Lee Daniel Crocker writes:
> "Money" as I use it here is a measure of worth used by agreement among
> traders that is specifically /not/ tied to real commodities. To be useful,
> it must be fictional. Government fiat is one (bad) way to do that; private
> currencies issued by financial institutions (or wealthy individuals) is a
> better one. What makes it "money" is complete lack of intrinsic value.
I'm not sure this makes sense. Although paper banknotes didn't have
value in and of themselves, they achieved their value because they can
be exchanged for valuable commodities like gold. Even fiat currencies
can be used to buy items of value from the government, or to pay debts
to the government.
If someone issued notes which weren't backed by anything, they wouldn't
be used as money, in my experience. We tried this a few years ago with
an online electronic cash system called "magic money". Nobody was willing
to part with anything in exchange for it. Really, why should they?
You need backing with a useful, valuable commodity (or service) in order
for something to be accepted as money (or else the money itself needs to
be useful and valuable, like gold has been historically).
Note that this does not prevent fractional reserve banking; a bank can
issue bank notes for more than the amount of gold it has backing them,
and as long as it does not do this to excess it can still be successful.
Hal