If we were to use grapes instead of paper bills for money, what would be the effects?

It takes time, effort and money (grapes?) to grow grapes.  They are only of value when they are fresh and ripe.  They don’t stay fresh and ripe for a very long period of time.  Grapes are not durable.  They wouldn’t work.

What if, instead, we chose to use river rock.  They are durable. But, they are so heavy they would not be very portable.  And, their value per pound would mean that you would need a great deal of space to store even a modest amount of money.  They really wouldn’t work.

I guess we could use computer memory chips.  They are pretty durable.  They are small so they are definitely portable.  And, they are valuable.  But their value varies greatly with the market and with time and innovation.  So maybe they aren’t durable or at least not of durable value.

So I think we should use 5 carat diamonds.  There is almost nothing more durable.  They are small and very portable.  You could carry millions of dollars in your pocket.  Unfortunately, they are not very divisible.  If you wanted to buy a Big Mac, how would you pay in diamonds?  You just can’t cut them small enough to have pieces worth only a few dollars.  And, when you divide a big diamond, you lose value.  A five carat diamond is probably worth twice as much as the combined value of the two 2.5 carat stones that could be made from it.

So what do we have that is intrinsically valuable and retains its value, that is portable or small for its value, is durable, and is divisible without loss of value? The answer for the last few hundred years has been precious metals, primarily gold and silver.  In fact, for thousands of years, gold has been used a a store of value.

One thing we know is that paper is not portable, not durable, does not retain its value, but it is very divisible.  Not portable, you say?  The value of a ton of paper in today’s market is between $500 and $1000.  Just try carrying a ton of paper to your landlord to pay the rent.  Trust me.  It is not portable.  We all know that paper is not durable unless it is a bad report card, a speeding ticket, or an eviction notice.  Other than that, paper is susceptible to fire, flood, wind, etc.  It is easily divisible but its value is subject to what is printed on it , by whom, and how much trust the market has in the printer.

Today, the world is losing trust in the people who print paper for use as money.  The Greeks, the Portuguese, The Italians, the Irish, and the Spaniards are all feeling the pain.  Not many people trust the governments who printed their money to stand behind the value printed on it.  Now, the United States is flirting with similar issues of international trust.  Unless our paper is backed by something of value, it is only a matter of time until the international community loses trust in a printer who spends 41% more than he brings in each year.  The end result?  People will stop paying the amount printed on the bills.  That is inflation and my money thinks that inflation will be rampant sooner than later if our government does not reign in its spending.

If you were to store away some money for ten years, which would you rather have:  A pound of these (worth about $4500 today)?

Or three ounces of these (worth abgout $4500 today)?

Advertisements