A good friend of mine and I had a conversation a few days ago, about currencies that got me thinking about just what Money really is. I've been "Musing" since then about what makes money and currencies have any real value at all. My thoughts turned back to a video I'd watched by Andreas Antonopoulos, where he talks about the four properties of money.

First,

Money must be a medium of exchange.

In the way back - Hunter Gatherer days... People relied on Barter to exchange goods. This system had one really big flaw. If you had an over abundance of eggs, and wanted to trade them for other things more useful to you, John might come along with some Firewood to trade you. Mary could possibly offer you some smoked meats in exchange for your eggs. Bill has some rope that he made, and Fred comes along and says that he will give you his extra bear skin (Very warm) for some of your eggs.....

You must know the current exchange rates of eggs to Firewood, Meats, Rope, and Bear Skins. All of these values are floating, and moving targets!!! Each day they may be different!!!

You would have to be a genius to keep up with it all!!

Money (Or currency) was invented then... to smooth this process out. A currency could be anything the village agrees to use. It could be sea shells (And has been in some places,) a certain kind of blanket, cows, and yes gold or silver. As long as the currency itself isn't easily duplicated (So just anyone could make as much as they wanted,) it works as a currency.

What this does then, is to remove the complications of Barter and the values of goods. NOW you only need to concern yourself with one thing. How many Sea Shells, (Or whatever the currency is,) is a dozen eggs worth!!! John must know only what his firewood is worth in Sea Shells, so he can understand it's value, and then decide if your price for eggs is acceptable to him. The same for Mary, and Smoked Meats. In short, money and currency just makes Barter a whole lot less complicated.

The next big attribute for Money is that it is a unit of account.

(This goes "Hand in hand" with money being a medium of exchange.) If you want to hire Henry to sweep out your Garage.... You can offer him 10 Sea shells worth of eggs to do the work for you. He can decide if he thinks it's worth the work, because He has an "Apples to apples" way of thinking about the value of your eggs.

Money is a store of value.

We use money as a way of delineating the value of everything else. Let's say that your chickens (Before they go through "Chicken Menopause") lay 100 dozen eggs.

Eggs can spoil, so you sell them for 100 Sea Shells (One Shell = a dozen eggs.) As long as sea shells have a value that remains stable, you can put your 100 shells in a box, and next Winter, you will know you can trade them to John for 100 bundles of firewood. In fact.... If you have enough firewood to last for now, you know how much firewood you can get next Winter when you will need it, or even Ten Winters from now.

As I said, this only works as long as the value of Sea Shells remains stable. Gold has had the most stable value of anything people have used for currency. A hundred years ago.... An ounce of Gold would buy you a top quality men's suit, and a Steak Dinner at the finest Restaurant. Today.... An ounce of Gold will buy you pretty much the same thing. Despite manipulation of the "Markets", Silver too has a very stable value.

This is why so many people advocate Gold, and Silver as a good investment. They have a VERY stable value.

Money should be fairly "Fungible."

What this means, is that it should be flexible, and adaptable to different situations.

This is where Gold and Silver usually have their shortcomings.

As I'm writing this, if you can go to the Supermarket, and buy a dozen eggs for around one US Dollar, and an ounce of Gold is worth about 1,250 Dollars. Then you SHOULD be able to buy a dozen eggs for one twelve hundred, and fiftieth of an ounce of Gold. There's the big problem. you aren't going to go around, trying to take out your pocket knife, and shave off one 1,250th of a Krugerrand. If someone brings you this tiny shaving of Gold, you must have an INCREDIBLY accurate scale to weigh it, and determine if it's truly worth a dozen of your eggs.

In an extreme opposite of this example, at the beginning of this Blog... I mentioned a friend of mine. His "In Laws" live in a foreign Country that's half way around the World.

Let's say my friend wins the lottery! He loves his family, and wants to "Gift" them a big fancy house to live in. When buying the house for them (In this far away and foreign land) He would have to send a shipping pallet of Gold bars to the seller of the house. The logistics of this are overwhelming!!! Shipping costs, risk of theft, and hiring a truck to transport the Gold in a foreign land, are enough to make my friend go insane. Not to mention the risk of the foreign Government where his In Laws live seizing that shiny Gold. This leads me to our next "Attribute" of money, and it's not a good one.

Traditional Money is a system of control!!!

I know this is a long Blog, and I've taken up a lot of your time so far..... I'm going to ask you to invest just 17 more minutes of your time. Implore you to watch the video linked below, and spend maybe the most important 17 minutes of your life.... Investing this time in your future! Thanks for putting up with me, and reading my ramblings.