What should "money" be based on?

This was posted to the LPWI mailling list by Joe Kexel. I think it is a pretty good idea for how to "fix" our economy.

Perhaps soon the federal counterfeiters at the US Treasury will have to abandon their misdeeds and we can return to a more market-oriented non-fiat money. -- . . . Tom Ender

As long as it is based on something truly valuable like water, food, energy and/or shelter. Having an open market for money may be possible, given our current level of technology. The complex exchange rates would drain productivity, though. The founding fathers were likely correct in that a standard of exchange should exist. They dropped that task into the federal governments lap, but we may be able negotiate a new standard. Gold and gemstones are fiat, too. Though, their value is based on the whims of human culture, not government specifically.

Gold as an industrial metal (not jewelry) does have value. However, without the jewelry driven demand, it would be more like silver in value. Every jewelry store seems to be in a permanent state of 50% off?!! The value is whatever the sucker (We mean customer.) is willing to fork over. We need a better standard for our currency.

Diamonds are mere carbon. Not much better than the beads Manhattan was purchased with. The best proof of that is that man made diamonds with incredible purity and precise crystalline structure are worth less than many impure diamonds dug up from the ground, even given their benefits for industry. Real diamonds' values are based in the human mind. They are more aesthetically pleasing. Gemstones are generally... Rocks!

Being rare is not a good basis for exchange. It leads to volatility and potential collapse when the humans change their minds on its inherent worth. I would prefer items that would be valued by life in general. What does a dog value? What does a plant value? What does an insect value? As mentioned above, water, food, energy and shelter. Our basic needs do not change.

In a world experiencing environmental collapse from either natural or human causes, a gold brick will not nourish nor warm you. Even BSE tainted meat would be eaten given enough risk of imminent starvation. A sack of diamonds would be less useful than a bag of dirt, at least dirt may be able to grow something of value.

New Orleans would be an example which we would be wise to note. In the end, the people needed water, food, energy and shelter. They will need all of those far into the future. That is how I defined looting in that event. Take water, bread or batteries and I will call you a survivor; steal 5 plasma TVs and I will call you a thief! The line I drew in the looting scenario, is nearly the same line needed to determine a true item of value to back a currency.

Ideally a new monetary system should create a composite note worth units of things we need to exist. Such a system would be able to expand as the economy grows since we can keep increasing the stores of water, food, fuel and building supplies. This is important to note, there is not enough gold in the world to back the world's economy, let alone the US economy. A great side effect is when disaster strikes we will have the stores to use to preserve our society instead of bunkers full of metal and rocks.

This system will, as our civilization grows, automatically expand our storage of life's necessities as part of our monetary system. I feel this beats the "Faith in the Government" fiat currency and most other precious material fiat systems.

Joe Kexel joek@kexel.net

(C)opyright Joseph Kexel, 2005. All rights reserved.

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