Honest Money
What It Is and What It Isn't

Money Part I - Wealth, Survival

Douglas V. Gnazzo
March 13, 2006

Introduction

An aura of mystery has surrounded money from the day it was first used. Thousands of books have been written on the subject, yet there isn't a generally accepted definition of just what money is, or isn't.

The historical study of money has created a large body of diverse and opposing opinions. Collectively they offer little progress in the understanding of money. Of even greater significance is their failure to provide a valid theory of money that can be implemented in a workable sound monetary system.

A viable solution to the present day problems of monetary policy remains as elusive as the quest for the Holy Grail. Even Federal Reserve Chairman Alan Greenspan, when asked before Congress what money was, replied that he couldn't give a definitive answer.

There has never been a consensus of agreement concerning monetary theory. Some espouse one school of thought, others believe in another. The debate has continued throughout the ages, and it continues today. The present state of our monetary system is desperately crying out for help. It is crying out for sound and Honest Money.

Before attempting to offer a system of Honest Money, we must first define, and understand, what this thing called money is - and isn't. A brief review of some fundamental history on the subject is therefore in order. This will provide a stronger base from which to proceed.

Wealth

The word wealth is derived from the word weal, and implies a state or condition thereof. Weal is synonymous with well, as in well being. The primal state of man is that of being - of having life. Life is the highest order of wealth. Without life, man is unable to experience the world in which he lives, moves, and has his being within.

All other considerations of wealth must be in accordance with true wealth or well being. Whatever contributes to man's well being contributes to his true wealth, and as such can be considered a secondary form of wealth.

If we are not healthy, we are not well. If the condition persists, and cannot be corrected, then our greatest wealth is taken from us - life itself. The word disease clearly signifies this as it expresses dis-ease, the loss of ease or well being.

Survival

History shows that early man used three primary ways to obtain his basic needs. The most natural way was that of self-reliance. Man provided himself with the necessities of life. He did this by hunting, gathering, planting, and herding.

But it was not always easy for a single man to provide all the items needed. It was even difficult for the first social group formed by man - the family, to supply all the goods and services required for their survival.

Consequently, men came together to trade with one another, to live with one another - to exchange what one had, and the other needed.

Man has also resorted to taking what he needed from others by violence and the conquest of war.

The first two ways of survival are ways of the right hand path - the right way. The third and last way is the way of the left hand path - the wrong way. The two paths will be spoken of in more detail in future articles as we progress along the way. Remember them well. They are of major significance.

Socialization

The increased safety in numbers, the improved division of labor in groups, the desire and need for social life - all these factors helped to bond families together. The family unit was the first dominant social group.

Families related by blood: mothers, fathers, brothers, sisters, aunts, uncles, cousins, and other kin, all banded together. Eventually groups of related families grew into tribes. The social fabric of man became interwoven with the economic and self-preservation aspects of his being.

The safety afforded by the increased members of the group; the need to exchange or trade; and the increased production of the division of labor, are three of the basic factors that gave rise to families, bands, tribes, settlements, communities, towns, and finally cities.

Man is a social being. Man needs man. Man needs other men.

Barter And Utility

During early history, man traded one physical good for another. One person desired certain goods that another person had and they didn't. So, the two or more individuals would come together to trade. Upon handing over one good over for another, the entire exchange was completed. This is called direct exchange or barter.

Notice that what is called the coincidence of wants is necessary under direct exchange or barter. Each trader must have what the other trader wants, otherwise they will not come together to trade, - no exchange will take place. They both must have what the other wants.

As people come together to trade, a market is naturally formed. People trade for things they need, for items they find to be most useful. When individuals exchange goods with one another, they offer items that are of less utility or value to themselves, in exchange for other goods considered by them to be of more utility, and hence of more value. Some refer to this as the theory of marginal utility.

Both traders that exchange goods must have this same belief structure. All market participants use a subjective value system to determine the usefulness of the goods to be traded according to their every day usage - according to the utility they afford.

In any exchange a definite quantity of one commodity or service is exchanged for a definite quantity of another: one cow for three pigs, a bushel of wheat for a dozen eggs.

Thus in every exchange there is a ratio of two numbers or quantities. This ratio represents, and is, what some call value, and others call price.

However, it is not always determined strictly quantitatively - quality also enters the mix. Some say that value cannot be measured. I leave it for the reader to decide from the evidence or lack thereof that is presented.

Value

When a person desires something a subjective decision is made. A valuation based on the need or usefulness of one commodity, as compared to the subjective use value of another commodity is made.

One commodity the person has in their possession. The other good is not in their possession, but is under consideration to be exchanged or traded for, and is in the possession of another.

Consequently, each individual subjectively compares the use value of one item to another. Need and desire give rise to usefulness, which in turn gives rise to value - the ability or utility to fulfill the need and desire.

Only that which is useful or is determined to have a potential future use, is considered to be of value. Water is valuable to everyone, as we all must have water to drink. Water is one of life's most critical necessities.

But does a man that lives next to a lake in the mountains value water the same as a man stranded in the desert that has no water? Water is water, wherever it is, but it can be valued differently, according to the need and want of the situation - the demand compared to the supply.

The Law Of Thought

All action first requires a thought. All thoughts require a desire. All desires require a feeling. All feelings require sensation.

Sensation is experienced through the senses, the ambassadors of man's inner court to nature - of that which is beyond nature with nature - the above with the below.

A feeling is not feeling, nor is a desire - desire. Events occur by thought exteriorized as action, as a point becomes a circle: two points form a line, two lines form an angle, and four squared angles doth a circle make.

Such is the aim of the subject to obtain the object of its feeling and desire. It is the desire for the continuance of life that drives man to desire the necessities needed to sustain his life.

Desire and need turn the miller's stones, the subject in pursuit of the object. All is grist for the mill. Men come together to trade by necessity - to fulfill a want, a need - a desire.

Direct Exchange

So, we see that in direct exchange one good is traded for another. This requires that two traders come together that want what the other have, which is not easily accomplished.

It soon became obvious that if man were going to improve his lot in life, he would have to develop a different means of trade than direct exchange or barter. Direct exchange limits the division or specialization of labor. The coincidence of wants must be overcome.

As man and society grew more complex, so too did the need for a different method of exchange evolve, as the trade needed to sustain life was becoming more complex and involved.

The specialization and division of labor improves the production of goods. A greater supply of goods is brought to market. The increased trade afforded by such progress cannot be conducted by the mere barter of direct exchange.

A common medium of exchange is required to better facilitate the increased trade more efficiently.

Indirect Exchange

Consequently, indirect exchange and money developed alongside of one another. Indirect exchange requires a common medium of exchange to function. The

Common medium of exchange is called - money.

What is one to do if he has in his possession eggs to trade, but the market is saturated with eggs? Eggs are not in strong demand as there is too large of a supply of eggs compared to the demand for them. His item of exchange is not saleable or marketable.

From this we see that it is very important when bartering to bring to market goods that are saleable and marketable. But how can one determine what goods are most wanted and in demand? Is there a magic item that is always in demand? Yes - it is called money.

Man, being ever so resourceful, finds a commodity that can mediate the problem presented when one or more goods are not saleable or marketable. He chooses a third commodity that society deems to be the most useful commodity for such exchanges - a common measure or denominator of usefulness and value.

This commodity becomes the common medium by which all goods can then be exchanged for.

The common medium of exchange is the commodity that is most saleable or marketable. It is the most constant and stable commodity in its usefulness to procure other goods with. It has the least declining marginal utility.

Money

The commodity that has the most stable value, and which can be exchanged in value or kind, for any other commodity, or service in the marketplace - is commonly known as money.

The most important quality of money is that it can be exchanged in value for any other good or service.

Money itself has no intrinsic value; it simply represents the value of the goods and services for which it can be exchanged.

This type of trade is called indirect exchange. It uses a third common media as opposed to direct exchange, which is the direct barter of one good for another.

With the advent of indirect exchange, and the use of a common medium, the division of labor was greatly facilitated, and commerce was able to further expand.

Indirect exchange creates a buyer and a seller, where previously with direct exchange, only two traders or parties existed without the distinction of buyer and seller. The use of a third common medium of exchange to obtain goods and services is what creates buying and selling - by the use of money.

With the use of direct exchange, the act of trading was completed in the present. One individual would hand over or exchange his good for the other individual's good. The deal was complete - finished; no further action was required.

The act of trading was completed in the present by direct exchange.

With the use of indirect exchange, the procurement of needed goods is only completed for one of the two parties in the present - the buyer, as he acquires the goods he needs.

The seller does not procure the goods he needs when he sells his goods for money. The seller receives money that he can then use in another exchange in the future to buy the goods he needs. This is not about semantics; there are very subtle and powerful differences here that will be shown to be quite unique and important.

So, we have now before us a bit of the history of the development of trade and direct exchange; and indirect exchange and money. A definition of money is starting to appear: as a common medium of exchange by which needed goods and services are procured in the marketplace.

In part II we will further expand upon the definition and meaning of money.

Come visit my new website: Honest Money.

-Douglas V. Gnazzo
email: Douglas V, Gnazzo
website: HonestMoneyReport

Honest Money: What it is and what it isn't
Part I : Part II : Part III : Part IV : Part VI : Part V : Part VII : Part VIII

Douglas V. Gnazzo is CEO of New England Renovation LLC, a historical restoration contractor that specializes in restoring older buildings that are vintage historic landmarks. He writes for numerous websites and his work appears both here and abroad. Just recently he was honored by being chosen as a Foundation Scholar for the Foundation for the Advancement of Monetary Education (FAME).

©2006 Douglas V. Gnazzo. All Rights Reserved.

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