Why is money so valuable?

[ I just answered this question on Quora (my first one) here , seemed generic enough for a post ]

Quoting from a document called Modern Money Mechanics released a few years ago by the Federal Reserve Bank:

Money, like anything else, derives its value from its scarcity in relation to its usefulness.

Aside from the traditional ‘barter’ viewpoint about money as simply a medium of exchange, today it also serves as a method for tracking the scarcity or availability of resources, goods and services, as indicated by their market prices.

Thus, if money has to correctly represent the value of resources that it represents, it follows that it is necessary to maintain the value of money itself. As ModernMoneyMechanics suggests, the present approach to this is by using scarcity, which by design, is built in the present day monetary system. To briefly describe what is called Fractional Reserve Banking: when new money gets created today, it comes into existence as a token of debt that in most cases, has to be repaid with interest. Hence the constant illusion of the scarcity of money.. one can never seem to have enough of it!

There are severe limitations to this system, in my opinion; the biggest one being short-sightedness. Abundance might be just round the corner for so many life-essential resources and services; in fact, we might already have surpassed that mark in the past, somewhere around 1970 as determined by futurist R. Buckminster Fuller a long time ago. But as long as we keep using a yardstick of scarcity, we are going to find it tough to locate abundance.. #elephantInTheRoom

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2 Comments

  1. Thanks for sharing this. Thanks to you I now know the banking system works.
    P.S. The 12 year old kid is a smart one 😉

    Reply
    • haha.. yeah, the “kid”! Although many people may feel that her speech has only been memorized and recited rather than being original. Still, good to know that she is learning to ask questions and interacting with critical thinkers, if not already one of them herself.

      Reply

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