From: The Low Golden Willow (phoenix@ugcs.caltech.edu)
Date: Thu Sep 18 1997 - 00:22:47 MDT
On Sep 17, 10:46pm, Hal wrote:
} I'm not sure this makes sense. Although paper banknotes didn't have
} value in and of themselves, they achieved their value because they can
} be exchanged for valuable commodities like gold. Even fiat currencies
} can be used to buy items of value from the government, or to pay debts
} to the government.
US dollars overseas are not backed by gold, or US gov't services, and
foreigners have no need to pay taxes or debts to the US gov't. But
everyone believes that everyone else will sell things for US dollars,
which makes everyone themselves willing to sell things for US dollars.
In a sense, modern currency is backed by valuable goods: it is backed by
all the valuable goods in existence.
} You need backing with a useful, valuable commodity (or service) in order
} for something to be accepted as money (or else the money itself needs to
} be useful and valuable, like gold has been historically).
Gold was hardly useful or practically valuable itself. Jewelry only
goes so far, and chip wires are new and also probably don't go that
far. (You can't eat gold.) But everyone believed that everyone else
would sell food or iron or blacksmithing for gold, so everyone sold
things for gold. Again, the real backing is mutual agreement, or rather
faith and habit which may get rationalized as mutual agreement. (Or
they may not.)
I can't see that there's any serious problem with fiat currency except
the ability to "print" a lot of it, which seems to be generally accepted
as a bad idea these days.
Merry part,
-xx- Damien R. Sullivan X-) <*> http://www.ugcs.caltech.edu/~phoenix
Language and its absurd conjunctions;
Constellations and crustaceans rhyme.
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