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Essential Purpose ofMoney

January 13, 2016

The intention of this paper is how, working from the essential purpose of money, it is quite possible to simultaneously eliminate money poverty and inflation induced by the money system.


Voluntary exchanges of goods and services between individuals forge the links between individuals that create and strengthen community.

Completed exchanges between individuals are the events which create an economy.

How are these exchanges effected?

The simplest exchange

A voluntary exchange of goods and/or services between two individuals is the simplest possible exchange.

Completion of simple exchanges presents a major difficulty however in that the search for a single exchange partner requires the investment of much time and effort and could easily fail because each party must offer the other party an item for exchange that the other party is prepared to accept in exchange for what they are offering.

The finding problem would be lessened however if completed exchanges  involved more than one other party. Such exchanges would be complex in nature but quite doable.

A Complex Exchange

Party A receives an item IB, that they want from party B. Then A supplies an item IA, that they have and equal in value to IB, to another party C.

A’s effort to find the exact single exchange partner that they need is drastically reduced even though A has to involve two other parties in the exchange rather than just one.

A new problem arises from this solution however,and that is, how to ensure that IA and IB have equal value?

In order to maintain the value in the exchange a  link between these two separate transactions is needed, i.e. it must forge a link with constant value between the ‘obtaining item’ part of the exchange and the ‘supplying item’ part of the exchange. If this value could be recorded in a manner that is acceptable to all the parties concerned then this problem would be solved.

This is where the concept of money enters into the exchange process. Money is the enabler of complex exchanges. This is because money forges the value link between the obtaining part of the exchange and the supplying part of the exchange. In addition the money enables B, using the money received for IB, to obtain any item IX, that they want, equal in value to IB.

Money is not without a potential problem however. What is this problem?

Money’s Potential  Problem

To serve its purpose money has to be an honest representation of the value of something. The unambiguous recording of the socially accepted quantitative value of exchanged items is what results in honest money. There is no problem with honest money, its face value represents the socially proven value of a specific actual good or service.

Money is only a representation of value however and it is therefore quite possible to produce money independent of any exchanged items. Such money can create a problem  because on issue it represents the value of nothing specific. Consequently it
has to either steal any value that it has, from the value represented by the money already in circulation, thus creating a problem, or, if it can validly do so, represent the value in completed exchanges which value is as yet unrepresented, this is not a problem.

The stealing of value is a problem because it  debases the currency. We know it as inflation. Currently we live with endemic money system induced inflation but this does not have to be.

Eradicating ‘Induced Inflation’

We just need to make a small change to the way in which new money is issued into circulation in order to eliminate induced inflation. This suggested change is now possible because

a) we  use a fiat currency and

b) smart phones are available to serve as electronic wallets.

The change would

a) enable our money system to properly align with economic reality from scratcyh and thus eradicate inflation induced by the money system

b) totally eliminate money poverty.

Some History of Money

Historically the money used in economies was either a fiat currency or a commodity based currency.

Commodity based currencies are not of any interest to us here because since the 1970s, we have, in the Rand, been using a fiat currency.

Fiat currencies are in essence pure money in that they are just recordings of value nothing else. Fiat currencies represent the values of items in completed exchanges or they don’t because they are representing nothing and are thus fraudulent. Fiat currencies are naturally fraudulent on issue, they only get their real value once they have participated in a completed exchange.

Gaining Benefit From a Fiat Currency

The fact of fiat currencies being naturally fraudulent on issue could be utilised to the benefit of everybody in the economy but our current money system does not do this.

The money system should allow anybody, who wants to enter into an exchange but is short of sufficient money to do so, to trigger off the money system to produce sufficient new money to meet the short fall. The new money would need to be recorded against its recipient as non-interest paying debt defrayed as and when, the recipient pf the received new money, receives money for goods and/or services supplied by them. To prevent  free-loading on the wider community there would have to be an enforced cap on the size of the new money debt that any person could hold at any point in time.

Credit cards give this new money facility but credit cards can only be held by people who have bank accounts. People without bank accounts have no access to credit cards and thus have no access to new money.

In fact new money should only ever be issued to individuals who are short of enough money to make a desired purchase. This would ensure two things

a) that nobody, capable of making exchanges, is ever short of money, and

b) that ‘money system induced  inflation’ never happens.



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