As promised at the end of Part 4, I’ll talk about how much money is needed to store all of a society’s wealth. But, before that, I’d like to clarify a couple things so that my explanation makes sense.
First, I described this before, but let it sink in again: The simplest way to quantify the true value of something is in Wealth Units (WUs).
Therefore, when I am quantifying the true value of accumulated wealth a society has, I will tell it in terms of WUs. I could instead quantify it in terms of gold coins, but remember what I said in Part 2–quantifying the value of something in its money price adds a conversion factor (the WU:money exchange rate), which can muddy the waters when that exchange rate changes.
Second, wealth can be stored in many ways, but I’ll divide them into two broad exhaustive and mutually exclusive categories (my favourite): cash assets (money) and non-cash assets (physical assets like a house, investments, etc.). So someone’s total wealth they possess is their cash assets plus their non-cash assets (and, to calculate their net worth, you’d have to subtract any debts they have).
Great. Now let’s answer the question of how much gold Avaria needs to be able to store all its cash wealth.
Let’s say Avaria had one goldmine and that it collapsed, so there is no access to new gold. In other words, the total amount of the gold in the society has become fixed (and apparently no one loses any gold either).
Everyone is working very diligently for a year and, in accordance with the local religion’s new teachings on self-sufficiency, they all start trying to save some extra cash wealth for a rainy day (in the form of gold coins, of course, since that’s the only form of money Avaria has so far).
As the total number of WUs attempted to be saved in the form of cash increases, what happens to this fixed supply of gold coins?
It should be pretty obvious. The demand for gold coins increases, so each gold coin comes to be worth more WUs. That can keep happening indefinitely, which brings me to the main point of this post: Any amount of money in a society is enough to store any amount of cash wealth.
Why? Because as the demand for money increases, the WU:money exchange rate will simply adjust to meet the market’s needs.
Interestingly, this provides a way to calculate the wealth price of a gold coin. It can be determined by the following ratio . . .
aggregate-number-of-WUs-attempting-to-be-saved-as-cash:aggregate-number-of-gold-coins
This will be useful information when I talk in Part 6 about what might happen if someone figures out how to counterfeit gold coins, which will offer our first troubling insight into a modern money issue.
This series may seem like it’s not progressing fast enough, but I hope you can trust that each part is adding to the foundation of knowledge needed to understand the upcoming material, and by the end you will be empowered with an incredible depth of knowledge about exactly what’s wrong with modern monetary systems and what an optimal monetary system would look like. Then you’ll need to go out into the world (and on social media) and convey this knowledge so that more people can support policies that shift the world to more sound monetary policies!
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