Money or Currency – What is Real?

What is real… money or currency? Quite simply, they are both real! The obvious question is this, which of the two has real value? In a nutshell; to understand the significance of the difference we really have to take a glimpse of history. I know most of us have heard of sunken treasure ships laden with vast cargos of gold and precious jewels etc. Have you ever wondered just why these ships had such cargos? We’ve also seen or heard of Pirates and the like… Quite simply, World Trade was traditionally done via the transfer and transport of “Real Money” – Gold and Silver, the only money universally accepted for trade in all countries.

Obviously this was a high risk business, and to limit the risk of each voyage, company structures were created. (e.g. the directors could not be sued or lose more than they had risked in the venture). This was the beginning of the Corporations and the Limited Liability Companies etc, we use today. The big question back then was, “how can we continue to trade without risking the loss of our wealth?” “Gold and Silver”.

The simple answer was to create a “Note”. Basically a Country or Company would write an IOU which was supposed to be backed by the Real Money (Gold or Silver) being held in a Reserve or Bank. Without the backing of real money the IOU or “Note” was worthless. At the end of a specific season or year, the books were balanced. The balance of trade was calculated and the physical money could be “called” by the holder of the surplus on the “Note’s”. The one with the deficit could be called on to pay.

Because it worked so well, governments took control of the issue of these “Notes” and began to issue/print them for general circulation. Of course all the while, these original “Notes” which became “Currency” were actually backed by real Gold and Silver.

At the same time, the common money within a country was actually minted coins of gold, silver etc. It is a long story to go into the various devaluations of these coins by blending them with cheaper metals thus creating of currency from them. Needless to say, throughout history, the collapse of all great nations and countries began whenever a country or government devalued money and then its currency. How is this done? Quite simply by creating currency out of thin air that is not backed by Gold or Silver. This is known as “Fiat Currency” and it is only ever worth something while the government has the ability to pay its debts. If the population loses faith in their government, history has shown us time and time again that people fall back on real money, Silver and Gold. Think it can’t happen today? Who knows? However, these sure are interesting times.

So there you have a very, brief history of Money and Currency. I realize some historians may be disappointed with my lack of fine detail but, fine detail can’t be covered in a nutshell. I’m not anti government; I think societies need wise leadership. The guys who originally wrote the American Constitution had it pretty well sussed; wouldn’t it be wonderful to have the spirit of that document still in place and untarnished today.