What Exactly is Money | Working Definitions for Money

I grew up in the 80s, and during that time, I always wondered why money was just a piece of paper, which I never understood. Over the last decade, the advent of the internet has allowed me to explore and research more deeply this topic of what exactly is money. I have read up on how people initially bartered, and then used various commodities on the planet Earth, such as sea shells, as money. Several thousand years ago, one of the ancient Egyptian pharaohs was trying to appease an enemy, and gave them gold to reconcile with them. That is why gold is also a form of money, as it is a valuable commodity in the eyes of others that is also highly divisible, portable, has limited supply, and does not rot away.

Our current global monetary system is actually called fiat currency, which basically means that it’s not really based on any physical commodities. One of the major disadvantages of using a fiat currency is that it can result in inflation, and sometimes massive inflation. This is because the money is not backed up, or perhaps only partially backed up, by something tangible such as a metal commodity.

One of the important ideas that I have learned is that money is a future good. Money is a future good in that it is basically presently useless at this exact moment, unless you were to spend it on something. Therefore, even though someone may be extremely wealthy monetarily, that wealth only has future potential. It is not immediately of use to that person unless he decides to spend it on something that he wants or needs. An important corollary to this concept, therefore, is that money is rather transient and fleeting. Although it is important to save money for the future, it is a good idea to diversify the saved money in various forms such as commodities (including gold and silver), cash, supplies that you need on a daily basis, real estate, useful labor performed by other people, potentially useful novel technologies, and what you anticipate may increase in value in the near and distant future. By understanding what is money, it will help you make better investment and spending decisions.

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