Why Free Resources Are More Enjoyable Than Other Ways Of Creating Wealth

18.10.2021
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Why Free Resources Are More Enjoyable Than Other Ways Of Creating Wealth

money

The main role of money is as a medium of transaction to facilitate economic exchanges. Without money, all exchanges would have to be done by bartering, which involves direct trade of one product or service for the other. The problem with such a bartering system is that to get a certain good or service from another supplier, one must have a good enough or valuable item…which usually leads to friction.

Another problem with bartering systems is that they can be controlled by a central agency. This is not possible if money is a medium of exchange as it is a completely free resource. There is no such thing as scarcity or bankruptcy in a free market. So money is the ultimate free resource. The value of money therefore is not tied down by any means and can be traded at any time or place at absolutely no cost.

Also, in a totally free market, nobody needs to get anything in return for using a given good. Somebody has to pay for using that good and no one will pay for it. It is very difficult to imagine a situation where a physical product has no price. We see this when people bargain for their right to collect their weekly garbage and there is no buyer and seller, and both have no need to make any payment in return for the goods.

On the other hand, money plays an important role because without it exchange cannot take place. Without money individuals would not be able to exchange their goods or services for money. They would be equally unable to buy or sell in the markets because there would be no money to purchase and no money to sell. Thus money is the ultimate free resource. Without money there would be no markets and exchange and therefore no free resources.

A classic example of money is cash. This is normally represented by bank accounts. You can either deposit your money in a bank account, use it to make payments, or save it in some other form and then lend it. Bank accounts generally accept a wide range of currencies. There are basically two types of banks: government institutions which usually operate in restricted countries, and commercial banks which generally accept only a few selected currencies.

Most modern banks are private commercial banks. The main function of commercial banks is to earn interest and to make loans. Their major function is to hold the majority of deposits they issue. For this reason they generally have a small amount of central bank money and most of the time have nothing whatsoever to do with making or granting loans.

Deferred payment transactions are a form of non-conventional money flow. They occur when a bank lends a certain amount of money for a period of time (called a margin), and then charges borrowers a deferred fee for the period of time during which the loan is in effect. For example, if a commercial bank lends X dollars on a month-to-month basis, and then charges Y dollars for the period during which the loan is in effect, then the commercial bank will earn Y dollars in interest. If it were not to charge an interest, then the bank would have nothing earned during that period.

Money is a commodity like any other commodity. Just as food costs more if it is imported rather than homegrown, so do bank balances cost more if they are held by individuals rather than by the central bank. This explains why banks may accumulate large amounts of “fiat” money, and why individuals may tend to invest their money into commodities rather than more risky stocks and bonds. The problem is that commodities, unlike bank accounts, are not widely accepted as legal tender. Therefore, when you sell a commodity, you pay a large fee for the right to buy or sell the commodity at a future date. This fee is what makes investment in a commodity such as oil or gold (as opposed to bank accounts) a free resource – an unsecured, secured source of wealth creation.

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