Sunday, November 6, 2011

Money is a Concept

Most money is an electronic notation in a bank account.  It has no physical presence.  So money could be considered a concept since there is only a physical presence to money in a few specific versions, but money is a concept to distinguish it from being a thing.  Why is this important?  All things are subject to the rules of Supply and Demand, but concepts are not.  Why is that important?  Things are subject to inflationary effects related to the amount available.  The price of computers will fall as the quantity available in the market increases.  The price of oil will increase as the demand increases.  A concept like "love" does not change in value as the quantity of love increases in the world.  A concept like "peace" does not decrease in value as more and more of the world becomes peaceful.  Likewise, the value of money does not decrease as the quantity of money in the world increases.

Seeing money as a concept allows countries to find strategies to increase the quantity of money in their citizens' pockets without fear of Supply and Demand inflation.  There are other types of inflation.  Money is subject to inflationary effects since it can be exchanged for other types of money in the world.  The differences in value between the money of different countries is caused by an adjustment in the value of earnings of various people.  You can imagine if two people doing the same job in two different parts of the world are paid in different currencies and they buy software from a company in Seattle, WA, that eventually the value of their work expressed in their home currency will gradually move toward the value of the currency used in Seattle, WA.  Convergent inflation is nothing to fear.  It is simply a correction of an imbalance in value.  It will be painful for awhile, but eventually all currencies have to equal the value of work completed to earn it.

Currency can be debased by printing currency that is not earned or excessive payments to people who do not earn it.  This is one of the dilemmas of Third World countries.  To increase the amount of money circulating in their economies they expand their Public Sector.  Unfortunately, Public Sector employment often exceeds what is necessary.  This is equivalent to paying someone to stand around.  The value of their work is debased and consequently the value of the money printed to pay the new employee is likewise debased since Money=Work.

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