What Is Money?

Money, in and of itself, is nothing. It can be a shell, a metal coin, or a piece of paper with an image on it (such as a building or person), but the value that we place on it has nothing to do with the physical value of the money. Money derives its value by being a medium of exchange, a unit of measurement and a storehouse for wealth. In fact, money as a “store of value” is a good way to remember this concept as you go through this class. Money allows people to trade goods and services, understand the price of goods (prices written in dollars and cents correspond with an amount in your wallet), and gives us a way to save for larger purchases in the future.

A good example of the relative value of money is cryptocurrency. While the topic is somewhat divisive, many businesses now accept cryptocurrency as payment, and individuals are becoming more accepting of cryptocurrency as either a substitute for money (medium of exchange) or an investment (store of value). However, cryptocurrency is vastly different from our historic approaches to money. This is because cryptocurrency is completely digital and intangible, unlike gold or silver which are physical.

A Brief History of Money

Our modern system of money can be traced back to Greece around 600BC when the king had the first coin minted. The denomination or value was marked in symbols or images minted into the coin, and people came to learn the weight and value of the coins by the symbols. The first coins were made of gold and silver, and coins were made from precious metals for most of the history of money. In fact, gold and silver have been a common medium of exchange for thousands of years. However, bartering of goods or services is also a medium of exchange. A farmer may trade ten sheep for 100 bushels of grain. The sheep became a medium of exchange and would have been just as valuable as money.

Paper currency in Europe emerged in 1661, although the Chinese may have been using paper currency much earlier. The first bank note (paper) was actually used in the North American colonies. Because the New World largely depended on goods and supplies from England, payment with money became impractical. Sending payment by coin or paper currency tied up the money for extended periods of time. This meant money was not flowing through the economy. There was also a risk of loss if the ship sunk or the money was stolen.

To keep money flowing and available for daily use, the bank note was invented. If you look at the paper currency in your wallet, it says “reserve note,” which is a bank note. It is a form of an IOU or simple promissory note. A reserve note is a promise to pay, which is vastly different from exchanging gold or silver coins. The coins represented payment in full with no further “promise to pay.”

In 1946, the first credit card came into being. It was created as a method of buying on time, or purchasing goods on a promise to pay.

Human beings existed on the earth long before money was invented. You might wonder, “How did they trade and pay for things?”

The original form of trading was just that – a system of bartering or trading what I have for what you have. I might trade a bushel of corn for one head of cattle, or two goats for a bushel of wheat. One thing the original bartering system did not include was debt. Very few people would have traded goats for a promise to pay. Would you? What happens if the crop you were growing doesn’t yield a harvest or the calf you are waiting to be born dies prematurely?

While we have a sense of ownership of goods, animals, assets and money, the original bartering system shows us something important.

Did people create the wheat or goats? No.

This is something interesting. God created the earth as mature (Genesis 1-2), meaning that Adam and Eve had a ready food source – apples, corn, tomatoes, grapes, water, etc. They also had the first seeds. By harvesting seeds, they could replant food. Who created the seeds?

God did in Genesis 1 and 2. When we plant the seeds God created in the ground which God created, the rain and sunshine that God created cause the seeds to sprout and bear fruit.

Our ancestors down through history did not create the corn, wheat and other fruits and vegetables often traded as a medium of exchange. Likewise, God gives life, and our early ancestors did not reproduce goats, cattle and other animals. They may have managed breeding and tended to fields, but they did not reproduce the animals or crops.

In the early form of bartering, our ancestors were trading goods and animals which they did not create. God also created the earth and everything in it – including the gold and silver. The early coins, traded as currency and saved as wealth, also did not belong to our ancestors – in the sense that they did not create the valuable substances. In the 21st century, we carry on the same tradition, except that the form is much different. It is not practical on a daily basis to trade bushels of crops or herds of animals for the groceries, goods and services we purchase on a regular basis.

Money in the Bible

In Matthew 6:19-34, we learn an important lesson that what we value (treasure) is of little value in God’s eyes. In Genesis 1:9-13, God created the earth (where we find gold and silver) and vegetation and seeds (which were used to develop the first trading system). Notice how God created. “Then God said…” We see the same thing in John 1:1-5: “In the beginning was the Word, and the Word was God.” In other words, our beginnings have their root in God’s word – spoken speech. God created by speaking into existence that which we use to store up wealth and to buy and sell things.

Jesus says instead we are to lay up treasure in heaven. How do we lay up treasure in a place which is not physical? Some things which endure are works that remain (1 Corinthians 3:14) and faith, hope and love (1 Corinthians 13:13). Laying up treasure in heaven, then, is accomplished through prayer, Bible study, drawing closer to God, putting ourselves to work for the Kingdom of Heaven, love, hope, and faith, and bringing others into the Kingdom of Heaven with us.

Next, Jesus discusses worry. In the New American Standard Bible, “worry” appears nine times. All but one of those uses was spoken by Jesus. In Matthew 6:25-32, Jesus addresses worry. Worry is used in a negative sense, and Jesus equates worry with distrust of God.

How does God promise to feed the birds? Jesus does not spell it out for us step by step. However, we know from observation that God does not provide breakfast in nest. Take the robins, as an example. Early in the morning and all through the day, the robin is searching the ground for food. God promised to feed the birds by providing bugs and other forms of food. Every time you see a bird eating, whether it be catching a bug in the air or pulling a worm out of the ground, this is God fulfilling His promise. This is God assuring us that worry is useless.

Why does Jesus refer to the Gentiles in Matthew 6:32? It is a symbolic reference, and Jesus refers to the Gentiles as representative of the world – those who have worldly cares. When we seek to lay up treasures on earth, we are pursuing worldly cares.

Does that mean God does not care about money, how we handle money or if we store up money for the future? No, we do not find this in Scripture. Instead, the beginning of handling money well and according to God’s principles is faith and trust in God, obedience of His Word, and seeking God’s righteousness in our own lives and in our relationships with others.

Basic Economics

Before we turn to the next lesson, you should be aware of basic terms and principles that relate to money. This will be a basic lesson on economics.

Money and currency, as we have already discussed, are defined as a medium of exchange or a store of value. Rather than store value in gold coins or bars, value today is measured in currency. Of course, one question to consider is whether our currency is backed by something of tangible value? The answer is no, that currency is not backed by anything of tangible value. I cannot exchange a one dollar reserve note for something of value. Instead, we use currency to purchase goods and services and make investments in other stores of value.

This brings us to inflation. The value of currency is derived in terms of prices for goods and services. A one dollar bill is exchanged for a candy bar, and the candy bar determines the value of the one dollar bill. Inflation means that purchasing power decreases and the cost of goods and services increase without an equivalent increase in quality. In other words, if the identical candy bar 25 years ago with the same ingredients could be purchased for twenty-five cents, today’s price of one dollar represents inflation.

The inflation rate is a measurement of the increase in price over time. Because the candy bar increased in price by seventy-five cents over 25 years, we can express the inflation rate as 3% (0.75 / 25 = 0.03). The Consumer Price Index (CPI) is a measuring tool often mentioned in the news and represents a calculation of the rise in cost of goods and services over time.

Basic economics is comprised of supply and demand as a means of explaining prices relative to goods and services. Supply and demand are market forces that have an affect on inflation and the value of money. When goods or services are in short supply and high demand, prices will go up. The reverse is also true. When demand is low and supplies are high, prices will go down. Thus, prices and the value of money is often cyclical over time. From time-to-time, prices of certain goods or services (housing, for example) will increase sharply because demand is high while supply cannot keep up with the demand.

Another economic term we should define is money supply. This means just what it sounds like – how much money is available or circulating in the overall market. When there is too much money in circulation (money supply is high), demand can be artificially created which temporarily shrinks supply. Such a scenario has the effect of creating inflation and is often caused by government intervention, such as a sharp rise in government spending coupled with printing new currency to fund the new expenditures. The supply of money is governed by the Federal Reserve, and they can employ various economic tools of their own to cause or slow down inflation and increase or tighten the supply of money.

Sometimes, government intervention in the market creates unintended inflation, such as through large financial bailouts of failed companies or stimulus funds directed to individuals.

Some of the effects of inflation include manufacturers and retail stores expanding capacity to accommodate increasing buying by households. This results in an investment in the market as equipment is produced and sold for use in construction, which in turn results in increased employment opportunities and higher pay rates, and so on down the line. The value of companies will rise, and their value is represented in stocks (stock is a representation of ownership) traded on public exchanges. This will push the stock market higher. In other words, a confident outlook on the future can be a healthy form of inflation. Inflation is not always positive, however. When inflation is caused by increases to the money supply, our purchasing power often suffers, and employment opportunities and pay rates are not expanded. At times, we can enter periods of hyper-inflation, which can be devastating to the market and individual households.

The opposite of inflation can also occur, and this is known as deflation. Deflation is often represented by a reduction in demand, increase in supply, and consequent reduction in prices. However, if inflation represents a confident outlook on the future, deflation represents a lack of confidence. When households and businesses stop buying, they are strengthening their store of value in currency, usually because of future economic or financial concerns. Deflation can occur in times of war and conflict or because of political turmoil.

Can we do anything to offset the effects of inflation? Yes, and several methods will be discussed throughout this class. A key method to protecting against inflation is not to stockpile too much currency relative to other investments. A person with $1 million in cash will experience a significant loss of purchasing power over time as inflation erodes the value of money. However, if the person is worth $1 billion, keeping $1 million in cash may be plausible. A person who is only worth $2 million, on the other hand, is exposed to a significant possibility for decreased wealth over time as the cash erodes in value.

Investing in assets, such as purchasing stock in a publicly traded company, buying gold or purchasing tangible goods that will hold their value over time, can preserve value during times of inflation. For example, investing in the stock of Acme Corporation which produces furniture, vacuum cleaners and office supplies can help you keep up with inflation as the value of Acme Corporation’s stock rises. Purchasing real estate is another method often used to protect against inflation because the value of real estate generally keeps up with inflation.

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