The Shape Of Money


The Shape Of Money


Money, like everything else, can be seen in two distinctly different ways. You can perceive it in terms of cash in your pocket or savings account. On the other hand, you can perceive money as stocks, bonds, real estate, trucks, houses, shares and so on. Which way do you think most people perceive money?


I think most people would prefer cash in their pockets. That way, there will be no complications when paying bills or accumulating money for savings. Money is any verifiable account or tangible item that is usually accepted as settlement for goods and/or services purchased and payment of debts, including taxes, from a certain country or socio-political context. I think this is what most economists mean when they talk about monetary transactions. In this sense, money is the product of human action.


Money, then, is a creation of human action, just like food, clothes, houses and tools. Money has its own market, just as labor and other tangible commodities have their own markets. The process of money creation is called barter, because it involves exchange of things for services or goods. But how does money become a commodity?


Well, for the common person, money comes in the form of checks and savings accounts. The check card is a fiat money item, just as a pair of socks and shoes are a fiat money item. Money on the streets is a common medium of exchange, just as fish, vegetables and fruit are common mediums of exchange. A common man cannot really understand why his neighbor would want to exchange his carrot for a fish, just as he cannot understand why a representative of the bank would want to exchange his savings account for physical cash.


Savings accounts are the most widely used medium of exchange, because they are both convenient and safe. They provide interest and other relevant financial services like loan payments, as well as the ability to build up wealth over time. Savings accounts have their drawbacks, of course. Namely, the tendency to be taken advantage of by unscrupulous banks that will withdraw money from the savings account without first ensuring that the account holder will have enough funds to cover the withdrawal, and the lower interest rates that banks charge on their debit cards and savings accounts.


A medium of exchange that many people don’t realize is also found on the streets. That medium is currency. Although it can be thought of as physical money, currency is a sort of digital “wick” that banks use to signal their willingness to borrow and lend money. Just as physical money is distinct from digital money, so are the signals that banks use to let their borrowers know that they are willing to make the promised loans. And just as banks do not have the right to take the physical money of an individual, neither do individuals have the right to insist that the banks provide them with physical money substitutes. As long as these banks continue to receive their commissions from these money substitutes, no individual will be able to ensure that the money substitutes he receives are truly adequate substitutes for the real thing.


Yet another way that these money substitutes can get people into trouble is when these money substitutes get involved in self-dealing transactions. The most common self-dealing transactions involve transactions on foreign currency. Because foreign currency markets are very large, they can be very difficult for individuals to monitor. Because the transactions are often done electronically (or at least electronically translated into various languages), they can be easily overlooked by a typical consumer. This is why banks can take advantage of the lack of attention to the details of these transactions by using the fiduciary media to disguise the nature of these transactions.


The most trustworthy and least dangerous form of currency-trading is likely to be conducted directly between two independent parties. Distinguishing between what should be considered a transaction involving money and what should be considered a transaction involving currency would be a first step toward maintaining the safety of the money system. By remembering that all currency exchanges involve transfers of one currency from one place to another, as well as the transfer of one currency from one person to another, it will be easier for a regular consumer to spot an unsafe transaction or a fraudulent transaction once it has taken place.


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