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9
What Gives Money its Value?
To help illustrate the principle of honouring pledges, I will go back to the idea of money as
a commodity­backed receipt. If in a community receipts are issued for gold, corn or other
valuable items, and if these receipts then circulate as they are more convenient to use than
the goods themselves, then the notes perform the task of money, and each note or token is
backed by a promise to supply a certain amount of gold or corn. The token or note is a
promise by the issuer (the early goldsmith discussed in Chapter 1, or, say, a bookstore that
issues book vouchers) that a certain amount of a commodity will be paid out when the
holder wishes to redeem it.
The other type of money is fiat money, which is money that has been issued by an
authority (fiat means ‘an authorisation’ or ‘a decree’). This time there is no commodity
backing the note; instead, the paper is simply a promise that the issuer will accept it for
payment at some time in the future. This type of money is declared to be money by the
authority, although it is not redeemable for any one particular commodity, and the
community has accepted this decree. What is miraculous about all this is that the paper is
given value by the community – thus a piece of paper that is actually worth just a few cents
is agreed to be worth much more.
How is Money Issued?
Whatever the money system used, someone has to print the notes and distribute them. In a
mutual barter system a note is issued by the person buying goods or services; this person
then goes into debt to the system and a debit is recorded against his or her name. In the
case of a government spending money into existence, it issues taxation vouchers that it
ultimately accepts or redeems for tax. In the case of bank debt, money is issued as a
mortgage and cancelled when it is paid back.