Money -- Good and Bad

0. Preface

Do you understand money? Should you buy some Bitcoin? How about gold? Silver? What causes inflation and can it be prevented? How? Can you explain the three functions that money needs to perform well? What are the three basic kinds of money and which of the kinds is cryptocurrency?

Everyone deals with money on a daily basis. Few give it much thought. But if you’re a bit fuzzy about the answers to any of the above questions, it could be hazardous to your wealth. There have been many problems with money, some of them quite disruptive. Sound money is very important to the proper functioning of a free market economy.

This short, easy-to-read book aims to clarify some confusing aspects of money. It will provide the knowledge to answer the above questions and many more. For their own good, citizens and informed voters need to be able to evaluate the validity of politician’s proposals and government policies regarding money. As a bonus, the ultimate sound currency is proposed.

1. The Origins of Money

Many millennia ago, there was very little of anything that could be called economic activity among people. That is, individuals and families were pretty much isolated economic entities that had to produce for themselves substantially everything they needed: food, shelter, clothing, and so on. Just surviving was more than a full-time job; the less fit were unable to support themselves and perished or became food for wild animals. There was no need for money.

Over time, people learned that they could be more successful (achieve a higher standard of living) through peaceful cooperation. To facilitate cooperation, they began banding together in communities. It’s hard to be peaceful if everybody is stealing everybody else’s stuff, so maintaining peace required respect for the ownership of private property.

About twelve millennia ago, the advent of agriculture catalyzed a major shift away from nomadic hunting and gathering and toward more permanent farming settlements. It was then realized that some people were much better hunters than others, while other people were better at farming, building shelters, making clothes, or other tasks. Much higher overall productivity could be obtained through specialization. Not only could each person spend most of their time doing what they were best at doing, but they could also further hone their skills and knowledge as well as justify making specialized tools to further boost productivity.

With specialization came the need to exchange commodities. Suppose you specialized in farming. Presumably, you would have lots of food available to you, more than you could consume yourself. But you would lack all the other things you need. You would have to trade some of your excess food with other specialists for the things you need that they have produced. When you needed a new pair of shoes, you would reach an agreement with a cobbler to trade some food for a pair of shoes. Of course, the same applied to everyone else who would need to trade some of what they had produced for food.