But what is Money?


This week on Facebook: I have posted a lot on the subject of money, often referring to Investopedia, the International Monetary Fund, European Central Bank (which is not a ‘central‘ bank at all) and the Encyclopaedia Britannica¹.

  • Investopedia: Everyone uses money.
  • IMF: Money may make the world go around, as the song says.
  • ECB: The nature of money has evolved over time.

Holding the views I do about money and especially ‘the double coincidence of wants‘ problem, I now find myself torn between the notions of commodity money and fiat money. Of course whether or not either money has value ultimately comes back to the double coincidence of wants, this time being set by the Foreign Exchange Market².

The value of a country’s currency depends on whether it is a “free float” or “fixed float”. Free floating currencies are those whose relative value is determined by free market forces, such as supply / demand relationships. A fixed float is where a country’s governing body sets its currency’s relative value to other currencies, often by pegging it to some standard. Free floating currencies include the U.S. Dollar, Japanese Yen and British Pound, while examples of fixed floating currencies include the Chinese Yuan and the Indian Rupee. Foreign Exchange Market

The reasons for a State investing in another State’s money may be quite complex, which raises the question of if China’s wealth is in the free floating USA dollars debt that it owns, or the fixed floating currency of the Yuan.

An economy based on the credit expansion of a State’s debt must inevitably collapse, as must any fiat money based on the distribution of wealth created by it.

The boom squanders through malinvestment scarce factors of production and reduces the stock available through overconsumption; its alleged blessings are paid for by impoverishment. The Wisdom of Ludwig von Mises (1871-1973)

The distribution of wealth to the already wealthy continues.

Individuals with net assets of at least $1 million, excluding their primary residence and consumables, are classified as High Net Worth Individuals (HNWI), while those HNWI with net assets of at least $30 million are classified as Ultra-High Net Worth Individuals (Ultra-HNWI). The rich will always be with us

Whether a State’s currency is Soft or Hard the average consumer has the benefits of neither. A year ago this month I posted Cassandra on Money & Debt in which I reported the following statement by Lord Beswick:

Is it not quite illogical, indeed indefensible, that the state should be so concerned to maintain its sovereignty in the issue of coins or notes that it allows this new form of money, used overwhelmingly today, to be created outside its control? Lord Beswick: Money Supply and the Private Banking System — Hansard November 1985

The measure of wealth inherent in a State’s money is determined by its economic growth as predicated by politicians on the debt to GDP ratio. The foreign exchange market² may take a different view to that of the politicians when it sets the exchange rates for currencies with floating rates. It is interesting that there appears to be different views on when credit cards become money (next week’s post) and presumably is the “new form of money” that Lord Beswick was referring to in November 1985.


1. What Is Money for? (intercollegiate Review) A better question to ask, therefore, is simply: What is money? Asking this question is a better way even to understand what money is “for.” It is, however, a harder question to answer. Indeed, there are many possible answers to this question. I will focus on just one. The thesis I want to argue in answering the What is money? question is: money is coined liberty. This answer comes from the nineteenth-century Russian novelist Fyodor Dostoyevsky in his novel The House of the Dead (1861). But the real explanation for why money is coined liberty comes from another eighteenth-century Scottish philosopher (and the father of economics), Adam Smith, in his Inquiry into the Nature and Causes of the Wealth of Nations (1776).

2. What Is Money? It’s a medium of exchange that facilitates trade. Suppose I have a Wayne Gretzky hockey card that I’d like to exchange for a new pair of shoes. Without the use of money, I have to find a person, or combination of people who have an extra pair of shoes to give up, and just happen to be looking for a Wayne Gretzky hockey card. Quite obviously, this would be quite difficult. This is known as the double coincidence of wants problem…

3. What is money and how to works: Money is something that probably affects you every day. You might work for it, worry about it, spend some of it, and even wish you had more of it. But we rarely examine how money works and what makes it a significant part of our lives. So, what is money, and how did it get so important?

4. What Is Money? (Economics & Liberty) Money is primarily a medium of exchange or means of exchange. It is a way for a person to trade what he has for what he wants. Ideal money has three critical characteristics: it acts as a medium of exchange; it is an economic good; and it is a means of economic calculation.

5. What Is Money? (Forbes) In past dallies, we examined what capital is about. We pointed out that money itself is not capital, where the former is used mainly to buy goods and the latter is meant to last long and generate wealth via investment. That means the banknotes that we earn, spend and keep are not capital, but rather a user-friendly tool for trading. Even if you had $1 million dollars, but you’re stranded in a desert island, then that money is rather useless because you cannot spend it on anything, except as fuel for fire.


Referenced Articles Books & Definitions:

  • A bold text subscript above and preceding a title below (¹·²·³), refers to a book, pdf, podcast, video, slide show and a download url that is usually free.
  • Brackets containing a number e.g. (1) reference a particular included article (1-5).
  • A link (url), which usually includes the title, are to an included source.
  • The intended context of words, idioms, phrases, have their links in italics.
  • A long read url* (when used below) is followed by a superscript asterisk.
  • Occasionally Open University (OU) free courses are cited.
  • JSTOR lets you set up a free account allowing you to have 6 (interchangeable) books stored that you can read online.

¹Money (url*) Money is a commodity accepted by general consent as a medium of economic exchange. It is the medium in which prices and values are expressed; as currency, it circulates anonymously from person to person and country to country, thus facilitating trade, and it is the principal measure of wealth.

Fiat money, in a broad sense, all kinds of money that are made legal tender by a government decree or fiat. The term is, however, usually reserved for legal-tender paper money or coins that have face values far exceeding their commodity values and are not redeemable in gold or silver. Fiat money — Britannica

²Foreign Exchange Market: The foreign exchange market is a global online network where traders buy and sell currencies. It has no physical location and operates 24 hours a day from 5 p.m. EST on Sunday until 4 p.m. EST on Friday because currencies are in high demand. It sets the exchange rates for currencies with floating rates.

One response to “But what is Money?

  1. Pingback: Plastic Cards & Money | Aasof’s Reflections

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Martin Widlake's Yet Another Oracle Blog

Oracle performance, Oracle statistics and VLDBs

The Land Is Ours

a Landrights campaign for Britain

The Bulletin

This site was created for members and friends of My Telegraph blog site, but anyone is welcome to comment, and thereafter apply to become an author.

TCWG Short Stories

Join our monthly competition and share story ideas...

The Real Economy

Blogs and stuff from Ed Conway

Public Law for Everyone

Professor Mark Elliott

Bleda

Am I my Brothers keeper?

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