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July 21, 2013

MICHAEL HICKS: Gold, bitcoin and kissi pennies

Today, we hear interesting assertions about currency.

On a recent trip, I was fortunate to visit with my parents and rid their basement of the detritus of my youth. Among the old uniforms and school projects was a small bundle of a pseudocurrency called kissi pennies, wrapped in leather twine. These items were acquired in Liberia almost 40 years ago, whilst your columnist was an exchange student. They were offered in a symbolic adoption by my host family. These kissi pennies were used in West Africa well into the 20th century for small trades when government-backed currency was unavailable. These artifacts brought to mind much of the news of today's money matters: namely gold and bitcoin.

Kissi pennies and many other pseudocurrencies of the past actually represent a pretty sophisticated understanding of the uses of money. History is flooded with such endeavors from places where governance touched lightly. So, be it shells sewn into a wampum belt, or a Spanish doubloon cut into eight bits (giving us the one-eighth stock market pricing until 2000), the need for money has long been fulfilled by private innovation. You see, all money ever needs to do is act as a store of value, a unit of account and (most importantly) a medium of exchange. Money, then, is whatever we all agree it to be.

Today, we hear from seemingly sophisticated folks some interesting assertions, one being that we should return to the gold standard, and so ensure long-run stability and remove those unseemly humans from decisions about money. This argument ignores two clear axioms. The first of these is that we humans seem to enjoy evolutionary pressures to better control our world. We cannot stop the urge and the means to circumvent rules, so instead we had better instead craft flexible checks and balances. The second of these is that gold is not necessarily more stable (unless, of course, you can be convinced that gold was stable over the past couple months while everything else in the world grew in value by 10 percent).

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