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What is Money?
What is Money?
One of the most confused subjects that has ever been debated in the history of mankind is the subject of money. And from money, we go into other subjects such as banking, inflation and finance.
After we get money properly defined, we can then use that concept to think with and come up with good answers to some very perplexing questions. When you start to think about a problem with the components of that problem properly indentified and named, it will be much easier to see the real causes and effects going on.
All that money really is, is just "an idea backed by confidence". That's all, nothing more nor less than that. And in that word confidence, is buried the fact that certain people have agreed upon something to function as a medium of exchange. That medium of exchange is money, regardless of whether it is wampum, diamonds, or precious metals. The confidence factor then comes into strong play here and is the whole basis of that medium of exchange. Money acts as a sort of "lubricant" in the dry mechanics of an economy. It's just not always feasible for a person to haul around his crops, goods or livestock in search of someone who is willing to trade with him somewhere for what HE needs. So what do people do to get around that? Well, they use an intermediary which we call money.
When people agree that some quantity of the money represents a certain amount of labor, it can then be exchanged with someone else for a similar amount of represented labor. And that's the main thing that money does. It represents the fact that a person had to do some kind of work to come into possession of that amount of money. Usually. Now when someone either steals goods or money, or creates some "money" through some bogus means, then the confidence factor suffers and it becomes worth less and less over time. When governments print up money which has no real value behind it, it's not worth as much as money which DOES have real value behind it.
When you have two people, and one of them has to sweat out in the hot sun or work in freezing cold to earn a living, while the other one does little or nothing, then there is a disparity and animosity between the two. Why should one toil while the other is able to loaf and still eat? Welfare programs, and this includes government jobs which produce no real products (almost all government jobs fall into this category by the way!) run by governments with unlimited access to fiat currencies ALWAYS cause at first an "inflation" of the currency, and then a total collapse of it. These economic collapses are always the result of a so******t/communist/fascist type of government. And they never last more than several decades at most. The saddest part of the whole thing, is that through the manipulation of the history books, people do not know the true causes of these engineered monetary debacles, and so they repeat them with great regularity.
Let's look at gold as money. It takes a certain amount of labor and equipment to locate and then collect this metal. Now back in 1925, an ounce of gold would buy a man a pretty nice suit, and today, an ounce of gold will still buy a man a pretty nice suit. Why is that? It's because back in 1925, the ounce of gold required a certain amount of time and labor to collect it. Today, it still takes about the same amount of time and labor to locate and collect an ounce of gold. Please don't get confused now over the fact that "dollars" today don't equate to "dollars" in 1925. If we were still on the gold standard, the number of "dollars" that were equal to one ounce of gold in 1925 would still be true today.
Because of the fact that our "money" is no longer backed by anything of real value, it takes more "dollars" to equal the one ounce of gold. Why is that? There are several reasons why, so let's take a look at a few of them now. First off, when these "dollars" are printed up willy-nilly, they lose most of their value right there. The reason is that the "dollars" are all printed up with the exact same amount of ink and paper to them, regardless of their denomination. There isn't twenty times more ink and paper in a twenty "dollar" bill than there is in a one "dollar" bill, is there? So with each bill having the exact same value, they all become worth the same as the lowest one. And not just according to what's printed on it, but what it's actual intrinsic worth is. As it costs less than 5 cents to print up a "dollar" bill of any denomination, that's about what it's really worth. And in actuality, these pieces of inked paper are Federal Reserve Notes with no value to them, other than the fact that someone down the street or around the corner may be willing to trade something of real value for them. They are also known as debt bearing corporate notes, because the corporation known as the U.S. government has been bankrupt since at least 1939. That was when it was officially acknowledged by the U.S. Congress.
Another reason that these fiat currency, debt bearing notes lose value is because of book keeping entries being used instead of actual "dollars" changing hands. Every time that some government agency buys some goods or services with nothing but a change in book keeping entries, a bit more confidence is knocked out of the "money" and thus we have "inflation". All that inflation is, is "a decrease in the perceived purchasing power of a currency". That's all it is folks! Forget all of these stupid proclamations that inflation is due to an "over supply of money" or some such clap trap. If that were really true, then just by taking money out of circulation, we would solve inflation. But it doesn't. What it DOES do is make it even harder to purchase goods and services, and then the economy really tanks, big time. When John and Jane Doe perceive that they will need a greater amount of "money" tomorrow to maintain the lifestyle that they enjoy today, they then have two choices. One, they can work more hours in the day, or two, they can charge more for the goods or services that they provide to the society at large. And since one can only work so many hours per week, they must then increase what they charge. And so begins a vicious cycle of everyone down the line doing the same thing until it comes back around to John and Jane Doe, and then it starts all over again. And when thinking of inflation, think of it not in terms of things becoming more expensive, rather think of it in terms of the money becoming worth less and less. Which is the truth of the matter. The instability of currencies and economies become much easier to understand once you can do this.
When "money" is either given to people for no reason, or loans are defaulted on, there too, more confidence is knocked out of the "money" and it becomes worth less and less. This idea that there are "money multipliers" is just so much hogwash. There is absolutely NOTHING which can multiply human labor, and since money is supposed to be based upon human labor, there can be no money multipliers. Granted, there may be more efficient methods found to do certain things, but they always come with some kind of a cost attached to them. There's no such thing as a free lunch. Someone, somewhere, somehow, is paying for it.
Let's go back to gold mining for a moment and look at a few things in more detail. When a person goes out into the wild to look for gold, he must take with him food, clothing and equipment to survive with and make the collection of the gold possible. And while he is collecting that gold, he cannot possibly be planting and growing food, or weaving cloth for his clothes, or making a gold pan either for that matter. So the prospector come miner must EXCHANGE some of his labor for these items in order to start his new pursuit and continue in it once he finds a place that has some gold.
Mining is not like farming or ranching, where the product grows and multiplies. It costs pretty much the same to obtain an ounce of gold no matter where it's found or the process used. The result of a man panning a few nuggets and flakes of gold out of a stream bed by himself, or a huge mine employing thousands of workers which makes many ingots per day, equates to about the same overall cost. Men must be paid a wage unless they are slaves, and machinery must be bought, maintained and powered in order to get the gold out of the dirt. This is why there's no economy of scale (cheaper by more volume) in mining, and consequently the value of the gold stays on par.
When Mr. Tailor sells his fine suit for an ounce of gold, it's because of several reasons, but the most important one is that the sum of the labor involved in making the suit from the creation of the silk or wool cloth up to the work of actually sewing the pieces together requires the amount of labor the ounce of gold represents. With some allowance for a profit of course! If there's no profit in a venture, then it will fail. And when governments step in to prop up a failing venture or support one which never had a chance of succeeding in the first place, we again get a lessening of the confidence in a monetary system and that's our old "friend" inflation again. And with "friends" like that, who needs enemies?
Where actual gold and silver specie are used, there's NEVER any inflation (see the above), if a free enterprise economy is used. The reason for that is very simple. If someone gets out of line and tries to increase his prices too much in order to get rich quick, someone else will come along and pick up the business the first person loses due to the price increases. And if the quality level between the two is about the same, the first person will drive himself out of business rather quickly!
My next article will be about banking and finances.
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