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THE ENDANGERED DOLLAR The US dollar may be due fora collapse if the OPEC oil-producing nations decide to sell oil for euros instead of dollars, or if the "mortgage bubble" bursts the US economy from within. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude. Then. nce. — Thomas Jefferson A Brief History of Money lor decades, the US dollar has served as the world's default currency. The phrase "sound dollar" has expressed the faith and confidence of generations of not only Americans but people worldwide. That situation is coming to end, and the conse- quences will be far-reaching. In order to understand why this sea change is about to occur, and what is at stake, it is necessary to begin by examining in the briefest terms the history of money, banking and the dollar. Hunter-gatherer societies typically enjoyed a gift economy in which trade and barter occurred only with people external to the tribe or band. Everyone within the band was treat- ed as family: whatever was available was shared without expectation of reciprocal exchange. The story of the rise of social complexity is also the story of the gradual shrivelling of the gift economy and the expansion of the scope of trade—a story that culminates in our situa- tion today in which the market mediates nearly all categories of transactions between and among humans, sometimes even within families. Even many relatively complex societies of the past (such as the ancient Egyptian and Incan civilisations) managed to do without money. However, this new tool, wherever it appeared, served to facilitate and accelerate trade. Its effects were predictable; French Historian Fernand Braudel, writing of Europe in the Middle Ages, described them as "steep variations in prices of essential foodstuffs; incomprehensible relationships in which man no longer recognised himself, his customs or his ancient values". The individual caught up in mediae- val Europe's monetisation process found, again in Braudel's words, that "his work became a commodity, himself a 'thing"". The kinds of money people have used are almost endless; however, in societies that have adopted the widespread use of money, coins made of precious metals long ago became favoured over other options (including shells, beads, cattle and, in China, paper) due to their relative durability, portability and rarity. Since money serves several possible functions—a store of value, a measure of value, a medium of exchange and a standard of deferred payment—in some cases individual societies have used two or more forms of money simultaneously. Monetary history took a decisive turn with the emergence of banking in Europe during the Middle Ages. Since travelling traders were frequently robbed of their coins or metal ingots, they took to depositing their metallic currency in the strongboxes of silversmiths and goldsmiths, and carried redeemable receipts instead. Gradually these receipts came to be regarded as being equivalent to the metal itself. This was the first paper money. Meanwhile, goldsmiths and silversmiths discovered that it was possible to issue receipts for metal coins which they did not actually possess—a practice that would eventually give rise to fiat currencies and fractional reserve banking. Fiat currencies did not appear in the West in any significant quantity until the 19th century, when governments and national banks began issuing notes not backed by any precious metal coinage whatever. by Richard Heinberg © 2004 Editor/Publisher, MuseLetter 1604 Jennings Avenue Santa Rosa, CA 95401, USA Email: rheinberg@museletter.com Website: http://www.museletter.com from MuseLetter #149, August 2004 NEXUS = 11 by Richard Heinberg © 2004 DECEMBER 2004 — JANUARY 2005 www.nexusmagazine.com