Money, what is it?

[Jedi1]

Money is and has been fundamental to the function of economy of every major nation empire or kingdom in the history of humanity, and yet their is very little discussion of how it works or what it is. You only need to turn on the evening news to hear a report on the economy and the stock market and hear all about the latest boom or bust but you never hear any thing or are taught any thing about money.

So what I have decided to do is start this thread in the hope of provoking thought and discussion on this subject.

To do this I am going to first ask one question now and then another after the discussion has developed.

So, what is money?

My answer:

Money is fundamentally a tool to enable the easy exchange of goods and services between people. It was created because of the inconvenience involved in bartering with raw goods. It enabled people to buy whatever they needed (for instance furniture) without having to find someone selling it that wanted what they had (for instance cattle) and without having to take their often heavy goods with them when ever they wanted to buy some thing. It is the oil that ensures the smooth running of any economy.

[CiviC]

Money is the blood of economy.

[Jedi1]

I am looking for some thing more detailed. Why is it the bloody of the economy?

[Mythos]

In its most basic level, money is solar energy.

[Poach]

Modern money is a promise. It is a token by which the Banks agree that you have a certain amount of theoretical value within the note or coin. The economy structures itself around these theoretical values and as such, goods and services apply to themselves another theoretical value.

Since all goods and services support this theoretical structure, it is made possible for people to exchange their goods and services for tokens of this structure because the structure itself accepts these tokens as fair trade for other goods and services.



Prior to this, money was backed by gold or some other precious substance. As such, it rather was bartering in a sense, you simply bartered your share of valuable metal/substance for a good or service.

[ShockBlast]

Money is used as a tool to intermediate exchanges.Many years ago people used to exchange goods for goods or better said barter but as time progressed the need for a intermediary mechanism aroused.
The money is used to buy the goods we need so we exchange the money for goods.But where do we get the money from?Well from working,so we ''exchange'' our labour for the currency.The rise of the currency allowed people to govern their earnings better and plan more easily what they want to do it it.

Today the money or currency is backed by the size of the economy the the economical politic of the Central Bank and is also subject to the trust of the people who use them.The current currencies are named Fiat currencies.
As mentioned above the currencies use to be backed by the gold but that made the economy very infexible and with time the currency backed by gold stoped to be used.
The current Fiat system remedies that problem but as seen it created other problems if the Central Bank doesn't pay attention or if the regulations are too weak.

[Theseus1234]

Somewhat relevant: http://www.theonion.com/articles/us-...es-money,2912/

[Blau&Gruen]

Money is a value indicator.

[Trax]

My answer:

Money is fundamentally a tool to enable the easy exchange of goods and services between people. It was created because of the inconvenience involved in bartering with raw goods. It enabled people to buy whatever they needed (for instance furniture) without having to find someone selling it that wanted what they had (for instance cattle) and without having to take their often heavy goods with them when ever they wanted to buy some thing. It is the oil that ensures the smooth running of any economy.

It sounds like something they teach in you in the 5th grade.

[Justinian]

I really find the idea of paper money fascinating, as it is, like Poach said, absolutely nothing more than pieces of paper which promise you a certain theoretical value. There is no better example of a human construct than money: we all collectively agree that these pieces of paper have value, therefore they really do have value. It almost sounds ridiculous when you think about it -- especially when paper money used to be backed by gold which is itself a shiny and relatively rare metal which people just agreed was desirable and highly valuable. So even when money was backed by the promise of gold, gold is just backed by the promise of people wanting it and giving you things for it -- and those things themselves (be it goods or services) are backed solely by their intrinsic desirability, which varies based on person.

So paper money is a replacement for a replacement of something you want. And when you factor in credit cards it gets even more funny and a bit bizarre when you look at it. A bank agrees to pay for things for you with the assumption that you will, at an agreed upon date, pay them back with money which was itself given to you by the bank, after your employer gave you a piece of paper redeemable for a certain number of paper bills in exchange for services rendered. In fact it's funny because your employer never actually had that money physically, only theoretically, and it just passed from bank to bank.

At the root of it all of our money and everything we consider valuable is predicated on a lie we willingly participate in because it makes things vastly simpler.

[ivan_the_terrible]

I really find the idea of paper money fascinating, as it is, like Poach said, absolutely nothing more than pieces of paper which promise you a certain theoretical value. There is no better example of a human construct than money: we all collectively agree that these pieces of paper have value, therefore they really do have value. It almost sounds ridiculous when you think about it -- especially when paper money used to be backed by gold which is itself a shiny and relatively rare metal which people just agreed was desirable and highly valuable. So even when money was backed by the promise of gold, gold is just backed by the promise of people wanting it and giving you things for it -- and those things themselves (be it goods or services) are backed solely by their intrinsic desirability, which varies based on person.

So paper money is a replacement for a replacement of something you want. And when you factor in credit cards it gets even more funny and a bit bizarre when you look at it. A bank agrees to pay for things for you with the assumption that you will, at an agreed upon date, pay them back with money which was itself given to you by the bank, after your employer gave you a piece of paper redeemable for a certain number of paper bills in exchange for services rendered. In fact it's funny because your employer never actually had that money physically, only theoretically, and it just passed from bank to bank.

At the root of it all of our money and everything we consider valuable is predicated on a lie we willingly participate in because it makes things vastly simpler.

At least the paper is physically there. A great deal of money today is 1s and 0s.

[RomanSoldier9001]

Money is worst possible orwellian idea that humans had.

[Jedi1]

So now I ask my second question, how is money created?

And I don't mean the dollar notes or coins, the vast majority of money in the system today is just numbers on a computer. I would like to gage other peoples answers before I give my own.

[Viking Prince]

So now I ask my second question, how is money created?

And I don't mean the dollar notes or coins, the vast majority of money in the system today is just numbers on a computer. I would like to gage other peoples answers before I give my own.

As many of the prior posts have already established -- money is merely a medium of exchange. So I am suspecting that what you are really asking is how wealth is created. Printing more money or some other method within a central bank to create more in circulation currency/bank balances is not creating wealth. We have a double entry accounting system, so more money in circulation is simply offset by an entry on the on central banks' books such as a purchase of treasury obligations which themselves can also be simply 'printed' and sold by the treasury.

[John Doe]

money is merely a medium of exchange.

It is ultimately used in that manner, but it's more than that. Money is also used as storage for later use.

[Viking Prince]

It is ultimately used in that manner, but it's more than that. Money is also used as storage for later use.

Only if you wish to stuff a mattress with it. Otherwise you hold some sort of a financial instrument or deposit certifiate or ..... Do not confuse a bank deposit with holding money.

[John Doe]

Only if you wish to stuff a mattress with it. Otherwise you hold some sort of a financial instrument or deposit certifiate or ..... Do not confuse a bank deposit with holding money.

Take a strawberry farmer, he sells his crop for money and he uses the money for what he needs/wants during the rest of the year. Now if he was to exchange his strawberry for goods, then come december all the strawberry left will be worthless since it's perishable goods. Therefor money do store the value of his strawberries. Doesn't matter if the money is in a bank, under the mattress, or is denominated in £, $, sea shell, clay tablets or cigarettes (eg Berlin in 1945, GI had the night of their life for a pack of lucky strike). If you exchange strawberry for potato, you need both to be present. With money, you can even sell thing before they are even created or delivered.

In that way, money works as storage for future exchange.

[Jedi1]

No, I fully understand money is just a representation of wealth and not wealth in and of itself. It is a tool which we have created to enable us to measure and exchange wealth with eas.

I am asking how people believe new money is created and on what basis it is created and entered into the economy.

[Viking Prince]

It is created as I stated as a part of a double entry accounting on the central bank's books (the referred treasury debt instruments). The central bank can also increase the money in circulation by changing the reserve requirements of affiliated banks. And the treasury can also change the supply by issuing more debt into the market (pulling money out of the system). If the central bank desires, it can also simply place a deposit in an affiliate bank's reserves -- the most obvious printing money scenario. In all cases, the effect is to simply increase of decrease the amount of money in circulation. The Central Bank is not the only creator of effective currency in circulation though. The velocity at which money moves through the system is just as effective (since we are only speaking of money as a medium of exchange). Individual banks can affect the velocity by how soon deposits are available for the deposit holder to utilize. Also how easy or difficult it is to tap into lines of credit, valuations of colateral to increase or decrease available borrower credit, etc are also available to change the amount of money in circulation. We saw an example of the valuation effect with the bubble in real estate that allowed an expansion of mortgages.

[Jedi1]

Money is created through loans. When a bank loans you money it creates money as a debt to be paid back with interest. When the money is paid back it is taken out of existance. The basis of a loan is a smaller amount of money that a bank has deposited within it, a fractional reserve of money backing up more money that was itself created as a loan backed by money and so on.

The problem here is the interest. For every dollar you take out you have to put one dollar and fifty cents back in. But to get this fifty cents you need to create more money which can only be done through another loan. But that has it's own interest on it and that just puts you deeper in debt that can only be paid off with more loans.

So we have an ever expanding pile of debt that can never be repaid completely and requires ever larger loans just to service. Any man that repays his own debt has in doing so taken out of existence more money than the banks created for him and thus increased the amount that others can't pay back. So the entire world economy functions around a growing pile of debt that can never be paid back and can only be serviced if their are larger amounts of loans taken out which means you need more people who aren't in debt yet.

Does any one ells see the problem here?