Chapter 13 - Money has no Value

This is going to be a challenging chapter to write. It places me in the position of being classed as an idiot. I may not win the argument, but in my explanation, I may be able to change a few views on the nature of money so that the world can better understand money.

Somewhere, close to the start of my studies on money systems a short three years ago, I had a barrier to conquer. I could not understand money. It measured something, but inconsistently, but it worked. We ran civilisation on something that had elastic value. I had won the mathematics prize at Sir Thomas Riches’ Grammar School and then studied Engineering at Imperial College in London. I was used to measurements using fixed and exact units. The unit of distance between the kings’ nose and his outstretched arm, subsequently adjusted to a more accurate distance. Money, on the other hand, is elastic. It does not have a fixed value. Its value can vary from day to day and place to place. In one shop, ono might get a big handful of nuts for a dollar and the next shop will only give a small handful. Very early in the study of money, I started to say that “You cannot understand money if you think it has value”. To conceptualise how money is used in society, one needs to visualise it from birth to death.

I shall tackle these in order:

Money is created at no cost.

Money has no value to the creator. The creator can create any amount of money at no cost. This is certainly true for all paper money and all low-cost coin money. I shall tackle precious metals in a while. If money costs nothing to create, logic might suggest that it would have no value to anyone. It obtains value by various combinations of: Authority, force, demand for taxation, demand for interest repayments, shops that will sell you food only for money, habit, tradition, local custom and possibly a few more. An essential component is that the creator not over-issue the money tokens, although this, itself, is not an exact science. A little bit each way seems to make little difference.

Gold and silver and other precious items are arguably an exception. I won’t try and argue with those that believe this. Consider a group shipwrecked on an island. Gold is unbelievably plentiful. There are nuggets everywhere. But there is no lead nor copper. They use the lead ballast from the ship as money and they use the gold to make watertight roofs to their huts. This lead is merely a medium to carry the stamp of money because it is difficult to forge. When they found gold in California, they went hungry because they forgot to plant food. Gold was devalued because it was in oversupply. Gold was in oversupply in South America to the extent that they were using it for decoration rather than money. They were ignoring its possible use as money and using it as a building material, all-be-it an expensive building material. Gold can only be used as money when deemed so by authority and supported by force. Also required are: demand for taxation, demand for interest repayments, shops that will sell you food only for gold, habit, tradition, and local custom. A big difference is that you can’t burn it like cash currency. Other countries use gold as money, so gold still has value after the fall of government. But again, it is all tradition. Gold has a history of being used as money and this is likely to continue until a monster gold-find occurs.

It is released into society.

In the old days, before the money lenders wormed their way into the process, a sovereign would create money tokens and spend them into society at a similar rate to the rate at which he was taxing them out of society. When the freshly created tokens enter society, they are much sought after by citizens, primarily so they can feed themselves, and pay taxes. We are talking about a society without money lenders and loan sharks. If you want money, you earn it. The citizens are not paying vast quantities of interest. Money suddenly obtains value because you can buy things with it. Its value depends on the availability of goods and services. It matters little whether it is gold, silver, paper or virtual, it buys the same goods at the same price. The value of the money token is dependent on what people are prepared to give to get it. Its perceived value to a citizen is the value of goods released at the next transaction in a whole series of transactions. It may repeatedly buy nuts, but the volume of nuts may vary at each transaction. So the value to a citizen is the value released at a single transaction. It is the goods purchased or the services that are released that have value. The value of the money returns to zero as soon as the authority or force ceases. The value of money drops to whatever society is prepared to give for it due to its comparative scarcity. Its value is temporarily maintained whilst shopkeepers are prepared to accept it in exchange for food. It has a temporary value that is maintained only whilst the force, authority and common acceptance is maintained.

It rushes around transferring goods and services between persons creating wealth, happiness and sustaining civilised life.

Our money token rushes from transaction to transaction to transaction giving great joy and happiness whilst feeding a nation in its travels. It is essential to civilised life because we need to bring food from the good farmers to the city. Through force and authority and one other ingredient, a farmer will part with food to those making a business of transporting food to the city. City life is not possible without money tokens. Cities cannot exist without money tokens. Cities cannot exist without farms, but not ordinary farms. They must be farms that produce more food than they can consume. One might think that a normal human would not grow more than they could eat. So it is necessary to create a secondary demand for money in the farming community by encouraging the farmers into debt. Without a farmer’s desire for money there would be no way to get the farmer to grow more than he needs. The desire may be created with a shiny red tractor, or an electricity supply with attendant electric gadgets or land usury, or land taxes. A combination of these creates the demand for money on behalf of the farmer. I was on an Indian farm two days ago. We went to the paddock on a bullock cart who was grass powered yet all on board had mobile phones. He knocked over the cricket stumps which were made of bricks. The bricks were made from the local mud and were recycled. But we talked about the huge rural problem of farmer suicide. Farmers that cannot pay their rent and interest tend to suicide. When the city folk place too big a financial demand on the farmer, there is no more farmer. A moderate money demand by the city based money people creates food for the city and too big a demand and there is no more farmer.

It dies.

Money dies in various ways. Part of its value may die through what we call inflation through a process of over issuance or failure to tax it out of society. It dies occasionally through regime change whence a new set of tokens replaces the old money system. Civilised society continues with some minor adjustments as those that had hoarded the previous tokens found that the money went back to its original value — zero. Occasionally, the money value vanishes entirely and the society collapses, taking years for order to return to society such that a new money system can be put in place. Even gold can have no value in this scenario. If I have a sandwich and you have gold, I’m going to eat the sandwich. The collapse of a money system can render gold valueless in the short-term.

Although I have no intention to win this argument, I go back to one of my earlier statements:

You cannot understand money until you recognise that it has no value.

As this plane is descending into Bangkok, I see all the roads lit-up. There are specks of light traveling along them. I can see the skyscrapers and the new housing estates that make up this great, frenetically expanding city. Yet the Baht note was printed for no cost on a printing press. In this city, one gets the impression that these Baht notes don’t stay still for very long. Everything moves at a rapid pace. This great city was built on worthless paper. From the three story high a/c skytrain one passes bedroom windows and concrete trucks pouring their loads into foundations for new buildings. There are welders lighting up the night sky with their fireworks. It is not the Baht that has value it is the transactions that it enables. The face of the king has respectability. No gold is needed. This paper keeps moving and building go up. The more transactions that are enabled, the greater the wealth added to the city. We have a military government in power, but the worthless Baht helps the buildings reach for the sky.

The Baht note - Andy Chalkley.

The worthless paper above allows the city below to be built. It is not the ownership of notes that is important but their movement. The movement of the Baht notes creates the great city. As the note moves from person to person to person the buildings get built. If the notes do not move, no buildings are built. A printing press churning out these worthless notes allows this to be built:

Bangkok built on the paper baht. Creative Commons Attribute - Andy Chalkley.

The money is not worth more than the buildings. The money moves which enables the building of the buildings. It is the movement of the Baht note that is important.

Bangkok built on the paper baht. Creative Commons Attribute - Andy Chalkley.

It is not the money that has value but the transactions that it creates. It is the transactions that have value. A single twenty dollar note costs nothing to create. The twenty dollar note has a value of twenty dollars to an individual because twenty dollars of value will be released at its next transaction. However, the value to society of the twenty dollar note is the sum of all the values of all the transactions that it will enable in its life. It may be better to think that the value of the twenty dollar note is the value of the transactions enabled in one year. Our farmer with his bullock cart needed little money. It is civilisation that needs money. It is the transport mechanism for goods and services, enabling food to move from farmers to cities and goods from factories to citizens. I still claim that money has no value. If you believe otherwise, it will be difficult to understand and conceptualise how money has enabled civilisation to develop from the hunter-gatherer lifestyle. We are trying to break western civilisation with promiscuity and family breakup all aided by American TV propaganda. We try to break civilisation by starving people and disease. But we won’t destroy it effectively until we destroy the money system. A warning to those that might be controlling our money system and the remaining 1%: You are coming down with us. Vultures don’t eat vultures. Parasites do not survive when they kill the host.

As soon as you can conceptualise that money has no value, you can start to understand the role of money in society. The Muslim teaching accepts that money has no ‘intrinsic‘ value which is closer to what I am saying. The Muslims are also required not to hoard money as this takes money away from the duty for which it was invented. Money was invented to act as a temporary store of value that carries the value of one transaction across to the next transaction. Properly maintained, this temporary store of value can be maintained at a steady value. However, this maintenance is commonly done by those that are incapable, unwilling or self-interested. Even when the intention is good, the results are not good. In other chapters, I show that maintenance of a constant Circulating Money is particularly difficult when velocity is low which corresponds to a high level of hoarding.