So How does Money Work?

So with the ground work laid that the math is fine but it doesn’t account for human action and individual choices the Austrian school will need to be used for understand how we get from mathematical model to mathematical model.

So How does money work?

Well money is usually regarded as the metal and paper in your pocket with dead presidents on it. But hold on there Partner that’s a jump. In days of old there was no “money” so humans bartered. But, how many fish does it take in trade for a toga, or a mule? Or a vegetable to go with the fish? What if you trade a fish or grain or fresh produce for a chair or cart? One will be useless in a week and the other will just start to be useful? If our WHE (work hour equivalents) are stored up rather than traded daily we can “save” for that cool new chariot.

So we needed a neutral way to exchanges durable and non durable goods and services skip to the chase -- we used metal coinage; Gold being best, limited. valuable enough so a small amount was of high value (un like iron) a Roman solider with a ounce of it could buy a nice toga, good leather belt and fine leather footwear (still hold true today – a ounce of gold will buy a nice suit a good leather belt and fine footwear) Problem cured.

But Caesar being gluttonous with his spending (sound like any other governing body you may be familiar with) wanted to spend more than was being taken in (not that it was not a big number)

Boing! Bright Idea - Rather than increase the onerous taxes in place. Just take the coins and shave some metal off each one just a little to make more coins, (ie more coins, no more gold- oh yeah the new coins were supposed to be of the same value as the old ones Whoops)

Problem - when the next payday came around and the Centurion skips into the market to buy a fish for dinner and drops a coin. The merchant is shrewd and noticed that it was lighter in weight that every other coin he has received so he demands 2 light weight coins; Then quickly says “Have I gotta bargain for you, 3 coins for 2 fish”. Welcome to inflation, higher prices are a effect not a cause of inflation.

Can you see why a math only approach will not work in this story but human behavior is SO important to account for?