Concept Of Money Pdf

Koos Jansen Koos Jansen is a precious metal analyst from the Netherlands. Out of thin air and without limitation it can be brought into existence by printing paper bills or typing in digits into a computer. Therefor, what we use as money is a social contract to be used in trade and to store value, always based on trust. When barter emerged the necessity to be self-sufficient ceased to exist. When economies developed the best marketable commodity surfaced as the sole medium of exchange.

The real problem starts to surface when the money supply shrinks and prices and incomes decline. One set of prices makes trade more efficient, transparent and liquid. When all potato farmers were not in demand for oranges the orange farmer could not exchange his product for potatoes. It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.

If no potato farmer was in demand for oranges, surely one was to accept salt in exchange. Both commodity money and fiat money can be used for fractional reserve banking. Throughout history central banks have been able to control the value of fiat money for relatively short periods, over longer periods the value of fiat money is wiped out inevitably. Where fiat currencies can evaporate, gold offers protection of your wealth.

This is what I call the money illusion, in which most of us on this planet are submerged. In the early stages of indirect exchange there were several forms of money. By using our website, you accept that cookies are used. Let us examine this modern day practice of banking and the creation of what I call illusionary money.

Concept of money pdfConcept of money pdf

He could offer it to a potato farmer, who in turn could store the salt for future trade or consumption. Consequently, barter economized production among its participants. But, often there was no mutual coincidence of demand. The essence of fractional reserve banking is exactly the same as what the blacksmiths did. An orange, car, shoebox, t-shirt or house does have use-value.

There was no necessity for the farmer to grow all crops he wished to consume, when there was an option to trade. With or without gold standard it remains, more or less, flat. Banks have to offer interest or no one would hand over their money. The bait for fractional reserve banking is of course interest. The nature of the latter is fundamentally different.

Essentially, modern day banking works in a similar fashion although the scheme has been refined. In this case there was no trade, no one could escalate his or her wealth. If he could find a potato farmer in demand for oranges and agree on the exchange rate price a transaction occurred.

Concept of money pdf

After the bankruptcy of investment bank Lehman Brothers in an economic depression was triggered and governments globally bailed out banks whose insolvent nature was exposed. All examples in this post are simplified. In our simplified example there is only book entry money, nowadays digital.

Your money at the bank is not your money. Then, blacksmiths noticed few receipts were redeemed for metal. We must realize the subject of money is always a matter of trust, because money in itself has no use-value for us humans.

This makes it harder for everyone to repay debt to banks, pushing bank bankruptcies. After commodity money came fiat money. Credit only exists as book entries and in our minds. Most people that work at banks are not even aware about the fine details of credit creation.

The Concept Of Money And The Money Illusion

These developments inspired me to write a post on the concept of money and the money illusion. Awareness about the concept of money is making a comeback. The boost money has given to global wealth is beyond comprehension, tomek na czarnym ldzie pdf the concept of money has been an indispensable discovery of civilisation. The lion share of their money only exists in their minds.

First, let us have a look at the fundamentals of money. Yet every financial decision they make is based upon the amount of money they think they own.

While actually banks create money to lend out, whereby a fraction of the initial deposit is held in reserve and the insolvent state is conceived. More importantly, not all customers holding a receipt got their gold. That is, until exactly that happens.

The gold backing those receipts was just lying idle in their vaults, or so they thought. Will we ever awaken from this dream and will the real value of money and credit be exposed?

Direct exchange barter was a severely limited form of trade because it relied on the mutual coincidence of demand. Simply put, in any economy entrepreneurs will grow potatoes when they are expensive and stop growing them when they are cheap. An orange farmer in demand for potatoes had to find a potato farmer in demand for oranges in order to trade.

Covertly lending out money at an attractive interest rate appeared to be profitable. Fiat money is what nowadays is used all around the globe.

Banking thrives on the presumption not all money will be withdrawn from a bank at once. The medium used for indirect exchange is referred to as money.

When people used to own gold coins and bring it to a blacksmith for safekeeping they got a receipt that stated a claim on gold in the vault. Naturally, the risk was that when customers found out and simultaneously redeemed their receipts, the blacksmiths went bankrupt. Say, gold mines increase production output in order to literally make more money.

The roots of banking go back many centuries to fraudulent practices by blacksmiths. We use cookies to enhance the user experience and to analyse traffic.

Concept of money pdf

The Concept Of Money

Farmers participating in a barter economy were incentivized to specialize in production, because they could escalate their wealth gain more goods by producing fewer crops on a greater scale. Koos mainly provides unique insights about Chinese gold market. Eventually, the orange farmer succeeded via salt to indirectly exchange his product for potatoes. Koos Jansen is a precious metal analyst from the Netherlands.