Charles Hugh Smith: Today’s Money Regimes Are Doomed To Failure

Let’s imagine a small mountain kingdom with only ten very scarce and thus highly valued seashells in circulation.  These few shells are certainly valuable in terms of scarcity, but there aren’t enough of them to act as a means of exchange.

One solution to this innate problem of scarcity—money has to be scarce enough to retain value but not so scarce that there isn’t enough of it in circulation to grease trade—is for the kingdom to issue 100 slips of paper for each shell, each slip of paper representing 1/100thof the shell’s value. Now there is enough money in circulation to facilitate trade and each slip retains a store of value equal to 1/100th of a shell. The slips are paper money, i.e. currency.

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via oftwominds-Charles Hugh Smith: Today’s Money Regimes Are Doomed To Failure.

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