What is money

I have heard this phrase that “money is not everything” a lot.

Money is nothing but a medium of exchange. Let me explain. Ideas rule the world, but it is when you turn your ideas into money and you use that money to acquire tangible asset before the money can become valuable.

It is true, I get it that money is not everything. Depending on what time of the day you are reading this article you have possibly spent money today. If you have not spent money yourself somebody else has possibly provided you a service or help that cost them money.

Think about a car without a fuel inside its fuel tank. It doesn’t matter how expensive the car is and how powerful the engine is, the car will not be able to run. The way fuel is to a car so is money to the world and day to day living.

The truth is the world runs on money. If you don’t know before now you know.

You need money to pay your bills, you need money to put food on the table, and you need money to help people in need if you have the same ambition as me. Even money is what you use to generate more money. You must spend money to make money.

Now that you know that the money runs the world, let us dive into a brief history of money.

Brief History Of Money

There are 2 types of money, the first one is commodity money and it is now history, the second type is fiat money which we use today.

Money is a means of exchange. This was evident in the olden days when farming and hunting used to be the major form of profession. Think about a farmer that only plants corn, he will solely depend on his corn to feed his family. I can imagine that his family and himself will never attain a balanced diet if they relied on corn only.

To get other farm produce or meat, he will need to approach another farmer who has what he needs and is interested in his. He will then, for example, trade his corn for chicken. Put it in a simple way, he will give the chicken farmer corn and he will have chicken in return. This way it is a win-win situation.

At a point, this approach to trading no longer made sense. Why? It is simply because it is difficult to judge the values of what you are using to exchange another thing with.

Throughout history, a lot of commodities have been used as a form or means of exchange. Gold, feathers, and cowrie shells are some of the commodities that have been used as a medium of exchange.

Gold is the interesting talking point. Gold is a valuable commodity and during the 16th century, it became a medium of exchange.

Gold was usually stored with Goldsmiths and the people were issued receipts when they kept their gold with a goldsmith. The receipt could then be converted back to gold at the goldsmith shop.

The burden of carrying gold around made people to start using the receipt as a form of exchange. These receipts became the first form of bank notes as we know it today.

Think about the receipts that represented gold. This means that the receipt was not just a paper. It had value and the gold was its value.

People could decide to use the receipt or bank note to trade and pay for items they bought and if they like they could use it in exchange for a gold equivalent.

The Bank of England is one of the central banks in the world that has been issuing banknotes for up to 300 years. Bank of England stopped the exchange of bank notes for gold in 1931.

Bank notes before used to be backed by gold. Bank notes worldwide today are not backed by anything. It is just a paper, an illusion. It is only backed by a promise as shown in the banknote below and the one you have in your wallet.

Money Is An Illusion

The fiat money which is not backed by anything but just a promise is an illusion. Based on what is happening in the economy, the central banks of various countries in the world print money according to the supply and demand.

Money itself has no value, it is only valuable if you offer a service or product and you get paid for this. It is when you use the money you were paid to acquire something valuable before you can say you have money that has value.  This is the reason why the richest people in the world are not just cash-rich but rich through real estate, assets and companies they own.