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Money: it’s ‘main’ or ‘core’ Function!

August 15, 2015

The Mises Institute has a great primer and historical overview of the concept called MONEY. You can listen to this primer and then read my missives for greater understanding. The economist/presenter is Malavika Nair from Troy University. The Mises primer is at: https://mises.org/library/dr-malavika-nair-money-demystified. You can also access the audio at: http://www.mises.org. The theory given by the Mises Institute is that the concept of money is based upon its role as a medium of exchange and a unit of account. The entire presentation is solid except that the core function is not revealed. What is the core function of this concept which we call MONEY? Let’s explore this core function!

This lady understands the concept of money better than most! Listen to her audio (www.mises.org)!

The core function of money which emerged from barter was the concept called VALUE. During barter transactions the core issue is ‘value’ or what is the value of my item which I present for exchange vs your item which you desire to exchange. As Malavika says in the audio…the problem with barter is the ‘coincidence of wants’ issue. I may not desire your item and this creates a problem with an exchange of value. To overcome this problem within a barter marketplace a STANDARD of VALUE emerges in the marketplace. This standard of value could be any item from nature which people (at the time) desire and which has appeal to the greater marketplace.

Definition of Double Coincidence of Wants: The coincidence of wants problem (often “double coincidence of wants”) is an important category of transaction costs that impose severe limitations on economies lacking money and thus dominated by barter or other in-kind transactions. The problem is caused by the improbability of the wants, needs or events that cause or motivate a transaction occurring at the same time and the same place. To deal with this problem the marketplace (people) invented a STANDARD of value which was physical and tangible.

Barter emerges from private property and then value (the concept emerges)! Later a Standard of Value is invented to solve this ‘coincidence of wants’ problem!

History shows that STANDARDS of value could be cattle, salt, beaver skins, shells, silver, gold, tobacco, etc. All standards of value are proxies for this underlying psychological concept which we call VALUE. Over time the best proxy for VALUE emerged from our marketplace and it was SILVER (in coin form). Gold also emerged as silver and gold are both in the same family which we call PRECIOUS metals. Money is the word which we apply to our STANDARD of value which we choose in the marketplace. Later the metals (such as silver/gold) were defined specifically in grains or grams so as to create a CURRENCY for the valuation of all items in a marketplace.

Standards of Value which have emerged into units of Money!

So let’s review. Barter is at the core of trade. Barter creates the problem of double coincidence of wants as we trade in the marketplace. We also have the issue that the concept of VALUE is subjective and internal. Value is our inner/psychological concept which is foundational to Capitalism, economics, trade, and price discovery. Value is not a thing outside our consciousness. It is internal and invisible. To quantify ‘value’ we invent a CURRENCY (such as shekel, drachma, dollar, pound, krona, peso, etc.). We then DEFINE this currency specifically and create units of this currency. These units create our PRICES in the marketplace.

Various paper currencies which emerged as fiat standards of value! These are mere proxies for a real tangible standard such as silver or gold!

Take the time to listen to this audio from the Mises Institute. It is excellent…but it does miss the core function for this concept which we call MONEY. This core function (standard of value) is now missing within all our markets. Cyber money does not have any function other than as a medium of exchange and a unit of account. Since cyber money lacks any function as a Standard of Value it becomes worthless, useless, and meaningless (over time). The coming market crash is primarily a result of our MONEY system. Today, our money is unable to serve as a STANDARD of VALUE! Listen to the audio and then do your own thinking. Enjoy! I am: https://kingdomecon.wordpress.com.

Today’s Cyber currencies are worthless and meaningless as real Standards of Value. They have no objective existence within our Space/time Universe! The Crash of the Millennium is now Coming as a result of these currencies!

P.S. Wisdom: think barter as you learn about the history of value, money, and currencies!

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