Currently, money is backed up by nothing; with the death of trust in the medium of exchange, our economy has never needed love more
Most of us have found ourselves in a farmer’s market to purchase carrots, peas and maybe some spinach for food. In the market, you have the farmers who produce and sell the vegetables and you the consumer who purchases them. The farmers market will have many farmers who produce and sell a variety of things offering a wide range of options for consumers. Such a market acts as a distribution point for the allocation of goods. This is a simple example of an economy.
An economy encompasses the production and consumption of goods and services used to satisfy the needs of people existing and functioning within it. An economy ideally allows for equal distribution of scarce resources, allocating them to where there is a demand.
In any economy, there is an exchange, which is the selling and buying of goods or services requiring a medium of exchange. A medium of exchange is simply an instrument or system for purchasing or trading goods between parties. The modern medium of exchange for all economies is currency. Mediums of exchange, are not necessary for some economies like bartering, where a good is exchanged for another with an approximate equivalent value.
For a medium of exchange to function, it must abide by the following: represent something of intrinsic value and be accepted by all parties as a standard. The common form of currency used today is what most people refer to as money, like the Sterling Pound, U.S Dollar or Kenya Shilling. The interesting thing, however, is that money and currency are not necessarily the same thing. Money is a medium of exchange, therefore it has to abide by both the stated musts listed above; the issue with modern economies is that it uses currency as it fails to abide by one of the musts.
In 1944, with the 2nd World War coming to an end, the allied nations held a conference at Bretton Woods New Hampshire. The conference aimed to create a new financial system, and the U.S Dollar was chosen as the world’s reserve currency. This new system was the Bretton Woods system. It switched up the use of gold as a medium of exchange, replacing it with the Dollar. Countries agreed to fix their currencies to the U.S Dollar, and the Dollar was backed up by gold (35 dollars = 30 grams of gold). The system ensured that all the world’s currencies were backed up by gold, through the dollar. Thus, they could exchange their currencies to dollars and then from dollars to gold.
The gold reserves of countries were stored in the U.S, to avoid the long and cumbersome process of transporting gold across the world. During the time of the Vietnam war, the U.S had payment deficits that brought concerns. Countries like France were concerned that the U.S was spending more money than gold reserves, and therefore they started converting their dollars into gold and demanded physical delivery. The U.S was in a bind as it had printed more currency than the gold reserves backing it up.
To prevent the outflow of gold from its U.S reserves, President Nixon suspended the gold convertibility system, abandoning the fixed link to gold, creating a system where currency was backed up by nothing, birthing the Fiat currency. Fiat currency is used today by modern economies, all countries: a currency not backed up by anything with intrinsic value but by government promises and decrees.
Gold ensured that governments would be responsible when it came to how they managed an economy. They couldn’t print recklessly, and this ensured that money never lost its value. Removing gold from the system meant that countries could print as much money as they wanted, doing whatever they wanted, causing inflation and greatly eroding value over time. Gold acted as a deterrent as you can’t make more of it; it had to be mined. Gold’s meaning of being rare, very durable and impossible to perfectly counterfeit makes its purpose a good medium of exchange.
In modern times, global economies measure their currency against each other, with many countries intentionally making their currency weaker so that they are more attractive in terms of investment. Such countries make their products at cheaper costs as having a weaker currency relative to the world can boost exports; since exports are purchased at a lower price. With gold this cannot be done as its intrinsic value cannot be changed or made weaker. Such a value can be trusted by everyone, as gold represents trust.
An economy cannot grow, function or be sustainable without trust. Trust is a core of exchange since it is still relational as there is an interaction between individuals. A country rich with resources will not grow without trust, and a country with a small number of resources grows due to trust, like Japan. Trust refers to an unshakable belief in the truth of something or someone. Truth is the ultimate meaning and purpose of something. To get to the ultimate meaning and purpose you need a guide: a selfless one that promotes a selfless nature. The only guide to ultimate purpose and meaning is love. Love, meaning and purpose make up the truth.
After the gold standard ended in 1971, things started to unravel; inflation continued rising with the prices of goods and services. In some countries like Zimbabwe hyperinflation almost collapsed the economy. Around the world, people went from working a simple job that could raise 5 children to one partner working a full-time job, to both partners working, to both partners working but spending more than they can save, to both partners working, spending, with no savings and surviving on loans.
Interestingly, although Gold encouraged responsibility, it is not entirely a solution to the current global economies. In recent times there has been a rise in virtual currency secured by cryptography, known as cryptocurrency. Cryptocurrency is nearly impossible to counterfeit, has a limit in terms of amount and does not erode over time, just like gold. It isn't issued by a central authority and is free from government interference. The reason why cryptocurrencies have gained a lot of traction and popularity: is that they can overcome the lack of social trust. Again trust comes into the picture.
An economy exists to meet the needs of people in everyday life by ensuring equal distribution of resources and sufficient supply of scarce resources as per demand. An economy was not for the benefit of individuals by gaining individual financial wealth but for catering to all who exist within it. Economies should be guided by love, as love brings enduring trust. Economies driven by any other thing brings inequality. Like, in capitalism, where what drives private companies that control markets is profit. Being driven by profit means that individual interests of the private companies take precedence over the needs of workers, thus doesn’t cater for all. Even in socialism, where the goal is equitable distribution of wealth, if not guided by love, there is no guarantee of equity and equality. Gold and Cryptocurrency purpose in an economy is to try and bring in trust, not between parties but in the medium of exchange.
In the current economy, barter trade cannot work as there is no trust between parties, there is no love. In modern economies, we are to be ruthless and aggressive. In many countries like the U.S, CEO’S are paid depending on profits made since their duty is to shareholders. In many countries like Kenya and Russia, dishonesty (corruption) in the economy is part of their social norms, their culture. You can steal, kill and trample on someone as long as you aren't caught. The reasons and explanations given; “That’s just the way it is,” or “He/she was just smart enough to get away with it”. All these show the death of love. Economies are moving from their meaning and purpose, hence why there is always a threat of collapse.
There are complaints that the richer are getting richer and the poorer are getting poorer. Yet history shows us that when the trampled rise up, they trample too. An economy is dependent on everyone, and as such, the way the world is now, inequality will exist. For inequality to end, everyone needs to choose love and move towards sustainability for all. However, this should not pass as an excuse to join the group. An economy is relational, built off relationships. This shifts the focus to where you can help, creating little pockets of “heaven” in the current economy, fighting inequality: by aiding an individual at a time. Working for the betterment of others fulfils the true meaning and purpose of an economy. Once you have treated your neighbour with love, you have started to change the economy.