WHERE REAL MONEY COMES FROM

MODEL RELEASED. Mid adult woman holding home grown carrots in the garden.
WHEN the division of labor has been once thoroughly established, it is but a very small part of a man’s wants which the produce of his own labor can supply. He supplies the far greater part of them by exchanging that surplus part of the produce of his own labor, which is over and above his own consumption, for such parts of the produce of other men’s labor as he has occasion for. Every man thus lives by exchanging, or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society.

Who Invented Money?

The history of Chinese currency spans more than 3000 years. Currency of some type has been used in China since the age which can be traced back to between 3000 and 4500 years ago. Cowry shells are believed to have been the earliest form of currency used in Central China, and were used during the Neolithic period.

list-ming-dynsaty-coins-EAround 210 BC, the first emperor of China Qin Shi Huang (260–210 BC) abolished all other forms of local currency and introduced a uniform copper coinPaper money was invented in China in the 9th century, but the base unit of currency remained the copper coin. Copper coins were used as the chief denomination of currency in China until the introduction of the yuan in the late 19th century.

marxMarx’s Theory of  Money

C – M – C  

M – C – M1

M1 = M + ∆M = surplus value

Marx’s C – M – C equation from the dairy goat farmer’s perspective:

(C) Stands for a COMMODITY in our case a gallon of goat milk, a bunch of carrots that the lady gardener holds in her hand, a side of beef to the butcher, a loaf of bread to the baker, a paraffin wax candle to the candlestick-maker.

(M) Means MONEY, $15/gal at the farmers’ market. $2.00 a bunch for carrots at the market, $4.90 / Lb. for a side of 100% grass fed beef from the farmer/butcher and  a $1.52 /lb from the paraffin wax supplier.

(C) The new COMMODITY, whatever the buyer turns it into; most people drink our milk but others make kefir, cheese or soap, a carrot cake would be nice, half of the cow ends up as hamburger, today’s candlestick-maker has umpteen million varieties to sell.

M – C – M1

(M)  MONEY is needed to produce the (COMMODITY) in our example it costs us $5 to produce one gallon which begets $15 of new (M1) MONEY. Marx calls this transaction “exchange value.” The next step in the process is defined as “surplus value” where:

M1 = M + ∆M = $10 of “surplus value”

adam your lifeAdam Smith, the father of Capitalism and Karl Marx, the father of Communism, agree on how money is made but Smith proclaims that only the farmer can create Real Money.

Whoever derives his revenue from a fund which is his own, must draw it either from his labor, from his stock (capital), or from his land. The revenue derived from labor is called wages. That derived from stock (capital & human capital), by the person who manages or employs it, is called profit (M1 “surplus value”). That derived from it by the person (banker) who does not employ it himself, but lends it to another, is called the interest or the use of money (risk capital). The revenue which proceeds altogether from land, is called rent (M land cost – C rent – M1“exchange value.”) and belongs to the landlord. The revenue of the farmer is derived partly from his labor, and partly from his stock (capital & human capital). To him, land is only the instrument which enables him to earn the wages of this labor, and to make the profits of this stock (capital & human capital).

butcher bakerSmith goes on to categorize the three players of Capitalism as Farmers – Merchants – Manufacturers. The butcher and baker are merchants of the farmers’ produce, while the candlestick-maker ends up in the manufacturers column.

The Merchants and Manufacturers derive profits (M1 “surplus value”) by managing or employing  their stock of capital & human capital. As dairy goat farmers we could have sold our milk to the cheese-maker for $3.40/gal. Since our cost of production was $5.00/gal Karl Marx predicted that with an M1 of $5.00 = an M of $3.40 + a ∆M of $1.60we would soon go out of business.

We avoided this dire forecast by becoming a Farmer- Merchant – Manufacturer by turning (manufacturing) our $5.00/gal milk into Kefir and selling (merchandising) it for $45.00/gal at the farmers’ market which gave us an M1 of $5.00 = an M of $45.00 + a ∆M of $33.75 (after sales & marketing expense) =  $28.75/gal surplus value, profit, money-in-the-bank or as Adam Smith would say REAL MONEY.

BankersThat derived from it by the person (banker) who does not employ it himself, but lends it to another, is called the interest or the use of money (risk capital). Bankers are also merchants, they sell money by lending out $100 for every $10 in capital. Since the 1999 repeal of Glass-Steagall and merger of Commercial/Investment banking, they resell the $100 loan lessening their concern for its safety. Bankers, unlike butchers, bakers and candlestick makers, can sell ten times their (C) Commodity. 

AIG to write $3 trillion in derivatives while reserving precisely zero dollars against future claims.

  • Derivatives –  a wager on a wager – exploded uncontrollably: CDOs provided the first “infinite market”; at height of crash, derivatives accounted for 3 times global economy. The global economy is approximately $20 trillion.

The Merchant Bankers brought on the 2008 Global Financial Crisis because they do not create Real Money and therefore don’t understand or appreciate the works of Marx and Smith.

TRUMP-AC3-superJumboThe revenue which proceeds altogether from land, is called rent (M land cost – C rent – M1“exchange value.”) and belongs to the landlord. Donald Trump is now the most famous member of the Merchant class of real estate developers. The billionaire is known in the industry for using and abusing OPM (Other People’s Money) with Atlantic City being his most egregious example. Employing stocks, junk bonds and high interest bank loans to rob Peter to pay Paul until bankruptcy was the only exit strategy available. However, even if the landlord uses his own money the revenue he receives proceeds altogether from the land. This rent of the land to make money from the land does not create new money or Real Money.

American GothicThe revenue of the farmer is derived partly from his labor, and partly from his stock (capital & human capital). To him, land is only the instrument which enables him to earn the wages of this labor, and to make the profits of this stock (capital & human capital).

Adam Smith in his Wealth of Nations states that agriculture, is the sole source of wealth and revenue of every nation.” because it produces a net product and in the process creates Real Money. Trump uses OPM to make money for himself but at the end of the day no new money is created and a lot of OPM is destroyed. When the butcher or baker exhausts their supply of beef and wheat their business activity ceases to exist. The candlestick-maker can keep on making paraffin wax candles but if the farmer, butcher and baker have no money to spend, no candles get bought.

However, the organic carrot gardener/farmer takes care of the soil so she can grow more and better carrots in perpetuity, selling them at the farmers’ market for $2.00/lb creating new money, Real Money for herself and for the global economy. She makes a contribution to her nation’s sole source of revenue and wealth, agriculture.