Representative money: Difference between revisions
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{{short description|Any type of money that has face value greater than its value as material substance}} |
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'''Representative money''' refers to [[money]] that consists of [[token coin]]s, other physical tokens such as certificates, and even non-physical "digital certificates" (authenticated digital transactions) that can be reliably exchanged for a fixed quantity of a commodity such as [[gold]], [[silver]] or potentially [[water]], [[Petroleum|oil]] or [[food]]. Representative money thus stands in direct and fixed relation to the commodity which backs it. This is to be distinguished from [[commodity money]] which is actually ''composed of'' a real physical commodity. It is also distinguished from [[fiat money]], in which the value of the money varies with regard to commodities, according to government dictate in regions where government authority holds sway, or else according to market forces where it does not. |
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[[File:Goldcertificate front.jpg|thumb|right|U.S. $50 gold certificate]] |
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==Traditional representative moneys== |
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'''Representative money''' or '''receipt money''' is any [[medium of exchange]], printed or digital, that represents something of [[Value (economics)|value]], but has little or no value of its own ([[intrinsic value (finance)|intrinsic value]]). Unlike some forms of [[fiat money]] (which may have no [[commodity]] backing), genuine representative money must have something of intrinsic value supporting the [[face value]].<ref name=mundell/> |
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Representative money is widely believed to have originated in ancient [[Sumer]] where small baked clay tokens in the shape of sheep or goats were used to replace [[barter]] in trade. Over time, they were sealed in clay vessels which contained a certain number and had that number written on the outside - but it was only possible to verify the number of tokens inside by shaking the vessel and guessing, or by breaking it. At which point, the number written on the outside originally became subject to doubt. Apparently, however, this system was good enough to have discouraged much [[counterfeiting]] - penalties for "short-sheeping" or selling the same goat twice were quite severe, and often such activities in ancient societies were thought to offend one or more gods. |
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More specifically, the term ''representative money'' has been used variously to mean: |
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A key feature of representative money is that its value is very directly perceived by the users of this money, who recognize the utility or appeal of the tokens as they would recognize the goods themselves. That is, the effect of holding a token for a barrel of oil must be (to the holder) the same both emotionally and economically as actually having the barrel at hand. This thinking guides the modern [[commodity markets]], although they use screens full of software-based tokens and a sophisticated range of [[financial instruments]] that are more than one-to-one representations of units of a given type of commodity. They still, however, guarantee the moving a certain amount of a commodity to, or on behalf of, the owner. This is usually only to a well-known [[point of delivery]]. |
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* A claim on a commodity, for example [[gold certificate|gold]] and [[silver certificate]]s.<ref name="mundell">Robert A. Mundell, [http://academiccommons.columbia.edu/download/fedora_content/download/ac:114139/CONTENT/econ_0102_08.pdf The Birth of Coinage], Discussion Paper #:0102-08, Department of Economics, [[Columbia University]], February 2002.</ref><ref>Jon Hooks, ''Economics:fundamentals for financial services providers'', [https://books.google.com/books?id=wfbfki5YB0UC&dq=Money+representative&pg=PA201 p. 201] {{ISBN|0-89982-494-3}}, {{ISBN|978-0-89982-494-9}} Retrieved September 9, 2009</ref><ref name="p.30">William Howard Steiner, ''Money and banking'', [https://books.google.com/books?id=gq6CAAAAIAAJ&q=representative+money p. 30], H. Holt and company, 1941.</ref> In this sense it may be called "[[Monetary system#Commodity-backed money|commodity-backed money]]". |
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* Any type of [[money]] that has face value greater than its value as material substance. Used in this sense, most types of [[fiat money]] are a type of representative money.<ref>{{cite book |
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|title=A Treatise on Money |
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|author=John Maynard Keynes |
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|volume=1 |
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|page=7 |
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|chapter=1. The Classification of Money |
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|orig-year=1930 |
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|year=1965 |
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|quote=Fiat Money is Representative (or token) Money (i.e something the intrinsic value of the material substance of which is divorced from its monetary face value) |
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|publisher=Macmillan & Co Ltd}}</ref> |
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There is no concrete evidence that the clay tokens used as an accounting tool to keep track of warehouse stores in ancient Mesopotamia were also used as representative money. |
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[[Image:One dollar 1928.jpg|thumb|right|300px|A gold standard dollar bill. Note the words "Will Pay to the Bearer on Demand", which were removed when the dollar was floated.]] |
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<ref name="Schmandt-Besserat">[https://sites.utexas.edu/dsb/ Denise Schmandt-Besserat], [https://sites.utexas.edu/dsb/tokens/tokens/ Tokens: their Significance for the Origin of Counting and Writing]</ref><ref>Keynes, J.M. (1930). ''A Treatise on Money''. Volume I, p. 13</ref> However, the idea has been suggested.<ref name=mundell/> |
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In 1895 economist [[Joseph Shield Nicholson]] wrote that credit expansion and contraction was in fact the expansion and contraction of representative money.<ref>[[Joseph Shield Nicholson]], ''A treatise on money and essays on monetary problems''], Chapter VI, Effects of Credit or "Representative Money" on prices, [https://archive.org/details/treatiseonmoney00nichiala/page/72 <!-- quote="representative money". --> pp. 72–74], A. and C. Black, 1895.</ref> |
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In the late 19th and early 20th century most currencies were examples of representative money in that they were based on the [[gold standard]] in which a currency could be exchanged for a fixed amount of gold, at least in theory. In fact, in many countries, such exchange was discouraged, difficult and likely almost impossible except for a few with access to the [[commodity markets]] in major [[capital]] cities, or in some cases, any but those in [[government]] or with proven [[Foreign exchange market|foreign exchange]] needs that were supported by the government. |
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In 1934 economist William Howard Steiner wrote that the term was used "at one time to signify that a certain amount of bullion was stored in the Treasury while the equivalent paper in circulation" represented the bullion.<ref name="p.30"/> |
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For example, the [[United States]] claimed to have representative money from the [[U.S. Civil War]] (when "greenbacks" were first issued) to [[1970]] when the [[gold standard]] was officially abandoned. But U.S. citizens were barred from trading directly in gold, and thus could not go to [[Fort Knox]] and redeem their dollars for gold. Such tactics were typical, and characterize the long shift from [[commodity money]] to '''representative money''' to [[fiat money]]. |
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==New proposals for backing of representative money== |
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*[[Commodity money]] |
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*[[Gold standard]] |
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*[[Hard currency]] |
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*[[Silver standard]] |
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*[[Store of value]] |
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==References== |
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While representitive money is not currently used by any nation, a few theorists of [[green economics]] and [[natural capitalism]] have argued for its return, some of whom suggest a form of money based on [[ecological yield]]. They argue that the outputs of "[[natural capital]]" are the only genuine commodities - [[Earth's atmosphere|air]], [[water]], and [[renewable energy]] we consume being mostly interchangeable when they are free of pollution or disease. However, since such goods cannot be held directly, it is common to suggest that representative money be issued based on enhancing and extending [[nature's services]], giving one the right to receive the yield as benefit. They argue that reframing [[political economy]] to consider the flow of these basic commodities first and foremost, avoiding use of military fiat except to protect "natural capital" itself, and basing credit-worthiness more strictly on commitment to preserving [[biodiversity]] rather than repayment of debt, as in the current global credit money regime anchored by the [[Bank for International Settlements]], would provide measurable benefits to human [[measuring well-being|well-being]] worldwide. |
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{{Reflist}} |
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{{Means of Exchange}} |
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Critics of this type of proposal often note that, as with other transitions from commodity to representative money, inadequate substitutes will be made on a "just trust me" basis - as per [[Gresham's Law]] which states that bad money drives out good. Other proposals, such as [[time-based money]], rely on the availability of human [[labour (economics)|labour]] as a commodity, especially within a community, which is presumably harder to guarantee access to, but also harder to steal. Still others deny the utility of commodifying labour as such, and suggest making [[free time]] the standard, since [[physical capital]] used for leisure, sport, art, theatre, and other forms of play is commodifiable and possible to control. |
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{{DEFAULTSORT:Representative Money or Receipt Money}} |
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Some, in [[environmental economics]], argue that the life of the individual human being and the natural ecologies are already both treated as commodities in global markets. They argue that to put a price on both is the most reasonable way to proceed to optimize and increase that value relative to other goods or services. This has led to efforts in [[measuring well-being]], to assign a commercial "[[value of life]]", and to the theory of [[Natural Capitalism]] - which focuses predictably on energy and [[material efficiency]], i.e. using far less of any given commodity input to achieve the same service outputs as a result. [[Michael Benedikt]] has proposed a [[theory of value (economics)|theory of value]] along these lines. An example of this view is held by Indian economist [[Amartya Sen]], who discussed the relationship between access to commodities, labour, and "the right to live as we would like" in his 1999 book "Development as Freedom", arguing that human free time was the only real service, and that [[sustainable development]] was best defined as freeing human time. |
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==New kinds of representative money== |
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In 1996, non-physical [[digital gold currency]] was launched by [[e-gold]] as a form of representative money, which uses a long established [[medium of exchange]], namely [[gold]]. |
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*[http://www.gci.org.uk Global Commons Institute] |
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*[http://natcap.org Natural Capitalism] |
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*[http://www.e-gold.com E-gold] |
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[[Category:Currency]] |
[[Category:Currency]] |
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Latest revision as of 05:10, 30 January 2024
Representative money or receipt money is any medium of exchange, printed or digital, that represents something of value, but has little or no value of its own (intrinsic value). Unlike some forms of fiat money (which may have no commodity backing), genuine representative money must have something of intrinsic value supporting the face value.[1]
More specifically, the term representative money has been used variously to mean:
- A claim on a commodity, for example gold and silver certificates.[1][2][3] In this sense it may be called "commodity-backed money".
- Any type of money that has face value greater than its value as material substance. Used in this sense, most types of fiat money are a type of representative money.[4]
There is no concrete evidence that the clay tokens used as an accounting tool to keep track of warehouse stores in ancient Mesopotamia were also used as representative money. [5][6] However, the idea has been suggested.[1]
In 1895 economist Joseph Shield Nicholson wrote that credit expansion and contraction was in fact the expansion and contraction of representative money.[7]
In 1934 economist William Howard Steiner wrote that the term was used "at one time to signify that a certain amount of bullion was stored in the Treasury while the equivalent paper in circulation" represented the bullion.[3]
See also[edit]
References[edit]
- ^ a b c Robert A. Mundell, The Birth of Coinage, Discussion Paper #:0102-08, Department of Economics, Columbia University, February 2002.
- ^ Jon Hooks, Economics:fundamentals for financial services providers, p. 201 ISBN 0-89982-494-3, ISBN 978-0-89982-494-9 Retrieved September 9, 2009
- ^ a b William Howard Steiner, Money and banking, p. 30, H. Holt and company, 1941.
- ^ John Maynard Keynes (1965) [1930]. "1. The Classification of Money". A Treatise on Money. Vol. 1. Macmillan & Co Ltd. p. 7.
Fiat Money is Representative (or token) Money (i.e something the intrinsic value of the material substance of which is divorced from its monetary face value)
- ^ Denise Schmandt-Besserat, Tokens: their Significance for the Origin of Counting and Writing
- ^ Keynes, J.M. (1930). A Treatise on Money. Volume I, p. 13
- ^ Joseph Shield Nicholson, A treatise on money and essays on monetary problems], Chapter VI, Effects of Credit or "Representative Money" on prices, pp. 72–74, A. and C. Black, 1895.
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