By: Shahab Sabahi, Policy Analyst in Energy Security and Policy Research Group
There is a question that boggles critical minds “Is it possible to model an economic system in which accumulation of wealth is delinked from money? “. Here I attempt to put few ideas on a piece of paper about few difficulties to doing so.
There is a question that boggles critical minds “Is it possible to model an economic system in which accumulation of wealth is delinked from money? “. Here I attempt to put few ideas on a piece of paper about few difficulties to doing so.
Money, as a measure to scale wealth
The value
of wealth can be measured by any scales. At the middle stage of society
development, an equivalent weight of gold or silver was corresponded to the
value of particular wealth. As society advanced towards more complex form; may
be characterized with the wealth expansions and wealth ownerships; the scarcity
of gold and silver resources curbed the human trades and exchange of wealth. Human’s
invention of money was a response to eliminate that limitation of gold and
silver.
In this
sense, money is just a scale; like the one for kilogram; to weigh the value of
wealth. Furthermore money facilitates trades. Assume one owns five pens and
desires to exchange the pens for a pair of shoes. If the shoes owner has zero
interest to acquire pens for its shoes, but needs to trade its shoes for
another goods, such an exchange of wealth would be extremely a hard task.
Indeed money,
as just a scale and media for exchanging wealth, could make trades easier.
In this
sense the volume of wealth should be corresponded with the volume of money with
a constant coefficient without causing any problem.
Money, as tradable goods
What I mean
by “tradable goods” is that is present the demand and supply for just money;
independent from the demand for wealth. But the question could be “what makes
demand for money varies over time and independent from demand for wealth?”
I shall
analyze the above mentioned question based upon three facts,
1.
Persons who wish to exchange their wealth may
have not enough money to seal their deals on time,
2.
Some types of Wealth can be quickly converted
into cash (liquid) while some types take times,
3.
The value of wealth alters over time and space.
The first bullet refers to the fact that distribution of money IS NOT
corresponding with distribution of wealth. Suppose I have a house which is
worth for $1000. It does not mean that I can exchange my house with another
asset with similar value. So I may apply for a loan or sell my house in lower
price, if I am under enormous pressure to acquire the other asset.
The second fact speaks by itself. Demands for goods vary over products
and time (Interests and the concept of interest rates). Again if I have an
$1000 house worth, and another person holds a piece of gold of $1000 worth, it
is hard to say that we can achieve our desired assets (or dream cars) with
spending same amount of time and energy.
The third fact tells us, the value of wealth can be altered by any
changes in policy, people’s appetites, social institutions and lifestyle.
Therefore it would be a hard task to keep the ratio of the wealth volume with
the volume of money in a constant figure (Hard to keep the volume of money
related to the value of wealth.)
Conclusion
Alike all human’s inventions, money brings about together misery and
peace. The correlation between money and wealth are deniable as markets for exchanging
variety of wealth require the existence of a single media for easy exchanges of
wealth. It makes a strong correlation between money and wealth.
The unequal distribution of money (it is natural), the wealth values
alternation over type, time and space, and the fact of liquidity create demand
and eventually markets for money. There is NO-EXIT from the notion of the money
market institution. Money markets will continue to stand warm and speculators will;
again and again; generate profits and losses. However central bankers will
remain busy with turning up and down the machine of money supply to balance; as
they claim! I do not know; economic system.
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