Food as money?January 9, 2008
Over the course of a few days, a reader who goes by the name “General Public” discussed with me the merits of using food as money, instead of gold. I’m still not sold on the idea, but it was a meaningful discussion that deserves more publicity. I was going to paste the entire discussion in this post, but instead I’ll just direct you to the comment thread, here.
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Did not suggest using food as money.
What was broadly suggested is using “energy” as money or backing for the currency. or simply said, reserve banks should have “energy reserves” to be called reserve banks!
The idea of using energy (food is just an easy way to transport energy) as money is a classic science fiction idea.
In the excellent book (despite its weak title) ‘The Forever War’ all currency is based upon the calorie, which at its base level simply refers to units of energy, whether those units of energy end up in my belly or in the tank of my car.
If the whole economics is not about “energy” then why the economic crisis in USA?
I put this on the orig thread and brought it over here.
The problem with gold/silver is that when the chips are down, they are worthless. I heard/read somewhere that after Hurricane Katrina the most important thing you could have to trade/barter with was toilet paper or bottled water. Taking out a pen knife and scratching some gold off a bar won’t get you much. Basically you can’t eat gold…unless its on an expensive dessert. Put another way, I also heard the grandfather (who lived thru the depression) of someone say never forget how to grow things. For years, my father-in-law has about a 1/2 acre hobby garden growing beans, corn, tomatoes, etc and his neighbor has some egg laying chickens (to point above…..live chickens don’t rot). I would think that given three people, one with a garden, one with chickens, and one with a suitcase full of gold, the one with the gold is the one left out.
Yes the TP and bottled water above are manufactured items, but they were available in the area at that time. I’m no expert on food preservation, but going back to basics for the garden idea, people canned/preserved for years using the most basic of energy (wood, no elec/watter etc), ground corn on old time water wheel grinders. Yes everything has a season and you won’t be able to get oranges in the dead of winter, but when its back to the absolute basics, the food growers/traders will survive longer than someone lugging around a bar or two of gold.
You have eloquently stated the case for commodity investments in a growing world, for which I agree, but that doesn’t make it good as money. I hate to repeat myself but if you want to live in a tiny agrarian village of 150 people it may work, but that can hardly be extrapolated to sustain complicated international financial transactions that may span months or years and involve monstrous amounts of capital.
The fact that food only has a limited lifespan is a serious issue. You mention chickens don’t rot, but they do get old, sick and die. What’s the difference? Are you really going to trade chicken certificates for a car? What if 5% of them get bird flu the day after the transaction, will you be liable or the dealer? I mean it’s just so ridiculous to think about it offends my mind.
Gold is good for money not because humanity can’t survive without it, but because it exists in abundant enough quantities to be useful for money but its supply is limited. It’s chemically stable, it’s a solid metal, and it’s attractiveness creates an intrinsic demand. If you can find another material with all those properties or create a system that is impossible to manipulate by greedy unscrupulous central bankers in some other way then I’ll think about it.
I’ll admit that I and probably General Public are thinking more of doomsday types of scenarios, but just like the most perfectly formed human body turns putrid very quickly after life leaves it, I often wonder how solidly balanced the US/world economy actually is. Not that I’m some sort of wild eyed socialist/communist…. far from it, but I often wonder how many of the extravagances in the world today are actually necessary for survival. Could all these tech dependent people survive having to step back several steps….or several years. My wife and I are quite frugal. We have rabbit ears on our TVs and don’t really need the TVs. We have dozens of books (history, knowledge, very little fluff) for entertainment (and a front porch to read them on) and we only shop at thrift/goodwill type stores. Not because we need to, but because we don’t like overhyped prices. We both drive 10+ year old cars and do I really really need a computer. We’re working to pay off the house by mid 2010 and we pay our credit card statements every month. To some people who rely on everything in their daily lives, we probably seem like campers. I wonder how many of these people in minimansions could survive a real downturn.
Back to the gold. I would ask you how much actual gold do you have that you can put in your pocket. Do you have a few ounces, a few pounds or are you just like me where most of the investments are listed on a statement received each month and otherwise they’re ‘1s’ and ‘0s’ on a computer. One thing I have done is to at least have my couple thousand shares of various stocks sent to me in certificate form.
I think the material like gold you describe is a bit of self reliance or at least minimize reliance on people other than family. My system to avoid manipulation and greedy people is to live as much as possible within your own means and don’t rely on other people. Part of that is staying as far as possible away from debt. I guess you already know where our “stimulus cash” is going. It will go into a rainy day fund and used on something actually needed not on some fluff crap. Yes, I know if everyone in the country was just as frugal (or is it wisdom) as us this economy would be in the tank, but as long as there is a bunch of those people, I’ll take being us.
I also live well beneath my means, but not to the same extent as you. Rather than drive 10 year old cars I avoid contributing to the problem by avoiding loans. There is definitely too much consumption and there will definitely be millions of people who suffer tremendously in a serious downtown, but that would be the case in any doomsday scenario. Even 500 years ago nobody was expert in every discipline. Nobody can be a farmer, blacksmith, carpenter, teacher, soldier, merchant, fisherman, etc, all at once. My point is that even if all the progress made in the past 500 years disappeared tomorrow, we would still need money. It was created for a reason.
What we need is to find something to be used as money which is most difficult to be manipulated. Gold is not immune to this problem by any means, but it’s better than our current system. If we could have a supply of money that expands outside the control of banks, that could arguably be even better.
@point
“Gold is good for money not because humanity can’t survive without it, but because it exists in abundant enough quantities to be useful for money but its supply is limited. It’s chemically stable, it’s a solid metal, and it’s attractiveness creates an intrinsic demand.”
Gold, paper etc when used as “medium of exchange” are tokens. Tokens in itself does not have value, to realize value one more exchange is required. When there is scarcity of “stuff” nobody will accept gold or paper as illustrated by Brant….
“given three people, one with a garden, one with chickens, and one with a suitcase full of gold, the one with the gold is the one left out”
In essence when “Tokens” are used as “medium of exchange” it’s value has to be assured by the issuer. People cannot live eating paper or gold what they need to live is food/fuel/energy so when there is a scarcity of these, people will not accept “tokens” unless the issuer assures value by having a reserve of food/fuel/energy.
The present economic problem faced by USA is not about currency, bonds, interest rates - it is about energy/stuff. US oil wells have dried up, US is importing oil paying in dollar bills but now others are not willing to take dollar because the Federal Reserve Bank does not have “food/fuel/energy” reserves in their vaults to guarantee value of dollar.
@point
“If you can find another material with all those properties or create a system that is impossible to manipulate by greedy unscrupulous central bankers in some other way then I’ll think about it.”
All that such a system needs is for the Central Bankers to have reserves of “food/fuel/energy”. Instead of keeping gold the “Reserve Banks” of all countries will keep food warehouses, oil tanks, they will buy shares of electricity/energy companies. When someone take a currency note marked “1000 calories” for redemption to the Reserve Bank will deliver 1000 calories worth food/fuel/energy. The paper currency in circulation will be “equivalent to” the “energy” reserves in the Reserve Bank, the central bankers “cannot” over issue currency since their “bluff” will be “called” in a very short period, within weeks or months, if they over issue currency. One additional feature that may become necessary to “avoid food from rotting” in the reserve bank warehouse is to put a “validity date on large denomination currency notes”, this is not something we cannot handle, normal bank cheques has a validity period of 6 months and we don’t have any problem using them isn’t it?
We are repeating the same arguments all over again — gold has value, stop saying it doesn’t. It has been in demand for as long as it has been known to mankind because jewelery is as human as drinking water. Paper is a token, gold is not. If you keep believing that, we will never come to agreement because your base assumption is patently false. Value is not derived from energy, it’s derived from supply and demand. What you’re saying is the equivalent of believing a house has no value because you can’t eat it.
Secondly, the expiration of a check is a terrible analogy because the check is worth 100% the number of dollars on day 182 as it is on day 1. That would not be the case for some food item 1 day away from becoming useless. Unless I eat it right away, why would I pay full price for something that will have no value in 24 hours? It’s ridiculous. Food would depreciate on its own, it would become practically worthless just before expiration regardless of the date you estimated, it would be a moot point. Food has value for consumption until it expires, but it does not have value as medium of exchange until it expires. If my complicated transaction will take 8 months to complete, how can I use food with a 6 month expiration date as a store of value?
Did you know Zimbabwe has expiration dates on their 10 million dollar bills? I can promise you that will never end the depreciation of their currency, just as it would not end the depreciation of your food as it approaches its expiration date.
And I repeat, the last thing we as humans need is for people to start hoarding food and other forms of energy and starving the entire planet. It’s already bad enough we have subsidies that pay farmers not to grow food when food isn’t money, imagine if it was!
@point
“Did you know Zimbabwe has expiration dates on their 10 million dollar bills? I can promise you that will never end the depreciation of their currency”
If the issuing authority of a “currency/medium of exchange” assures redemption against “food/fuel/energy” such currency cannot be inflated.
Zimbabwe is issuing “fiat” currency, putting expiry date on a fiat currency does not make any difference, because on expiry the higher denomination currency will be replaced by lower denomination currency……
The food itself will depreciate, it will be worth less and less each day it gets closer to expiration. That means it will take more and more food to exchange for other goods or even newer food. That’s inflation.
Why we would ever want some authority to have stores of food held until expiration is beyond me. If you’re trying to starve half the planet, on the other hand…
@point
“The food itself will depreciate, it will be worth less and less each day it gets closer to expiration. That means it will take more and more food to exchange for other goods or even newer food. That’s inflation.”
Inflation does not happen because food eventually gets eaten, if excess food is produced it gets self destroyed after certain period of time, excellent protection against inflation and hoarding.
Food hoarding can be easily controlled by Govt. keeping a “buffer” stock, so whenever hoarding happens this buffer stock can be released, hoarders cannot hold back their stock for more than few months, this is how food prices are stabilized in most countries.
When gold is used as currency or backing for currency, it can be horded long term, leading to market manipulation, US Govt. confiscated all gold during great depression due to this hording effect.
@point
“Why we would ever want some authority to have stores of food held until expiration is beyond me. If you’re trying to starve half the planet, on the other hand.”
Food buffer stocks are not kept till expiry date it is constantly released and fresh stocks are acquired each crop season. Most countries already have food buffer stock and agencies to manage it, this is nothing new. Similarly most countries has fuel buffer stock as well. Food/fuel is true measure of wealth.
International transactions are settled by “shipping” food/fuel supplies, this is how the system works even “today”, petro dollar as reserve currency of the world. But Federal Reserve Bank the dollar issuer has no redemption “obligation” nor any food/fuel buffer stock, so countries holding US dollars can end up with lot of green paper in hand with no obligation from the dollar issuer to supply food/fuel.
Inflation is a monetary phenomenon that is caused by depreciating currency. If my food is depreciating, I am experiencing inflation. Replacing my old food with new food at a cost is the opposite of inflation protection.
What you are calling for is essentially a Federal Reserve of food, instead of paper. What’s the difference? You are replacing one cartel of bankers who control the money supply with another. But not only that, you are replacing the money supply with a temporary substance that gives the bankers even more control over your ability to acquire new capital. This is the exact opposite of what the world needs. We need to get away from massive governmental manipulation of money. Central planning of anything eventually results in its destruction. If we start speculating on when the government will “open the window” (reduce rates/release more food) we re-create all the negative aspects of our current system.
If I am a country that exports energy, why would I exchange my energy for a currency backed in energy? I already have energy, I need money so I can buy things from people who don’t need any more energy.
Multiple agencies can issue currency/token, the issuing agency should have “food/fuel/energy reserve equivalent to the currency they issue” and they are obliged to redeem the currency they issue.
Please explain how manipulation is possible in a redeemable currency/token system?
@point
“If I am a country that exports energy, why would I exchange my energy for a currency backed in energy? I already have energy, I need money so I can buy things from people who don’t need any more energy.”
Economics 101 : concept of money.
Anybody can add or withdraw food from the market just as they can with any other commodity, it’s not different than gold in that sense, but it’s worse than gold in the sense that it has an expiration date which means everyone is dependent on a continuous flow. That makes people more vulnerable and enhances opportunity for manipulation.
Energy is not money, that’s the point.