Question: What backs a non-POM form of money?
Answer: When one accepts a paper currency, one is accepting something which has almost no value in and of itself. A piece of engraved paper just isn’t worth very much for itself. It is what the paper represents that makes it valuable. There was a time when that paper represented gold or silver. Today, however it is fiat money (money because the government says it is money) in most currencies.
Now since the fiat money seems to spend just fine and people accept it in trade, few people care that it is not backed by gold or silver. But some people do care so for them we have posed and answered the question.
Non-POM money is not a physical object and does not represent a physical object so in that sense, nothing backs a non-POM. But that isn’t the end of the story. Remember that a non-POM is not the same kind of money as a POM. That is, when one spends a non-POM one is not transferring that money to anyone else. The non-POM simply ceases to exist. Therefore, the person doing the selling doesn’t really care whether anything backs the non-POM or not. He isn’t getting it so it’s none of his business or concern.
So let’s ignore the seller and concentrate on the buyer. From the buyer’s point of view, having the money is a good thing because he can acquire ownership of property and/or services by giving up some of that money. Since he holds the money and it can never under any circumstances belong to anyone else, the buyer is the only one who is concerned about what the money represents or is backed by. From his point of view, his money is backed by everything that is for sale that costs no more than the amount of money he possesses.
Of course this has some virtues because the this keeps the prices of those luxuries constant. Those prices never change. They are fixed. Therefore, what that money will buy is also pretty constant. When new luxuries are developed, then the money can buy those as well.
So, though nothing backs the non-POM in the way one would expect a POM to be backed, it doesn’t really matter at all.
