C04 - The Legend Of Money

When they grew up, Jack and Jill became eminent economists. One late evening, they met in a restaurant and discussed important things over dinner. Jack told Jill, "Now, I have an offer. If you tell me who wrote Hamlet, I will pay you $10 billion." Jill made a face and said, "I won't do such things for anything less than $20 billion."

After a minute of careful contemplation Jack said, "Deal. Who is it?" With a smile Jill said, "William Shakespeare." Immediately Jack grabbed a napkin and wrote on it '$20 billion' and gave it to Jill. "No. The napkin is wet. It's counterfeit. I won't accept it," Jill refused to take it. Then Jack grabbed another napkin, wrote on it and gave it to Jill. She accepted it happily and said, "Thank you. You made me rich."

Then Jill told Jack, "If you tell me who wrote Romeo & Juliet, I will give you $20 billion." Jack said, "Yup, Jill, it's William Shakespeare." Jill returned the napkin to Jack and he accepted it.

A waitress lost her head over this crazy drama and asked them, "I don't understand anything. Don't you have better things to do in life?" Jack said, "Lady, you overlook the fact that just now we created money, transacted business worth $40 billion, settled payments, improved GNP, GDP and Per Capita Income of this nation."

Bill's economics teacher told her students this story and asked Bill, "What do you think of it?" He told her, "It's a funny story. This clearly shows how silly Jack and Jill are." She threw a piece of chalk playfully on Bill and said, "This clearly shows how silly you are. Young man, the story humorously illustrates the process of creation of money and some other facts about money."

Then she spoke to the class, "Man creates physical money. He creates it for his convenience when he has some idea or a need. He can create it anywhere at his will. He can decide when and how to create. He can create infinite amount of money, if he is resourceful. Man assigns value to transactions and commodities. Value of a product is only a momentary perception of the man. Everything is marketable, if there is a buyer. Anything can be a medium of exchange. This medium is an instrument and a symbol. The instrument is useful only if the other person accepts it. When others begin to trust it and accept it, you can circulate it to facilitate other transactions. Any successful business can be replicated successfully. These are the essential points of the story." She spent the next two hours in explaining this silly story.

Characteristics of Money
Money is a visible sign of a universal force. What we call money is a physical expression of a force that has been playing an important role in the development of world.

All societies from time unknown have had strongest attraction for three forces - money, sex and power.

But money has had more attraction and impact than the other two. In monarchy, a commoner was not allowed even to think of the crown, the power. His power was limited to his family. However, no one was barred from making money. In many empires, such as the Roman, the guards and slaves in the palaces of queens and princesses were denied sex. However, they were paid more than the normal salary. People have lived without sex and without power. But no one has survived without money or value of money.

Money is a symbol
Money is a symbol of a universal force that is indispensable for decent human existence. People used different forms, such as paper, metal and cards, as money in different countries.

However, through sophisticated systems and agreement among Governments, the different forms have been standardized to facilitate cross border transactions. The value of money reflects the overall strength of the society.

Money is infinite
Money is the visible sign of a universal force. There are two things here. The subtle universal force that is infinite and the physical money that is finite. The universal force is inexhaustible.

So, if you are resourceful, you can create as much physical money as you like.

Air is everywhere and infinite. If you are in open space, you enjoy it as much as you like. When we build homes, the free flow of air is obstructed.

However, with a fan you can create air without any limitation. Similarly, you can create as much money as needed with resourceful plans.

Money is an instrument
Man created many instruments for his use. Money is one of them. Because it is an instrument it can be used or misused. Man is the master of money; he is not a subordinate to the instrument he created.

Likes and Dislikes
Money likes to go to, and stay at, places that adore values like cleanliness and orderliness. It does not care to visit places that are unorganized and dirty. Implementing these values in your business will attract money in tons.

Money and Circulation
The force behind money is subtle. Anything subtle increases by movement. For example, knowledge is subtle. By giving it to others, the teacher's knowledge does not diminish. In many cases, the teacher gains new insight. Similarly, money increases by circulation and movement. The speed at which it circulates increases the usefulness of money.

Authority and Acceptance
The value and power of money depends on its authority and others' acceptance. The acceptability of the form of the instrument varies from person to person. For example, you can buy a big chocolate manufacturing factory with your credit card, but you can't buy a chocolate bar with your credit card from a street vendor. If you don't have an email account, you can't receive email money.

Perception also decides acceptability. If a shopkeeper perceives a genuine note as counterfeit, your money becomes useless. Anything that increases the perceived strength of the society, like stability of Government, increases the perceived value and acceptability of money.

Money and Wealth
Money represents only a part of the wealth of the society. Man gives value to what has already been produced or can be produced in the short term. If long term view is taken, huge quantity of money can be produced now. Society has infinite potential for productivity. So it can create any amount of money.

Social Organization
Money is a social organization created by man to facilitate economic transactions. It is an organization used by man to create and support other organizations. Money promotes social development through primary, secondary and tertiary powers.

Primary power comes into play when it acts as a medium of exchange in economic transactions. Secondary power comes into play when it facilitates utilization of social resources. Tertiary power comes into play when it is used to represent future productive potential.

Creation of Forms
Money does not mean only cash and gold. If you are creative and resourceful, you can create as many forms as you like. Debit cards, credit cards, bank cards, stock option and digital cash are different forms of money.

If you can organize a small group of like-minded people, then you can create new instruments of money with the approval of the members and the introduction of system and authority. PayPal is an example. Government does not accept money sent by email. However all members of PayPal accept it and honor it. So it is useful to millions of businesses and businessmen.

The History Of Money
In his book Wealth of Nations, Adam Smith describes the origin and use of money in Chapter 4 of Book 1. The book was written in 1776. In the past 225 years, many things have changed. Here you will read other interesting modern documented views on the history of money that deal with physical appearance of money.

Barter
Our forefathers didn't buy goods from others with money. They used a system called barter. It means the exchange of personal possessions that you have in excess for other goods that you want. This kind of exchange started at the beginning of humankind and is still used today. Even today individuals, organizations, and governments still use barter as a form of exchange of goods and services though they assign money value to the transactions. Cattle too was used as a unit of exchange. Then came the use of grain and other vegetable or plant products as a standard form of barter.

Cowry Shell Money
Around 1200 B.C. in China, cowry shells became the first medium of exchange, or money. Cowry is the shell of a mollusc that was widely available in the shallow waters of the Pacific and Indian Oceans. Many societies have used cowries as money. The cowry was the most widely and longest used currency in history.

Base Metal Money
In 1,000 B.C., China produced mock round cowry shells out of base metals. They were the first metal currency. In addition, tools made of metal were also used in China as money. From these models, we developed today's round coins. The Chinese coins were usually made with holes in them so that you could put the coins together to make a chain.

Precious Metal Money
Around 500 B.C., pieces of silver were used as coin money. Eventually they were imprinted with numerous gods and emperors to mark their value. These coins were first used in Lydia, or Turkey. The techniques were quickly copied and refined by the Greek, Persian, Macedonian and later the Roman empires. These coins were composed from scarce metals such as bronze, gold and silver, which had a intrinsic value.

Leather Money
From 118 B.C., bank notes in the form of leather money were used in China. One-foot square pieces of white deerskin edged in vivid colors were exchanged for goods. This could be considered the first documented type of bank note.

Paper Money
From the ninth century to the fifteenth century A.D., in China, the first actual paper currency was used as money. Unfortunately, in 1455, the use of the currency vanished from

China after 500 years of use. This was still many years before paper currency would appear in Europe, and three centuries before it was considered common.

Europeans began to use paper money when the warehouse receipt for grains were treated as negotiable instruments and money. Later, they developed formal paper currency. Paper currency gained authority and acceptability in China after Europeans began their trade with China. It is just like Indian Philosophy that gains acceptability and authority when a Westerner appreciates it.

Other Forms
In 1500, North American Indians engaged in potlach, a term that describes the exchange of gifts at banquets, dances, and various rituals. In 1535, strings of beads made from clam shells, called wampum, were used by North American Indians as money.

Gold Standard
In 1816, Gold was officially made the standard of value in England. Bank notes had been used in England and Europe for several hundred years before 1816, but their worth had never been tied directly to gold.

The United States went on the gold standard in 1900. After the Great Depression of the 1930's, the gold standard was revised in the United States. The British and international gold standards soon ended as well.

After that, the complexities of international monetary regulation began. Today, few nations tie the value of their currency to the price of gold. Government and financial institutions control inflation through other fiscal and economic measures.

Nations keep changing the forms of their currencies to increase longevity of the instrument, to reflect present social life and to defeat counterfeit. Electronic money or digital cash is already being exchanged over the Internet.

Future Money
Convenience, speed, ease of portability, security, universal acceptability, easy convertibility and subtle form are some of the characteristics of the future cash.
Digital cash acts much like real cash, except that it's not on paper. Money in your bank account is converted to a digital code, stored on a microchip, a small card, or on the hard drive of your computer, and can be used for anonymous transactions by any vendor who accepts it.

The use of digital cash, though convenient, may bring with it complex technical problems. Along with potential problems, digital cash brings with it clear advantages over traditional money to everyone involved in the transaction.