I was looking up info regarding Aristotle’s ideas of what constituted “good” money and came upon this older (2009) article by a GoldMoney fan – http://www.marketoracle.co.uk/Article10370.html. It does a good job showing how, through the use of new digital means, more things are able to meet Aristotle’s list.
But if more things, today, can become money then isn’t it as likely that more things in the past were money than just gold? Well, the answer to that is an absolute yes when we consider the fact that money has always been, in the U.S., a combination of gold, silver, nickel and copper coins.
So I want to add a couple of things to Aristotle’s list.
The first is that money needs to be recognizable. Metals,when they come out of the ground, have to go through a smelting and refining process which is costly. The more one refines the metal, the purer it gets resulting in the likelihood of variance with not all metal ingots being equal in weight or in purity. Standardization, then, into a uniform and recognizable form is the function of the mint. That process indeed raises the value of the coin above the value of the metal as it is no longer necessary for one to weigh and/or assay the metal to determine its value. That standardization makes the metal better suited for trading and will make it always be worth more than what it would be worth if melted down.
The second thing that I would like to add is related to Aristotle’s 4th item on the list that money “must have intrinsic value. This value of money should be independent of any other object and contained in the money itself”. I would add to the list that who, what or how the determination of value is to be made needs to be agreed upon before a money is issued.
An “agreement” is almost synonymous with the word contract so, when talking about coined money there is a contract that says the coins will be minted to a certain standard. After the standardized coin is released it flows through the marketplace and it is the market that eventually determines its value relative to goods, services and labor.
We determined that coins (money) were made of gold, silver, nickel and copper coins and we should see the need for the market to determine four different values. So how is it that the government established the relative value of the metals to each other by affixing values to the coins themselves? Who is the government to determine that 100 copper discs of a certain weight equals one silver disc and that they are equal for all time? And the same holds true for nickel and gold as well.
There is something that can distort the market, however, and it is called “fraud”. If a money that doesn’t meet the standard is presented to the market in the same light as one that does then there is a fraud being committed and the money’s value will be affected both while the fraud remains hidden (by price inflation) and later, when discovered, by lack of trust. And the same, of course, holds true for digital money. But I present to you here the idea that the opportunity for perpetrating fraud only happens AFTER something becomes recognizable as money. No sane person could hope to pawn off toilet paper as money. No one would accept it or even take them seriously.
In Mr. John Lees article from 2009 he posts this graph showing the forms of money including the new digital ones (REIT, S&P500 ETF, and OIL ETF).
So now, in our list of “money” we have 9 items. So what is the big deal coming to a conclusion that BitCoin is, indeed, money? The answer is obvious because, among the nine, only one is not backed by anything and that is the dollar. As long as people view the worthless piece of paper as money, and give a monopoly to create it, then the reign of fraud and corruption will continue.
But where is Bitcoin’s intrinsic value? Perhaps intrinsic value should be dropped from Aristotle’s list? No digital form of money in and of itself has intrinsic value including the dollar. It’s quite difficult to argue that intrinsic value is critical when the dollar and many other currencies have operated for decades with no backing. Bitcoin, on the other hand, comes with a clear honest contract, free from fraud, from its open source software that can and has been thoroughly inspected and tested, its finite amount, its standardization. The one thing holding it back is its recognizability but that is changing.