What is money anyway?

A fundamental question to get out of the way before we start is – What is money anyway? Money controls every aspect of our lives in some sense and the amount of money we have determines what we can and cannot have. It can be a marker of our social status, influence our health and happiness and be a deciding factor in our ability to get things done in the world.

Currency

What we usually refer to as money is currency – fiat currency to be precise. Currency is a piece of paper that is printed by a central bank and is put into circulation within the borders of a particular country. Most of the time it appears as a number in your bank account. The purchasing power of this currency in most cases is constantly declining so in reality the numbers in your bank account should always be ticking down. But that’s not what we see when we open our bank accounts. What we observe is that, If untouched, the value of currency remains constant or increases a little due to the interest added by the bank. This leads us to the false perception that the value of our money is growing – which diverts our focus away from the money printing and mismanagement of our collective efforts.

The value of this piece of paper is backed by the government of that country. People have a need to keep accounts and use currency to determine the value of various goods and services. For example, it would be quite difficult to trade a used electric scooter for groceries, an online course, movie tickets and a day at the spa without the help of currency. We assign prices to things based on what people are willing to pay for those things. In our modern society, many people confuse price with value but in reality, these are two separate things. If people aren’t willing to pay a certain price for a product or service, then the price drops or the product goes out of production. On the other hand, if there is scarcity of products that people want, then people will be willing to pay higher prices for those things. This is how demand and supply affect the availability and price of the goods and services in the world around us.

Most people believe that the paper notes they carry around in their wallet or purse is real money. Money is the value of the human labour, it exists only in our heads, it's imaginary. Money is an intangible asset, which means it cannot be touched, it cannot be smelled; however, it can be expressed in terms of numbers. Money does have a few properties such as it must be a medium of exchange; a unit of account; a store of value and occasionally in the past, a standard of deferred payment. This means that money is a way to value a debt, thereby allowing goods and services to be acquired now and paid for in the future.

Currency is simply paper. Fiat currency is any currency in the world that is not backed by gold or silver.  This paper money is a tool for trading your time for other things. Currency has no intrinsic value. Since it is issued by a central authority, they have full control over the supply of it.

In the United States, for example, the dollar was backed by gold until the early seventies when the country’s 37th President Richard Nixon “suspended” the convertibility of the US dollar into gold. President Nixon’s decision began the age of ‘Fiat’ currency printing. This is the reason why prices continue to rise. Currency is losing its value against gold. Great Britain had already moved away from the gold standard in 1971, two years before the US did.

One of the biggest problems with currency is that the governments can print more of it whenever they want or need to. Historically, there have been hundreds of fiat currencies have all eventually seen their prices fall to 0! That’s a 100% failure rate!

Money

Money is a store of value and maintains its purchasing power over a long period of time. Silver and gold are the optimum form of money because of their properties. You can store a large amount of value in a ridiculously small volume. Gold is so dense that one ton of it can be packed into a cubic foot.  Gold and silver are the only objects that have maintained their purchasing power over the last 5000 years! This is because they are naturally quite rare as there is only a finite amount of silver and gold on planet earth!

The price of gold and silver is also manipulated by governments to hide their true value. Its extremely hard to move gold and silver in between countries and it usually taxed very heavily. There are also cases in the past where people’s gold has been forcibly seized by the government.

Some of the other properties of money are –

• Durability

• Portability

• Divisibility

• Uniformity

• Limited supply

• Acceptability

The first step to securing our financial future is to understand how these systems work. Educating ourselves is the best way to combat propaganda and misinformation. We all need to introspect on all the things in our life that money cannot buy – health, happiness and the respect and love of the people around us. For most people, these things are more valuable than anything money could buy – but they don’t provide them enough time and energy to let them develop properly. I firmly believe that our place in this world is far greater than just being a consumer or another cog in a giant global economy. Our purpose is to experience all the beauty that life has to offer and make the best use of our time here.

Of course, material possession like access to a wide variety of food, motorbikes, cars, houses, and land can make our lives more fun but we should never let our possession take control over us. Make a list of the things you would need to enrich your life and take some time to think about each one. Will these things bring you joy? If so, think about how your life would improve by getting them and make plans for acquiring them.