EXCHANGE, WEALTH AND MONEY

EXCHANGE, WEALTH AND MONEY

Any economy is a social construct created from an accumulation of completed voluntary exchanges of goods and non-financial services and money plays a leading facilitative role in the process of it’s creation.

This article is intended to explain what the natural basis of money is, and there is such. This is needed because our current money system operates as though there is no natural phenomenon on which units of currency, i.e. money, could and should be based.

Exchange underlies both wealth and money so I want to begin with an exploration of exchange.

EXCHANGE

The Wikipedia defines exchange as:

An act of giving one thing and receiving another (especially of the same kind) in return.

The Wikipedia also defines ‘kind’ as:

A group of people, or things, having similar characteristics.

For our purposes here, a definition of exchange, that includes of the ‘same kind’, is too narrow.

We need to recognise a more general meaning for exchange. Consequently if we drop the bracketed phrase from the definition and it would then read as:

An act of giving one thing and receiving another in return.

The above definition is quite general as it makes no prescription about what the things exchanged should consist of.

Our physical Universe is founded on continuous exchange between the entities existing at every level.

If we limit our view to our planet alone, our planet is in a relationship of constant exchange with it’s environment. With the Sun for example it continuously receives energy and radiates it back out again into the solar system. The same holds true for all life forms. All of us only exist through constant exchanges with our environments. When exchange stops for an organism it shows that it is no longer alive but dead.

As self-conscious beings our exchanges contain an additional element compared to those of non-conscious beings. Why, because inherent in consciousness is the responsibility of choosing how to respond to events in our environments whatever they are.

If the exchanges are with other conscious beings, for example, we can choose whether to participate in the exchange or not. These exchanges are, in other words, voluntary.

Voluntary exchanges may or may not happen but the universal law that every action produces a reaction still applies so a voluntary exchange, unless it completes satisfactorily, is not an exchange.

Having explored exchange as such let us now turn to exploring wealth and it’s relation to exchange.

WEALTH

When we use the word wealth for something what do we mean by it?

We mean that the something is particularly useful to it’s possessor, or possessors, and possession, according to the dictionary is:

a : the act of having or taking into control. b : control or occupancy of property without regard to ownership. c : ownership.

A thing can be collectively, or individually, owned or possessed but we here are only interested in individual ownership.

Why should something be particularly useful to a human individual?

As living organisms a primary requirement of humans is to survive so anything that increases their chances of survival is of particular value to them and can therefore be thought of as wealth.

Now according to Wikipedia,

wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions.

We here are particularly interested in ‘possessions’ as wealth. Because, as Wikipedia says, wealth can consist of financial assets or physical possessions, or both.

Financial assets by their very nature are convertible into, or exchangeable for, goods and/or services and, according to the second phrase in the definition above, wealth is the label word for ‘physical possessions’ that ‘can be ‘converted into a form that can be used for transactions’, e.g. exchanges.

Thus we could say that anything that can be exchanged for other more useful things is wealth.

Now humans need many things as aids to their survival so it is natural that they should regard possessions as wealth because, through exchanges with other members of society, the possessions widen their own chances of survival. So wealth, because it enables entry into exchanges, has value to humans, but wealth is a blanket term that is applicable to any amount of it. Can wealth be subdivided into atoms of wealth? An ‘atom’ is the term used for the smallest particle of something that can exist yet with all it’s properties intact. So what is an atom of wealth?

An atom of wealth is a completed, voluntary, exchange of goods and/or a services because each of the participants in the exchange is more satisfied after the exchange than they were before it’s completion.

Now let us move on to money. Can money represent wealth?

Yes it can, through exchanges but let us see how.

MONEY

What is money exactly?

Money is the socially verified ranking of the desirability of something.

Now desirability, or non-desirability, is an inner condition that exists solely within individuals. How is it to be ranked and socially verified?

Basically a feeling that starts off in an individual’s mind as a desire for some thing has to be converted into a socially verified ranking. How is this to be done? Now a ranking, of something, is just a numerical quantification, or grading of it. In other words it is accorded a value.

This quantification happens to a desire when the person is confronted with other things that they also desire, and for their own comfort, they need to rank the relative desirability of the different things. But the rankings, or values, are still resident in the minds of the individuals thinking them and cannot be verified by any person outside of themselves. Verification of a value by others can only happen if the value is articulated or externalised by it’s owner.

The circumstances that require individuals to articulate the values in their heads are when they want to complete voluntary exchanges but they are not in direct contact with one and other. These circumstances compel them to articulate their respective values so that then the others can see if other’s values are the same as their own values.

The articulations, or externalisations, of value is normally done in the form of recordings either digitally or on paper and if formalised they are known as money.

Now this description fits exactly with what Wikipedia says,

Money is any item or verifiable record that is generally accepted as payment for goods and/or services and repayment of debts such as taxes.

And the foregoing description of completing a voluntary exchange where the exchanging parties are not in direct contact with one and other describes exactly how such a verified record is naturally created.

Let us describe an exchange process in real life. Here an independent party, which we will call the Money System, is needed to create the externalisations of value, i.e. money, for the exchange process to complete.

The initiator of the voluntary exchange does not possess any money to purchase a desired item from a seller so the initiator obtains new money, with the required face value, from the Money System which simultaneously debits the initiator for the face value of the new money.

Using the new money the initiator purchases the desired item from it’s seller. Then in order to settle the purchase debt with the Money System the Initiator sells an item of equal value to another party and is thus able to settle the purchase debt. The voluntary exchange is then complete and the face value of the new money verified.

This already happens in the present money system when the holder of a credit card uses it to purchase an item. The Money System provides new money to the value of the item purchased and at the same time debits the card holder with that value. When the card holder settles the credit card debt the exchange is complete and the value of the new money, now in circuation, is verified.

New money produced in this way always has verified value,or backing value, and it is in fact the only way that new money should ever be put into circulation as it automatically guarantees that there is no debasement of the currency and thus price inflation. The only increases in price that will occur are genuine when demand outstrips supply. All money produced in this way is Natural as opposed to Artificial. Artificial money is money produced with no relation to actual exchanges, or the value exchanged, and so, inevitably, has a face value that is unverified.

Why hasn’t society switched to only allowing Natural money into circulation?

The reason is, quite simply, that there are vested interests within society, that make a significant part of their livings out of producing Artificial money, and of course they would not like it if this became illegal. And it should become illegal because Artificial money generates unnecessary costs which the whole of society has to bear.

The first of these costs is inflation

Inflation, or currency debasement, occurs when the value of, the newly produced artificial money, exceeds the combined value of all the goods and services available in the economy. Basically the value attached to currency already in existence is stolen by the excess new Artificial money and everybody loses.

In an effort to try to curb inflation the Reserve Bank has to keep a watchful eye on the rate of inflation currently it is targetting it at between 3 and 6 percent. Not only that but there are additional administrative costs associated with any activity that uses money as a measure of value because it has to keep adjusting to the falling purchasing power of the currency.

The second of these costs is the financial disempowerment of individuals

Voluntary exchange of goods and/or services is essential for human survival.

When money was invented, because it radically simplified the conduct of successful voluntary exchanges, the possession of money became a pre-requisite for any initiator of an exchange. Consequently as money is created by humans a functioning system to produce and control money became essential to everybody’s continued survival. So ideally a well functioning Money System should provide money to anyone who needs it to enter into a voluntary exchange.

Initially because precious metals were used to ensure a backing value for it's, face value, money had to be produced in its own facility apart from any exchanges. This had a number of consequences.

1. The people who controlled the money facility gained, through money, almost unbridled power within society.

2. Money itself couldn’t just be given away to a person wanting to enter into an exchange, it had to be earned, or exchanged for something of equal value first.

Point 2 above meant that before joining the cash economy you were required to earn money from somebody who already had money only then could you freely participate in the cash economy. People who were unable to earn money from others became poverty stricken or financial disempowered.

Financial disempowerment exists for any person who does not have ready access to new money, i.e. short term credit, when they wish to enter into an exchange, or purchase, of something. This condition is a loss both for the person and society. Society would benefit greatly, both socially and economically, if everybody was financially empowered.

Currently only people with bank accounts and access to a credit card are financially empowered. There is no real reason, other than uncertainty concerning the settling their credit debts, why people without bank accounts should remain forever financially disempowered.

Through the Money System every citizen should have access to capped short term credit. The cap set according to the economic circumstances of each individual.

There will always be some people who do not do their bit to settle their short term credit debt but that is a small price to pay in comparison to the far greater number of people who will at last be financially empowered.

The technology to support the above suggestion is already available in terms of smart phones, the Internet and Information Technology. It’s realisation just requires the commitment to enable it, from government, the financial institutions, and other organs of civil society.

Finally from what has been presented in this article I hope that six important facts to do with money have become quite clear to the reader.

Firstly that voluntary exchange is intrinsic to human existence.

Secondly that the invention of money, as a facilitator of the exchange process, did not change humankind’s need to make voluntary exchanges, but radically reduced the effort needed to complete successful exchanges.

Thirdly that money is a human creation and can either be produced, apart from any exchanges or only produced when needed to enter into an exchange.

Fourthly that money produced apart from any exchanges is artificial in nature as it has no inherent backing value.

Fifthly money produced to facilitate a specific voluntary exchange is organic in nature as it has a backing value naturally guaranteed through the process of exchange.

Sixth only natural money should be allowed to be put into circulation if we wish to establish an economy with a healthy and truly firm foundation.

Such a change in our money system would revolutionise many aspects of the financial world but the most significant change for the individual would be to guarantee the stability of the value of money over time.