Money Matters – Article 1 – March 2015
We have started a series of monthly articles with the intention of discussing matters related to Money and Finance.
We look forward to your active readership, participation, critique, feedback, comments and suggestions. Come, join with us, and let us explore this most important of subjects in detail.
We will be covering a wide range of issues; Income, Savings, Cash-flow, Debt, Finance, Property, Assets, Managed funds, Shares, Super, investments, and many more.
We plan to interact actively with you and will promptly respond to your queries and suggestions.
Let us start with an interesting question – What is Money?
There is an old saying “It’s only money ….. It can only lead to sorrow ………..
But is it? Money is the grease that makes our life run smoothly. Providence has provided us with Air, Water and Land ….. But everything else has to be provided for by ourselves in order to survive and thrive; And so we need Money.
But what is this Money? Where did it come from? Who decides its form (metal? Seashell? Barley? Paper?), denomination, name, value, availability?
Let us start with the standard dictionary definition: Money is “A medium of exchange, in the form of Notes and Coins”.
It is so simple and obvious ……… but is it?
Origin of Money: Barter system
Tens of thousands of years ago we humans moved on to a stage where we settled down, in little families or communities, and started to produce a little bit more than our daily minimum needs.
We soon discovered that one person, or family, or community was better at producing some ‘things’ but not other ‘things’.
Or we needed something which others had, and they probably needed things we had. We created a system of exchange of goods and services. We called it “Barter”.
The barter system was good, but not perfect.
Look at some of the dilemmas these groups and communities may have faced;
“I have sheep, he has wheat, I need fish, and he needs salt”
Or, “I have plenty of fish, need salt now, he needs grain now, but may have salt next year”.
Money as a concept of Value
AS time passed, and as more people and communities started interacting with each other, there grew a natural “Market” for goods and services.
Concepts of “Standard Weights & Measures”, of the “Relationship between Time, Effort and Output”, of “Quality and Quantity”, etc. started to be better understood and appreciated.
Some ‘things’ were easier to barter or ‘Trade’ compared to others.
Some things (staple commodities) stood out; They were most generally needed by all, they had longer shelf life (or even non-perishable), were easier to store and transport, etc.
In short, these ‘things’ were in higher demand, and so had more ‘Value’.
Money as storage of Value
Eventually, after a long period of time, commodities, generally, emerged as higher value items to generate (produce), stock and trade.
However, problems remained with direct barter of goods, whether between two parties or in common markets.
Over time, people came up with the concept of an ‘intermediary’, some ‘thing’ in common, that you could keep in store without losing value ………… and which, later in time, could be exchanged again for whatever goods or services needed in the future.
Gold as Storage of Value
Many commodities were tried and experimented in ancient times, no doubt, including Grains, Livestock, Salt, Hides, Beads, Feathers, etc.
But metals, especially rare metals, Gold and Silver in particular, were the natural choice in most communities, all over the world.
Gold is rare, divisible, non-perishable, cannot be replicated (counterfeited), and most importantly has high aesthetic value.
What happened next?
In our next article we shall concentrate more on a critical function of Money; As a store of Value.
Once again, We hope this article was of some value to you. We will continue with the story about the History of Money next month. We look forward to your active feedback, comments and suggestions.
Talk to you next month.
About the Author: Harish Narayana is a Sydney based Finance Professional and Adviser.