The thing that you are running after
What is Money?
Money is all about power -CSW
Money is a function of our time. It is our time on earth, our sweat and a record of our efforts. Money is a call option on all of society at that point of time. Money is information. It enables you to have information. It is information on where you can invest and where there is opportunity. It is not that you can save for today but that you can create more for you tomorrow.
Money is not wealth
We misunderstand money because of one main misconception- we equate wealth to money. Wealth is the sum of all things and services that we can buy with money. The fields, the buildings, the computers, the IT repair guy all of this adds to wealth. Money is used to measure wealth.
Money is the $10 you can clasp in your hand, it is the amount you see in your bank account. Wealth is what you can buy with these digits that are marked against your bank account. Wealth can be an asset such as land from which you can generate more money. Wealth can be the car that you use to travel to work. Wealth is the movies and songs that generate money for the creator. It is also intangible ideas such as designs which are patented by the inventor.
Let’s try to see how the necessity of money came about from Henry Dunning Macleod’s book — Economics for Beginners.
The Origin of Money
Suppose a wine-dealer wants a quantity of bread from a baker : but the baker wants only one-half the equivalent quantity of wine from the wine-dealer, or perhaps even none at all. The wine-dealer takes the bread from the baker and gives him in exchange as much wine as he wants, and makes up the balance by giving an amount of this generally exchangeable merchandise : or if he wants no wine at all, the wine-dealer gives him the full Value or equivalent of the bread in this merchandise.
The baker perhaps wants shoes and meat, but not wine. Having received this merchandise from -the wine-dealer, he goes to the shoemaker or butcher, and obtains the equivalent of the product he sold to the wine-dealer in the form of shoes or meat.
Thus is seen the fundamental nature of money, as this generally exchangeable merchandise is called. Its special and particular purpose is to represent the debts that arise from unequal exchanges among men, and to enable persons to obtain the equivalent of the service they have done to one person from some one else. Thus the true nature of Money is to be “a Right or Title to demand something from some one else”. According to Aristotle- Money is our Security to get something when want it, if we want nothing at present.
Money is a record keeping mechanism
Starting in the Late Bronze and Early Iron Ages, communities created silos that were excavated into the floors of houses not only for the storage of grain in a single year but to save across one year to the next. Storages started to increase in size as towns and villages became larger. The resulting larger granaries served a communal and administrative purpose, and the farmers would be given a tally related to the weight of grain deposited.
The coinage that we see in common use in the ancient world, shekels and talents, originated as grain receipts. Farmers and other producers would store large amounts of grain following a harvest. In addition, farmers produced straw that could be used in the production of bricks. It led to the origin of trade and exchange. Ones who were better farmers continued to farm, whereas others who could now specialise in pottery, creating bricks, and other artisan trades would be able to exchange goods and services for part of the stored food. It is the origin of money.
It is a ledger entry of what the farmer has stored in the granary so that he can pass it around. Money doesn’t need to have value in itself. Money records your efforts and gives you a ticket that you can redeem when you wish to do so at a later point of time.
Instead of actually exchanging grains, the farmers decide to use their granary receipts to exchange items. Initially let’s say that the farmers were recording their right on just a piece of paper from the granary. But the farmers realize that the granary owner can cheat them by just issuing more paper than the grains in his warehouse. He actually doesn’t have that much grain stored but society perceives it as that much grain stored. To prevent this, society would rather record the right in a way that is difficult to counterfeit. Throughout history, we have found that commodity money fulfilled this function well because it was a scarce good. Gold has a cost to be obtained and that is why it has value recorded on it. Something that is hard to obtain stores value better and other properties such as durability help society store value in it.
Money must stand the test of time and the elements. It must not fade, corrode, or change through time. — Aristotle
In a low trust society where the merchant cannot trust the granary owner, metallic credit is used. When there is an advance in civilization, there is also a shift in the form of credit that is used.
Fiat Money is a currency without intrinsic value that has been made legal tender by a government decree. Fiat Money is backed by the government that issued it and has been adopted by society because it is more efficient than using gold for exchanges.
Fiat money is issued by the government and hence the supply is in the hands of the government. It can be counterfeited by the government as the right is issued on cheap paper, but excessive printing has negative outcomes such as depreciation of value. We have to trust the government about the numbers and we have to trust the politicians not to print money and fund their boondoggle. Today, we use fiat money without wondering why the note we have in our hand has value.
The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. — Satoshi
Bitcoin is collaborative money. It is a tamper proof way to record data. In a society that has trust in the legal system, in the system of rights, Bitcoin functions as a better money. The rights are written into every bit, and they cannot be tracked.
Libertarians who have preferred gold to Bitcoin have failed to appreciate the value of money as a form of cooperation. Bitcoin is better cooperation in part because it’s stupid to steal it. Bitcoin is not like gold. Gold is a form of money suitable for a primitive and violent society.- Daniel Krawisz
Bitcoin is the only scarce good that has truly existed. Bitcoin opens up the ledger in such a way that the entire world can record and trace every exchange.