a common myth

that Money Is Based on Something

a supplement to

Into the Heart of Darkness—of Money

Upstream to Its Source

by  Agent d’Amore

Money is more akin to the points on the scoreboard at a sports event than it is to pearls or diamonds.   Money is a way of keeping score.   The gold standard was a way to ease anxiety about the value of money.   People liked it (at least those who had money), as it gave them certainty about something they were hoarding.   They felt that their purchasing power would not be eroded by inflation, but they did not grasp the larger danger posed by deflation: global depression.

As money is a scorekeeping system, albeit for economic activity, it doesn’t make sense for money to have intrinsic value—the true value is stored in the goods and potential production capabilities of the economy.   As we used the river analogy earlier, here the analogy is that money is essentially defined by how it flows and facilitates transactions.

There is a reason, after all, that we call it a liquid asset.

Money that sits still, under a mattress for example, out of the flow of transactions, becomes a drag on the economy as additional money is needed to facilitate the transactions the hoarded money cannot.

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