Home > Business & the Economy > Currency & Commerce (The Value of Money – Part II)

Currency & Commerce (The Value of Money – Part II)

One of the primary values of money is the facilitation of commerce.  A common currency is the medium of exchange which facilitates your ability to buy or sell something.   The buyer and seller know what they are giving up in value and what they are receiving in return.

What would you do if you didn’t have money or your money had no value?  You might try bartering for what you need.  Try that the next time you go to the store to buy groceries or stop at the gas station to fill up.  Imagine the look on the cashier’s face when you ask if you could pay with your watch or a sack of potatoes, rather than cash or your debit/credit card.

The current economic climate and concerns for the future have caused some people to suggest that you should stock up on gold and silver to preserve your ability to continue buying things in the event of a complete economic collapse.  Dave Ramsey is one prominent opponent to this idea.  His contention is that gold would be as useless as paper money because people would resort to bartering instead.

Without addressing the point of whether or not gold is a good investment.  I see his point. Even when gold was the principle form of money, it was still transformed into a common currency.  No one carried around bags of gold rocks or bullion. They used gold coins… minted into identical sizes and shapes representing specified values (just like our silver coins today).

At the same time, I don’t think that even in a complete economic collapse bartering would last long. It may occur for a short time following a major catastrophe or natural disaster, but our society is far too complex and advanced to function solely through bartering.  Most of us would be in deep trouble if we had to barter for our existence.  Urban society doesn’t lend itself to providing food yourself and most of our skills have a limited marketplace.  My family would be in trouble if I had to barter tax and accounting services with everyone necessary for us to live.

Gold, silver and other precious metals are commodities and may have a place in your portfolio as a hedge against inflation.   However, I don’t think it should be seen as a replacement currency to purchase goods and services.  Gold and silver coins might be easier to barter, but I doubt that they would become a replacement currency.  How would a merchant know what your gold coin is worth?  How would they know if it’s pure gold or just gold-plated?

In the event of a major economic catastrophe or collapse of the financial system, I would prefer to have a stash of cash in a safe deposit box than try to barter with gold and silver.  Hyperinflation may cause the cash to be worth less, but at least it’s a standard that everyone know how to value.

As long as we’re talking gold, the Value of Money – Part III will address the paper money and the gold standard.

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