No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Eleven: Money, Money, Money! 253 without legislative compulsion, and even without regard to the public interest , to give his commodities in exchange for other, more saleable, commodities, even if he does not need them for any immediate consumption purpose. With economic progress, therefore, we can everywhere observe the phenomenon of a certain number of goods, especially those that are easily saleable at a given time and place, becoming under the powerful influence of custom, acceptable to everyone in trade, and thus capable of being given in exchange for any other commodity. (Page 260) ATTRIBUTES OF MONEY So what makes one commodity better suited to serve as money than others? Is there any one, “best” kind of money? Let us review the attributes of money to help answer this. First, as was mentioned earlier, if one wants to use a cow as money, it forces larger trades as the value of a cow is perhaps greater than other items that might be desired, such as an apple. A “good” money will be divisible, so one can divide the commodity to the level necessary to consummate the trade. The attribute of divisibility makes live animals a less likely option to be chosen as the monetary standard. Money must also be durable to allow it to be handled over and over through multiple exchanges without damage. This suggests eggs would not be a particularly good choice to use as money. Likewise, fresh milk might not be the best choice. Gold coins in the U.S. (American Eagles) are not 24k gold, but rather 22k with copper and silver added to provide a harder coin that will be more durable for a given weight of gold. The U.S. Treasury has, for years, been trying to get the American people to accept and use a $1 coin to get rid of paper $1 bills. The paper bills wear out quite fast while $1 coins would last many years. Unfortunately for the Treasury, Americans seem to like their dollar bills (or more likely, dislike dollar coins!) and so it costs the Treasury more money to make the bills. A commodity must also be scarce such that it is not easily reproducible. For instance, if corn were to become the official currency tomorrow, what do you think would happen the next spring? You bet—there would be a “back to nature” gardening renaissance, and no tomatoes would be grown! People would grow their own money. Once the corn was harvested, we would see a massive inflation as the new corn money would bid up prices. A commodity whose supply is fairly stable is ideal. Since gold is very difficult to get out of the ground, it was historically a good choice. It is true that gold and silver discoveries in the Americas as well as new mining techniques occasionally resulted in large increases in the money supply (and therefore prices), yet these were small in comparison to inflation variability after the gold standard was dropped. Money should also be easily transportable to allow commerce over larger markets. For convenience, money should have a high worth relative to size/weight. Imagine if cows