Why Money is Good

Following that bit of mood music, to the meat of the post.

I've been reading a lot of stuff recently that would lead me to believe a lot of people are beginning to think both capitalism and money itself are bad things. I won't go into why capitalism is actually quite good (under certain conditions) in this post and will simply remind you that we haven't come up with a better system for ensuring peoples' needs are met. And if you doubt it, I'll remind you of the Soviet Union's command economy's legacy of record wheat crops and simulataneous bread shortages.

Money. It's frustrating, money is. And yet it's absolutely necessary. Perhaps in some Star Trek future where anything you want can be assembled out of organic goo there won't be any need for it (but there will still be a market for organic goo!) but in our more realistic world, good old cash is about the best thing we can come up with to use as a medium of exchange.

So, in order to see its importance, let's imagine a world without it. In our world, we have the good old fashioned barter system: A market would develop for goods and services if all money were done away with, it just wouldn't be very efficient. Imagine this. I have chickens, Omar has wheat. My chickens eat Omar's wheat and produce eggs which I give to Omar, perhaps his wife makes pasta or some such. When I want something else, I have to go to Igor for, say, carrots but Igor has chickens so doesn't need eggs. I then have two possibilities: I can look for someone who has something Igor wants, trade them the eggs for that, go back and hope Igor hasn't traded his carrots off already and see what kind of deal I can get. And if Igor has already traded his wheat off, my chickens go hungry unless I can find someone else willing to trade eggs for grain....

Much easier to go to Safeway with $20 and pick up a pound of carrots, right?

So how much is money worth? Short answer is what we agree it's worth. There was a time we had money based on metallic standards, either silver or gold. You could take $35 in to the Treasury and come out with an ounce of gold. Good system, right? Money was really worth something, right? Well, there were a couple of problems.

First, the economy could only grow as fast as the gold supply and there was only so much of it out there. And if the Government wanted to buy more gold, it had to buy it with money so the actual value of the currency did fluctuate with the price of gold. Don't forget, gold was traded for jewelry, for electrical contacts, for foreign currency so your wedding ring literally removed $35 from the US economy (assuming it weighed an ounce of pure gold).

So Nixon did away with the Gold Standard in favor of what's called fiat money. It's ultimately money because the Government says it's money. That allows the economy to grow but, since there can be more of it printed on a whim, can allow for inflation as well.

Still, it beats having to trade my eggs for someone's carrots.