What is money?

The rally against debt

http://www.facebook.com/event.php?eid=204678962884261

has me thinking about the meaning of money and debt.

What is money? Money is a medium of exchange to allow exchanges that were difficult or impossible by barter. Money in itself has no value, it only has value based on the widespread acceptance of money as representing a certain amount of goods or services.

As well as allowing a much improved exchange of goods and services over bartering money also allows transactions to be arranged across time. For example I may have a surplus of wheat from this years harvest. I can sell this for money and retain the value of the wheat surplus until I want to buy something else. Thus I can maintain the value of a perishable commodity until such time as I actually need that value.

Instead of keeping the money under the bed I can lend that value to someone else who needs the value now and be rewarded with interest payments to cover the risk of not being repaid.

Businesses make money by arbitrage. That is they make or buy a product and trade it with other people who feel the product is worth more to them than to the business. This is explained elegantly in The Rational Optimist by Matt Ridley.

For most people money is paid in exchange for their labour.  For working 40 hours a week you are paid £x.  Of course x varies, like any other commodity, depending on your value to your employer and the number of other suitable people available for the job.  The money you earn allows you to swap your skills as a baker or doctor for other peoples products (goods) or their skills (services).

Note who employs you, private or public sector, is, in an ideal world, actually irrelevant.

To digress, unfortunately many people are unemployable because the value of their work to an employer is less than the minimum wage, currently £5.93 per hour. They are therefore priced out of the market.

We now come to the necessary? evil of taxation.  Simply put you work 40 hours a week but in fact with income tax and NI about 12 hours is deemed to be for the government not for your benefit.  It is worse for higher rate tax payers where the government arbitrarily decide that you work 20 or even 24 hours a week for them and not for yourself. It is even worse than that in practice and if you work more hours you must also do an increased number of them for the Government.

Now to debt. Debt is simply the sum of borrowed value. You may borrow value when you are young to buy a house and repay it over your working life as you receive value for your work.  The government also borrows money and similarly repays from their claimed share of your future work.

In principle, it seems to me, that money and debt is that simple. So what are the problems?  I see two.

Firstly the amount of my work that the Government claims belongs to them. Personally I feel that the services the Government provides are not of adequate value for the amount of my work time they demand I pay for said services.

Secondly the debt the Government has, is and plans to incur can not be repaid by the work of those who supposedly benefit from the services directly or indirectly. Services and "investment" is happening now which will never benefit the future generations who will inevitably be paying the interest on the debt from their working hours. I very much doubt if any government will actually repay the debt itself.