If I ask :

“What is man’s greatest invention?”

What would your answer be?

There’s a lot of options.

Would it be fire? Because it gives us warmth, protection, and the ability to cook our
meals? Or perhaps you would pick the wheel? Because it’s the driving force being the
beginnings of trade, commerce, and travel.

While both of those are excellent choices, most of the time when we think about the
greatest inventions of mankind, we tend to forget one of the most important ones of all:
money.

But unlike man’s other great inventions, money is immaterial. Maybe that’s why we often
don’t think of it in the same breath as some of the other great inventions. Things like fire
and the wheel are tangible, but not money. Money is merely an idea, an illusion whose
value is non-existent, only determined by the importance we place on it… or at least
money as we know it today.

The beginning
The fact that money is an illusion does not in any way undermine its importance. Before
we created money, we were forced to trade goods and services directly in what we refer
to as the Barter system. People exchanging goods and services for other goods and
services in return. Because there was no arbitrary value placed on these items, every
single trade was determined by what each party was willing to give up for something
they wanted. It was kind of a game.

If I wanted shoes to wear but I only made tents, I would have had to give you an entire
tent in exchange for a pair of shoes.

And immediately we can already see one of the major problems with this system of
trade. It’s the asymmetry. As a tent-maker, there’s no way I wouldn’t feel cheated having
to exchange an entire living space for simple footwear.

Because there was no standardized medium of exchange, it was very difficult to get two
people who needed things from each other to come to an agreement. Having to wait
until a “double coincidence” of wants where two people need the exact opposite thing at
the same time was also very difficult and inefficient. And that wasn’t all.

Our “money” is not only a medium of exchange, it’s also considered a store of value.
And before the invention of money, some people could never store their wealth for no
fault of their own.

There’s also the problem of having something that only very few people want.
Nowadays, when starting a business, we’re often told to find a niche. A small group of
people who are very interested in what you have to offer. Before money was a thing,
that advice would have left you with nothing worth bartering.

The people who had the most were those who owned things that everybody wanted.
Things like weapons, animal skin, and salt. But then since everyone knew that everyone
wanted these things, they started buying them even if they didn’t need them at the time
just so they could trade with them later. And so commodity money became a thing.

People would exchange goods and services for the most common items like salt or
weapons and just use that to trade for what they want from someone else.

From salt and weapons to tiny collectibles like shells and beads, humanity had figured
out a better way to trade and transact. Instead of exchanging goods and services for
goods and services you may not need at the time, you can exchange your goods and
services for arbitrary objects to act as placeholders of value, an IOU (or I Owe You).
After that, you can use these placeholders to get goods and services you actually want
from someone else.

The idea was brilliant. So brilliant that the entire world slowly moved away from the
Barter system to the money trading system.

But there was still one problem with this medium of exchange. For money to be worth
anything, it needs to be scarce. The more available something is, the lesser its implied
value. If everyone can get their hands on something, it can’t be worth that much, So
things like sand or shells that you could easily pick up on any beach weren’t really a
good measure of value.

Money is born
As a result, around the year 770 BC, the first metal coins were created in China. As a
sort of homage, the Chinese made miniature versions of the tools that were once
regarded as currency. They made the coins circular so it was easy to reach into pockets
and take them out without hurting your fingers. Then they cast the coins in bronze.

This was it. Money was finally worth something. You couldn’t just go to a beach
somewhere and pick up bronze. It was scarce. It had value.

At this time, money wasn’t yet an illusion. The value of a coin was determined by the
value of the metal the coin was made out of. If you had a coin that was made of 1 gram
of gold, it was worth 1 gram of gold. You could easily measure it and see for yourself
that it is, in fact, 1 gram of gold.

However, Kings and Rulers quickly discovered the power of money. They realized that
the more of these tiny precious metals you had, the more power you could control. And
so in 600 BC, Alyattes, King of Lydia, created the first official money mint.

The illusion begins

He created the coins using a mix of silver and gold and stamped an image on the coin
to act as denominations. Now people could easily tell the value of the piece of metal
they were holding simply by looking at the picture on its face.

But the Kings of the world wanted more money and precious metals were too
expensive. To produce more money, they started slimming down the coins, then mixing
the more expensive metals with cheaper metals. Soon, all the coins in circulation were
worth less than what the image on their face said they were worth. And so the illusion of
money was born.

The value of the coin was no longer determined by the value of the metal. The value of
the coin was now simply what the rulers and the bank said it was. So one British Pound
Sterling represented one pound of Sterling Silver.

However, when international trade became a thing, people realized that metal coins
were too heavy to log around. And so Kings started issuing IOU certificates for long
distance trading. Because these pieces of paper were stamped by the King, people
trusted its value and believed that they could use it to get back whatever it was worth in
coins. And that was true for the time being.

As more of these IOU certificates flooded the market, people needed coins less and
less. Until finally, the paper was worth what we believed it was worth, even if we no
longer exchanged it for physical pieces of gold and silver.
From Ancient Kings to modern day governments and Central Banks, money has
remained an illusion. A mere representation whose value is determined by the
importance people place on it.

The modern days

The most valuable banknote in circulation today is the ten thousand Singapore Dollars
note. Although not being produced anymore, this single piece of paper worth seven
thousand three hundred and forty-five US Dollars at the moment, is still regarded as
legal tender. So you can still use it to buy ,

valuable things like houses, cars, and even metals like gold.

The banknote itself costs less than 20 cents to produce, but the illusion of the fiat
currency system means it’s as valuable as 120 grams of gold.

The illusion of money is one that we never really think about. But just like the Kings of
old, the governments of today understand the power of money and, as always, want
more of it.

They know that the more of these pieces of paper you have, the more power you have.
So what do they do? Well, they can simply create more pieces of paper out of thin air.
For example the United States government wanted $340 million dollars for, maybe
another F-22 jet, they can simply print the money to do so.

But there’s one problem with this:

Inflation.
The thing about money is that primarily, it needs to be a means of exchange to be
considered valuable. So, the amount of money in circulation needs to reflect the output
of the goods and services that are being provided.

When more money is printed than there are goods and services, all other things being
equal, the prices of these goods and services increase and the value of the money itself
drops.

This is why many economists and even everyday people are worried about the current
global reserve currency: the United States Dollar.
2020 was a terrible year for the entire world. In the wake of the pandemic, most
economies had to be shut down. The goods and services available and the general
output of the economy was reduced to mere trickles, and the world kind of came to a
halt for a while. Because there wasn’t as much money flowing around, to keep the
economy from going , the US government started printing money at a rate faster than
has ever been printed before in its entire existence.

Right now, 40% of the US dollars in existence today were printed in the last 18 months
alone. That’s... outrageous. And because the output of the country hasn’t really
increased by that much, eventually, the prices of goods and services might start to
skyrocket.

On the surface, it seems like a good thing that governments decided to send out
stimulus and unemployment checks to their citizens. But the reality is, it’s a
double-edged sword. Of course, it helps those most in need, and that’s a good thing.

We’re at the point where, because of inflation and a slowed economy, people really
aren’t able to get the right jobs at the right times. Sometimes it’s not even because they
don’t want them, but because it’s simply worse than the alternative.

But what can you even do? When you can earn more money from unemployment and
stimulus checks than you would from being employed, why even look for a job in the
first place?

You see, the Federal Reserve of the United States is a very sneaky way for the
government to essentially create money out of thin air and pump it into the economy
without people thinking too much about it.

Before 2020, the United States was $29 trillion in debt. It’s an unbelievable and
inconceivable amount of money to begin with. This debt is obtained in the form of bonds
and treasury notes, which are basically just pieces of paper that says the government
will pay you so and so amount plus interest. Right now, a 10 year US treasury bond will
return you 1.23% on your investment at expiry. So if you put in $1,000 today, you’ll have
made $12.30 by 2031. That sounds terrible already, but to add the icing on the cake, it
doesn’t even keep up with inflation, which is targeted to stay at around 2% a year . By
investing in government notes of our own country, which issues the currency we use
every day, we actually lose buying power over a decade. It is weakened by the day.

But regardless, banks, businesses, and individuals around the world buy these bonds
and treasury notes and the government uses all that money it gets back how it sees fit.
However, when it’s time for the government to pay its debt, all the money they made
has been spent. So they buy back all the treasuries and bonds, but only from the big
financial institutions, and then pay them back with new money created out of thin air.
Since March 2020, the Federal Reserve has bought back over $1 trillion in bonds, and
is planning to continue to do so for the foreseeable future.

With all the new money pumped into them by the government, banks can now give out
more loans to people, earn more interest, and help grow the economy. But this
increases the total amount of money in circulation, reducing the value of each currency
note . With multi-trillion dollar stimulus payments and infrastructure packages.

New money steals value from old money. The amount in your bank account doesn’t
change, but because of the new money the government has just printed out of thin air,
your money is no longer as valuable as it once was. Basically, every second you store
your wealth in any fiat currency, it is being devalued.

The reality that money is nothing but an illusion is one that we must all embrace.
Because only then will the path to financial freedom become clearer.

It’s all a game, a game that never truly ends. Understanding that money does not have
any intrinsic value in itself, but instead only inherits the value we give to it, will prevent
you from trying to store up your wealth in currency. Instead, using that money to acquire
assets that appreciate faster than inflation is the only way to “win” the game. And it’s not
really winning, it’s avoiding total loss.

Smoke and mirrors.