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3. The basis of trust

Money in itself has no value. Does money receive and retain its value when people trust each other to honour the existing agreements about money as a means of exchange, a unit of account and as a means to preserve value?

 

No, faith alone is not enough to reach a well-functioning monetary system. Without trust in these agreements it will be impossible for the monetary system to work properly, but this trust alone is not enough.

 

Value can be expressed in money and can be stored in money. But money itself does not create value. The value of money is not based on the currency itself and not on the agreements that people make about the use of money. The value of money is based on economic activity.

 

In the economy value is created in two ways.

1. Man cultivates the land. He sows and reaps the harvest and processes it into products. Or he delves raw materials which he transforms into usable products. Value is created by human labour utilizing what nature offers as raw materials or as opportunities.

2. By organizing, facilitating and executing human labour in such a way that work productivity grows. Producing more with less labour (which is possible through inventing and using equipment, machinery and technology, or by setting up and streamlining production processes).

 

When no value is created in the economy on the basis of cultivating nature and on the basis of human labour being made more productively; then money is of no use: as there is nothing to exchange, nothing of which the value can be expressed in terms of money and nothing that can be stored.

 

Without economic productivity there is no value, and without value there is no use for money.

 

John Hogervorst

April 2014


John  |  2014 04 09  |  Permalink  |  Share

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