[geeks] Well, crap ...

[Mike Meredith]

On Tue, 13 Mar 2007 11:50:53 -0400, Patrick Giagnocavo wrote:
> 1. purchasing power - it really doesn't matter what the units are, it 
> what you can do with those currency units.  What we have in the USA
> is a "fiat currency" setup where 1 USD does not equal a set amount of

Too right (purchasing power). Actually I'd say pretty few places these
days have a currency 'backed' by a physical item.

> an actual physical item; pre-FDR your dollar was backed by gold, so
> $35 USD at the time would buy 1 ounce.  I think it was LBJ who ended
> the $10 bills that were backed by silver (may have been JFK, not
> sure).

And of course you used to have silver and gold in your coins too.
Trouble is precious metals aren't as stable in value as many people
assume ... for example the ratio between silver and gold backed
currencies varies in a free market (the UK silver penny and the UK
sovereigns). 

And there is still some 'government confidence' involved too ... when
the Romans debased the denari it is unlikely they would ever be able to
convince people that they weren't going to fiddle with the silver
content ever again. And whilst Celts in Britain minted silver pennies,
they probably were kind of difficult to use in more distant parts
("Thick Skull of the Brigantes? Never heard of him").

I think that precious metal based currencies also has the effect of
restricting the size of your economy. 

Of course if you have a shaky economy with a very untrustworthy
government (even more than usual like Zimbabwe) precious metal based
currencies look pretty good. 


-- 
Mike Meredith (http://zonky.org/)
 This message represents the official view of the voices in my head