45. Money is Paper.

Money is Paper.
Bob Komives
::

I believe the study of national investment would be easier (and better) if we were to start with the assumption that money became a means of exchange when created by selfish rulers who spent it for their own good, and when their spending (by accident or by design) proved beneficial to many of the people under their rule. I do not guarantee the accuracy of this history, but it illustrates why money is still around --it works-- and why money is essentially paper even if minted from gold. No ruler ever paid the price of pressing a stack of gold bars into coins if the total face value of the new coins was not significantly greater than the value of the gold bars that he melted down to make the coins. That greater face value gave a handsome and easy profit to the ruler. If he spent that profit wisely many of his countrymen lauded him as noble for the national prosperity he caused. If he spent it unwisely he had trouble keeping his crown. The paper profit is the true value of the coin. While gold content may have made new coins more acceptable, eventually the precious metal would be needed only to make it difficult and expensive to counterfeit. As money became more common and counterfeiting became easier to control, the precious metal content of money could go down until the metal could be replaced by paper --and now by the vapor of electronic bookkeeping occasionally reported on paper. Paper money is more portable than metal coin and has been difficult to counterfeit. Inevitably, simple "I.O.U."s written on plain paper, paper checks and other plain-paper documents, electronic recordings, and verbal promises could circulate as means of exchange --as money. When people believe that they can exchange paper for goods and services, and when their experience supports this belief, they gladly accept the paper, use it, and call it money.

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 45. Money is Paper ::
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