Money, by definition, has to have value in and of itself. It is a substitute for other things of value. An ounce of silver for a loaf of bread, a peck of apples, and ten pounds of flour reflects the “exchange rate” and this exchange rate constantly fluctuates even on a local level.
In a boom town with a dozen silver mines, the local exchange rate might be five ounces of silver for a loaf of bread, six apples, and forget about the flour. Simple enough. In such a system there are one or two or three “standard commodities” that can be exchanged for all the other commodities that people need.
Many of us grew up in a world where the standard commodities were silver and nickel and copper, either in the form of actual coins, or in the form of pieces of paper called “Silver Certificates” that had to be backed with an actual clump of silver on deposit.
The problem with commodity based money is that the moment you choose a commodity to serve as a standard, the market for that commodity goes completely crazy. Speculators rush in and buy up whatever the “money” commodity is so that supplies of it become very scarce.
As a result, workers toil long hours for a piddly little bit of silver or gold or oil or whatever, and the politicians suffer endless carping and griping from their constituents about how hard everything is, and people get a totally skewed idea of what is valuable and what is not, believing that gold and silver (for example) are incredibly precious based simply on the fact that there isn’t enough of the “money commodity” in circulation.
By Anna Von Reitz