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Date: 2024-06-22 Page is: DBtxt003.php L0700-ML-VALUE-BASED-CURRENCY-UNITS
How Money Works
Why money is valuable

Money is valuable because there is value in enabling exchange.
When I was learning economics at Cambridge, I was particularly interested in the Theory of International Trade and eventually understood what it was that created value in the international system of trade. Subsequently I have realized that what creates value in international trade is very similar to what creates value in any free market transaction. In fact, without the valuadd associated with a sell/buy transaction everything stagnates and nothing moves.
There is empirical evidence that the driver of exchange ... of markets ... is that when parties choose to make an exchange, there is a value add that arises in the process.

This is the core idea behind everything to do with a market and rational economic man!

Society has created money ... a medium of exchange ... in order to facilitate trade in a more efficient manner than simple barter.

Just a bookkeeping entry

Yes ... and why not?

There was a time when money was some sort of token that had an intrinsic value which could be matched to the value of the transaction.

This had a physical inconvenience and over time, a system of paper IOUs replaced the tokens or coins.

And then paper became inconvenient relative to merely recording a transaction in a digital medium.

In the digital environment, the important factor is that there is 'trust' in the digital recording of the transactions.

What should be the limits?

The limit should be POTENTIAL

In the distant past the idea was that the total of the tokens had a similar intrinsic value as the value of the transaction.

With the advent of 'paper money' the idea was that the paper (issued by a bank) was backed up by an equal amount of real value that existed in the vaults of the bank.

This idea was dropped when it was realized that the bank could put more paper into circulation than the actual amount of real value in the vaults of the bank ... this came to be known as fractional reserve banking. Experience had shown the bankers that most money in ciculation was never redeemed for the real value that was in the bank vaults, and accordingly they need not be constained by the real value in the bank vaults. This worked most of the time ... but once in a while there were 'runs on the bank' when people lost confidence in the paper money and wanted to redeem the bank notes for the actual real value that backed them.

In the modern world, the 'medium of exchange' money in circulation should be enough so that the full potential of the system can be realized, especially the full potential of the people and the potential of the system as a whole to make the world a better place in all its dimensions.

'MONEY' should not be the constraint on doing things that will deliver progress, but rather the limiting constraint should be the number of people available to deliver the brain and brawn needed to get something done.

Initiatives to do important things that will improve quality of life for people should not be constrained by the idea that liquidity is only going to be deployed in order to create more financial wealth. Rather improvement in the quality of life should be enough ... on its own.

Similarly, initiatives that are going to improve the environment should not be constrained because they are not going to result in the creation of new financial wealth.

It should be possible to calculate a 'Return on Investment' based on the increment to Social Capital or on the increment in Natural Capital whether or not there is an increment in Economic or Financial Capital.
Overlap with Guranteed Basic Income (GBI)
How a GBI might work

A Guaranteed Basic Income (GBI) has been proposed as a solution to unemployment and underemployment, but while it is an attractive idea it cannot be funded without some new thinking about how the economy ... the socio-enviro-economic system actually works ... and especially the money and liquidity part of the system

Government cannot be the entity responsible for funding GBI. Government has important work to do, but government entities should NOT be responsible for this sort of finance and funding.

Rather this should be done by 'SOCIETY' at large ... a concept that has been diminished in modern economics but very important in many ancient and traditional societies, and increasingly easy to accomplish with modern technology

In fact, it may be emerging blockchain and distributed ledger technology that will enable the design, development and deployment of a system of Guaranteed Basic Income.

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Copyright © 2005-2021 Peter Burgess. All rights reserved. This material may only be used for limited low profit purposes: e.g. socio-enviro-economic performance analysis, education and training.