[munk-a]

This article is interesting... but confusing. It seems to be someone's organic journey to how we don't need to be on the gold standard anymore. Currency has always existed based on trust, at one point we thought that gold is really trustworthy (for some weird reason) then we thought that governments were really trustworthy (again, wat?) eventually we all settled on the idea that not all governments were trustworthy, but that the US government was _super_ trustworthy (REALLY WAT?).

Currency has value because we say it has value, and people will tend to default to the status quo. Your money is basically worth something because everyone is too lazy to actively consider it to be worthless.

If the society collapses, go and see if that farmer really wants to sell you a gallon of milk for a piece of paper - or even for an exquisitely printed bar of gold that you purchased because you were quite convinced the coming Armageddon would make all the silly paper money worthless.

(As an aside, I find one of the least believable parts of Fallout to be the fact that there is soda in the world and the bottle caps of that soda are a currency)

[AnimalMuppet]

Gold was considered trustworthy because it was rare. The earth's crust only contains a small amount of it. The attack that people were worried about was the government creating a whole bunch of currency and insisting that it was all valuable. They couldn't do that with gold, so gold was trusted.

[thaumasiotes]

> The attack that people were worried about was the government creating a whole bunch of currency and insisting that it was all valuable. They couldn't do that with gold, so gold was trusted.

I don't think this is accurate at all. Gold was valued as a trade good, and used to create majestic artworks. Government-created currency occurs a long time after gold becomes a major element of international trade. So, (1), the value of gold has nothing to do with a worry that the government will debase the currency.

(2), governments frequently did debase their currency, including gold-based currency. In the west, they did that by mixing precious metals with base metals and claiming the whole coin was pure precious metal. (Or, in the case of Croesus, by mixing precious silver with precious gold in a percentage that could be adjusted to meet current monetary needs.) In the east, they did it by issuing... paper currency. In general, governments were totally incapable of issuing fiat currency without issuing far too much and experiencing massive collapses in its value. But they still did it. Note that gold can be used to resist inflationary paper currency (though it wasn't), but it can't be used to resist debased coins that purport to be gold while actually being partly gold and partly lead. Such coins are a reason to distrust gold.

[bobthepanda]

Gold also has properties that make it hard to fake, if you know what you're looking for.

[analog31]

And it could be kept long term without corrosion

[lazyasciiart]

And it was too soft to use in tools and such, so people didn't have to choose between doing something with it and spending it.

[thaumasiotes]

Gold was valued for its use in ornamentation. For example, we have correspondence between a Mesopotamian city-king and an Egyptian pharaoh; the king sends many letters expressing his need for unworked gold and hoping the pharaoh will let him know of a need -- any need -- of Egypt's that he might be able to satisfy.

In the end, he earns a tribute from Egypt by sending his daughter to marry the pharaoh. He receives several truckloads of gold -- but writes to express his disappointment that it has already been worked into statues.

So yes, you can use gold or you can spend it, but, like everything else, you can't do both.

[nradov]

Fiat currency has value because nation states maintain effective monopolies on violence over certain geographic territories, and demand that taxes be paid in their currency. That's the brutal reality. Trustworthiness has little to do with it.

[Rotten194]

If you believe that, how do you explain the OP post? The Somali government collapsed, it had no ability to enforce violence. And if currency was solely predicated on violence, why would the warlords bother to loot the central bank for it's paper currency? They could just buy bulk paper and write "accept this for your goods and services or we'll kill you" on it and print as much as they want (assuming that most warlords have shorter-term goals in mind than hyperinflation, like being able to pay their soldiers).

[neilwilson]

Currency has two worths. It is worth something as a printed piece of paper and it is worth something as a token. Both of those ultimately representations of human effort. If I tax you 1 groat per working hour and pay 10 groats an hour for your time then you can automatically price things in groats. If you print Somali shillings and that takes an hour to get 1000 shillings then you can price in Somali shillings. Because you are unlikely to exchange your hours worth of currency for less than an hours worth of effort from somebody else. That then ripples down the chain. Tax is a sufficient and reliable way of ensuring a demand for a token in a currency area. But currency can circulate for other reasons too as we see with Somalia.

[Rotten194]

Ok, in that case I agree. Taxation does set a lower bound on the value of a currency (barring unusual circumstances like hyperinflation), but it's not the sole determiner of a currency's value.

[cmroanirgo]

I generally agree in principle that if we're willing to put 'value' in a piece of yellow metal (gold) or a clear piece b of rock (diamond), then why not a smooshed piece of paper (currency)?

I'm sure many here have played the mental have of 'what if money was eradicated and use a bartering system' which leads to the basic logic of (eg.) I have a cow to sell and need some eggs that you own... How do we come to an arrangement? Bits of paper with an IOU on is one of the answers.

To me, this is what's happened here in Somalia... But it's just the next step. Rather than IOU's all over the place there's agreed upon bits of paper that represent some 'debt' that can be called in. It's little different than the concept of a promissory note which is legal in many (?all?) countries.

So when I read this in the article:

> According to chartal theory, the requirement that people pay taxes with government-issued bits of paper is what drives the positive value of these bits.

I don't agree at all.

[BurningFrog]

> if we're willing to put 'value' in a piece of yellow metal (gold) or a clear piece b of rock (diamond), then why not a smooshed piece of paper (currency)?

The difference is of course that people can create any number of pieces of paper with numbers on them, but they can not create gold.

So you can be sure that your pieces of gold will be equally rare in 10 years, but the rarity of your 1000 Elbonian Dollars depends on the whim of people.

[crooked-v]

> but they can not create gold

Sure, but they can mine, discover, or loot more of it.

> So you can be sure that your pieces of gold will be equally rare in 10 years

Consider historical events, like the colonial Spanish economy going kerplooey because they brought back too much gold from the Americas and it made the value of the stuff drop like a rock.

[benj111]

In the Somalian example the 'token' already has an established price, so all the parties can go on as before. Its unclear to me that you could just introduce tokens and have everyone accept the exchange rate. That's the trick, I will only accept tokenX because I know I can by Y eggs and 0.Z of a cow. I don't know the same about TokenA.

You could jump start TokenA by giving it the states backing (taxation etc), and it could probably coast just like TokenX for a while though.

[munk-a]

So paper currency (at least in the western world) began existence as promissory notes. The notes would denote some physical value insured by a trusted third party, I don't believe currency could ever begin life without some physical backing (and I don't mean gold, gold is worthless... something like wool, or a meal). Once a currency has been established as representing the good it can be exchanged based on the relative value of that good - a piece of paper worth a good meal might be worth two nights on a cot for instance. Mediums of exchange make all commerce easier so at some point this momentum really gets going, but for a significant life of the currency the exchange unit may only have value if you can say "I'd like two nights on the cot, and I can give you this note for a good meal - or I can run across the street and get you a good meal, since it's easier to hand you a note and since you may not be hungry right now, why don't you accept this note and have the meal when you want it."

So the emergence of TokenA is that someone promises that it's worth some value and that the promise made is trusted by enough people.

If you enjoy a good read, I'd suggest you check out Going Postal and Making Money by Terry Pratchett, they discuss (among much hilarity) the emergence of a postal system and stamp trading, along with the eventual evolution into paper money. There are certainly better academic papers about the technical side but I honestly think those two novels make a much more compelling case because you are given a narrative where people start accepting a fiat currency and everyone is doing so for perfectly logical reasons.

[sokoloff]

The trust is part psychology (if other people are willing to take that money, you're more willing to take it) and part based on the military security and taxation authority of the US federal government (what "full faith and credit" ultimately means).

It's not "trust" in the way most people trust their grandmother.

[toufiqbarhamov]

It’s faith, and a means to comfort and insulate oneself against a seeming impotence in the face of the unknown. The other alternatives are denial, or acceptance, the latter of which takes some real psychological fortitude. Prepping comes with communities of the faithful, rituals like practicing bugging out, and paraphernalia like bug out bags, gas masks, etc. When something looks irrational, involves a lot of faith, and takes on the appearence of ritual it’s helpful to think of that thing in religious terms.