TRUST, MONEY AND WEALTH

Trust is a firm belief, that an individual has, in the reliability, truth or ability of someone or something other than themselves.

Trust between members of a community is the glue that binds them into a successfully functioning whole and trusting money is a very important part of that glue.

What is money and how can we trust it.

A DEFINITION OF MONEY

Money is the visible, socially approved, by at least three individuals, of their individual concepts of value when the concepts are

- quantified

- equal and

- attached to two different exchangeable items.

What is value?

A DEFINITION VALUE

Value is the quantified ranking of the desirability, in the present moment, of something when it is compared to the desirability of every thing else.

From the above definition we can see that value accorded to something by an individual can be variable over time.

A snapshot, in time, of value, is given however when a voluntary exchange, between two individuals, of goods and/or non-financial services is completed. The completion of the exchange indicates, irrefutably, that the values of the items exchanged were acceptable to the individuals concerned. The problem for any third party needing to know these values however is that they are hidden in the exchanging parties' heads.

This invisibility problem is solved however if one of the items being exchanged is of a publicly known value. Historically the medium used for the recording of value was a precious metal. This had two benefits. The value being recorded could irrefutably be reflected in the physical measure of the amount of precious metal being exchanged and as the metal was a real object it also served as one of the two items being exchanged.

But for a number of reasons using precious metals as the only way to record value is not an adequate answer when trying to make value visible. Firstly precious metals are heavy and awkward to handle and secondly people frequently need to make exchanges that do not involve any precious metals. As a consequence of these two facts people resorted to recording values on paper which is easier to handle.

There is however no natural physical guarantee of value when paper is used for recordings of value. Nor could recordings of value on paper be used as real items of exchange in their own right unless the values that they reflect could be guaranteed to reflect the values of real entities in the same way that precious metals reflect value of themselves. In the case of recordings on other mediums such as paper the integrity of the recording process itself has to provide the gaurantee of value.

The lack of value visibilty in an exchange, when anything other than precious metals are used to record value, would be solved however if the externalization of value became a necessary and integral part of any exchange process.

A WAY OF MAKING VALUE VISIBLE AND SIMULTANEOUSLY GUARANTEEING IT

If the exchange process was separated into two separate actions but performed by one party, a purchase from one party and a sale to yet another party, then, provided that the value involved in these two actions is the same, the two actions remain, conceptually, a single exchange. For this purpose the value needs to be recorded and reliably communicated between the two actions. As the same recorded value is used by all three parties involved in the exchange, the purchase and the sale, the integrity of it’s value is automatically guaranteed. The value becomes as rock solid as that of gold and can therefore, quite safely, become new money.

However, trust in new money’s honest value has to be wider, than just in the three individuals involved in such completed exchanges, the whole community that uses money has to trust it. This is because money can only work when it states a value that is trusted by everybody, who receives it in exchange for something else. Ideally to automatically ensure trust in the value of new money a mechanism for implementing this way of making value visible needs to be available wherever and whenever the two actions of such a completed voluntary exchange take place.

PUBLIC TRUST IN THE IMPLEMENTATION OF THIS WAY

Historically, technically, it was was not possible to record the value, i.e. produce money, where and whenever these actions took place. Consequently money based on non-precious metals had to be produced seperately from completed exchanges and only linked up with the value of completed exchanges subsequently. The linking up was left to chance and was therefore prone to failure which failures create uncertianty in the values stated on the money. When too much money was produced compared to the value of completed exchanges then the currency became devalued or debased creating inflated money prices.

But over time, due to technological developments in communications and information handling, it has become possible to produce new money of the exact value needed to enter into a purchase action, in fact this has been the case ever since the introduction of credit cards.

Every time a credit card is used to make a purchase, of a good or a non-financial service, new money is produced to pay the supplier whilst the purchaser is indebted to the value of the new money. The purchaser’s new money debt is settled once they sell something of equal value to the original purchase thus completing the exchange.

From the above we know that, if publicly recognised and authorised entities, like banks, are responsible for the above process then the wider public accepts the authenticity of the recording and thus the honesty of the money.

WEALTH AND ATOMS OF WEALTH

What is an atom of wealth? How is it created?

On completion of a voluntary exchange, of goods and/or non-financial services, each participant is more satisfied than they were before the completion hence there has been a net increase in wealth as result of the completion of the exchange. And if money was produced then the money reflects, in financial terms, the amount of wealth produced by the completion of the exchange.

The accumulation of atoms of wealth over time in a community is what we recognise as wealth.