About the future of money

It is universally known that, in the past, money was not representative of a value but had an intrinsic value, corresponding to its actual weight in gold, silver or any other metal less some coinage rights. On the other side, the sovereign prerogative of the coinage was the only way to guarantee the real value, weight and purity of the stuff.

In more than one historical period the authorities tried to modify the coinage, starting from the  Σεισάχθεια (seisakhtheia) of the Athenian Solon (about 594 a.Ch.) to the coinage in impoverished silver  (vellón) in the Spain of XVI century and so on: all those measures led in some cases to huge speculative bubbles, but never succeeded due to the so called Gresham’s law.

The system was internationally standardized in the XIX and first half of the XX century through the silver standard and the gold standard and then, from 1944 to 1971, through the gold exchange standard as defined in the  United Nations Monetary and Financial Conference held in Bretton Woods in July, 1944.

After 1971, money has been issued by sovereign authorities in a full arbitrary way, it’s the so called fiat money, that in a limited period of time has been a positive factor of economic development but, according to several economists, is not sustainable anymore. The creation of the Euro allowed some improvements inside the European Union, being quite a partial substitute of the gold standard, however it has been negative as far as the economic development in concerned, due to the lack on an overall economic vision.

The weak point of the gold and silver standard was that they were based on a commodity whose availability had nothing to do with the need of the economic system, this limitation would continue  to be, at least in part, should the standard be shifted to a basket of commodities internationally agreed, with the further problem that such basket should be amended every, let’s say, ten years, due to the different economic importance of each commodity in evolving times.

The second alternative that has been proposed was a multi-currency standard, namely to define the value of each currency with reference to a defined basket of other currencies. This in reality is not solving the problem, is only shifting it from the national to the international environment, it would work more or less like the Euro, with some positive aspects for a limited period of time, but not sustainable in the long term.

Then we need some innovative thinking, let’s start with two ideas that I have found looking through some books as well as through the Internet.

  1. The first is a labour standard, that is to define the value of the currency in terms of SMh (standard man-hours or normal man-hours), it’s has quite a Marxian appeal but, to be objective,  has some substantial limitations, due to the fact the SMh, albeit well defined, it’s statistically defined and its definition is not stable in the long term. As a matter of fact, the companies that are using the SMh in their project controls, such as major engineering & construction companies, are updating their definition every fifth year.
  2. The second is an energy standard,  that is to define the value of the currency in terms of energy, namely in kWh or equivalent unit. In this case the unit is defined by a stable physical law and it seems more promising in the medium term. In theory (I know that for the time being is only science fiction) we could think about coins with an intrinsic value in energy, namely a kind of power bank.

Besides any personal idea on that matter, I believe that it’s a matter that is worthy to discuss about.

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