PhantomPhixer wrote:I've often wondered why a currency couldn't just be tied to another commodity. Like oil, or an industrial metal that is in demand. Copper dollars? Uranium dollars?
There are two different questions here. First, there is tying a currency to a commodity vs. the currency actually being a commodity. A currency that is simply tied to a commodity would be like the old US silver and gold certificates; redeemable upon demand or at least a promise by the government that they really have enough of the commodity to back the outstanding certificates. Of course, much of the Roaring Twenties (boom) and the Great Depression (Bust) were made possible because of such a system. The Fed inflated the money supply because most people traded the certificates as if they were the real thing (just like today's paper markets for commodities like gold/silver where the outstanding paper is much, much greater than the actual commodity), so there is a risk that the government will break the inherent promise behind those certificates. However, previously the Dollar (derived from the Spanish coin of the era, but actually goes all the ways back to the Thaler
http://en.wikipedia.org/wiki/Thaler), was merely a unit of silver, not a certificate of silver. The Dollar was the commodity. The pros and cons are mostly obvious. If you physically must transact the silver, it's much harder to create monies without lots of hard work (mining). Every time certificates are used, they are eventually abused. Perhaps the concept behind Bitcoin, with its cryto security, may fix that...assuming you can trust the computer that must verify the currency. The simpler solution is to show me the physical money!
The second question is about why not other commodities. This is an excellent question and one which I'm only going to scratch the surface of. Yes, there have been monies made of other commodities. For example, private copper was used extensively at times in Great Britain when ever the King's coinage focused on producing only larger silver/gold coins and ignoring the needs of the common person for small daily transactions. The reason gold/silver are used as the "ideal" money commodity is because of their physical properties meeting the requirements of money so much better than anything else. Some of those requirements are (not in an particular order):
1. Easily identified. How do you know that the coin you hold in your hand isn't fake? The physical properties of gold/silver make it much easier for the average person to verify they are real coins. The density of gold and it's color (there's not much like it and the color changes are easily seen if it's pure or been alloyed), silver has a extremely unique sound when it is struck (there's a reason we sing about silver bells during Christmas, amazing sound even from a coin). Etc.
2. Easily divisible. Making change is an important part of doing business. In the old days they would just cut the coin up. You can't cut up a $100 dollar bill and have anything but shredded paper.
3. Durable. Gold and silver coins have survived for ages because they are not easily dissolvable or oxidizable, etc. While not perfect, the coins typically held up very well and lasted for decades or generations. Gold was typically alloyed into the 22kt English Crown standard (e.g. modern day American Gold Eagle) and silver was often 90% per the Spanish Dollar (US junk silver, aka old dimes, quarters, etc.) to make them a bit more durable.
4. Not easily inflated. Inflation is a hideous crime against all people, so much so that under the Coinage Act of 1792 the prescribed penalty for counterfeiting was a felony and
death! Now if only we could get some agreement that government counterfeiting, aka inflation, is no different than private counterfeiting perhaps we would make some headway with the current debt crisis. The outcome is the same, the evil is the same, but one is illegal because it enriches a private entity and the other is legal because it enriches the government. Corruption? Absolutely! Other than very few examples, gold/silver have remained relatively stable values throughout history, at least when they were being used as monies. This is because there isn't much of them available and that which is available is difficult to acquire. Despite mining advances, output has been very stable for centuries (compared to any other commodity/currency arrangement). There is a reason kings of old wanted the alchemist to find a way to transmute base commodities into gold. As long as the money was gold/silver, there was a limit as to how much the king could spend. We foolishly through that limit out and have created a monster that is draining the wealth of the entire nation...we call it the Federal Reserve and it's a government granted monopoly and cartel. Even Congress understands this which is why they steadfastly refuse to even let it be audited because if the people were to actually see what happens behind the curtain they would demand dissolution of the institution!
Etc. There are other useful commodities and personally I'm all for any commodity based money that people freely exchange. Want to use copper, go for it. Platinum? Sure. Sea shells? If you want, but I won't be accepting them.
Edit: An excellent, but not large book on the subject is "The Ethics of Money Production" by Jorg Guido Hulsmann.
http://www.amazon.com/Ethics-Money-Prod ... 1933550090
https://mises.org/store/Product2.aspx?ProductId=536
or free download here: mises.org/books/moneyproduction.pdf
I can certainly appreciate the sentiment in VA and UT, though.