Free The Crash Course: The Unsustainable Future of Our Economy, Energy, and Environment by Chris Martenson

dollar and exchange it into four quarters and then back again without losing value. Diamonds have a very high value, but they’re not good at being money because they are individually varied and are therefore not perfectly equivalent to each other. Diamonds fail at being a set unit of account, and dividing them causes them to lose value. “Macks,” on the other hand, are all exactly the same, so they score high in that category, but presumably they don’t divide very well, so they’re not as useful for transactions that cost less than one “mack” or require a partial “mack.” So “macks” are reasonably good at being money, but they’re not perfect. But, hey, this is federal prison we’re talking about, so close enough is apparently good enough.
     
    So what is money, really? I believe in a very simple definition: Money is a claim on wealth .
     
    As we will see in Chapter 9 ( What Is Wealth? ), primary wealth represents the abundance of the earth. If you move some electronic digits from your bank account to another person’s account and gain an oil field in the process, you have just used your claim on wealth to secure some actual wealth . Now it’s up to the recipient of your money to decide where and when they’d like to claim some wealth of their own, too. This idea of money merely representing a claim is important, especially when we consider that these claims have historically been growing exponentially, which we’ll discuss in more depth later on.
     
    Full Faith and Credit
     
    Literally anything can fulfill the role of money in a given culture: Cows, bread, shells, beads, and tobacco have all served as forms of money in the past. Once upon a time in U.S. history, a dollar was backed by a known weight of silver or gold of intrinsic value and came directly from the U.S. Treasury. Of course, those days are long gone. Now dollars are the liability of the Federal Reserve, a private entity entrusted to manage the U.S. money supply and empowered by the Federal Reserve Act of 1913 to perform this function.
     
    If you pull out a physical U.S. dollar and read it carefully as though it were a contract (which it is), you’ll notice that modern dollars no longer have any language on them entitling the bearer to anything. Dollars are no longer backed by any tangible substance sitting in a vault, warehouse, or silo. You can’t demand something from the Federal Reserve or the U.S. Treasury in exchange for a dollar, other than a replacement dollar. Rather, the “value” of the dollar comes from the language on the front, which reads Legal tender for all debts public and private , which means that it’s illegal to refuse to accept dollars for debt settlements and that you can’t pay taxes in anything else. Dollars have value because they’re backed by the “full faith and credit” of the U.S. government, but what this really means is that they can legally be exchanged for wealth created by its citizens.
     
    It is therefore vitally important that a nation’s money supply be well-managed (particularly if it’s fiat money), because if it’s not carefully administered, the monetary unit can be rapidly destroyed by inflation. Thousands of paper currencies have come and gone throughout history and now no longer exist. A few examples from the United States include Confederate money, colonial scrip, and the infamous greenbacks issued during the Civil War, which still lend their nickname to modern money despite having lost all of their monetary value long ago. The value of some currencies simply erodes slowly over time until they’re no longer useful, and then they’re replaced. But a smaller yet noteworthy number suddenly lose all of their value in dramatic, hyperinflationary episodes.
     
    How Hyperinflation Happens
     
    A relatively recent example of hyperinflation comes from Yugoslavia between the years 1988 and 1995. Pre-1990, the Yugoslavian dinar had measurable value—you could actually buy something