It’s oddly obvious what creates the real value of money. People get confused, about it because it seems hard to connect logical theories with how the real world works. It’s the real world that gives our theories whatever reality, relevance and meaning they have, of course. The real value of money is as a unit of credit, for a share of anything the whole economy can do in exchange for money. It makes money a direct measure of what people want and the whole economic system and its networks of parts can do for them, its real value.
Below are two related comments from the Systems Thinking World “Where does the Money Go” conversations. They focus on why the value of money goes bad, and why that’s NOT that the money supply expands with expanding credit in the economy. The real problem is the viral process of multiplying bets allowed, a different feedback loop.
For further discussion of this natural systems view of how the money economy works, and why it fails, see the reference page “Concept$.htm” and the Natural Economy posts here. The classic failure of the money system occurs as permitted viral circles of betting demand unreal growing returns from the rest of the economy. That “betting economy” drains credit from the “productive economy” and the “grants economy” (aka the “Love Economy”) it supports, the original economy in which people use what they have for purposes other than money.
1) On STW 11/7/12
Duane – You pointed out that a very early use of money was cowrie shells. I think earlier evidence of money use were notches on sticks and wedge marks in clay, accounting for natural units and credits for them. But the questions remains, what is the actual seat of their value?? No artifact has a value without a use of value in relation to other uses of things, right?
So how do you then define what gives monetary markers value, if both the marker and the things of value themselves, have no independent defining characteristic making them valuable at all? Don’t they seem to only have value in relation to their how they are used in a whole system of other things of value? Continue reading What creates the real value of money??