On the nature of money

Money is a contract, the promise of paying value with value, a number representing debt, effort, usefulness, commodity, wealth, created to buy and destroyed when the debt is paid off. Therefore money is voluntarily accepted if the issuer is trustworthy and able to redeem the money for valuable good and services.

The price represents the value of a commodity, how much money is paid for it, and is established according to the usefulness, cost to produce it, and quantity in the equilibrium of offer and demand when what is offered coincides with what is demanded, so there is no surplus because the price is too high, product not sold because there is no demand for it, or shortage because the price is too low, the demand exceeds the produce on sale. Being the usefulness of commodities the same the higher the cost to produce it the higher would be the price so the benefit for the seller is according to the investment. If the price was the same producers would make the commodity that brings more profit, for being cheaper to produce, bringing the price down until all commodities have equal benefit for equal investment. If a football is cheaper to make than a rugby ball and both have the same usefulness, meaning people are willing to pay the same for both items, the price of the football would be cheaper because if the price was the same the profit for making the football would be higher therefore investors would rather make footballs dropping the price to the point where making footballs or rugbyballs bring equal profit. Basically the price indicates what the society want to be made, what value more, what is willing to pay for more. Like ‘I want you to make for me what i would pay you more for, benefitting us both the most’. How much quantity to produce? The free market would produce the good and services most needed, that bring most profit because are most valued and are paid most for them, bringing the prices down until the point where all commodities made bring the same profit according to the investment. Of what is most valued the market make more, therefore when coal as a means of energy decreased in value some coal mines had to close to keep the producers gaining the same profit. The same principle applies to employees, workers are paid more where are more valued, more needed because bring more usefulness, so if society stop valuing farmers as much and need more IT workers the salary of IT workers would go up and the salary of farmers would go down so the farmers are incentivised to do IT to the point where farmers and IT workers earn the same according with the skills that bring to the market (that would be equivalent of the cost of making a commodity for producers). To determine the price the buyer takes into consideration the usefulness and the producer the cost, so eventually what is asked is “is it useful enough for the price i pay? or is it profitable enough for the cost i pay? Investors would invest money where is most profitable, bringing prices down as the production increases to the point where all investments are equally profitable. What is more profitable, making luxury cars or growing vegetables? If making cars were more profitable investors would invest increasing the offer bringing the price and benefit down to the point where both industries bring the same profit. The profit or price indicates what society want to be produced because is more valuable. Society would produce what is more valued increasing the offer bringing prices down until the point where all that is made is equally profitable. The free market removes the unwanted, rewarding efficiency, good conditions, etc. If an employer mistreat the employees the employees would demand more money for the same job for being the conditions poorer, making the production more costly, and unnecessary costs tend to remove the producer from the market as customers buy at the best price. Capitalism is wisdom.

Wealth is wellbeing, good and services, what a society has that bring utility or happiness. Wealth is currently measured by gdp gross domestic product although is wealthier in terms of happiness a society with less gdp that is not belligerent and don’t spend on military than other that, being everything else the same, use resources on defence because is under threat, because the peaceful society has more idle time to enjoy life, and has the same utility without having to work for the military expenses.

Economics is money in money out, like a game where whoever puts money, numbers, debt, in circulation has to remove them to clear the debt. The more money is issued the more valuable good and services has to be produced to clear the debt. The more is received the more has to be given. How much is produced by the seller is according to how much the buyer wants to buy, that is according to how much the buyer produces and give in return, because the buyer is seller and the seller is buyer, because to receive you have to give at the same price and different value, otherwise the exchange would not take place.

The issuer of money would sell to the highest price possible to clear as much debt as possible allocating the resources where are most wanted, most are paid for them. “If you sell cheaper to someone else i would buy from him what i could have bought from you more expensive benefitting both of us the most.”

The more money is in circulation the more wealthier or more capacity of production has a society as money represents wealth, but is not wealth. If money was a commodity the exchange of good and services would be barter, giving something valuable for something valuable.

Inflation is the general increase in prices due to the increase in demand in relation with the offer. Simply put people are willing to pay more for what they were willing to pay less. Inflation is the increase of prices indicating that the producers have to make more good and services, because are more demanded, therefore more profitable, decreasing the price to the point of a new equilibrium where the profit is proportional to the investment.

Deflation is the general decrease in prices due to the decrease in demand in relation with the offer. The society buy less therefore the prices indicate that the producers have to make less. Deflation is the decrease of prices indicating that the producers have to make less good and services, because are less demanded, therefore less profitable, increasing the price to the point of a new equilibrium where the profit is proportional to the investment.

Capitalism self-regulate in equilibrium, equality , what is given is equal to what is received, in agreement, collaboration, victimless, giving to receive at the same price and different value, otherwise the exchange would not take place, allocating resources where are most needed because are paid for most, benefitting seller and buyer the most. If the issuer of money issues money that can not redeem for good and services, not fulfilling the promise of paying off the debt, effectively stealing, he becomes untrustworthy and the money issued becomes valueless. If not enough money is issued the prices would go down and debtors would lose out as a unit of money would increase purchasing power incentivising the creation of more money til the point where the prices are stable and there is not inflation or deflation.

El valor de un bien o servicio es su utilidad, el bienestar que proporciona. El valor del oro es su utilidad intrínseca en joyería o manufactura y no tiene ninguna utilidad metido dentro de una caja fuerte. El precio indica el valor que es aceptado como pago. Cuanto mayor es el coste de producción mayor es el precio y cuanto más cantidad hay menor, y el precio se establece en la coincidencia de la oferta y demanda donde lo ofertado es igual a lo demandado. Comprar para vender no añade valor al bien por lo tanto si se paga más por lo mismo es porque el dinero tiene menos valor, menos poder adquisitivo, por haber mayor cantidad. Si se paga más ahora que en el pasado por el oro es porque el dinero tiene menos valor porque hay más en circulación. Gobiernos inflacionistas imprimen dinero depreciando su valor. ¿Cual es valor de las criptomonedas? El valor de un número, porque las criptomonedas no son redimibles por nada y el emisor de bitcoins está recibiendo bienes a cambio de nada. The gold and cryptocurrencies markets are going to crash.

Inflation decreases the value of money because there is more in circulation being the same production to bid for. In the following piece of news the writer didn’t understand that. “The lira shed 44% of its value against the dollar last year, and fell another 5% on Monday before recovering to trade flat. The drop in the lira has made the price of inflation-fuelling imports more expensive, ranging from energy to many of the raw materials Turkey’s manufacturers turn into exports.” https://www.bbc.co.uk/news/business-59857420 The drop in value of a currency because there is more of it does not make more expensive or costly imports precisely because if the currency buy less, has less purchasing power, is because there is more of it.

Wealth is created producing and exchanging good and services the utility is increased as the value of what is received is greater for the buyer than for the seller, and the value of what is given is lesser for the seller than the buyer, otherwise the exchange wouldn’t take place, and money is a number, a means to exchange and indicates the value or price in relation to all the other prices, how much is received for what is given according to the offer and demand. Altering the money in circulation only the prices are altered, the wealth keeps being the same.

cryptocurrencies are not money, because are not redeemable for good and services therefore are valueless if not accepted as payment. People are paying money for useless numbers. Once my theory on money is known the crash will occur.

Fiat money is not redeemable for good and services therefore is not money, but works as money because of the trust society put in the government, that issue and lend out the money that would have to be returned, therefore in order to return the money borrowed the borrower would have to sell valuable good and services. If the government buy with the money issued effectively is taxing, decreasing the purchasing power of money creating inflation. What is the difference between the government issuing money to pay for good and services or collecting money from taxpayers ? In both cases the purchasing power is reduced, in one case because there is more money in circulation for the same good and services and in the other because the money is redistributed, from the citizens to the government that spend it. In one case inflation is created and in the other not. The problem of issuing money that has not to be returned to be destroyed, as would be the case if the society were taxed by the government issuing and spending money is that is valueless if not accepted as payment since there is no any obligation to be accepted.

The purpose of investing is to create good and services, value, paying for the means of production to create wealth, a profit according to the nature of the investment, risk, etc. For example buying a ladder to pick up apples higher in the tree increasing the apples collected, therefore the benefit.

%d bloggers like this: