The Crash Course - Chris Martenson [24]
CHAPTER 7
Our Money System
Before we begin our tour through the economy, energy, and the environment, we need to share a common understanding of this thing called money. Money is something that we live with so intimately on a daily basis that it has probably escaped our close attention, much like the distinction between growth and prosperity.
Money is an essential feature of our lives. Were all of our paper money to disappear, a new form of money would rapidly and necessarily arise to take its place. People in practically every culture ever studied, in every region of the world, have used money in some form or another, which indicates without a doubt that money is a very common attribute of civilization. More precisely, trading, greatly facilitated and enhanced by money, is the essential human activity that gives money its meaning.
By way of example, in Federal correctional facilities in the United States, prisoners pay each other with “money” in the form of plastic-and-foil pouches of mackerel, which they call “macks.”1 Prisoners use “macks” to pay for haircuts, get their clothes pressed, and settle gambling debts. The “macks” work because they are inexpensive (they cost about $1 each), but few inmates actually want to eat them, so they remain reliably in circulation. Their use arose shortly after cigarettes were prohibited in federal facilities in 2004, dethroning the former currency of choice.
In the great economic crisis of 1999–2001 in Argentina, circulating dollars evaporated practically overnight and people were left with rapidly depreciating pesos. Many businesses closed and imported products became virtually impossible to buy. Within a relatively short period of time, farmers began using soybeans to trade for new vehicles and individual provinces rapidly issued their own forms of paper money.2
Money is essential, especially to complex societies. Without money, the rich tapestry of job specializations enjoyed today would not exist, because barter is too cumbersome and constraining to support a lot of complexity.
Money must possess three characteristics. The first is that it must be a store of value. Gold and silver historically filled this role perfectly, because they were rare, took a lot of human energy to mine, and did not corrode or rust. The “macks” in federal prison use fit the bill because they last a long time without degrading, so they have staying power. Just as gold and silver stick around because they don’t rust, “macks” stick around because nobody wants to eat them. These forms of currency represent excellent stores of value.
A second feature is that money needs to be accepted as a medium of exchange, meaning that it’s widely accepted within and across a population as an intermediary for all economic transactions. Here again, “macks” work as a currency because everybody has agreed they do. In the rest of modern culture, paper currencies obtain their value by fiat, or by law, and so they’re termed “fiat currencies.” Governments declare that these pieces of paper (and their electronic equivalents) are legal tender, that you have to accept them in settlement for debts, and that taxes can only be paid with them and nothing else. The “medium of exchange” feature is enforced by government decree for fiat money, whereas the “macks” are legitimized by a form of cultural consent. But in all cases, money is an agreement between people. We agree that these bits of paper, but not those, have value. The prisoners agreed that foil pouches of mackerel are valuable, but not gym socks. If you think of money as simply an agreement between people, then you understand the essence of money.
The third feature of money is that it needs to