I’ve been reading Atlas Shrugged for the last few months, and I’m finally halfway through.  The book talks a lot about the purpose, use, and meaning of money.  While reading this, I realized that most people don’t really understand money at all. Since this is a topic others have written about, I’ll defer to them.

Marc Fleury, founder of JBoss (and a very interesting character), has a good post about what money is and how it functions: The Financial Crisis for Dummies: Money. Marc is a very intelligent guy and the post has a lot of good points for understanding money.  I’ve included an excerpt below:

Money, it took me 37 years to make a bunch of it and it took me 40 to “get it”. In fact I am not sure I still completely “get” money. I mean that in the theoretical sense. After researching a bit I came to the conclusion that very few people actually understand money the way it works today. I previously discussed this here.

A definition of money
The first attribute of money is as a medium of exchange to make an economy churn. It is very much the oil in the economic engine. The meeting of neeeds is a rare occurence in a economy, but with the intermediation of money, from good to money to good, you can match disparate peoples, specialization occurs because money exists. Without money there is no economy but a limited barter economy. It also serves as a store of value. “Going to cash” is what everyone does when the markets go down because cash doesn’t lose its numerical face value. This leads to the liquidity preference that Keynes talks about. Finally, in a capitalist system a fiat money will be a bearer of interests. Keep that in mind. You can think of the “risk free” interest paid by the US treasuries on money. There are other properties of money that the litterature identifies (fungible, transferable, durable).

Types of money
Anything can serve as a money as long as it has the properties above. Historically gold has played a huge role as a money. As “out there” examples there is this tribe that used to swap shells in the sea as a money. Ownership of the shells meant money. Don’t laugh, we do exactly the same, but instead of sea-shells we use electronic records in computers. Any good history of money will give insights that are valuable into the nature of money but here is a short version: from gold to gold certificates. It is bulky to transport gold and prone to be stolen. Why not exchange the certificates of ownership of gold like the tribes exchanged certificates of ownership of seashells? Then the paper became as good as gold (bretton-woods in a sea-shell) then why not just use the paper and do away with the gold? and if the paper is good why not use binary representation of the paper in computers? That is where we are today, completely virtual instances of “fiat” government money existing only in computers and our imaginations, just like shells in the sea.

Debt is money and vice-versa
All money is a debt. When you give a good to someone and they give you a piece of paper in return, what the piece of paper says is that someone in the economy owes you an equivalent value of goods. Period. Reread this until you get it. So you have a piece of paper that can be redeemed at any time, you have a instant debt. Money is a debt on future production of the economy. US bills say that this “legal tender for all debts private and public”. It is enforced by law. All money is debt.
Vice-versa when someone emits a debt instrument, they are effectively emitting money. That money is in circulation in the economy, buys stuff. Debt is money.

Check out the whole post.

-Kevin
8.20.2010

This post is very important to me. It is the 2nd part of a set of posts that began with Our Sphere of Influence. A Sphere of Influence is our realm where we matter most.  Check out the post for further discussion.  These posts hinge on the concept. Do provide your input by commenting.

Technology gives us new capabilities.  Consequently, technology has an important side effect: it makes our Sphere of Influence more accessible to us.  And when a group of people gain access to their Sphere of Influence, communities form.

I don’t think people have thought of it this way, but this is the framework for most community-driven movements:  a group of people focused on their Sphere of Influence that connect with each other.

The initial motivator for getting involved in a community may vary (they may not even be aware of the community), but people recognize their Sphere of Influence within a community of people when they begin to be acknowledged for their work.  This recognition pushes them forward as they realize the importance of their work and realize their work matters.

In the open-source software movement, programmers needed better ways to use a computer, a piece of technology that was highly enabling for them.  They also wanted to have greater control over their tools, to make the tools better, and to learn.  The community pushes this forward as they recognize and appreciate each others work.  They know their work matters and they benefit from the work of others.

The Wikipedian community spends huge amounts of time contributing to Wikipedia.   They may begin by wanting to contribute to the project.  They’re pushed forward when they see the impact/appreciation of their work through recognition and gaining higher command of their realm within Wikipedia.

Technology has another side effect: it makes new Spheres of Influence available. New technologies eventually lead to social changes that cause new communities to form.  A given function becomes democratized and community-driven.

With rapid prototyping technologies becoming affordable, a much greater number of people can take part in designing and fabricating physical things: an open-source hardware community is forming.

The same is also happening with biology research.  There’s a Do-It-Yourself biology community forming completely outside of academia.

Gov 2.0 represents the true democratization of government.  Citizens don’t take part in government by voting for someone. They just implement functions themselves using government resources.

When new Spheres of Influence become available, we’re able to choose one that better suits us.   Entire industries and social constructs are being completely disrupted by technologies that allow  people to do it themselves.  Communities of people form that are willing to do it for free because it’s what they like to do, and its where they feel they matter most.  It’s tough for businesses to compete with, unless they daringly change their business models or create new ones.

But, it’s not impossible for businesses to cope.  The open-source software companies did it….

In the following posts, I’ll talk more about the application of these concepts.

Your comments are important and will help me refine these thoughts as I continue to write about them.  Give me your thoughts by emailing me at KVogelsang11@gmail.com or leaving a comment.

-Kevin
2.8.2010