by Cicero Richardson

Created on: May 15, 2008   Last Updated: May 16, 2008

Imagine you step up to the counter in a convenience store and ask for a package of chewing gum. The clerk reaches behind himself, selects the flavor you indicated, and sets the package in front of you. In response, you pull from your wallet a crisp $1 bill and set it on the counter alongside the gum. The clerk leaves the dollar on the counter, looks up at you, and mildly cocks his head. The clerk snorts, "What the hell would I want with a dollar?"

This situation may seem surreal to the modern American, where most of us don't normally bother to question the domestic value of the dollar. However, if it weren't for merely two sections of the U.S. Code this scenario might not appear so alien. So what exactly is a dollar? Who decides how much they're worth? And why do we never use any other media for transactions?

In a simpler economy, transactions are typically done more directly, where one party offers a quantity of some product or service in exchange for another product or service that they desire. Barter systems quickly establish themselves to standardize the exchange of goods, and prices naturally emerge from the process of unregulated haggling. People quickly begin to think beyond their immediate transactions and start recognizing the value of certain goods as objects of trade as opposed to thinking only of a good's intrinsic utility. For example, you may find a good deal on wool, and though you have no use for the wool you happen to know a tailor who would give you a good deal on some tobacco in exchange for it, so you buy the wool strictly as a trading medium.

In such a system, a very small number of materials will eventually emerge as standard currency as a result of two economic pressures: large transactions and savings. When it comes to making exchanges on vary large scales, such as when buying a house, a boat, or an army, common goods lose their practicability, as it would take many tons of wool or grain to compensate such high-value products. As people also start thinking to the future there becomes the question of what materials are good for long-term savings, and again most common goods are opted against, since many of them do not last when stored (for example, grain will rot) and it is again impractical to store them in large quantities. Thus rare and durable luxury goods become preferable currencies.

As most people probably know, the most popular currency in history has been gold, and the reason has been that it answers the pressures of both large transactions

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