What Ultimately Backs Money? FOOD!
Here are just a few thoughts and reflections on the nature of money:
1. Money is created in the process of a trade, where one participant, the seller, has a product for sale, and the other participant, the buyer, has nothing desirable to trade at that moment. The process of the trade, exchanging a product for an IOU (money), provides the seller with a credit (the IOU) and the buyer with a debt (which is invisible).
2. The difference between an IOU and money is very small. An IOU is a single piece of paper, valued as a particular amount of something, such as 10 pounds of fresh grain. Money takes the form of many piece of paper, that each bare a round number value on them (1, 5, 10, 20, 100), each of which is practically identical to the other, except perhaps for a serial number, or other minor printing features.
3. Money is ultimately backed by food. If a person could not buy food with money, then the money would be of very, very limited value.
4. Food is backed by land, labor, energy inputs (oil, coal electricity, etc), infrastructure, climate, fertilizer, etc.
5. Increasing costs and/or decreasing supply (or availability) of any of the food inputs can have an impact on prices. A severe disruption can lead to a reduction in the food supply, which can lead to regional food shortages, leading in turn to hoarding, and then money may fail as people have money but are unable to buy food.
6. In principle, the amount of money should match the amount of products that are available for sale AND also desired to be purchased. Money should be created at the moment of the trade, incurring a debt upon the issuer (the buyer), such debt which should be repaid in full (to the community). As the amount of products decline, so too should the money supply. This need not be a bad thing, it could indeed represent increased self-sufficiency, and better home economy.
7. Food, being consumable, is challenging as a backing for money because once the food is eaten, the value of the food is extinguished, and thus is the backing. The backing must be based then on other food, or future food.
Example of Money as Food
Note, this section is a rewrite and/or revision of the previous article.
Let's name our community members David, James, and Robert.
All three are farmers, but each grows different things, and their crops come in at three different times. They also live far from each other, and it is only possible for them to visit one of the others, before coming home (or their crops will die due to lack of care). Each is self-sufficient, and does not need to trade with the others. All is good.
A.) Unfortunately, one day, David sees he is about to run out of food. He needs to go get some, and the only places available are from James or Robert. David goes to visit James, and James, having extra food at the moment, agrees to sell some food to David. As they don't have money (they never needed any), David signs an IOU for the food, and gives the IOU to James in exchange for the food he needs. James then travels home.
B.) James later finds that he himself is going to run out of food, and knowing that David is already living day-to-day, James goes to visit Robert. Robert does have extra food, and agrees to accept David's IOU in trade. So, James goes home with the food he needs.
C.) Robert also later finds that he needs food, and knowing that James is out, decides to go see David, to redeem the IOU.
Now, there are a many possibilities to explore, here are a few:
1. David has enough to redeem the IOU, in which case Robert is satisfied, and the IOU can be ripped up.
2. David doesn't have enough food, only enough for himself, and Robert then has to force David to give him the food, and to redeem the IOU, which ultimately leads to the of one or both of them.
3. David doesn't have any food at all, perhaps he died on the way back to his home from James's place, and so Robert is unable to redeem the IOU. Robert must return home, where he starved to death.
4. Instead of returning to his own home, Robert goes to James's house, and this also leads to the death of one or both of them.
The point here is that the IOU is backed by food, and if the IOU is unable to purchase food, then the IOU is useless and a possible result is fighting or "war".
Notice also that even if David died, that not knowing that, Robert and James could pass the IOU back and forth any number of times. It only becomes a problem with either Robert or James decides to seek out David to redeem the IOU, and that David is unable to do so, that the IOU (money) loses its value.
Food Shortage Nations
Angola, April, 2009
Myanmar, April, 2009
Kenya, April, 2009
Zimbabwe, April, 2009
Ethiopia, April, 2009 -- Coffee for Money
1. Money is created in the process of a trade, where one participant, the seller, has a product for sale, and the other participant, the buyer, has nothing desirable to trade at that moment. The process of the trade, exchanging a product for an IOU (money), provides the seller with a credit (the IOU) and the buyer with a debt (which is invisible).
2. The difference between an IOU and money is very small. An IOU is a single piece of paper, valued as a particular amount of something, such as 10 pounds of fresh grain. Money takes the form of many piece of paper, that each bare a round number value on them (1, 5, 10, 20, 100), each of which is practically identical to the other, except perhaps for a serial number, or other minor printing features.
3. Money is ultimately backed by food. If a person could not buy food with money, then the money would be of very, very limited value.
4. Food is backed by land, labor, energy inputs (oil, coal electricity, etc), infrastructure, climate, fertilizer, etc.
5. Increasing costs and/or decreasing supply (or availability) of any of the food inputs can have an impact on prices. A severe disruption can lead to a reduction in the food supply, which can lead to regional food shortages, leading in turn to hoarding, and then money may fail as people have money but are unable to buy food.
6. In principle, the amount of money should match the amount of products that are available for sale AND also desired to be purchased. Money should be created at the moment of the trade, incurring a debt upon the issuer (the buyer), such debt which should be repaid in full (to the community). As the amount of products decline, so too should the money supply. This need not be a bad thing, it could indeed represent increased self-sufficiency, and better home economy.
7. Food, being consumable, is challenging as a backing for money because once the food is eaten, the value of the food is extinguished, and thus is the backing. The backing must be based then on other food, or future food.
Example of Money as Food
Note, this section is a rewrite and/or revision of the previous article.
Let's name our community members David, James, and Robert.
All three are farmers, but each grows different things, and their crops come in at three different times. They also live far from each other, and it is only possible for them to visit one of the others, before coming home (or their crops will die due to lack of care). Each is self-sufficient, and does not need to trade with the others. All is good.
A.) Unfortunately, one day, David sees he is about to run out of food. He needs to go get some, and the only places available are from James or Robert. David goes to visit James, and James, having extra food at the moment, agrees to sell some food to David. As they don't have money (they never needed any), David signs an IOU for the food, and gives the IOU to James in exchange for the food he needs. James then travels home.
B.) James later finds that he himself is going to run out of food, and knowing that David is already living day-to-day, James goes to visit Robert. Robert does have extra food, and agrees to accept David's IOU in trade. So, James goes home with the food he needs.
C.) Robert also later finds that he needs food, and knowing that James is out, decides to go see David, to redeem the IOU.
Now, there are a many possibilities to explore, here are a few:
1. David has enough to redeem the IOU, in which case Robert is satisfied, and the IOU can be ripped up.
2. David doesn't have enough food, only enough for himself, and Robert then has to force David to give him the food, and to redeem the IOU, which ultimately leads to the of one or both of them.
3. David doesn't have any food at all, perhaps he died on the way back to his home from James's place, and so Robert is unable to redeem the IOU. Robert must return home, where he starved to death.
4. Instead of returning to his own home, Robert goes to James's house, and this also leads to the death of one or both of them.
The point here is that the IOU is backed by food, and if the IOU is unable to purchase food, then the IOU is useless and a possible result is fighting or "war".
Notice also that even if David died, that not knowing that, Robert and James could pass the IOU back and forth any number of times. It only becomes a problem with either Robert or James decides to seek out David to redeem the IOU, and that David is unable to do so, that the IOU (money) loses its value.
Food Shortage Nations
Angola, April, 2009
Myanmar, April, 2009
Kenya, April, 2009
Zimbabwe, April, 2009
Ethiopia, April, 2009 -- Coffee for Money