Question: What backs a non-POM form of money?
Answer: When one accepts a paper currency, one is accepting something which has almost
no value in and of itself. A piece of engraved paper just isn't worth very
much for itself. It is what the paper represents that makes it valuable. There
was a time when that paper represented gold or silver. Today, however it is
fiat money (money because the government says it is money) in most currencies.
Now since the fiat money seems
to spend just fine and people
accept it in trade, few people
care that it is not backed
by gold or silver. But some
people do care so for them
we have posed and answered
the question.
Non-POM money is not a
physical object and does
not represent
a physical object so in that
sense, nothing backs a non-POM.
But that isn't the end of the
story. Remember that a non-POM
is not the same kind of money
as a POM. That is, when one
spends a non-POM one is not
transferring that money to
anyone else. The non-POM simply
ceases to exist. Therefore,
the person doing the selling
doesn't really care whether
anything backs the non-POM
or not. He isn't getting it
so it's none of his business
or concern.
So let's ignore the seller
and concentrate on the buyer.
From the buyer's point of view,
having the money is a good
thing because he can acquire
ownership of property and/or
services by giving up some
of that money. Since he holds
the money and it can never
under any circumstances belong
to anyone else, the buyer is
the only one who is concerned
about what the money represents
or is backed by. From his point
of view, his money is backed
by everything that is for sale
that costs no more than the
amount of money he possesses.
Of course this has some virtues
because the this keeps the
prices of those luxuries
constant.
Those
prices never change. They are
fixed. Therefore, what that
money will buy is also pretty
constant. When new luxuries
are developed, then the money
can buy those as well.
So, though nothing backs the
non-POM in the way one would
expect a POM to be backed,
it doesn't really matter at
all.
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