This is necessarily short because this is still work in progress. In economics, we learnt that people hold money for 3 reasons.
1) 1. To buy things with it (transaction motive)
2) 2. As a safety net (precautionary motive)
3) 3. To invest or speculate, so as to make more money (speculative motive)
Now, what if something else is used for any of these purposes? I am not talking of the barter economy in failed economies. Instead, look at today’s world of commodities trading. Here, people are supposed to buy steel or cement or sugar for the purpose of using it. Instead, today, the market for commodities is clearly dominated by speculators. These are people who try to make money by speculating that the price will move up or down...buy the commodity contract, only to sell it later. Thus, they never usually accept delivery of the commodity itself...just buy and sell contracts.
I think a case can be made that these commodity contracts are a new form of money. They can be freely traded, they have a fixed value that does not change with time, and are convenient. However, most people recognize that paper money is worthless unless you can trade with it (exchange or buy things with it). This is not the case with commodity contracts, where there is a value attached to them, which is equivalent to the value of the commodity.
But this does not detract from the essential case. Today’s commodity markets are just another form of money being traded around. But we all know about inflation and money. How does that work in the commodity markets? And does it work at all? Its something I have not got an answer to yet...but it makes for an interesting case.
4 comments:
dude, went over my head. could not understand !!!!!
You missed the most important requirement for something to be accepted as money ... universal acceptability.
Commodity contracts are nowhere near universal acceptability. Therefore, no go!
universal acceptability is just a term...think about it, credit cards were not really money...but right now they are very close to a money equivalent, as their acceptability has increased. The same thing has begun to happen with commodity contracts. From only the actual traders accepting it, even speculators and the general public can now buy contracts...and besides, the analogy can only be taken this far!
It may be just a term, but it's a very important one. Your used undies are not universally acceptable. Even if they allow transactions, may be a store of value and might be used to speculate successfully, they will not become money because they aren't universally acceptable.
Ditto with commodity contracts. You can't go to a remote village in Andhra (which, hopefully, hasn't been pillaged by Ratnakar and the East India Company v2.0) and trade your used undies for ... umm ... whatever it is you want. Neither can you trade commodity contracts there.
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