Other than something we are all




	Other than something we are all pretty sure we want more of, money is not widely understood. However, none of us could live the lifestyles that we do without it. In the end, we will find that money is nothing more than an idea, which works only because we all believe that it works. I read Japanese. The Japanese approximately 1,000 years ago borrowed their writing system from China. Chinese (and thus Japanese) characters are pictographs that reach thousands of years back into history. Simply by reading, and noticing what pictures are chosen to represent a concept, an ancient world opens to you. Simple Chinese characters are often combined to form characters with more complex meanings. Many such characters having to do with money and finance is KAI.

	KAI means “sea shell.” So why would the character for sea shell be commonly included in characters having to do with money? If you think of the world before money, the only way to trade would be to barter. If you wanted a knife made by another person, you would only be able to get the knife if you had something that the knife maker wanted. If you had some extra bread, you could only get what you wanted for the bread, if you just happened to find a person that wanted bread, and had something that you wanted. In other words, trade was dependent on these types of coincidences. But, what if there was a universally accepted medium of exchange. What if there was something that everyone wanted to accept as part of an exchange, because they knew everyone else would also accept it. In some ancient cultures, sea shells were the accepted answer. They were small, beautiful, and as long as they were universally accepted, they worked. [1] In other cultures, rice and salt have also been used. However, all of these solutions had there downsides. Would everyone really accept sea shells? What about problems with quality and uniformity? Not all sea shells are created equal? How do you determine a price, when the money itself is not standardized? The value of the basic units must be negotiated in every transaction. This means that much of the efficiency that can be gained from money is lost. Rice and salt also had similar problems. The in addition to variations in quality, they are also bulky and heavy. You may need to bring a boat load to buy a cow. In the case of rice, it is perishable and not a permanent store of value. Thus, over time, the precious metals became to commodity of choice to be used as money. Thus, another character often used in connection with money and finance is KIN.

	Kin means gold, but it also means money. In Japanese, when pronounced KIN it means gold, but when the same character is pronounced O-KANE, it means money. Gold worked well, because it was something widely recognized as having value, and thus universally accepted. However, unlike the other alternatives mentioned above, gold could be standardized. It is divisible into specific amounts, which can be recognized by governments as meeting specific weight and purity requirement by placing a recognizable stamp on it. This minting of official coinage turned gold and other precious metals into a very successful form of money. With occasional exceptions, money has been tied to commodities. Gold and silver have been the most widely used. But, why use money? Simply, it is very efficient. Without money, trade must be accomplished by barter. As mentioned above, barter requires a double coincidence. To barter you must find someone that has something that you want, and you must have something that someone else wants. Money eliminates the double coincidence requirement. If everyone accepts something as money, as long as you have money, you only need to find someone with something that you want. The seller can get what they want from someone else.

	The essential requirement for something to function as money is that the participants in the economy accept that whatever is being used has value. I good example of this concept is the use of stones as money on the Pacific island of Yap. For large purchase, the islanders would use large disk shaped lime stones, with a whole carved in the center for money. The stones had to be obtained from another island and the mining and transportation of the stones was difficult. They became highly valued, and over time took on the characteristics of money. Since the stones were often hard to transport, purchases were often accomplished by transferring title to a stone, while leaving it in place. There is a story of a family, which obtained a very large and valuable stone. The stone was lost at sea of the sure of Yap. However, the family was considered to be very wealthy. Even though their stone was offshore in hundreds of feet of water, it was still regarded as a store of wealth, and capable of being exchanged in order to make a purchase. For more about Yap see: http://www.econ.utoledo.edu/faculty/tank/stone3.htm While the stone money of Yap sounds very strange, out current money system may seem even more bizarre, if explained to an American living 100 years ago. After a series of partial measures breaking the connection between the dollar and gold, President Nixon closed the gold window in August of 1971, which had the effect of removing the United States, and thus the rest of the world from the gold standard. Since that time, U.S. and all other major currencies have been fiat currencies. In other words they are not connected to any type of commodity. With the advent of a fiat system, money is simply an idea. The idea may be represented by pieces of paper, numbers on a bank statement, of electronic code in a computer. However, the amazing thing about money is that as long as the participants in the economy all accept the idea that shells, gold, or symbols in a computer are money, the system will function just fine.
	[i] 1,200 BC: Cowrie Shells The first use of cowries, the shell of a mollusc that was widely available in the shallow waters of the Pacific and Indian Oceans, was in China. Historically, many societies have used cowries as money, and even as recently as the middle of this century, cowries have been used in some parts of Africa. The cowrie is the most widely and longest used currency in history. (http://www.pbs.org/wgbh/nova/moolah/history.html)