4 Classifications of Money

Industry Observer

Money is anything that will be accepted as a medium of exchange and fall into 4 classifications.

  • Commodity Money
  • Receipt Money
  • Fiat Money
  • Fractional Money

Commodity money is a simple exchange of goods that have characteristics that are attractive and beneficial to everyone.  This is known as the barter system.  I exchange metal for a goat because each party involved needs what the other party has.

Receipt money dates back to the days of post-era ruins of Rome in which people would deposit their gold for a receipt redeemable at any time.  At the time only the owner of the gold was able to take their gold out of the vaults.  After a while it became customary for the owner of the gold to endorse their receipt to a third party.  This receipt system is the forerunner for today's checking system.


Fiat Money is paper money decreed legal tender, not backed by silver or gold.  Fiat money does not have any intrinsic value and is decreed legal tender.  This type of money is forced money onto the will of the people who use it.  This is what is used today in our world economies.    

merriam-webster defines fiat as:

1 : a command or act of will that creates something without or as if without further effort 2 : an authoritative determination : dictate <a fiat of conscience> 3 : an authoritative or arbitrary order : decree <government by fiat>

Makes you think after seeing some of the words used in these definitions.

Fractional moneyis a system used to create money out of thin air, i.e. loans and mortgages.  This can be done based on the ratio that banks allow for money to be borrowed.  Example (reality):  For every $1 million dollars deposited in a bank, the bank can now loan out $9 - $10 million dollars based simply on the promise to pay by the borrower.  Now you know why so many defaults and foreclosures exist in the marketplace. 

The fiat and fractional money system is what is used today.  This system has never been sustainable forever in any culture dating back in recorded history.  In fact, no society has ever been sustained once they went off the gold standard.  Boom and busts cycles will always exist with the combination of these two monetary systems being used at the same time. 

I hope this gives you a better understanding of why we are in the financial mess and why there is no way to spend our way out of it.  Second, in our current monetary system, you will need to make an obscene amount of money in order to keep up with inflation.  Finally, do your research on this topic to understand the underlying reasons why this was set up this way.  Eye opening! 

Tony Toto


Nouveau Riche

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Tony Toto

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Sandra White
John L Scott Real Estate - Port Townsend, WA
Experienced Residential Resale Broker

Interesting post.  Economics is very complicated and I wish Americans understood it better instead of just having their hand out. 

May 11, 2009 10:41 AM #1
Li Read
Sea to Sky Premier Properties (Salt Spring) - Salt Spring Island, BC
Caring expertise...knowledge for you!

Yes, an interesting post indeed.    Is this the reason some people are getting out of cash, and back into good  hard asset investments???

May 11, 2009 11:33 AM #2
Sheila Kennedy
J29 Project - Rochester, NY

Great post Tony.  I appreciate the tutorial and the time you put into creating this post. 

May 11, 2009 04:36 PM #3
Toula Rosebrock
Diane Turton, Realtors, Forked River, NJ - Lacey Township, NJ
Broker/Sales Associate, Realtor, Lacey Township,


Hi Tony:

Thanks for the explaination!

First time I've heard of some of these terms...

Have a great week.

May 12, 2009 05:56 AM #4
Goodbye Active Rain
Out of Real Estate

Sandra:  Economics is not that complicated.  Those who run the show make it look complicated so know will understand.

Sea to Sky:  A big reason.  Everyone is looking for hard assets to shelter their money.

Sheila:  Thank you!  It didn't take that long with the information at hand.

Toula:  You are welcome.  Keep educating yourself.

May 12, 2009 08:58 AM #5

Tony, it was fairly recent in our history that our money was no longer backed by gold.  If that is the case, why is the government keeping all that gold in Ft. Knox?  Thanks for the information, it does make us think.

May 12, 2009 10:42 AM #6
Goodbye Active Rain
Out of Real Estate

Terry:  1971 all ties to the gold standard went away. 

May 12, 2009 11:45 AM #7

Yeah I know.  Still shaking my head about that stupid move.

May 13, 2009 08:41 AM #8
Goodbye Active Rain
Out of Real Estate

Terry:  Based on a book I read and the research I have done, it is all by design.  A massive change is needed and we can no longer wait.  This is why I am writing about this along with real estate. 

May 13, 2009 09:01 AM #9
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