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The debate over what is real money
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Editor, Manteca Bulletin,

I am watching Congressman Ron Paul grill Federal Reserve Chairman Ben  Bernake about “Real Money”. Mr. Paul thinks that Federal Reserve notes are not real money. Let’s look at the question of real money.

Our dollar is a “Fiat Currency”. Basically that means there is a collective agreement that it can be exchanged for goods and services because we all agree that it can. Your paycheck, right or wrong, is the market value of your contribution to our economy paid to you in dollars. You agree to do your job and exchange your labor for an agreed upon amount of dollars which you can exchange for food, shelter, etc. Money, in coins or paper, simply replaced the barter system where you exchanged your skill for someone else’s skill. In the barter system, you built barns and got paid in chickens. Currency in paper or coins simplified the process. Please note that the original currency were gold and silver coins or beads or anything that kept score. The point is that currency keeps score.

Mr. Paul seems to think that gold and silver are real money. Money is “currency”. It facilitates movement like a river current. I would challenge anyone to go buy a gallon of milk with a 1/600th of an ounce of gold (about $3). It is not an accepted means of exchange. He thinks a gold/silver standard is a better way to deal with currency because it is real. Let me suggest that currency by its nature is not real but is a representation of the value of goods and services that the marketplace defines. Gold and silver coins were used as currency because they were easily transportable…basically the same reason we use dollars. In reality we use electronic digits that represent dollars for most of our exchanges and this is truly the world’s currency. Banks deal in wire transfers…no paper money is sent, just electronic digits. Currency evolves to create ease of use. Paper is better than gold, electronic digits are better than paper, etc. Gold, while “real”, does not facilitate movement.

Currency is a scorecard that measures the relative value of things for sale and facilitates exchange. It has no value in and of itself. Commodities like oil and gold have intrinsic value based on their use. That doesn’t make them a good currency. Making gold and silver “real money” would be cumbersome and slow down the current in the economic river and a slowdown is not what we need.

Mark Laurora
Feb. 29, 2012