What Is Money?
Today we begin with a fundamental question: What is money? This, no doubt, is an important question. And we ask it with clear intent and purpose. Namely, we want to better understand how it’s possible for America to rack up such a massive trade deficit with China.
China-US imports and exports of goods. It has to be stressed that the most often cited figure is the trade deficit in goods, which is the “scariest” figure. The US surplus in services with China has grown rapidly in recent years. It was $33 billion in 2015, doubling from $16.5 billion just four years earlier. By 2017 it had grown to $38.5 billion. The idea that a trade deficit is somehow “bad” is highly dubious. “Countries” do not trade with each other anyway – individuals and companies do, and they obviously do so because they deem it advantageous for both sides. Moreover, these aggregate statistics obscure more than they reveal. The global supply chain is extremely complex – a single $3 t-shirt “Made in China” will contribute to the incomes of people in some 15 to 20 countries before a consumer in the US plucks it off a shelf at Wal-Mart. If we were to talk incessantly about the US capital account surplus – which offsets the trade deficit – would anyone complain? [PT]
America’s trade deficit with China, in 2017 alone, was $375 billion. That’s a gap of over $31 billion a month – or $1 billion a day. We believe having a better grasp on what money is will bring clarity to the nasty trade deficit that’s motivating today’s burgeoning trade war.
With respect to our initial inquiry we turn to Victorian economist William Stanley Jevons for edification. In his 1875 work, Money and the Mechanism of Exchange, Jevons stated that money has four functions. It’s a medium of exchange, a common measure of value, a standard of value, and a store of value.
Many deficiencies with today’s renditions of money, including the dollar, appear when applying these functions to the present system of floating exchange rates. With the exception of functioning as a medium of exchange, the dollar, like all of today’s debt based fiat currencies, comes up short in its function as a common measure of value, a standard of value, and a store of value.
Hence, today’s money is not real money. Rather, it’s fake money. What’s more, this fake money has ridiculous implications on how people earn, save, invest, and pay their way in the world we live in. Practically all aspects of everything have been disfigured by it.
An image of the “disfiguring” – US broad money supply TMS-2 since 1986. In early 2008 it stood at USD 5.3 trillion – a decade later it has grown by more than 150%. Think about this for a moment:...