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keys
Penny Collector Member
383 Posts |
 Posted - 03/01/2009 : 11:39:16
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What is money and how it came to be destroyed
Money is something we often take for granted because it’s so common place. Everyday we deal with money in one form or another – either outright using it or thinking in terms of it. But what specifically is it?
...shells, rice, cigarettes, stones, alcohol and gold – are just some of the items that have been used as money at one time or another (and in many cases still are). These items are all being used for something other than what they physically are. Alcohol is a drink but as money it represents something else. Rice is a food but as money is being used as something else. These items are being used as a symbol and for a purpose. They are being used to hold value and are being used as a means of transporting that value between people.
Money is a store of value. And as a store of value money is a tool used to accomplish goals you have.
It might help to imagine a dollar as a cup and the value as the liquid inside the cup.
But why use money? It isn’t completely needed – you could just trade item for item or labor for labor. That’s called bartering and it’s still done to varying degrees around the world. But bartering is inefficient. Let’s say your neighbor has eggs and you’d like some. But all you have to offer is your mechanic skills. Well – you could decide to change her cars oil for a dozen eggs. Once you’re finished with those eggs you might want more – but what happens if her car doesn’t need an oil change yet? You need to figure out a new item to swap with your neighbor or you can’t get the eggs.
That’s where money comes in. It’s a third party in the equation – a place holder (a cup) to store your labor (value) inside of. And you can take that stored value and exchange it for something that you and the seller agree is worth that value. You are exchanging your stored value for the item and the seller is retrieving value out of the item being sold. In a sense, everything to varying degrees stores value (And some things don’t store any value). Every time you sell something you are retrieving some value back out of it and putting that value into a different form – money.
Money is also a tool. It’s a way for you to save up a bunch of value and then exchange that value for something larger than you could have done for yourself on your own. It might be used to purchase a car, a home, start a business, take a vacation, or even to give away to charity or non-profit organization. It’s a tool to accomplish goals you don’t have the time or skill to accomplish yourself.
As you probably know from your personal experience buying and selling things – certain items hold value better than others. But what about paper currency itself – how good of a hold of value is it?
It used to be that money was representative of either gold or silver or was made out of gold or silver or some other precious metal. There were Gold Certificates equal to the equivalent of gold and Silver Certificates equal to the equivalent of silver. During this time money was rather stable in it’s ability to hold value. But with the onset of printing presses different forms of currency were made. Paper currency representative of the actual money (gold or silver) was much more easier to use. Instead of carrying a bag with 500 coins you could have a single paper representing 500 coins.
By the 1930’s something called a Federal Reserve Note was being used (It’s what’s currently used. Look at the top of any of your dollar bills). In the beginning it was backed by Gold and because of this it was relatively stable – that is, as long as the printers of Federal Reserve Notes played by the rules. But along came Lyndon B. Johnson’s Great Society and spending increased and in addition the Vietnam War started and needed to be funded. By this time the entire world had agreed to use the U.S. Dollar as the world’s reserve currency and the U.S. Currency was able to be exchanged for gold at any time by them. As long as this was the case – it was far easier to use paper currency then hauling around large bars and coins of gold to do commerce.
But then around 1970 France started thinking that maybe the U.S. was printing more money than there was gold (and thereby decreasing it’s ability to hold value) and so they tried to exchange their U.S. dollars for gold. They must have been fairly correct in their assumptions, because President Nixon decided to completely take the U.S. Dollar off the gold standard and foreign countries were stuck with dollar bills backed by nothing but the U.S. Government’s declaration and guarantee that it was worth something.
Now that gold wasn’t backing the dollar’s ability to hold value the printing presses begin to print more and more money. Inflation set in. Imagine that Cup of Value – well inflation is like little holes in the cup letting the value leak out. Except – you can’t stop it. (Government's can try to contain it by raising interest rates and stuff). All you can do is try to collect more and more cups to keep the total of the liquid value the same. Or you must use up the dollar quickly before it leaks too much value out, because the longer you don’t use it the more value leaks out.
And as these printing presses keep pumping out the paper dollars backed by nothing but government fiat (these currencies are called fiat currencies) more and more holes get poked into the currency. Sometimes though too many holes get poked in the currency (too much is printed up) and hyper-inflation hits. When that happens there is so little value in the currency that it takes wheel barrow’s of the currency just to buy bread, or use as a source of heat or, if the currency gets destroyed, used for play money. (like what happened in the Wiemar Republic and is currently happening in Zimbabwe).
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More can be found on this blog
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I have not read all of their articles concerning food, recipies, frugal tips, etc. It looks like a useful site for preparing for the future.
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I change with the times-
but like silver coins found in your change
I stay the same.
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The United States of America started out as the new Republic of Rome.
Will The United States of America end up as the New Imperial Rome? |
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What is Money?
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