What is Money?
My latest article on SavvyStreet, "Money is just a generally accepted IOU."
SOURCE URL: http://www.thesavvystreet.com/what-is-money/
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The root of all good? :)
Thanks for another great article worthy of archiving.
https://www.youtube.com/watch?v=Kjgwj...
Regards,
O.A.
Money starts out as a claim on labor and productivity. When you work, you create "money" - which is why the money supply is roughly analogous to population size (barring government manipulation). A debt is a claim on future labor/productivity. Money spent is correctly titled consumption, but in many cases what is one man's consumption is another's productivity, so those labor claims trade hands. The trick is that one's labor may not be worth the same amount to someone else that it may be to you, which is why some kind of physical medium then enters the picture. That physical medium (aka currency) represents a unit of value generally recognized by everyone in society - whether it be shells, cows, gold coins or what have you and this physical medium may or may not have intrinsic value. This facilitates the appropriate valuation of various goods and services based on a common medium/unit of value which further facilitates barter progressing toward trade. It also facilitates wage negotiations because one generally has a rough idea of how much one must spend for a given lifestyle.
Accounting for Civilization
http://necessaryfacts.blogspot.com/20...
Debt: the Seed of Civilization
http://necessaryfacts.blogspot.com/20...
Numismatics: The Standard of Proof in Economics
http://necessaryfacts.blogspot.com/20...
The HUGE problem is that the FED and the Government can redefine what that debt is at any time and subtract what all notes represent to create new Notes that the government can spend. Dilution of the value of the "Money". Also if all debt are paid back (Clay tablets collected) there is no money in circulation.
Commodity certificates representing a fixed amount of gold or other commodity stored in the treasury can not be redefined and the supply of certificates can be increased by the treasury purchasing more of the commodity and issuing more certificates. or by issuing smaller denominations as prices decrease relative to the commodity. Deflation of prices is not the tragedy people make it out to be. Loans just need to be adjusted to factor deflation instead of inflation.
Thank you.
It is amazing how simple it is but yet how so many don't understand it.Your article should help some of the people that choose to read it.
The real trick is to keep the amount of money in circulation in balance with the amount of goods so that a loaf of bread maintains a constant price.
My favorite money is from the island of Yap where they carved large limestone rocks on a neighboring island and floated them over to Yap to use as money. Since they weighed a ton they were hard to move and thus you would just keep track of who owned which stone. Once, when bringing a stone across the ocean it sank. Undismayed, they continued to trade it and someone owned the stone at the bottom of the sea.
As long as the government stays out (legal tender laws and central banks) the amount of money will roughly track the size of the economy naturally.
First, there is no one single thing called "money." We know the classic photograph of the German guy with a wheelbarrow of worthless marks. It was not the only money in circulation. People still used silver coins; and they created ad hoc "Notgeld" emergency scrip.
If money were only metals mined from the ground, the cost of mining and the value of the metals would be the natural parameters that determined how much money was in circulation. (We have seen silver and gold inflation when huge inventories were injected unexpectedly by the Spanish Empire and later the Comstock Lode of Nevada.)
Falling prices are a consequence of a stable, commodity based money, such as gold. There's only so much gold in the universe. So, every new invention, every new product or service,increases the value of gold, and prices fall. We saw something like this during the "Long Recession" of the late 19th century when wonderful new inventions and falling wages caused both optimism and chagrin. People just did not understand enough about economics to see through the events of the day.
The idea that we need "the right amount of money" in circulation is the primary error in Milton Friedman's Chicago Monetism theory of government intervention in the economy. And, again, despite the fact that gold was the "standard" from 1817-1933, there were always many kinds of money. About 2001, I heard Alan Greenspan on NPR say that the Federal Reserve knew about 15 kinds of money, but only tracked about six.
Flooding the market with money can make it meaningless and also prevent investment because you don't have any idea what's going to happen.
You're right that bread doesn't have to stay the same price, there are changes in production costs, price of wheat etc. However, in general the price should reflect cost to keep the ovens going.