Origin of Money

Origin of money parallels with origin of society. In primitive society say person A produced butter and person B produced eggs. Person A might enter in to an agreement with person B to exchange a pound of butter for dozen eggs. Thus the concept of "price" of a good was created determined by individual's propensity to consume different goods. As society grew and more players entered the market, bartering became increasingly complex as each individual's utility function varied with commodity and time.

Hence a commodity that was easily marketable to be used as a medium of exchange was created. The commodity, to be chosen, must have two requirements: low cost of production and divisible into smaller units without loss in value. Historically different commodities have served this purpose sugar, tea, nails (yes in Scotland), copper. But over time two commodities emerged in the free competition of the market: Gold and Silver. Coins of gold and silver were used as a medium of exchange all around the world and soon became "units" of money. The unit of money was simply the unit weight of gold or silver and the modern day "fiat currencies" refer to these units. The British currency "pound sterling" referred to value of a pound of silver. The count of Joachim's coins became popular as was referred to as "Joachim's Thalers" or "Thalers" and eventually into what we know today as "Dollars".

Money is itself a commodity and like all commodities its value is set up total stock and demand from society to hold it. Once there is enough supply of money, no increase in supply will improve the functioning of the market. An increase in money supply, like with any commodity, will merely dilute the effect of each unit of money. With majority of countries off the gold standard and the central bankers who have let the printing machines run at full speed are efficiently devaluing the unit of money. The scale of credit creation is so large that a currency crisis is inevitable. So it doesnt matter if your fiat money is in dollars in FDIC "insured" bank or in other currency in a safe foreign bank or under your mattress, its value is going to depreciate.

Thanks to all our fed chairmen and treasury secretaries, the society has come to this mess due to their profound grasp of the basic understanding of how society works. Obama, although a great statesmen at heart, has given power to people who neither saw this problem coming nor do they understand how to fix it. The policymakers are bestowed with immense power as their policies based on feeble assumptions ruin the lives of billions of people. The current economic meltdown in an instance in point. In fact, some of the policies that they are enacting are even unconstitutional. American principles of freedom and liberty are not at threat from fundamentalists in middle east but from corrupt and incompetent policymakers in Main Street.

"Never spend your money before you have it." - Thomas Jefferson