Monday, March 24, 2014

Money, Gold, Paper - What is money?

The funny thing is that this is more well known today than prior to the internet, though not because of the internet. When banks started pushing for purely electronic funds people started thinking about this very question a lot, and eventually figured it out.

But there are still many who make the common mistaken assertions, like saying we should return to barter and trade or abolish money completely. The thing is, money is barter and trade, always has been, always will be.

Think of it like this, a dollar is a mark that represents the value of what you have created and traded to someone else, but you don't want what they have to offer so you take that marker to a different person and then trade it for what they have. In essence it's a miniature loan between several parties.

So to keep this up, the original method was to use gold as the marker, a valuable metal that was rare and otherwise useless at the time. That was when this marker system started, but at that time it was primitive and rather unsteady, that gold may be of great value in a place with no mining operations, but in a mining town everyone had a lot of it, making its' inherent value less that standard.

So then banks collected all the gold and printed paper markers to represent this gold they now controlled. Well, not really controlled, governments still had more say in the matter than the banks, they were paid to maintain the value estimates and manage the marker system.

But then something amazing happened, which upset our original system completely, we found a use for gold, other than as jewelry or status symbols. Technology makes use of this once rare metal so much that the value of gold sky rocketed again, but for it to be valuable it had to be used. This meant it could no longer represent the marker value.

That was when people got confused, the banks and governments had to admit the entire system was nothing more than an arbitrary one, where value was just estimated based on supply and demand. This caused businesses to begin adjusting the prices of their products based on what they thought people would be willing to pay, instead of how much there was of it.

So without the wool over our eyes we all learned one hard fact, money is only worth what we say it is, it's arbitrary and has always been so. The latest generation is exposed to this early on, but some of the older generations are still in shock about this realization. Don't be too harsh on them or it, we had been made to believe money was more than arbitrary for a very long time, as a method of keeping us from asking other, more difficult, questions.

So the next time you get your paycheck, just think of it as equal to the amount of work you did for other people, not your value as a person. It represents what people think your work's value is, for which you can then give to someone else to match what you think their work is worth. Yes, it's all arbitrary, and that's why electronic funds are no different than paper funds.

Actually, electronic funds are superior, they can be adjusted based on their increase in value, while the paper one will only depreciate.

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