Government 1B: Lesson 50 Essay – (1) “What is the origin of money?” (2) “Name and explain three disadvantages that have been indentified with fiat money.”

Before people exchange with money there is trade and barter. Then more and more people begin to want the same thing (example: gold). Eventually everyone wants this product or thing because it is easy to exchange with. This thing eventually becomes a generally accepted medium of exchange. Then the government says that the national currency will be a piece of paper that looks a certain way so that people don’t counterfeit. Then people trade in the generally accepted medium of exchange for money that the bank creates itself. It is important to note that in my vision of an ideal society the government says that an ounce of gold can be traded for a set amount of money (in the U.S. dollar bills), no less or no more. This is important so that a person can always trade in a certain amount of money and get a certain amount of gold back. Basically there must be one set ratio of money bills for gold. That way the banks don’t produce too much money which would decrease it’s value. If the bank prints as much money as it wants and there is no set amount it can become fiat money which is bad. This is my idea of how money would originate in an ideal society.

One disadvantage of fiat money is that it looses value overtime. As the government or other group prints more money the money becomes less valuable. Fiat money has no direct use so if people no longer wished to exchange to exchange it, it would be worthless. Fiat money also gives the government or other group a lot of power because it can create as much as it wants and spend it.