[Image]There are several different ways of approaching the definition of money. According to Sirota in Essentials of Real Estate Finance, “Money allows us to convert our physical and mental efforts into a convenient method of exchange.” (Sirota, 2009) G. Edward Griffin (2002) takes the definition of money a step further. He states the following, “Money is anything which is accepted as a medium of exchange.” (p. 138)

Money has taken on several different formats throughout history. A system of bartering has always been present in every culture on the face of the planet. Another type of money is termed commodity money. This tends to be things that are commonly accepted for bartering more than others. Typically, this would be livestock or fresh produce. These types of things are termed “true money” because it is a medium of exchange and the items have “intrinsic value.” Eventually, societies became more sophisticated and began shaping precious metals into coins. Coins were considered superior to livestock and produce, even though those items had great value still, because coins could travel and not perish and were relatively convenient to use. Gold has stood the test of time as the most widely accepted precious metal in the world. After the fall of Rome, new civilizations created a system of receipt money. When merchants became too heavily laden with coinage, they entrusted their coins to the goldsmiths for safekeeping. Merchants would deposit their coins with the goldsmith for a fee; in exchange the goldsmith would issue a receipt with the amount of coins that were available, on demand, at any time to the bearer of the receipt. The paper represented the coinage that was on deposit with the goldsmith. The paper itself had no intrinsic value but it did, however, represent the coins and were thus one in the same. (Griffin, 2002)

I have in my possession a dollar bill that was issued in 1957. I also have a dollar bill that was issued in 2006. The largest difference in the two bills is that the 1957 bill clearly states on the bottom of its face the following, “One Dollar In Silver Payable to the Bearer on Demand.” At the top of the 1957 bill it reads, “Silver Certificate,” while the 2006 bill reads, “Federal Reserve Note”. According to Griffin in The Creature from Jekyll Island, “payable to the bearer on demand” was removed from the nations currency in 1964. (Griffin, 2002) Essentially, I interpret this to mean that I can no longer redeem paper currency for a precious metal of similar value. If that is the case then what, exactly, backs the United State currency?

Sources
Griffin, G. E. (2002). The creature from Jekyll Island A second look at the Federal Reserve (Fourth ed.). Westlake Village, CA: American Media.

Sirota, P. D. (2009). Essentials of real estate finance (Twelfth ed.). (G. D. Barrell, Ed.) La Crosse, WI: DF Institute Inc, d/b/a Dearborn Real Estate Education.

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