We are not all self-sufficient. We rely on our butchers for meat, bakers for bread, and blacksmiths for bronze. Okay maybe not so much the last point. But we need things others produce and create. And our own creations? We can’t survive on them alone. But there are others who want what we produce? Don’t they?
And so we create promises; if you produce this for me, I’ll produce this for that guy who wants this stuff and he’s gonna produce for another girl who wants this other stuff, who’s good at producing yet another thing which actually you sought after. So now you take my promise and your needs are as good as fulfilled when you produce for me. Money is that promise; it is the promise of value for our labour, the promise of fulfilment of our needs.
Then as humans, we realised if you can promise that whole cycle of bartering executed with money, then you can promise a barter with the future self, or future wants, etc. So from the promise of inter-spatial movement of products and services, we move to the promise of inter-temporal movements. This creates a new dynamic because promises age as time passes. Time will tell the quality of the promise; and that will manifest in terms of the value of that promise as time passes. Alas, born the concept of interest.
And because at any point of time, there is going to be lots of overpromises, failure to fulfill them; the system has to make good of it. So when there is overpromising, the value of promise also falls over time. That is where inflation came from. Money in itself has really no value; but the legal tender provides a tool by which government enacts and extracts taxation. This is important because it keeps an economy demanding the instrument as opposed to just using another, more established currency. Taxation as a form of revenue is ultimately more effective to keep the money system from destabilising; compared to just using seignorage as a means of revenue.
Which brings me to an interesting conversation with a friend about Bitcoin. He thinks that using excess energy such as those which would be wasted through flaring, venting of gaseous fuels, or from curtailment events of intermittent renewable energy can be used to mine bitcoins. That way, the energy otherwise wasted is converted to a form of value. It is used to do some kind of work in the bitcoin network, facilitating transactions, securing it.
I am not sure how practical this is but the idea is appealing on the count that we are actually creating a new value stream rather than have mining capture and squander existing energy resources. If bitcoin mining becomes such a “flexible” load in the energy system, it’ll prove incredible value in highly practical ways.