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Money talk: How we lost the understanding of money

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This is the first in a series of money columns by Arts Editor Kenneth Kashif Thomas


When civilization first started, the idea of money, or currency, was relatively easy to understand. It was rudimentary, similar to most things in early civilization – basic.

Although recently, the form in which money has taken became more complex, which has brought some economists to ask: What exactly is money?

The concept of money has grown more complex as large amounts of it became quantified electronically, even more so than physical quantities. The problem is complicated further when stocks and other financial assets are added to the equation. The form in which money has now taken no longer meets some of the most basic requisites to be a “good” medium of exchange.

Before we can even begin to question what money is, we need to understand what makes a currency a medium of exchange.

The requisites for a currency to meet to be held as a medium of exchange are: 1) The currency must be widely accepted; 2) The currency must be exist in large quantities; 3) It must be durable, meaning it won’t deteriorate or decay; 4) It must be easily recognized; 5) It must be easily divisible into smaller amounts; 6) All parts of the currency must have uniform value; and 7) The currency must have stability.

An electronic currency meets three of these criteria – it’s widely accepted, it exists in large quantities and it’s easily divisible into smaller quantities.

Electronic currency is any currency that isn’t physical – including money transferred between accounts or services like PayPal or Venmo.

The first issue with electronic money is that, while it is divisible into small amounts, these denominations are not uniform. As electronic money is not physical, it cannot be uniform as a set of zeros and ones.

Also, almost all financial assets, such as stocks, are electronic. Stocks, which were initially bought in full share purchases, or an entire share of stock, can now be sold, transferred and bought in fractional shares, further muddying the denomination process of said currency.

Even today our fiat paper money is by no means durable – maybe our coins, but those won’t last long. Even the penny already costs more to make than it’s worth. But is money in an electronic format susceptible to decay or deterioration?

Software and code can deteriorate over time, but how or if this affects money in the financial system has yet to be seen.

When put to the cognizability test, it also fails. Electronic funds have no color, form, weight or any other quality of distinction.

While it might not be a huge problem, one only has to look to Bitcoin for certain concerns to be raised.

Bitcoin, which is not widely acceptable, is constructed of an algorithm. However complex and protected that code is, there is always the possibility of it being compromised.

Any amount of time, outside of a full lifetime, would be worth the risk of breaking an electronic currency. It’s the equivalent of taking over the U.S. Treasury and printing as much money as you wanted, whenever you wanted.

Now, the biggest problem we have with the understanding of electronic currency is the question of stability.

In 1951, Diner’s Club introduced the first first credit card and issued 20,000 in total. Since, card payments have steadily become more commonplace, with 1 million cards used under American Express alone in the 1990s.

Money has been transitioning into an electronic format for a long while now.

As we see in the behavior of the economy today, even as far back as the 1980s, our system of money is by no definition stable.

We experience bubbles more frequently, it’s hard to say what policies should be implemented to correct the economy – as nothing has shown definitive results – and it’s near impossible to speculate on the economy, even in the short-term.

The stock market has been on a steady decline since the beginning of 2016, with no end in sight.

For the United States, things might seem pretty bad, but our economy is performing much better than those of other countries, who are still recovering from the 2008 recession.

Part of why we don’t know what the best policies are to implement is that we don’t fully know what we’re dealing with.

To correct a system, you must first understand what the system is – then how it works.

This isn’t to say that we should abandon the transition to electronically-based currency; the march of time and innovation is one that cannot be stopped.

Hindsight is 20-20, but the wisdom to patiently study a system such as the one we’re moving into is worth so much more.

Kenneth Kashif Thomas is an arts desk editor and can be reached at kenneth.thomas@ubspectrum.com. Follow him on Twitter at @KenUBSpec


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