STOCK MARKET WATCH - Thursday, 5 January 2012

[Demeter]

25. What is "money"? Is it the same as "currency"? What about gold?

http://whataboutmarx.blogspot.com/2012/01/what-is-money-is-it-same-as-currency.html
\

In order to truly understand what is happening today, we must first explore how money came to be, and the purpose it serves.

In primitive human societies, humans were all hunters, with no or little/simple tools, so there was no real specialization. These people barely had enough in order to survive - nothing more.This is why there was no private property, or trade transactions (some primitive races in places like the Amazon still live in such a state). But then humans began to improve their tools and weapons, and they also developed agriculture as well, which was a huge leap forward. It today's terms, people become more productive, and "specialization" started to appear, as some people became "professional farmers", some others were "professional craftsman" creating tools etc. For the first time in history, there were different "professions" - this "specialization" allowed people to become more productive in more and more tasks, and every "professional" (eg farmer, hunter, builder, craftsman, etc) was not self-sufficient, but also relied on others in order to live a better life. By increasing productivity, humanity could create more wealth than before, and by increasing specialization some people (eg the farmers) had a surplus of wheat, and some other people (eg the craftsmen) had a surplus of tools or clothes. So, this is when private property firsts appears, and trade starts to grow, as one person exchanges "something that belongs to him" with "something else" that belongs to "someone else".

This barter system had some problems however: For example, some products are not easy to carry, or they don't last long (food is a good example, as it must be consumed within a few days). Furthermore, as specialization deepens, there are more and more trade transactions. This is why people turned to something else, a "super-product" that could be used as a benchmark for all other products: Money. All other goods have a value that could now be expressed through it. Mankind has used many different forms of money, but gold (and secondarily silver) is the form that dominated over all the other forms. The reason is that gold is durable, easily transferable from one place to another, and rare. Many other forms of money where tried, but nothing could beat gold's advantages as money.




Today, specialization has grown to an incredible degree - capitalism has created an international system, where everyone is more or less dependent on others from around the world in order to live a good life. When such systems collapse, humanity suffers greatly - here's Tony Jackson from the Financial Times: "Four years ago, I related in this column how a stockbroker acquaintance of mine had likened the outlook to 1929. A couple of weeks ago he was back on the phone. Forget 1929, he said: we are looking at the Dark Ages." The Dark Ages, of course, are something else again. But let me repeat here what I said four years ago: that the purpose of such comparisons is not to indulge in fancies about history repeating itself, but to expand our conception of the possible.

Quantifying the effects of the collapse of the Roman Empire is not an exact science. But from the start to the finish of the first millenium AD, according to the economic historian Angus Maddison, the economy of Western Europe shrank by around a quarter, and that of Italy itself by nearly half. What this meant for Britain has been spelt out by the Oxford historian Bryan Ward-Perkins. After the Romans left in 410 AD, the archaeological record suggests that the economy slumped to a much more primitive level than on their arrival nearly 400 years earlier. The reason is clear enough. The more complex and specialised an economy becomes, the more helpless its individuals are in the face of breakdown. The Romans introduced a higher level of complexity to Britain, then took it back home again. It is here that parallels with today start to look rather stretched. But the theme of periodic collapse is perhaps borne out by the longer historical record...capitalism is about to send us in a new "Dark Age”, as antagonisms create trade wars, protectionism and full-scale military wars. We are dependent on each other, but we are divided by a handful of oligarchs, who don't produce anything but exploit us, grabbing an ever-increasing part of the wealth for themselves, leaving nothing but crumbs for us to fight over.

We will talk more about this in the future, but for now let's get back to the history of money, as gold ("money&quot has today been replaced by "currency".

AND IT GOES ON==ECONOMICS IN A NUTSHELL (AND NOT JUST ANY NUT, EITHER). TODAY'S MUST READ