How Money Works-(1)
A Brief History of Money~(1)
How money works-and why you can’t get enough of it
This is the most import chapter ...we all need money..it is the heart of the Capitalist system...without money...which is the oil in a car...or the blood in the circulatory system... keeps the economy moving and keeps you alive.
Money has been around over thousand years in many forms...coins....beads...shells...cigarettes (during the Second world War).It has been used to trade in all sorts of goods and services...as store of value...each unit of currency is the same ..i.e. uniform.
Today money comes in two forms (1) currency created by Central banks...the cash we use (2) by private banks...created as debt..also other various financial institutions...there is also the credit system...and businesses like Facebook creating its own money...and digital coins like bitcoin.
This most important subject needs a thorough understanding...without which you will always be at the mercy of Financial con men and the government who want to tax you to death...for your own good !...let the story begin
The Ascent of Money
Before money we used to barter...we exchanged things for things we wanted...so I might want a cow for say 10 chickens...or wheat...or I swapped my wife for your wife...and so on...barter how has limits...what if i didn't like your wife..
As time went on we got more sophisticated...we exchange more things...how ever once coins were invented we could buy a lot more things and keep a proper record of our transactions...more wives and other things became available...as long as you had the money.
The first economist ..a parrot called ‘failure’ learned to say supply and demand...the economics profession have yet to recover the reputation from this parrot...economics now best described as the failed profession...intention to make us all rich...not done a good job.
Supply and demand is one the bedrock of the capitalist system...production creates demand...too much and prices drop...too little prices go up...the right amount of production and consumption is more art than science...the best is to get to the median level where prices fluctuate within a narrow band...i.e. affordable for the average consumer.
Today the amount of money in existence is in excess of $80.9 trillion dollars...yet we have much poverty in the mist of so much money...poverty should be history
macroeconomics...is concerned with the total money in the economy..i.e. GDP which includes your wages...unemployment and other economic activity in the country
microeconomics..is about firms and people...economic activity in your local area
today as money is becoming digital...our relationship to money will also change
if money is numbers on a computer screen...why cannot we give everybody enough to live on?
Barter being the first form of trading had limits...both parties must have something to exchange...setting the value can be difficult...limited to local areas due to transportation
the benefits were you exchanged actual goods...created long lasting trading relationships
barter still exists in an informal way...when you mow your elderly neighbours garden and he looks after your property when you are on holiday...no cash is exchanged...only a tacit understanding...that is barter
IOU’S
For farmers these were ideal settlement of trade..so some growing wheat once harvested could exchange for a cow reared by another farmer...as no cash was needed upfront or exchanged
these iou’s were in written form or understanding and could be exchanged for goods
as the iou's had a value they could be exchanged for other things than for original purchase
in fact they acted like money
The many forms of money
Money to be valid for trade and commerce must have a certain number properties:-
it must be durable...paper is less durable than coinage
it must be portable...too large it can be difficult to transport
it must uniform and divisible...each $dollar must the same
it must be used for exchange...that is it must be acceptable in your country of use
it must be limited in supply...something Central banks have yet to learn...with all the money printing
barter started first...the Sumerian’s first to record transactions on tablets...which acted as receipts...this may happen again if we have nuclear war
cowrie shells were used as means of exchange in India and the South Pacific...might be a good idea to have a supply of cowrie shells...the future is uncertain
the smart Greeks minted Silver coins used across the Greek Empire...silver is still a good investment...if you have any ..hold on to it.
