Money ... Money ... Money.. - I

I start a new line of thinking ... I grow as I learn.. I write as I grow... to share with the world my thoughts on Money!

Well what is money?? The books tell us what money does:

• It works as a means of exchange
• It works as a store of value
  
• It works as a unit of account and measurement of productivity etc.

But what is money? Historically it evolved as a middle-man of barter. It was an abstract object, or a maya, as Eastern Philosophy would say. It existed to facilitate barter. The production of the goods and services were paramount.

Money was a maya. It had no intrinsic value. If there was no goods and services on the table money would be of no use....

But as time progresses.. money became associated with Gold - a commodity with sex appeal. People thought having more Gold would get them more "wealth".

But that belief was laid to rest (paradoxically) by two bandits operating on a large scale - Hernán Cortés and Francisco Pizarro popularly knows as Conquistadors. They plundered the New World for Gold killing civilians and destroying the country.

But the fun was the gold they brought to Spain. Influx of huge amount of precious metals led to a hyperinflation is Spain and Europe eventually destroying the Spanish economy.

Money is purely a medium of exchange - an illusion that Conquistadors chased - with neither the existing productivity to back the increased money supply up nor the need & interest for investments Spain was pushed to hyper-inflation.

Coming back to money .. today we are more interested in making money as if money is a product - commodity.

Today 40% of US GDP is financial services. Like the Spaniards we are drunk with money that can be created. There is a interesting article by Harris Kupperman where she says...

I find an uncanny resemblance between Spain’s slide from empire and our own situation. Over the past two decades, we’ve increasingly relied on cheap credit and money creation to finance both economic growth and a lifestyle that is beyond our means. When there is a problem, the easiest solution is to lower interest rates and add liquidity to the system. This is similar to Spain’s solution—send a larger flotilla to the New World and export more treasure. In the short run, this is a perfect fix. The downside is that it does not allow for the underlying issues to resolve themselves. Much like Spain, we’ve hollowed out our manufacturing base in this country and now increasingly rely on foreign production for many basic necessities. As long as this can be financed, there are no issues. At some point, our bankers in Asia will finally decide that we will never repay our debts and they will refuse to lend us any more.

All this is macro-economics. A good pointer of what has gone wrong. Last twenty years we built our lives on cheap credit and borrowing. Now the bill has come..

But our question is deeper. Is it the very nature that money has morphed itself into leads to these things to happen? Is money now a commodity that needs to be "produced"?

But the truth is, when the last grain of wheatfield has dried up, the last fish has been eaten - we would realize that we cannot eat Money.

But that may be too late!!