> Money is by definition a purely financial asset, a liability on somebody's balance sheet.
Maybe Econ 101 has changed, but I remember learning that "money" was:
- A medium of exchange
- A store of value
- A unit of account
When we were on the gold standard these were all true. Now that we're off the gold standard gold is no longer a medium of exchange or a unit of account, but one could argue pretty effectively that it's a better store of value than dollars have been, and it's done so for throughout history. (I'm talking time periods of decades, not the post 2008 crisis volatility here.)
The fact that the system we're using now is debt-based rather than based on precious metals should't change the definition of money, however.
Note that these are all social attributes. They are true because and only because society treats them so. A medium of exchange works because counterparties to the exchange accept the medium. A store of value works because counterparties in the near future will accept the currency at something similar to its current value - its value isn't heavily fluctuating. And a unit of account works because people physically write up accounts using the currency as a unit, issue invoices and demand payment using the unit, issue debt and demand interest, borrow and pay interest, all using the unit.
It's all a social construct.
(Gold's value is a social construct too, of course.)
> Money was a liability like now. It's just that the associated promise was different.
Is there any promise associated with money now (except "you don't go to jail if you pay enough taxes in government's money")? If not, then I can't see money as a liability, only as an investment (i.e. the government prints money, sells it for other assets (FX, bonds, stocks, etc.).
No, they actually issued gold and silver currency, which was called "money" and was used directly as a medium of exchange. Money wasn't just exchangeable for gold, it was gold (and silver).
The widespread use of paper money is actually quite a recent innovation, compared to the millennia of history for gold and silver coinage. People didn't trust paper for a long time (and still don't, when times get troubled).
The Constitution of the United States (quite a recent document, historically speaking) invariably refers to "coining" money, not printing it.
Actually, once the state stopped recognizing gold as the standard economic unit of account, it ceases to be money. It becomes just another commodity, like corn or platinum.
Another natural consequence of gold having become a commodity is that monetary policies cease to cover the value of gold, thus it fluctuates naturally in the market just like any product, and is also subjected to economic bubbles.
The price fluctuation alone makes gold unsuited to be used as money, as it is no longer suited to store value.
Not quite. A Federal Reserve Note is a debt instrument issued by the Federal Reserve Bank, which is as much "government" as the Post Office, Fannie Mae, or Amtrak--a tiny bit government, but mostly independent.
In theory, a Federal Reserve Note should be redeemable in United States Notes or in coins stamped by the U.S. Mint, but thanks to legal tender laws, the note is a debt instrument, which means it may be discharged by tendering Federal Reserve Notes in place of whatever the debt actually calls for.
So you go to the Fed and ask to redeem a $100 bill, and they will hand it right back to you. Technically speaking, they should give you a different $100 bill, other than the one you are trying to redeem, but really, if you get that far, you're already lucky they aren't physically throwing you out of the building.
This is one of those "laws and sausages" things. You're far better off not looking at it too closely if you want to continue to enjoy the benefits unburdened by unnecessary knowledge.
In practice I don't think it's useful to think about it in terms of liability. That $100 bill is a share in the net wealth of the nation. This is why when a country prints a lot if its currency to fund government spending, the relative value of that currency goes down. There are more 'shares' in the economy now, so each one represents a smaller slice of the pie than it did before. So if there is any liability, it's distributed across everyone else holding that currency.
Of course the value of anything is only relative to what anyone is prepared to pay for it, it's a matter of sentiment, so the value of an economy can go up or down depending on perceived risks, liabilities or opportunities and thus is reflected in the value of the currency compared to other assets or currencies.
Maybe Econ 101 has changed, but I remember learning that "money" was:
- A medium of exchange
- A store of value
- A unit of account
When we were on the gold standard these were all true. Now that we're off the gold standard gold is no longer a medium of exchange or a unit of account, but one could argue pretty effectively that it's a better store of value than dollars have been, and it's done so for throughout history. (I'm talking time periods of decades, not the post 2008 crisis volatility here.)
The fact that the system we're using now is debt-based rather than based on precious metals should't change the definition of money, however.