Oil or Wheat as Money????

Why wouldn’t oil or wheat or land or bonds work as money?

To understand why, think of simpler example: manufacturers money-off coupons. To anyone buying the product, the coupon is worth its face value. So why don’t coupons circulate as a kind of currency.

Let’s say you were planning on buying Charmin bath tissue today. Someone has a coupon for $1.00 off Charmin. It is worth nothing to him, because he isn’t buying the product. In theory, it “should” be worth $1.00 to you. But how much cash would you pay someone for that coupon?

Far less than $1.00.

With coupons, as with all non-monetary goods, the bid-ask spread is too wide for them to work as money.

2 Responses to Oil or Wheat as Money????

  1. samiam February 12, 2013 at 9:47 pm #

    Interesting illustration with the coupon. But isn’t the main reason things like oil and wheat can’t be money, is that they would only work in a barter system? Person A has oil and wants wheat. Person B has wheat but does not want any oil. Therefore they need money before a transaction can be made. Are you saying this situation would be a wide bid-ask spread?

  2. Keith Weiner February 13, 2013 at 4:33 am #

    Samiam: that’s it. Person B does not want oil. He may bid on oil, but it will be a low bid.

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