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Money is a unit of exchange, not wealth

Money - Seeing the future

We tend to think money is wealth, but it’s not; it’s just a unit of exchange for exchanging wealth. The wealth is the stuff we produce; goods and services. Some things like property will appear to go up in value. The sun appears to rise in the morning, but we know that the sun doesn’t go around the earth. The earth appears flat, but we know it’s not. Money seems to keep it’s value, but it doesn’t really, it goes down in value when central banks increase the money supply. Everyone who has money then loses out and people who have wealth in oil, gold or some other commodities like property, will gain.

Imagine an island where blue bottle tops are the currency and over the sea is another island where red bottle tops are currency. The real wealth is the houses and the food. If they want to buy something like fish from the other island the people need red bottle tops. You have done alright for yourself and so you sit on the beach under a coconut tree all day,  trading bottle tops. If someone comes to you wanting red bottle tops, you give then 10 red bottle tops for 11 blue bottle tops, making a one bottle top for yourself. This is like foreign exchange dealing and better than working for a living.

Now imagine, your island is short of food and everyone wants red bottle tops. You have to change the exchange rate or you will soon run out of red bottle tops. You might change it to 8 red bottle tops for 11 blue bottle tops, making yourself 3 bottle tops profit. The value of blue bottle tops has dropped relative to red bottle tops, because the other island is doing better than yours at producing food.

Many western nations aren’t producing so much wealth now compared to other developing  nations and so the currencies aren’t worth so much. There are other reasons why the currency can be devalued. The central bank can put more money into circulation.

Back to our hypothetical islands and imagine someone on your island suddenly found a 1,000 blue bottle tops on the beach, putting much more currency into circulation. He might come to you and want to exchange them for red bottle tops to buy up lots of fish, even buy up enough to create a shortage. Would you perhaps offer him 1 red bottle top for 2 blue bottle tops to make a good profit? He might then use them to buy up food and other goods actually creating a shortage of those commodities.

Who are the winners and losers in this scenario? You do good because you’re a trader, trading currencies. The guy with all the new money does good buying up commodities and holding everyone to ransom. Who loses? The people who buy the food and other commodities.

So is this happening in the real world? Are the bankers and traders doing well while others struggle to buy food? Are the Greek people who are struggling to buy food, medicines and other commodities in that situation because of the financial system or is it their own fault? Is the price of gold, petrol (gasoline), oil and other essential commodities going up because there is a shortage or because central banks are pumping never-ending supplies of new money into the system that is being used to buy up essential commodities by the already wealthy?

If there are new bottle tops, they should at least be shared out and more given to the people who need them most. Not to the rich and powerful to use to get even more power and riches.

There are more blogs on the home page of a zillion ideas. Have  a question? Please comment. If you think blogs like this challenge the economists and politicians and their spin on things, then you might like to help get more readers by clicking like and sharing with your Facebook friends.

One Response

  1. Pingback: » A week of writing, art and photography A Zillion Ideas and counting…

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