New Blog Project: 30 Days in the Hole

I have never been one for routine, but I’m going to try to post every day for the next month. This will be a bit of an experiment but I have read that if you do something everyday for a month it will become a habit. If I can do this maybe I can make form other good habits. Also, I am hoping to find some order to all the disparate thoughts running around my head, and perhaps provoke some conversations. Why “30 Days in the Hole?” Why not?

Do you ever think about money? What it is and where it comes from? It must have arisen originally to make barter more practical. At a very basic level a society needs enough in circulation to allow people to obtain their basic day to day needs. As the population grows so does the need for more money. I don’t know what was used before gold, but that’s not really important. Like gold, there must have been a finite supply of it or it would have had no value. If you wanted more gold you had to dig it up out of the ground or take it from someone else. Gold has no inherent value, you can’t eat it. We give it value when we (as a society) assign it value. Why do we do this? Because (1) it is beautiful and people love beauty, and (2) it is hard to obtain and in limited supply.

At some point we realized that it was impractical to move around large quantities of gold (it’s very heavy) so we came up with the system of paper money. The gold would sit in a heavily guarded central location and bills would be printed that stood for denominations of this gold. If a bank owned $100 million in gold they could print up $100 million in paper bills and we agreed to honor these bill as if they were gold. This is called the “Gold Standard”.

At some point governments realized that people were so used to trading in paper money that they could just print up more bills and people would honor them. This might be a cynical way of looking at it, and as international trade ramped up in the 19th and early 20th century economic activity became much more complicated. There are many good reasons for governments to try to stabilize and control their economies, but ultimately, the only value in this money is group consensus that it will be honored. This is called “fiat” money, or the “fiat standard”, from the latin word which means an order, sanction, or decree.

Using fiat money is really an act of faith in the government, but when you think about it, using money backed by gold is also an act of faith. If we go back to a gold standard, as some libertarians advocate, you’re still going to be paying goods and services with something that represents it, not the gold itself.

In 2014 most of our major purchases are done with electronic credit: this is ephemeral data that represents money or the obligation to repay money, which in turn represents a promise based on gold that no longer exists. Ultimately all of this is completely worthless except for the fact that we agree to give it value; this latter point being tremendously important. If people start to question the value of the money because the government has issued too much it loses its value. Whether the money is based on gold or faith, the value of it is predicated on there being a finite supply of it.

When someone is able to “earn” an $80 million severance package, like the CEO of Time Warner just did after TW merged with Comcast, where does this money come from?

Okay, time to wash some dishes.

Leave a Reply

Your email address will not be published. Required fields are marked *