We humans are notorious creatures of habit. In many ways, that’s a good thing. Try to imagine all the brain power you’d have to expend if you really had to think about everything to be able to do it. Instead, once we’ve got it down pat, we don’t actually ever think about how to drive an automobile, use our cell phone, or open a mayonnaise jar. The precise physics of these activities are embedded in our neural pathways as an automatic response.

Everything in life though involves trade-offs. So, it shouldn’t be surprising to learn that our propensity for habit also has its drawbacks. This propensity for habitual thinking inclines us toward a tendency to accept the given as natural. Popular attitudes toward the nature of money are a case in point.

If queried for an explanation of money, most people would refer to pieces of colored paper or metal coins. Some might be a little more sophisticated and mention the purchasing power encoded in the magnetic strips on the back of rectangular plastic cards they have in their wallets. Though, the latter is basically just an accounting device for the former.

And it’s not that those answers are exactly wrong. Etymologically, the English word „money“ is traced back to the minting of coins. To let such an association pass at that would be though a significant categorical error. After all, the coins of our ancestors – unlike ours, and our paper currency, today – had a value that was derived from market supply-and-demand processes.

They were made from precious metals such as silver and gold. How much flour or lumber or cinnamon could be bought with such coins was determined by the market valuing of the quantity of the precious metal in the coin. In this way, at a deeper level, money had always been merely another exchange commodity – simply one that had a certain special quality.

Through history all manner of commodity has been used as money. Before the agricultural revolution, sea shells were commonly used, and after it a common currency was cattle. In different times and places, salt, peppercorns, grains, tobacco, and many other commodities, played this money role of exchange currency commodity.

The high levels of demand for such commodities were partially a result of precisely their high level of demand. A carpenter who fashioned a new table and desired to exchange it for chickens had no guarantee of finding easily (or at all) a chicken farmer with precisely the reverse preferences: chickens to spare and need of a table. Salt though provided a solution. Since it was so much more widely demanded, not merely due to its flavor, but also for its preservative benefits, the prospects of locating a chicken farmer needing salt was far greater.

Additionally, the popularity of salt increased the prospects of finding someone holding some salt in need of a new table. All considered, then, there would be good sense in the carpenter converting his table into salt, and likely increasing the number of chicken farmers with whom he could trade.

Facilitating exchange between traders with incompatible preferences was the virtue of exchange commodities as currency. (Take note, though, all the items involved – tables, chickens and salt – were valued by market supply-and-demand.) Over time, pretty much everywhere, once they were available, precious metals became the money of choice. They were both widely and highly valued, which allowed for small amounts, with high value, to be easily transported. Additionally, they were subject to precise measurement, easily molded into convenient shapes and sizes, and able to be stamped with the information of their proportions.

Despite all these virtues, though, not all has been well in the world of precious metal money. The fact that everything has its trade-offs has provided no exception in its case. The downside hasn’t been in market utility, but rather in the convenience they provide to those who would coercively exploit market processes. At the risk of stating the obvious, those who have ruled human societies since the agricultural revolution have generally done so at the end of a gun barrel (or sword, or spear, etc.) The armies required for such coercive rule are maintained by the money to pay the troops who do the weapon pointing. History reveals that a favorite method for procuring the requisite funds has been plundering the currency.

Such rulers claim control over the money supply (they, as a general rule, have the majority of guns – or swords or spears, etc.). Once in control of the coins, they commonly debase the currency. Sometimes this would be by clipping the edges or sometimes by recasting the coins with a smaller proportion of the alleged precious metal. In either case, they kept the „excess“ precious metal to spend on their armies.

The ludicrous result of this debasement was the rulers pushing into the market coins whose actual value, measured in amount of precious metal, was less than the value claimed by the official stamp of the mint on the coin. The value was determined not by the market, but by the fiat, or legally binding assertion, of the ruler. Calamities and shenanigans of every sort have resulted wherever such corruption of the monetary system has been practiced. No less an epic historical event as the fall of the Roman Empire is largely attributable to fiat currency.

To understand these historical events, though, requires understanding the process and impact of inflation. That’s a discussion I’ve undertake elsewhere. I invite you to check it out: Understanding Fiat Currency and the Inflation Beast . And it’s one you have to understand to appreciate the circumstances of our fiat currency, today.

Don’t let fiat currency destroy your savings and wealth; follow the latest news pertinent to protecting yourself and your family at The Fiat Currency Review . Wallace Eddington’s recent article on Bitcoin exchange trading funds has been an online hit: don’t miss it!