What It Is and What It Isn't
Money Part I - Wealth, Survival
Douglas V. Gnazzo
March 13, 2006
An aura of mystery has surrounded
money from the day it was first used. Thousands of books have
been written on the subject, yet there isn't a generally accepted
definition of just what money is, or isn't.
The historical study of money
has created a large body of diverse and opposing opinions. Collectively
they offer little progress in the understanding of money. Of
even greater significance is their failure to provide a valid
theory of money that can be implemented in a workable sound monetary
A viable solution to the present
day problems of monetary policy remains as elusive as the quest
for the Holy Grail. Even Federal Reserve Chairman Alan Greenspan,
when asked before Congress what money was, replied that he couldn't
give a definitive answer.
There has never been a consensus
of agreement concerning monetary theory. Some espouse one school
of thought, others believe in another. The debate has continued
throughout the ages, and it continues today. The present state
of our monetary system is desperately crying out for help. It
is crying out for sound and Honest Money.
Before attempting to offer
a system of Honest Money, we must first define, and understand,
what this thing called money is - and isn't. A brief review of
some fundamental history on the subject is therefore in order.
This will provide a stronger base from which to proceed.
The word wealth is derived
from the word weal, and implies a state or condition
thereof. Weal is synonymous with well, as in well being. The
primal state of man is that of being - of having life. Life is
the highest order of wealth. Without life, man is unable to experience
the world in which he lives, moves, and has his being within.
All other considerations of
wealth must be in accordance with true wealth or well being.
Whatever contributes to man's well being contributes to his true
wealth, and as such can be considered a secondary form of wealth.
If we are not healthy, we are
not well. If the condition persists, and cannot be corrected,
then our greatest wealth is taken from us - life itself. The
word disease clearly signifies this as it expresses dis-ease,
the loss of ease or well being.
History shows that early man
used three primary ways to obtain his basic needs. The most natural
way was that of self-reliance. Man provided himself with the
necessities of life. He did this by hunting, gathering, planting,
But it was not always easy
for a single man to provide all the items needed. It was even
difficult for the first social group formed by man - the family,
to supply all the goods and services required for their survival.
Consequently, men came together
to trade with one another, to live with one another - to exchange
what one had, and the other needed.
Man has also resorted to taking
what he needed from others by violence and the conquest
The first two ways of survival
are ways of the right hand path - the right way. The third
and last way is the way of the left hand path - the wrong
way. The two paths will be spoken of in more detail in future
articles as we progress along the way. Remember them well. They
are of major significance.
The increased safety in numbers,
the improved division of labor in groups, the desire and
need for social life - all these factors helped to bond families
together. The family unit was the first dominant social group.
Families related by blood:
mothers, fathers, brothers, sisters, aunts, uncles, cousins,
and other kin, all banded together. Eventually groups of related
families grew into tribes. The social fabric of man became interwoven
with the economic and self-preservation aspects of his being.
The safety afforded by the
increased members of the group; the need to exchange or trade;
and the increased production of the division of labor, are three
of the basic factors that gave rise to families, bands, tribes,
settlements, communities, towns, and finally cities.
Man is a social being. Man
needs man. Man needs other men.
Barter And Utility
During early history, man traded
one physical good for another. One person desired certain goods
that another person had and they didn't. So, the two or more
individuals would come together to trade. Upon handing over one
good over for another, the entire exchange was completed. This
is called direct exchange or barter.
Notice that what is called
the coincidence of wants is necessary under direct exchange
or barter. Each trader must have what the other trader wants,
otherwise they will not come together to trade, - no exchange
will take place. They both must have what the other wants.
As people come together to
trade, a market is naturally formed. People trade for things
they need, for items they find to be most useful. When individuals
exchange goods with one another, they offer items that are of
less utility or value to themselves, in exchange for other goods
considered by them to be of more utility, and hence of more value.
Some refer to this as the theory of marginal utility.
Both traders that exchange
goods must have this same belief structure. All market participants
use a subjective value system to determine the usefulness
of the goods to be traded according to their every day usage
- according to the utility they afford.
In any exchange a definite
quantity of one commodity or service is exchanged for a definite
quantity of another: one cow for three pigs, a bushel of wheat
for a dozen eggs.
Thus in every exchange there
is a ratio of two numbers or quantities. This ratio represents,
and is, what some call value, and others call price.
However, it is not always determined
strictly quantitatively - quality also enters the mix. Some say
that value cannot be measured. I leave it for the reader to decide
from the evidence or lack thereof that is presented.
When a person desires something
a subjective decision is made. A valuation based on the need
or usefulness of one commodity, as compared to the subjective
use value of another commodity is made.
One commodity the person has
in their possession. The other good is not in their possession,
but is under consideration to be exchanged or traded for, and
is in the possession of another.
Consequently, each individual
subjectively compares the use value of one item to another.
Need and desire give rise to usefulness, which in turn gives
rise to value - the ability or utility to fulfill the need and
Only that which is useful or
is determined to have a potential future use, is considered to
be of value. Water is valuable to everyone, as we all must have
water to drink. Water is one of life's most critical necessities.
But does a man that lives next
to a lake in the mountains value water the same as a man stranded
in the desert that has no water? Water is water, wherever it
is, but it can be valued differently, according to the need and
want of the situation - the demand compared to the supply.
The Law Of Thought
All action first requires a
thought. All thoughts require a desire. All desires require a
feeling. All feelings require sensation.
Sensation is experienced through
the senses, the ambassadors of man's inner court to nature -
of that which is beyond nature with nature - the above with the
A feeling is not feeling,
nor is a desire - desire. Events occur by thought exteriorized
as action, as a point becomes a circle: two points form a line,
two lines form an angle, and four squared angles doth a circle
Such is the aim of the subject
to obtain the object of its feeling and desire. It is the desire
for the continuance of life that drives man to desire the necessities
needed to sustain his life.
Desire and need turn the miller's
stones, the subject in pursuit of the object. All
is grist for the mill. Men come together to trade by necessity
- to fulfill a want, a need - a desire.
So, we see that in direct
exchange one good is traded for another. This requires that
two traders come together that want what the other have, which
is not easily accomplished.
It soon became obvious that
if man were going to improve his lot in life, he would have to
develop a different means of trade than direct exchange or barter.
Direct exchange limits the division or specialization of labor.
The coincidence of wants must be overcome.
As man and society grew more
complex, so too did the need for a different method of exchange
evolve, as the trade needed to sustain life was becoming more
complex and involved.
The specialization and division
of labor improves the production of goods. A greater supply of
goods is brought to market. The increased trade afforded by such
progress cannot be conducted by the mere barter of direct exchange.
A common medium of exchange
is required to better facilitate the increased trade more efficiently.
Consequently, indirect exchange
and money developed alongside of one another. Indirect
exchange requires a common medium of exchange to function. The
Common medium of exchange
is called - money.
What is one to do if he has
in his possession eggs to trade, but the market is saturated
with eggs? Eggs are not in strong demand as there is too
large of a supply of eggs compared to the demand for them.
His item of exchange is not saleable or marketable.
From this we see that it is
very important when bartering to bring to market goods that are
saleable and marketable. But how can one determine what
goods are most wanted and in demand? Is there a magic item that
is always in demand? Yes - it is called money.
Man, being ever so resourceful,
finds a commodity that can mediate the problem presented when
one or more goods are not saleable or marketable. He chooses
a third commodity that society deems to be the most
useful commodity for such exchanges - a common measure or
denominator of usefulness and value.
This commodity becomes the
common medium by which all goods can then be exchanged for.
The common medium of
exchange is the commodity that is most saleable or marketable.
It is the most constant and stable commodity in its usefulness
to procure other goods with. It has the least declining marginal
The commodity that has the
most stable value, and which can be exchanged in value or kind,
for any other commodity, or service in the marketplace - is commonly
known as money.
The most important quality
of money is that it can be exchanged in value for any other good
Money itself has no intrinsic
value; it simply represents the value of the goods and services
for which it can be exchanged.
This type of trade is called
indirect exchange. It uses a third common media as opposed to
direct exchange, which is the direct barter of one good for another.
With the advent of indirect
exchange, and the use of a common medium, the division of labor
was greatly facilitated, and commerce was able to further expand.
Indirect exchange creates a
buyer and a seller, where previously with direct
exchange, only two traders or parties existed without the distinction
of buyer and seller. The use of a third common medium of exchange
to obtain goods and services is what creates buying and selling
- by the use of money.
With the use of direct exchange,
the act of trading was completed in the present. One individual
would hand over or exchange his good for the other individual's
good. The deal was complete - finished; no further action was
The act of trading was completed
in the present
by direct exchange.
With the use of indirect exchange,
the procurement of needed goods is only completed for one of
the two parties in the present - the buyer, as he acquires the
goods he needs.
The seller does not procure
the goods he needs when he sells his goods for money. The seller
receives money that he can then use in another exchange in the
future to buy the goods he needs. This is not about semantics;
there are very subtle and powerful differences here that will
be shown to be quite unique and important.
So, we have now before us a
bit of the history of the development of trade and direct exchange;
and indirect exchange and money. A definition of money is starting
to appear: as a common medium of exchange by which needed goods
and services are procured in the marketplace.
In part II we will further
expand upon the definition and meaning of money.
Come visit my new website:
-Douglas V. Gnazzo
email: Douglas V, Gnazzo
Honest Money: What it
is and what it isn't
I : Part II : Part
III : Part IV : Part
VI : Part V : Part
VII : Part
is CEO of New England Renovation LLC, a historical restoration contractor
that specializes in restoring older buildings that are vintage historic
landmarks. He writes for numerous websites and his work appears
both here and abroad. Just recently he was honored by being
chosen as a Foundation Scholar for the Foundation for
the Advancement of Monetary Education (FAME).
V. Gnazzo. All Rights Reserved.