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Commodity money
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Commodity money
Commodity money is money whose value comes from a commodity of which it is made. Commodity money consists of objects having value or use in themselves (intrinsic value) as well as their value in buying goods. This is in contrast to representative money, which has no intrinsic value but represents something of value such as gold or silver, for which it can be exchanged, and fiat money, which derives its value from having been established as money by government regulation.
Examples of commodities that have been used as media of exchange include precious metals and stones, grain, animal parts (such as beaver pelts), tobacco, fuel, and others. Sometimes several types of commodity money were used together, with fixed relative values, in various commodity valuation or price system economies.
Commodity money is to be distinguished from representative money, which is a certificate or token which can be exchanged for the underlying commodity, but only by a formal process. A key feature of commodity money is that the value is directly perceived by its users, who recognize the utility or beauty of the tokens as goods in themselves. Since payment by commodity generally provides a useful good, commodity money is similar to barter, but is distinguishable from it in having a single recognized unit of exchange. Radford (1945) described the establishment of commodity money in P.O.W camps.
People left their surplus clothing, toilet requisites and food there until they were sold at a fixed price in cigarettes. Only sales in cigarettes were accepted – there was no barter [...] Of food, the shop carried small stocks for convenience; the capital was provided by a loan from the bulk store of Red Cross cigarettes and repaid by a small commission taken on the first transactions. Thus the cigarette attained its fullest currency status, and the market was almost completely unified.
Radford documented the way that this 'cigarette currency' was subject to Gresham's law, inflation, and especially deflation.
In another example, in US prisons after smoking was banned circa 2003, commodity money has switched in many places to containers of mackerel fish fillets, which have a fairly standard cost (typically $1 per tin), have a long shelf-life, are easy to store and are popular as food for their high protein content. These may be exchanged for many services in prisons where currency is prohibited.
In metallic currencies, a government mint will coin money by placing a mark on metal tokens, typically gold or silver, which serves as a guarantee of their weight and purity. In issuing this coinage at a face value higher than its costs, the government gains a profit known as seigniorage.
The role of a mint and of coin differs between commodity money and fiat money. In commodity money, the coin retains its value if it is melted and physically altered, while in a fiat money it does not. Usually, in a fiat money the value drops if the coin is converted to metal, but in a few cases the value of metals in fiat moneys have been allowed to rise to values larger than the face value of the coin. In India, for example, fiat Rupees disappeared from the market after 2007 when their content of stainless steel became larger than the fiat or face value of the coins. In the US, the metal in pennies (97.5% zinc since 1982, 95% copper in 1982 and before) and nickels (75% copper, 25% nickel) has a value close to, and sometimes exceeding, the fiat face value of the coin.
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Commodity money AI simulator
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Commodity money
Commodity money is money whose value comes from a commodity of which it is made. Commodity money consists of objects having value or use in themselves (intrinsic value) as well as their value in buying goods. This is in contrast to representative money, which has no intrinsic value but represents something of value such as gold or silver, for which it can be exchanged, and fiat money, which derives its value from having been established as money by government regulation.
Examples of commodities that have been used as media of exchange include precious metals and stones, grain, animal parts (such as beaver pelts), tobacco, fuel, and others. Sometimes several types of commodity money were used together, with fixed relative values, in various commodity valuation or price system economies.
Commodity money is to be distinguished from representative money, which is a certificate or token which can be exchanged for the underlying commodity, but only by a formal process. A key feature of commodity money is that the value is directly perceived by its users, who recognize the utility or beauty of the tokens as goods in themselves. Since payment by commodity generally provides a useful good, commodity money is similar to barter, but is distinguishable from it in having a single recognized unit of exchange. Radford (1945) described the establishment of commodity money in P.O.W camps.
People left their surplus clothing, toilet requisites and food there until they were sold at a fixed price in cigarettes. Only sales in cigarettes were accepted – there was no barter [...] Of food, the shop carried small stocks for convenience; the capital was provided by a loan from the bulk store of Red Cross cigarettes and repaid by a small commission taken on the first transactions. Thus the cigarette attained its fullest currency status, and the market was almost completely unified.
Radford documented the way that this 'cigarette currency' was subject to Gresham's law, inflation, and especially deflation.
In another example, in US prisons after smoking was banned circa 2003, commodity money has switched in many places to containers of mackerel fish fillets, which have a fairly standard cost (typically $1 per tin), have a long shelf-life, are easy to store and are popular as food for their high protein content. These may be exchanged for many services in prisons where currency is prohibited.
In metallic currencies, a government mint will coin money by placing a mark on metal tokens, typically gold or silver, which serves as a guarantee of their weight and purity. In issuing this coinage at a face value higher than its costs, the government gains a profit known as seigniorage.
The role of a mint and of coin differs between commodity money and fiat money. In commodity money, the coin retains its value if it is melted and physically altered, while in a fiat money it does not. Usually, in a fiat money the value drops if the coin is converted to metal, but in a few cases the value of metals in fiat moneys have been allowed to rise to values larger than the face value of the coin. In India, for example, fiat Rupees disappeared from the market after 2007 when their content of stainless steel became larger than the fiat or face value of the coins. In the US, the metal in pennies (97.5% zinc since 1982, 95% copper in 1982 and before) and nickels (75% copper, 25% nickel) has a value close to, and sometimes exceeding, the fiat face value of the coin.
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