This piece compares intrinsic value based money against intrinsic valueless money. Short but hopefully sweet.
Money is the medium of exchange that establishes a zero balance transaction. For example, if afarmer trades another person’s labor for food, normally called a barter transaction, the farmerviews the laborer’s labor as money in payment for the food. The laborer then used his productivity, labor, as money to purchase the food. Conversely, the laborer views the farmer’s food as money in payment for his labor. The farmer then uses his productivity, food, as money to purchase the labor of the laborer. Both the food and the labor have intrinsic value and each establishes a zero balance transaction because of their intrinsic value, i.e., quid pro quo.
There are two kinds of money; the one is comprised of something that has intrinsic value, like the food and the labor above, while the other is comprised of something that has little or no intrinsic value. The money with the little or no intrinsic value fails to establish a zero balance transaction. Consequently, it is not money as defined. therefore, in order for the receiver of the money with little or no intrinsic value and thus void of consideration, he must be confident that he can find someone with something of value who will take his worthless money for something that does in fact have intrinsic value. It is not till he is able to pass off his money with little or no intrinsic value for something with intrinsic value that is he able to complete the zero balance transaction and consummate the contract.
The first money with intrinsic value is called value based money while the money with the little or no intrinsic value void of consideration can be called “confidence based” money. Since the word confidence is the word from which the word “con” is derived, we can call money with little or no intrinsic value “con-money.” Since con-money relies upon confidence to retain the façade of value, such confidence is exposed to the whims of the relative confidence of the people engaged in its use. Also, since it has no intrinsic value, it is impossible to use as a real store of value.
While we can see on the surface that it requires more than one transaction to arrive at a zero balance transaction when using con-money, in many cases it may take several transactions before the algebraic sum of all the transactions finally arrives at a zero balance when the actual value is used in the accounting.
While the “comfortable user” of con-money sees nothing wrong with such a valueless money system, he should take notice that he will always give up something of value to receive it and he will always give up something of value to pay interest on it. In fact, the giving of something representing consideration without receiving same in the exchange is essentially the act of giving a gift. The receive of the con-money must find a sucker to give him something of value, consideration, for his worthless money. It is not therefore a zero balance transaction until the receiver of con-money finds an accommodating sucker.
What’s the first thing the Chairman of the Federal Reserve says to Congress while giving his annual report? Before getting into the substance of his report he tells Congress that “confidence in the money system is still good.” Now why do you suppose he finds it necessary to say something like that?