Money is not the wealth

Money is only a medium of exchange. It is not the wealth. It only presents the future wealth we believe it can provide us in form of goods and services from other people whom we hope to accept our money in an exchange for our desired goods and services.

Wealth is created by people who produce goods and services. We use money as a middle man to satisfy our current and future needs. What we do not consume immediately we can store for a later day (save (i.e. invest)).

Basically anything can be used as a medium of exchange. History knows many commodities used as money. Currently we have accepted printed-paper notes as money that has no other productive use.

The purchasing power is based on exchange of goods and services between individuals in any society. In another words in order to get something you have to give something. One can do this directly by bartering fish to bread or use a medium of exchange in between. For example buy ‘money’ by selling the fish and then sell the money and buy the bread.

Provided that the society is based on trust where no one is cheating (i.e. getting something for nothing—stealing) it does not really matter what is used as money. Ludwig Von Mises has theoretically proven that gold, silver etc. were evolved as the commonly accepted medium of exchange by having an alternative productive (i.e. economic = scarce) use first. Later they became the de facto standard ‘money’. For example gold can be used for jewelery, semiconductors etc. as well as a medium of exchange.

Our current fiat money is not backed by anything. This means that one can fabricate more money and thus steal/cheat from the society. By printing more paper notes one can exchange those notes to real goods and services (provided that people still believe in the money and are ignorant of the scam) without giving anything back. Thus getting something for nothing. In other words the overall wealth in the society has not increased as a result of printing more paper notes, ‘money’. There are no more goods or services for the members of the society to enjoy and consume.

1 Comment

  • Reply Marc Opie August 4, 2016 at 6:11

    Printing Money: Except, if you ‘fool’ people by putting some more money into the system, (a limited amount), you can generate economic activity, (i.e. put unemployed people to work), and thus generate more wealth.

    You can only do this to the extent that idle capacity is available (i.e. potentially productive people not working and creating wealth).

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