Building Blocks of Understanding Part 1

Kids,
I found a comment from Aquilus on a recent FOFOA posting and I think it sets up some good discussion for us.

Speaking for myself only, what I found the most interesting in the thoughts of FOA and Another through your posts here has been the understanding of the true concept of money and wealth, along with the societal pressures on money both during good and crisis times.

To me those became the building blocks for understanding everything else, including the item that's talked about the most here: gold and its role and function: past, present and future. But also the dollar, the euro, the debt markets, etc, etc...

I would love to discuss that with Aquilus but, since I have no idea how to contact him and since he has no idea I exist, I'm just going to have to do my best on my own. What's more, I need to break this down for you, my children. Let me give it a shot.

Understanding Money and Wealth

The concepts of money and wealth require quite a bit of thought. The simplification I'm about to present is expanded greatly by FOFOA at this link. Think about things you have purchased. What did you purchase them with? Dollars. How many dollars did those things cost? A can of soda costs about the same amount as a candy bar. Would that pricing relationship change if we used spacebucks instead of dollars? We know how things relate to each other in price...or, at least, how they have related in the recent past. Prices are known by you and are easy to determine because you understand relationships between different goods. I could tell you a car costs 1 and a house costs 4. You might reply, “Four what?” It doesn’t matter. Does it even matter what we use for exchange? FOA said:

"Money in its purest form is a mental association of values in trade; a concept in memory not a real item… the value is in your association abilities."

ANOTHER had some things to say about this concept. I'll rewrite these ideas into simple sentences.

Money is not whatever people say it is. Currency is whatever a government says it is.

The dollar is just something arbitrary we exchange...something arbitrary that has the backing of the government. However, we could exchange anything. While other things could do the job, dollars are what we use today. How long will this last? That's an issue of faith. But right now the dollar is useful for buying things and is accepted anywhere.

Ready to go further? Is it the dollars you hold or the things you buy that make you wealthy? I'm going to suggest it's the stuff, not the dollars, as long as you buy the right stuff. From FOFOA:

Have you ever noticed how the super-rich seem to stay super-rich no matter how much money they spend? Not only that, but they seem to get wealthier the more they spend! They buy amazing super-homes, expensive antique furniture to fill the homes, and priceless artwork to hang on every inch of their fancy walls, yet somehow they retain their wealth. 

If you are using dollars to buy soda and candy bars you are not becoming wealthy...quite the opposite. These things are not wealth because they are consumed, not possessed. Wealth is possessed. Paintings, antique furniture, gold...these things are possessed These things are wealth. Dollars are not wealth.

While I could easily reference a Remington painting's worth in terms of gold but I could not reference gold's worth in terms of Remington paintings.

Though both are wealth, each have specific highest uses. The highest use of a painting is to be owned and viewed. The highest use of gold - and this is really important, guys - is as a wealth asset, though it looks pretty OK on the wall. Without going crazy on theory, everyone is better off pricing paintings and metal in terms of another common unit. For now, that common unit is a dollar. The highest and best use of a dollar (according to FOA) is to gather real wealth.

FOFOA wasn't writing to the 12-and-under crowd here but this is worth quoting:

The human concept of money is changing whether we like it or not. It is being torn apart. Gold, as a wealth reserve and wealth asset, will exist and trade parallel to the world of fiat, the world of credit and debt. Producers and savers will finally have the option to switch tracks so to speak. To get on a parallel track that avoids the inevitable collision with the debt-hungry collective their savings have always faced.

In short, FOFOA is saying that you will soon be able to choose weather or not to put a portion of your production into wealth (gold) or keep it in the mechanism used for exchange. You can certainly buy gold today but he's talking about a time when the whole world will recognize that gold is no longer money and it no longer simply a good...but is true wealth and the value of that wealth increases dramatically leaving everything else behind. Freegold. We'll discuss more on Freegold soon.

Money is what we use to accumulate wealth. We need currency (dollars or equivalent) on a daily basis. We also need a way to store wealth for generations (gold). Based on what you read above let me ask you a question. Do the dollars we trade give value to our wealth or does our wealth we hold (gold specifically) define the value of the dollar?

Next time we'll talk about Aquilus' second building block, Social Pressures.