DEEP behind locked doors, inside the offices of governments and central banks, they understand it. High in the penthouse board rooms of the global financial institutions, they also understand it. International companies that never close, they, too, understand it.
But the average person, whether living in the condominiums of London or the slums of Calcutta, has no idea what money really is.
We all think of money the same way that our great-grandfathers and even their great-grandfathers did hundreds of years ago.
Economic systems started as barter trade from the first time someone holding a dead animal that he had killed wanted to trade it for a dead fish someone else was able to catch. We traded goods for goods.
The animal was traded for fish, which was traded for wood, which was traded back for another animal. Along the way, currency or money was introduced as a substitute for the physical goods that were being bartered. Instead of trading fish for wood to build shelter, some sort of currency was substituted that said “Good for one fish.”
Eventually, gold and silver, among commodities like tobacco, became the “backing” for the money. An agreed- upon number of fish was traded for a certain amount of silver, and that silver was traded for “money.” The money was then taken to the lumber dealer for wood, and that dealer could trade the money for other goods or for the precious metal.
The primary reason for money was to substitute for goods and for labor.
A man might sell his labor for a specific amount of chickens, but the amount of chickens he received was too great to either eat or trade away. Further, money allowed for the storing of wealth to be used until a later date.
Money has been a substitute for goods for literally thousands of years. Of course, the value of the money in terms of the amount of goods it was substituted for changed constantly as governments controlled the issuing of money. A Roman coin that weighed an ounce of silver was accepted by all who used that money as a substitute for 10 chickens, for example. But as government changed and reduced the amount of silver in the coin, then people wanted two coins for 10 chickens. But money still substituted for good and, by extension, for services.
In the last 100 years, money has transformed from being “substitutional” to being “representational.” And no one ever bothered to tell you.
A hundred years ago, a man might offer to paint someone’s house for a certain amount of money that substituted for a month’s worth of rice to eat. Now the great-grandson might offer the same deal, but he does not think directly in terms of how much rice his wages will buy. The reason is that he does not know, he cannot even guess, how much rice that money can be exchanged for one year from now.
“Money” is no longer “substitutional;” it now “representational.” Money represents something; it does not substitute for the goods or services that can be bought in the future.
We say that a nation’s wealth is its people. But what does that mean? It means that the labor of the people is, ultimately, a country’s wealth. Therefore, for a nation as for you, money represents labor. You do not work for rice. You sell your labor and time for money. Your salary represents your labor.
Actually, when you buy rice, you are buying the labor to grow, harvest and distribute the rice. The price of rice varies based on how much someone wants in return for the labor to get the rice to your table.
Governments have kept the idea of representational money to themselves because “substitutional” money has some sort of intrinsic value. If money only “represents” your labor, governments lose their monopoly to control the money. Governments print money that is backed by their “full faith and credit,” which means absolutely nothing. That is not a substitute for any commodity.
People might say to government, you cannot take my labor—my money—to pay for your spending. People might even start trading their labor for non-government money to be traded to others for their labor. Electronic money, such as bitcoin, is the perfect example. That is why governments are nearly frantic in their efforts to shut down any form of electronic money that they cannot control.
Modern money represents your labor, and not the government. Over the next years, more people will come to realize that reality and then the financial game will change even more.
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