What is money?

If you randomly took someone from the street today and asked them that they would probably say that it is the paper bills in their wallet, the amount they have in their credit or debit cards or the balance left in their savings account.

But what is it exactly? Where did it come from? Why did all of us decide that paper bills or digital numbers had the power to move men and women to do what they're told for 8 hours a day and 5-7 days a week for a job they probably don't enjoy doing?

To understand that we need to literally follow the money through time....

Long ago, before credit cards or even paper bills were invented to buy products and services, mankind ran their economy with a more direct approach of getting what they wanted; they TRADED their PRODUCTS and SERVICES for other PRODUCTS and Services... this was called BARTERING.

As you can imagine there were times when this was not a very practical approach of doing business.

Eventually, as mankind became more sophisticated people started to appreciate luxury items like pearls, gems and precious metals like silver and gold. They then saw a convenience in trading these luxury items in exchange for other products and services. Luxury items like gold were (and still are today) very rare and in limited supply compared to cows, chickens and goats roaming everywhere. So it would be no surprise for a farmer to be willing to give a few chickens for a piece of gold if the trade felt good for both sides (i.e. If the DEMAND of the farmer for gold matched the SUPPLY or number of chickens he was willing to give in exchange for it; The Law of Supply and Demand)

Soon gold became a universally accepted STORAGE OF VALUE. People decided to make it easier to use by shaping them into coins that looked, feeled and weighed exactly the same.

By doing this people created a system of exchange to make easier transactions between products and services - MONEY was invented (A STORAGE OF VALUE). The gold served as a MEDIUM OF EXCHANGE; Or just like a conductor of electricity that lets electricity travel from one end to another gold helps products and services travel from one person to another.

The value of all the products and services that were needed and wanted by people were equal to the value of the total supply of gold in circulation.

And as their economy grew creating more products and services the VALUE of gold grew and since the gold supply was LIMITED the DEMAND for each individual piece of gold grew! (Again, this was the Law of Supply and Demand)

But people were soon burdened with carrying gold around all the time for their daily transactions with not just the weight of carrying it being tiresome but by the risks of losing it by theft or by accident.

So according to legend a blacksmith who had a sturdy metal vault for keeping valuable items offered people to keep their gold SAFE inside the strong metal vault in exchange for a small payment. And as proof of their ownership the blacksmith would write them a written paper receipt that they could always exchange for it's worth in gold anytime they wanted. This was very logical to the people and so they agreed.

It didn't take long when the paper receipts themselves became as valuable as the gold that they represented. And so the people started using the paper receipts directly for buying and selling products and services between themselves. The people accepted it since they were also confident that they could easily use the paper receipts in getting gold from the blacksmith.

The blacksmith became the world's first banker and the paper receipts would be the ancestors of the paper bills we use today.

And so the principle of sound money was that the VALUE OF THE PRODUCTS AND SERVICES CREATED = THE VALUE OF THE LIMITED GOLD SUPPLY = THE VALUE OF THE LIMITED AMOUNT OF PAPER RECEIPTS

As you can tell we can't really go to the bank anymore and demand to exchange our paper bills into gold coins because of circumstances that changed sound money into fiat currency....

But hey, that's a story for another day! :)

So if you're curious about how that happened I recommend reading "The creature from Jekyll Island" by G. Edward Griffin

Thanks for reading guys! Hoped you enjoyed it! :)