number and had that number written on the outside - but it was only possible to verify the number of tokens inside by shaking the vessel or breaking it. At which point, the number written on the outside originally became subject to doubt. Apparently, however, this system was good enough to have discouraged much counterfeiting - penalties for "short-sheeping" or selling the same goat twice were quite severe.
Historically the gold standard was by far the most widely recognized, as gold was compact, easy to work into more beautiful jewelry, had decorative and functional utility as a finely strung wire or thin foil leaf, and most importantly, could always be traded for other metals to make weapons with. A political enterprise with sufficient gold and reputation for protecting it, e.g. the Fort Knox gold repository long maintained by the United States Government, could reliably issue certificates to substitute for the gold and be trusted to actually have it. Until 1970, U.S. currency was technically worth exactly 1/35 of an ounce of gold. However, actual trade in gold as a precious metal within the United States was banned - presumably to prevent anyone from actually going up to Fort Knox and asking for their gold.
Historically, the gold standard (and sometimes a silver standard if gold was scarce or monopolized) traded places in most nations as the store of value and unit of account.
These were however inconvenient to use as a medium of exchange or a [standard of deferred payment]] due to the transport and storage concerns. Accordingly, notes began to circulate that a government or other trusted entity (e.g. the Knights Templar in Europe in the 13th century) would guarantee as representing a certain stored value on account. This was the beginning of a long slow shift to credit money.
See: gold standard, silver standard, water standard
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