Money as a Commodity versus Money as a Pact, 2

Suppose the inventory lists food reserves for 1,000 units, coal, timber and fuel reserves for 1,000 units, production tools for 1,000 units, clothing and furniture for 1,000 units, land and buildings for 1,000 units. Amounts to 5,000 units. 5,000 units of survival factors, of valuable products, of purchasing power. Up to this point money has been used as a unit of account only.

If money is a commodity, that is, something valuable in itself, then it has to be added to the inventory. Supposing there exist 5,000 units of commodity−type money, the inventory shall list the 5,000 units of the products above, plus the 5,000 units of commodity−type money units. Amounts to 10,000 units.

Now I ask you: which one is the real wealth on the island? 5,000 units of survival factors, or 10,000 units of survival factors plus money whose intrinsic value is of disputable origin and disputable use for actual survival? Food can be eaten, land cultivated with tools, and so on; how does the “commodity” of the money contribute to survival? Because it is store of value: you accept it in exchange for that amount of product/purchasing power today because you are confident someone else will accept it for more or less the same amount of product/purchasing power tomorrow. But its purchasing power is just a consideration agreed upon, regardless of what money is as an object.

So the truth is that the value of money as a survival factor is just the same for both money with intrinsic value and currency without intrinsic value. To find out which one is better or worse we'll have to dig deeper. As to this, it's interesting that the whole history of civilisation is the history of the contest between these two types of money, but it's of even greater interest to dig below the “official” history to find out what are the consequences on economy – that is, on the wealth of us all – of using one or the other.

However, it’s not that simple – it’s not just one is good and the other is faulty, and that’s all.