The Types Of Money Used Today Economics Essay

The Types Of M atomic number 53y Used now Economics EssayThe types of cash employ today accommodate Coins, news piece publisher up-to-dateness, Bank drafts, M aney orders, Stocks, Bonds, Treasury bills, Credit cards, ATM cards, Options, Gift certificates, Cheques,Travelers Cheques and umteen an(prenominal) to a greater extent. Money is converted into two categories, obedientness and order of magnitude bullion.2.2.1Commodity billsWhat constitutes a trade good? A trade good is generally accepted, without further clarification, as whateveraffair that mickle be bought or change. This prompts further questioning. What is the communitys present accepted path for get and selling? The answer is, property. A good therefore is a niceg to which a bills terms sack up be attached and which enkindle therefore be bought or s former(a) with coin. If funds itself is a goodness, be receive capital is a thing that fucking be bought or sold with notes. The above a ntecedenting non scarce involves a vicious broadsheet logic of explaining and defining something in terms of itself, yet also paves the sort for an ascending infinite fanf atomic number 18ary spiral ( rooster Lock 2008).According to Peter Lock (2008), the definition of a commodity involves to be change if it is to be consistent and to avoid all circular logic. An scotch commodity is whatsoever marketable goods or service which has an intrinsic mensu pose in itself and whose look upon shtup be relatively assessed exploitation an extrinsic able stable non-commodity funds archetype and hence bought and sold. In opposite words, an economic commodity is any marketable good, another(prenominal) than cash, which silver itself groundwork buy. fresh property two as bits of p terminalic or piece, or as numbers in ledgers and computer memories, has no intrinsic value in itself. Its only value is its otherness. It does perform a blue-chip service in the marketplace by measuring the value of all other goods and service and facilitating their exchange.The mindset of money as a patronageing device should non be included in or conf calld with the mindset for its character as a commodity. Their purposes and functions are self-contradictory, cosmos diametrically opposite. The former exists as a stable extrinsic stripe of worth for a community as a strong to design. The latter as an unstable intrinsic measure of marketplace purchasing berth for individuals to abuse in their exploitation of the whole global community for their own personal aggrandizement and exercise of usurped indicant (Peter Lock, 2008).According to Peter Lock (2008), as capacious as money is treated as a commodity, uncertainty and insecurity essential result. It is non a question of throwing the baby out with the bathwater. It is plainly a argufy to devise a system whereby the rich well fed fall ins can keep their fat share of humanitys common riches cake and at the like m let the poor hungry have- nons eat a full and reasonable thin slice of it as well. Money as a commodity only exists for the personal profit and increasing wealth and situation of the haves some of the rich get richer, all the poor get poorer. In an economic system where money is self-self functioning in positive feed defend as a commodity, the evil treatment meted out to the have-nots who constitute the vast major(ip)ity of the community be get along withs more and more inhumane.The term commodity money can be presumptuousness to the kind of money that is at the same measure a commercial commodity. Commodity money has an intrinsic value and that means it is considered to be worth something in its own right rather than simply being a token of financial value such as a beak. The commodity itself constitutes the money, and the money is the commodity. The best known form of commodity money is coin or atomic number 47 currentnesss, though any commodity can fulfill th is role. The commodity itself since more is being produced and less being utilize for non- monetary purposes, the resources devoted to additional production and the benefits forgone must be counted as the price of the system. Examples of commodities that have been utilise as specialty of exchange include metal(prenominal), silver, copper, salt, peppercorns, large stones, shells, alcohol, barley and cigarettes, just to highlight a few. These items were somemultiplication used in a metric of perceived value in connecter to one some other, in various commodity valuation or impairment System economies With a commodity money balances is part of the markets for goods and services. Use of commodity money is more the same with barter system.The use of shells or bone was nearly universal before humans disc overed how to thrash with remarkable metals in China, Africa, and many other areas, use of cowrie shells was common. historically speaking, many different metals have been used a s standard money bid in ancient Sparta, tin in ancient Syracuse and likely also in early Egypt, copper in early nirvana and in early Rome, and brass until recently in many part of China. In modern times, however, monometallism has been based just aboutly on the so-called unique metals, silver and gold, with an increasing preponderance of gold since the latter part of the last century.Historically, the strongest and nigh stable currencies were those backed by gold and silver. It was this gold/silver backing that gave the silver its intrinsic value. In most cases, a regions currency was actually gold or silver coins. money and silver have always been a universal form of money and measure of wealth providing stableness in an otherwise unstable world (Tony DiCicco, 2002).A commodity money can give rise to a large tote up of price in constancy if either there are large changes in the hang on of the commodity or if there are large changes in the non-monetary use of the commod ity. An caseful of a commodity money that gave rise to price fluctuations is the cigarette currency used in POW camps in the heartbeat World War. The price of goods in terms of cigarettes depended on the relative availableness of cigarettes and goods. If no cigarettes were current in the camp for some time, the emerge of them would return (because prisoners would use them as commodities they would smoke them) and their value would rise. A rise in the value of cigarettes meant that cigarettes bought more, or that prices fell. When a shipment of cigarettes would arrive, their amplificationd availability would cause their value to drop, which meant prices would rise. Its stated that the erratic delivery of cigarettes and the resulting waves of inflation and deflation were a major problem in the mini-economy of the POW (camphttp//ingrimayne.com/econ/Money/Commodities.html).Colonists often resorted to the use of commodity money, where a colonys principal commodity would circulate a s a strong suit of exchange. The Massachusetts bespeak Colony used corn and beaver skins as its medium of exchange. In the Southern colonies, it was tobacco and rice and throughout most of the colonies, animal skins, corn, powder and gun shot, and livestock were often used. Since the market value of commodity money was determined by planning and demand, its value as money often decreased when there was an over supply in the marketplace. In addition, commodity money neglected uniform quality, and was prone to spoilage, difficult to transport, and expensive to store (http//www.bos.frb.org/education/pubs/historyo.pdf ).pictures below shows examples of commodity money that where usedGold SilverShells Barley2.2.2 rewrite moneyThe currency we all use today is legal painful for taxes and debts. It has no intrinsic value, it is not convertible and it is not tyrannically imposed on all transactions. This money parliamentary law money was natural in Massachusetts in 1690. Historians have claimed that it was a simple wartime substitute of revision money for specie, as has happened many times since then, but this opine is anachronistic. Later political relations learned from Massachusetts that order money is a good wartime emergency, but for Massachusetts this was not an obvious idea (Dror Goldberg).Dror Goldberg mentions that Massachusetts had to discharge money to pacify mutinous troops who returned defeated from war. However, formally offspring money, and backing it with arrive (as was then standard), would have been fatal for the long-run emancipation of the colony. Massachusetts had lost its charter in 1684, partly because it minted its own coins (a misdemeanour of the royal coinage fringe benefit). Moreover, all the colonys land was temporarily considered to be the kings land from 1687-1691. In 1690, when Massachusetts had to issue money, its agents were lobbying for a new charter in London. It could not afford to upset the king by violating his coinage prerogative again and backing money with his land. The solution was to issue IOUs, as any English subject was allowed to do, not back it with land, and not force it on trade. Like any IOU issuer the colony could offset its credits with it, namely fashioning it legal in the altogether for taxes. It was also made effectively legal tender for debts in an elaborate, dishonest way. The outcome was fiat money (Dror Goldberg).The Massachusetts bay laurel Colony issued in 1776.The evolution of commodity money into base in the StatesPaper money freshman appeared in America in in the late 17th century. In 1690, the regimen of the Massachusetts Bay Colony, in an effort to increase government spending while avoiding the unpopular act of raising taxes, began create paper money to pay for its expenses. To prevail on _or_ upon the Massachusetts Bay colonists to accept the paper as payment, the government promised to render the paper in gold and silver coin collected in taxes at a later date. It also promised to never print paper money again. While both promises were quickly broken by the government, is is fire to see that, again, what caused muckle to begin accepting paper money as payment for goods and services, is the understanding that the money could ultimately be pay offed for substantial wealth in the form of the commodity money in use at the time (Chris Lind).The pictures below is an example of fiat money federal Reserve Note 1941 provideeral Reserve Note 1950The evolution of commodity money into paper in ChinaPaper money bugger off arose in China around 800 AD during the Tang Dynasty. Prior to the cosmos of paper money, a merchant selling his goods in the city of Szechuan, risked press release by theft as he transported his commodity money and unsold goods back to his al-Qaida city. As a way of earning revenue, the Chinese government, in posession of fortified strongholds in each city to store tax revenues, offered the future(a) service. Fo r a fee, a merchant could deposit their gold and silver coin with the government in city A. In exchange the merchant received a paper receipt for the gold deposited. When the merchant arrived back home at city B, he could go to the treasury of that city to redeem his paper reciept for the commodity money in use. Over time, as people learned that the commodity represented by the paper would actually be there, merchants began buying and selling with the paper receipts themselves (Chris Lind).Kuan note is the oldest known banknote in the world (Mike Hewitt)However, its use was very short-lived, by 1455, after over 600 social classs, the Chinese abandoned paper money due to numerous problems of over issuance and hyperinflation.The term fiat money can be given to money that comprises things with a special legal qualification and the money used today is fiat money. order means let it be done or by order of authority. gild money basically means that the currency has no intrinsic value (n or can it be redeemed for cunning metals or something of intrinsic value) and the money is based solely on faith. Rather, the currency is only backed by the good leave of the government that issues it. Normally the government is the one that declares legal tender. With fiat money its not real but it represents goods and services that it can buy thus it can be define as the baskets of goods and services that it represents. For fiat money to be valued, the money supply must be limited and it must be im executable to talk through ones hat (Pnar Yesin 2010).Fiat money is created by a narrow cadre of globalist bankers that assay a new World order. Fiat money is created out of thin air. The fiat system is based on debt. We owe and they are owed. With the power they accrue, a plan has been launched to reorganize all aspects of human life. That plan is called agendum 21 or Sustainable Development. It is a U.N. program, agreed to by 178 nations, that is intentional to create a world or der where human beings are regarded as biological resources. The evolving system does not recognize unalienable rights (Michael Shaw, 2009).Since fiat money has no direct legal connection to a commodity money there is no real economic live to its production, the supply of a fiat money can never be self-limiting and the value of a fiat money is always largely a matter of domain confidence in the economic or political stability of the issuer. Historically every major fiat money have self-destructed in what is popularly called hyperinflation caused by either unlimited increases in the supply of that fiat money by the issuer or accelerating loss of public confidence in the act value of the money or the economic or political fortunes of its issuer or both. Steve Elwart says that today, fiat money will always bring on inflation for two reasons 1) Politicians like to induce inflation because it gives the people the illusion of successfulness and 2) its declared value is ofttimes higher than the cost of producing it. Whether it is a $1 or $100 bill in fiat money, it costs only 4 cents to produce. In todays electronic age, the production cost for new money is zero since money creation is just a keystroke and an entry in cyber-space. On the other hand, in history, if you had a $20 gold piece, the cost of that gold piece, less the cost to produce it, was about $20 (Steve Elwart).The commerce system was prevalent before the origin of fiat currency. In this system, commodities were change for commodities. For example, if one person need rice and the other one need coconut, the person who has cultivates rice has to search and develop out the person having coconut. just now then the exchange will take place. This itself was the serious disadvantage of barter system. For some times the different commodities acted as money and they were named as commodity money. later on years of a coin system the paper fiat currency came in to existence. In the coinage, a gold smith acted sometimes as a banker. A government body started to control the printing of all types of moneys. Banks started to deal with money. They accepted savings and gave loans in the form of money. unconnected from these transactions, banks started to generate bank money ( Robert Mendez).Modern society again replaced old money with other new forms of money like, demand drafts, credit cards, and so forth Now we dont need to keep a liquid form of money with us. All our transactions can be made by using credit cards. We can do all our shopping with these cards. Even if money is used in different forms, the importance of money is simmer down not deteriorated.According to Steve Elwart in his research entitled Commodity Money and Fiat Money A Bushel of Wheat for a Penny, says that a government puts fiat money into circulation first by connecting it to a gold or silver standard, but then jumps the link and says that gold and paper are no longitudinal convertible, making the piece of pape r legal tender for all debts public and private. It is obvious that debtors would be very happy if the pa-per money lost its value because they could pay their debts with expandd currency. In a earn to Edward Carrington in 1788, Thomas Jefferson wrote, Paper is poverty it is only the ghost of money, and not money itself. Jefferson died bankrupt because of the early United States money (monetary) pol-icy based on paper.It is not that fiat currency is a new invention. Fiat currency actually made its appearance over 1,000 years ago. China was the first dry land to issue true paper money around the tenth century A.D. Although the notes were valued at a certain ex-change rate for gold, silver, or silk, conversion was never allowed in practice. The bills were supposed to be redeemed after three years in circulation, but as more bills were printed with the aged(a) notes being refused redemption, inflation became evident. Government measures to prop up the currency were no-win and it fell out of favor (Steve Elwart) .Steve continues to say that at this point, people start to feel the pinch of their money buying less. They demand that their government do some-thing. Since studies have shown that voters only have a memory of one year when it comes to politics, politicians will operate sure that the economy is good in an pick year.6 They will artificially stimulate the economy to give voters the illusion that times are good again and reelect the incumbents. This lasts only so long and inflation, with its problems kick in again. This cycle of increasing the currency supply and price inflation ultimately ends with the collapse of the currency, sometimes preceded by hyperinflation. (Hyperinflation and its cultural make will be covered in Part 3 of this series.) Surprisingly, the country has not learned its lesson and the devalued fiat currency is replaced with yet another fiat currency. Greece is a perfect example of this cycle (Steve Elwart).Steve Elwart says the Greek fluid drachm was minted in gold and silver in ancient Greece and made its coming back as a fiat currency in 1841. Since then, the value of the drachm decreased. During the German-Italian occupation of the country from 1941-1944, hyperinflation ravaged the country, ending with the issuance of 100,000,000,000 (100 billion)- fluidram notes in 1944. After Greece was liberated from Germany, old drachmae were ex-changed for new ones at the rate of 50,000,000,000 to 1. Only paper money was issued, again a fiat currency. Greece then went on a program of famine spending for social programs and inflation started once again.In 1953, in an effort to halt inflation, Greece joined the Bretton Woods system and the drachma was revalued at a rate of 1000 old drachma to one new drachma. In 1973 the Bretton Woods System was abolished over the next 25 years the official exchange rate gradually declined, from 30 drachmas to one U.S. dollar to a ratio of 4001. On January 1, 2002, the Greek drac hma was officially replaced as the circulating currency by the Euro (again a fiat currency).Today, Greece is once again is in trouble. After years of continued deficit spending and the governments easy monetary policy, Greeces financial situation was badly candid when the global economic blueturn struck. Very quickly, the governments creative accounting practices were exposed. The depicted object debt, put at 300 billion ($413.6 billion), is bigger than the countrys entire economy, with some estimates placing it at 120 percent of gross domestic product in 2010. The countrys deficit-how much more it spends than it takes in-is 12.7 percent (Steve Elwart).This time though, Greece just cant inflate their way out of the problem. Now that they are on the Euro (in the Euro-zone), they have wee control over their monetary policy. All their loans are in Euros and they must pay back the loans in Euros. One way to balance the subject books is to implement harsh and unpopular spending cuts . Another way is to indifference on their debt. This would seriously damage the Euro as other countries look at default as a way out of their financial problems. (In fact, financial experts are predicting the demise of the Euro in as early as quint years.8) A third way out is to separate itself from the Euro, go back on the drachma (fiat currency again) and then set an exchange rate of the drachma to the Euro at an artificially high number. The cycle of fiat money would then begin again. As long as a country is on a fiat currency, inflation is sure to follow. Using a fiat currency could well reduce a civilization to work an entire day for a bushel of wheat,(Steve Elwart).Failures of Government fiat moneyHistory has taught that lodging monopoly power over the nations stock of currency in a purely discretionary central bank, unconstrained by a monetary constitution, is highly dangerous. The money-process is likely to become politicized, with monetary policy decent subservient to fi scal policy and with monetary authorities exhibiting a deflect toward inflation. James A. Dorn mentions that a study of about 30 currencies shows that there has not been a single case of a currency freely manipulated by its government or central bank since 1700 which enjoyed price stability for at least 30 years running. Although the Fed has achieved intermittent price stability since its inception in 1913, its long-run performance has been unsatisfactory, especially when compared to commodity-based standards such as the classical gold standard. The issuance of fiat money by governments is, in truth, a white hint crime and, as happens when white collar crimes are discovered, a highly visible paper trail leads straight back to the wrongdoers-in this case, the central banks (Darryl Robert Schoon).In fiat based economies, time is the foe and 95 years have passed since fiat money was introduced into the US. In America and elsewhere time is passing and the clock is ticking and recent ly its been sound more and more like a time bomb (Darryl Robert Schoon) . comparison between types of moneyFiat money is the term for a medium of exchange which is neither a commercial commodity, a consumer, or a producer good, nor title to any such commodity that is wicked paper money. In contrast, commodity money refers to a medium of exchange which is either a commercial commodity or a title thereto. on that point is no doubt that fiat money is possible. Its theoretical possibility was acknowledge long ago, and since 1971, when the last remnants of a former international gold (commodity) standard were abolished, all monies, everywhere, have in fact been nothing but irredeemable pieces of paper (Hans-Hermann Hoppe).As asserted by Cary A. Deck, Kevin A. McCabe and David P. Porter ( ),fiat money is a convention that allows individuals to complete trades without relying on the coincidence of fates or diverting valuable commodities to serve as money. In order for individuals to a ccept intrinsically horrible fiat money in exchange for valuable goods, the agents must rely that the money can be used to complete subsequent purchases of other goods or services.Advantages of Commodity moneyAccording to the information about commodities monies on the internet, the reduced value of the money will encourage people to use the item more in its commodity use. For example, if gold serves as money, and its value drops, people will increase their use of gold for jewelry, tableware, and artistic purposes. Their actions will reflect the law of demand whenever a commodity becomes cheaper, people use more of it. Thus if there is a jerky influx of gold into a country that uses it as money, part of the influx will be diverted to its commodity use, and the effects on the fare of money, and hence on the price level, will be lessened. On the other hand, a sudden decline will also be cushioned, because as the commodity grows more valuable, people will transfer it from its commo dity use into a monetary use. If the amount of gold declines and it rises in value, there is an incentive to melt down jewelry, tableware, and artistic objects and use the gold as money. Hence a doubling of gold may not double the amount of money, and cutting the amount of gold by one half may not cut money by one half (http//ingrimayne.com/econ/Money/Commodities.html ).Another reason for price stability with a commodity money exists when that commodity is used by many other nations. When the price level in any one nation changes, the commodity will flow across borders to where it is most valuable( Robert Schenk, PhD, University of Wisconsin-Madison, 1977 ).Disadvantages of Commodity MoneyWhen valuable resources are used as money, those resources cannot be used for consumption. Copper used to make pennies cannot be used to make electrical wire. The supply of money is determined by supply of the commodity. The money supply could fluctuate substantially. The discovery of new gold wou ld mean that the supply of money would increase and the price level would rise. There is a lack of stability when a currency depends on being able to find and produce a particular naturally occurring but naturally out of date substance. When gold is being used as commodity money it can be a disadvantage since the government cant meaningfully increase the supply of gold over a short period of time, for example the Fed can be able to increase the supply of fiat money in 10 weeks by more than 100%, with gold this cannot be accomplished..Advantages of Fiat moneyIs an efficient form of money since it can be produced costlessly, there is a gain from using it instead of something else that is both costly to produce and has alternative uses (Neil Wallace).Uses relatively puny of societys resources. Fiat money has an advantage over commodity money in the stars that the same laws that come up with laws that created the money can also make a end to replace the money if it ever gets damaged or destruction occurs. Fiat money has more stability as compared that of gold-backed currency in the sense that commodity based currencies are inherently pro-cyclic, increasing volatility in terms of the regular business cycle and come and go recessions. This stability allows investors, capitalists and creditors to make rational, firm decisions based on sound expectations that have little room for uncertainty and thus make more risky and inseparable investments. Studies also shows that during the Great depression, countries that used fiat currency system fared more stable and much better off than those dependent on commodity-based currency.As mentioned by Chris Lind, fiat money is generally seen as a doodad or a protectionist system It is much easier to carry around a piece of paper than 50 pounds of gold or some other commodity. Trustworthiness the community trusts that the paper receipt or certificate actually represents the tangible good printed on the paper. Fiat money can an d still created in arbitrary amounts, and is made more available on a favorable basis to the government and commercial banks. With fiat money the Fed can be able to increase the supply by more than 100% within 10 weeks, the advantage of being able to do that is that the government can manipulate the system to mitigate panics and disasters. Take for example the last fall would have being a bigger gage if gold was the monetary numeraireDisadvantages of Fiat MoneyThe longer a fiat money system exists, the greater the odds of economic collapse. Overtime fiat credit money destroys economies because time exacerbates the systemic flaws of credit-based, sic capital, markets (Darryl Robert Schoon).Fiat money is not self limiting, which can make nations which rely on this type of currency extremely vulnerable to hyperinflation. Government controls money supply and it may cause inflation by printing too much money the following example shows how fiat money can unfeignedly cause inflation the example is taken from a journal by Andrew Digeson White (1933), early in the year 1789 the French nation imbed itself in deep financial embarrassment there was a fundamental debt and a serious deficit. The vast reforms of that period, though a lasting put forward politically, were a temporary evil financially. There was a general want of confidence in business circles capital had shown its proverbial timidity by retiring out of sight as far as possible throughout the land was stagnation.Fiat money becomes worthless when its no longer used that is when the government declares. Fiat money distorts the time value of money and in so doing destroys both money and the economies that use it (Darryl Robert Schoon).