What is money? That is a pretty basic question right? It’s what makes the world go around. Maybe, as some of you have heard it’s the root of all evil.
Just as many other things do the question of money has really got me asking why? Such as the question above what is money? We all strive for more of it, we all think about it so what really is it? Really?
I heard someone say once that you think of something when you have little of it. For example if you only had a certain amount of oxygen you would think about it a lot, wouldn’t you? When you hold your breath to go under water don’t you think of every second until you can get back to the surface for life saving oxygen. I guess this is true with money too. All though I don’t have a lot of money I can only assume that is true.
Money has a weird history or maybe better said, it has an interesting history. Haven’t you ever thought, what if I didn’t need money? I know I have. I thought to myself I wouldn’t have to go to work today, I wouldn’t have to continue to go to a job I dislike, or I wouldn’t be stressed out about it. Have people always thought this way?
Years ago back in the ancient times what was money? Like the physical part, was it paper? Was it gold, or something else? Think about people thousands of years ago did they dislike their job for the same reason? I guess that is another subject.
Money is and was a medium of exchange. If I really wanted KFC for lunch I could exchange something for it, but the trick is it has to be something that you (the owner of the KFC lunch) would want. Now a days we all agree that I have to give you paper for it, but how did this come to be?
Long ago before paper money was made so easily it was just coin. The coins were made of gold, silver, and other metals that were easy to cut and stamp an image into. Gold and silver were the most commonly used probably because it wasn’t really good for anything else. How did they decide how much each coin was worth? Most of this was done through old fashion economics, the harder it was to make, and get the more it was worth. Then the government stepped in with something called FIAT. This is a pretty common word used now to describe money. The government would step in and declare by fiat what the value was. Fiat basically means because I said so. You can see how this would be dangerous, but for the most part everyone agreed and got along, just like today.
Paper money is a relatively new idea and hasn’t been around for very long. One of the reasons for this is because paper is not worth anything and it can be hard to convince people there is value in it, without a fiat of course. One of the first recorded cases of paper money was the Kahn. When Marco Polo came back from his famous journey across the Orient he spoke of it, he also mentioned that he thought it was strange that people accepted this paper for value. Paper is also easier to fake, you see with coins made out of gold, silver, and other metals it was more difficult to fake and copy. It did happen, through debasement, but not often.
We can skip forward a few hundred years and get to early 1700’s and the birth of the United States. They had paper money back then. They had several different kinds of currency from the different states. During the Revolutionary war a Continental was invented and used for money. The problem with this was, just as always, you can’t continue to print paper and convince people it has value. There wasn’t a lot of money in the colonies back then so the banks printed more, at the request of the government to purchase more stuff. Wars are very expensive! Eventually people caught on and the Continental collapsed in value and it became worthless. George Washington said that a wheel barrel full of Continentals could barely buy a loaf of bread. The founders learned from this and decided that it’s not a good idea to have paper money that can be printed at will and therefore they made it unconstitutional for the federal government to print money and gave the power to the states only to coin legal tender, they could only coin money.
A lot has happened since then and the United States has gone very far astray from the lesson learned during the founding. If we would have only listened and not allowed ourselves to be tempted to print money it would be easier, perhaps. With the birth of the Federal Reserve, as I wrote about in a previous article, money has lost so much value that you could buy more in the 1920’s with a dollar bill than you can today. When banks get involved and greed is mixed in its a recipe for disaster, we can talk about that at a later time. I guess what I’m trying to say that money is just paper and the more you print the less it is worth and eventually it goes back to being just paper, no matter what fiat is declared.
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