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Advantages of Commodity money According to the information about commodities monies on the internet, the reduced value of the

money will encourage people to use the item more in its commodity use. For example, if gold serves as money, and its value drops, people will increase their use of gold for jewelry, tableware, and artistic purposes. Their actions will reflect the law of demand: whenever a commodity becomes cheaper, people use more of it. Thus if there is a sudden influx of gold into a country that uses it as money, part of the influx will be diverted to its commodity use, and the effects on the amount of money, and hence on the price level, will be lessened. On the other hand, a sudden decline will also be cushioned, because as the commodity grows more valuable, people will transfer it from its commodity use into a monetary use. If the amount of gold declines and it rises in value, there is an incentive to melt down jewelry, tableware, and artistic objects and use the gold as money. Hence a doubling of gold may not double the amount of money, and cutting the amount of gold by one half may not cut money by one half Another reason for price stability with a commodity money exists when that commodity is used by many other nations. When the price level in any one nation changes, the commodity will flow across borders to where it is most valuable( Robert Schenk, PhD, University of WisconsinMadison, 1977 ). Savings

Commodity monetary system can keep the value of money from changing. However, economists tend to view deflation (appreciation of currency value) as being even more harmful to an economy than inflation (depreciation of currency value). This is because deflation gives incentive for people to save their money, while inflation gives incentive for people to save or invest their money. For this reason, governments on a fiat system tend to target a trend of general inflation by continually printing extra money. Commodity systems often result in deflation because the supply of the commodity that backs the currency tends to grow more slowly than the economy as a whole. While such deflation can be harmful to economies in other ways, it is beneficial to those who save their money, as they can see their wealth increase with no effort or risk on their part. Nonpolitical Value

When a government uses a fiat currency, the value of that currency comes from the amount in circulation and from the faith that people have in the government. However, if the government becomes unstable or falls, the value of that currency can evaporate. If that nation uses commodity money, even if the government becomes unstable or falls, the value of the currency remains. Disadvantages of Commodity Money When valuable resources are used as money, those resources cannot be used for consumption. Copper used to make pennies cannot be used to make electrical wire. The supply of money is determined by supply of the commodity. The money supply could fluctuate substantially. The discovery of new gold would mean that the supply of money would increase and the price level would rise. There is a lack of stability when a currency depends on being able to find and

produce a particular naturally occurring but naturally rare substance. When gold is being used as commodity money it can be a disadvantage since the government can't meaningfully increase the supply of gold over a short period of time, for example the Fed can be able to increase the supply of fiat money in 10 weeks by more than 100%, with gold this cannot be accomplished. Risk of Volatility

While commodity money typically has less volatility during turbulent economic developments, commodity money can still lose value. For example, both gold and oil are valuable commodities. However, the prices of both gold and oil undergo increases and decreases over time. Thus, the risk of volatility still exists with commodity money. Supply and demand can significantly affect the price of commodities. For example, after a hurricane the supply of oil may get disrupted, causing the price of oil to rise. Lack of Divisibility

Commodity money is typically not as divisible as traditional paper money. For example, you can divide dollars into quarters, nickels, dimes and pennies. However, you may have a difficult time dividing a bar of gold into small denominations needed to make everyday purchases.

Value

Another problem with commodity money is assessing the value of items purchased with the commodity money. In other words, how can you determine that you are, in fact, getting your money's worth for the purchased item? Measuring the exact amounts of value of commodity money is not easy, and therefore, it is difficult to manage your wealth using commodity money. In contrast, if you buy using paper money, you always know what you get for that paper money, even if the value changes over time.

From Freedom to Slavery: The Five Evolutionary Stages of Fiat Money


1) Stage 1 - Evolution of Fiat Money The operating principle behind fiat money is to require taxes be paid using it. This creates a demand for the fiat money that cannot be satisfied without widespread trade that makes use of it, or is conducted for the sole purpose of obtaining the money needed to pay the taxes. 2) Stage 2 - Evolution of Fiat Money The second evolution of fiat money is to legislate that the fiat money be accepted for all debts public and private. This effectively creates a discounted market for fiat money that gives it a competitive advantage against other currencies. In turn this allows the state or government to purchase goods and services at a discount by printing money to do so, and then distributing that discount across all holders of money and assets. We call this inflation or credit expansion depending upon how its accomplished. 3) Stage 3 - Evolution of Fiat Money The third evolution of fiat money is to legislate that the fiat money be the ONLY, accepted currency for the payment of debts public and private. This further expands the discount that the state can use to increase purchases of goods and services while distributing the increased costs across all money and asset holders by increasing the amount of money by printing additional money or expanding credit. 4) Stage 4 - Evolution of Fiat Money The fourth evolution of fiat money is to legislate the elimination of all currency in favor of electronic records, the purpose of which is to eliminate the tax evasion rampant in any cash economy, and therefore to increase the governments income from its least wealthy citizens. 5) Stage 5 - Evolution of Fiat Money The fifth evolution of fiat money is electronic redistribution of gains from productive efforts, and the elimination of the ability to save, thus creating a monetary slave economy of total dependence that is no different from the totalitarian feudalism of the pharaohs and the early Mesopotamian states. Freedom consists of money, property, and the common law under a written constitution that protects money and property and the common law. The only government any population requires is a constitution and the common law, and a body of judges who resolve disputes according to that constitution and common law. Everything else can be privatized, and should be.