Saturday, August 27, 2011

Random Thoughts on Money

There is one event that objectively and measurably defines a person’s opinion for the worth of money. This event is the transaction. Despite people’s opinion, dollar bills are worthless in virtually every sense of the word. You cannot use it for anything; it doesn’t make a good tool, it doesn’t provide much warmth, it doesn’t even taste good. The only thing I can think of doing with it, is make a small paper airplane. The only way a dollar has value is if you use it in a transaction.Other than in a transaction it just sits in your wallet, does nothing, and is only dead weight (not much weight though). This correlates with our sense of worth in a dollar, it can get us something which has intrinsic worth to us.
Now I will talk about the stabilization of inflation. We know that it is the transaction that defines the worth of money but it also does one more thing. The transaction determines the total amount of money “in-play”. Inflation is the society’s perceived devaluation in the worth of money. So how on earth could this be controlled or stabilized? Inflation is controlled by the amount of money “in-play”. The less money in play the lower the inflation rate, the more money in play the higher the inflation rate. This is because when people have more money, then as a whole, they spend more money. If everybody is spending thousand dollar bills left and right, then the perceived value of money will be low and vice-versa.
In fact, printed money really doesn’t have anything to do with inflation these days. The majority of Americans hardly even use paper money. I spend thousands of dollars every month on bills and I don’t touch a single dollar bill. All of my money is kept track of digitally. Although we may be printing money like crazy, our digital records of money are strictly kept track of, and we do not create more money digitally i.e. “fudge the books.” Because of this, printing money really has nothing to do with inflation. When I think of physical money I of course see green, but when I use and handle my money it is, practically, a dollar sign and some digits behind it. Money is becoming more of a digital representation and in a few years the physical dollar may go away entirely. When this happens, then the only way to think of money would be in terms of what we want with it, instead of the now flawed conception of it being tied to a physical piece of paper.