MONEY: Is it really worth, what it's worth?

You take a crumpled piece of paper out of your pocket. On it there is a collection of numerical digits, a picture of a deceased national icon, and not much else worth taking any notice of. You hand it over the counter to the Shop Assistant, and in return, you are handed your product of choice.

But how and why does this seemingly irrelevant note, or even a coin, hold a value?

Well, I'm afraid to inform you that all of your money has no inherent, permanent, or even vested value. It is all essentially worthless. Yes, I did say that your money is worthless.

But surely it does you may say. You may believe that the Government has stocks of precious metals which are used to backup the value of their currency. Therefore, your money's worth is backed-up by a tangible asset, and it has a relatively secure value. But if you believe so, take a look at the chart below.

These countries represent 65% of the Global Population, and, more importantly, 89.6% of Global GDP. And really, the only nations which can truly claim to have their currencies propped up by Gold reserves are Venezuela, Switzerland and Kuwait. For the majority of the other nations, commodity reserves were destroyed in around 1971, as President Nixon declared the US would no longer exchange dollars for Gold.

So where does the apparent value of money that we appreciate and use all the time disseminate from?

Well, there is a limited supply of money, and there is a large demand for it, as people want, and currently feel that they need it in order to purchase goods and services. Furthermore, they want it because they believe that the money will hold a value into the future, and they have confidence that it will be accepted wherever they desire to spend it now and then. Hence, money is based upon a mutual set of beliefs, rooted by a confidence in future expectations, especially for inflation, and a faith in the acceptability and trade-worthiness of the currency.

Faith may not seem like the most sturdy basis upon which to build a global economy. However, the theory of the 'Double Coincidence of Wants' goes part of the way to explaining why it is unlikely such a confidence-based monetary system will disappear.

Realistically, the only way that the whole monetary system will crash, is if inflation runs riot and people lose all faith in it's purchasing power.

However, please notice the use of the term money rather than currency. Individual or linked currencies are much more liable to influence from a poor, corrupt or misinformed Governement(s), and single currencies are hence more likely to crash, although likely just to be replaced by another currency in the same monetary system.

The Double Coincidence of Wants

Bartering was at one stage in Mankind's history the only the method by which producers and consumers could exchange goods and services.

However, it was terribly inefficient. Goods are often extremely difficult to swap logistically for starters. I mean, can you imagine carrying a bag of potatoes to your local shop, just to exchange for a book, simply because their perceived values are equal?

Moreover more challenging is to find two items that are judged by two different people to have equal, or less justly, similar, values.

This is where the title, 'The Double Coincidence of Wants' comes in. With a barter system, there may be many people offering goods and services, and many people wanting them, but the problem lies in the issue of them possessing things wanted by the people they desire to trade with. Hence, the double coincidence. You must not only find someone with something you want, but you must find somebody with something you want, who wants something you have and possess. Unlikely, right?

That's why bartering is extremely inefficient and unproductive. And that's why today we have money. Be it US Dollars, UK Sterling, Euros or Yen, money allows local, national and global trade, via electronic payments and physical payments. With a system of bartering, we would still be stuck were we were as a species thousands of years ago.

Where's my wall charger?

Buying an iPod recently, it struck me that unlike with almost any other electrical appliance, you do not receive a wall-charger. Annoyingly, this sometimes causes me the inconvenience of needing to connect up my otherwise adorable iPod to my computer to charge it, even if I have no intention or desire to use the computer. So, why do Apple not provide a wall charger with an iPod?

Many people will cynically presume no doubt that Apple just want to take more of their hard-earned money, through a slightly underhand way. Assuming that a reasonable proportion of their customers (roughly 120 million of them!) will view a wall-charger as necessary, there is bound to be a sizeable amount of demand for their official chargers. And, at £25.00, or $29.00, a pop, with minimal transportation and production costs, one can be confident that there are financial incentives at play in terms of the choice to disregard the iPod charger.

Furthermore, an iPod charger will incur costs for production, especially through additional costs for transportation, as the neat and minimalistic case within which new iPods are sold would need to be expanded, thereby reducing the number of units that could be crammed into shipments, hence in the long-run, perhaps leading to significant increases in transportation costs. No doubt these extra costs created by the inclusion of a charger would need to be passed onto the consumer. Which would in turn, following the law of demand, cause a decrease in sales, which would be more pronounced if demand were elastic, and obviously less so if it was inelastic, i.e. less responsive to a change in prices. Therefore, increasing the price of the iPod so that it includes the charger will probably put more people off buying than it will encourage them to do so.

Perhaps price-targeting is at play here to. For some people, price will be a much bigger determinant as to whether or not they purchase the iPod or not than for some others, so these people are more known to be 'price-sensitive'. Through keeping prices at a minimum, those who are price-sensitive should still buy the iPod, hence meaning that Apple minimises the number of lost customers it acquires. However, surely Apple want to charge people who are willing to pay more, more money than those price-sensitive ones, right? Well, it is for these people that the price of a wall-charger is so inflated. As they are willing to pay for it, let them. And that is a further tactic that Apple employ to pull that extra disposable cash from those more affluent pockets.

If the above reasons aren't adequate, there will almost certainly be a strong positive correlation between iPod-computer connections, and App Store purchases, for when people connect their iPod to their computer, it will increase their likelihood of browsing the App Store, and grabbing that latest 'must have' app.

Surely, for Apple it's obvious - make iPod's cheap, chargers expensive, and ... it's happy days.

Interest Rates Kept At Rock Bottom - Why?

Since 1694, the Bank of England has regularly set Interest Rates as a method of controlling the British Economy onto further and sustained growth. Today, however, the Bank decided to hold the base rate at 0.5%, which prior to March 2009 had never been set as the official base rate, for it was considered too low!

However, we must remember that these are precarious times, which call for strong stimulus. Or, is it true that 2009 was a precarious time, and now  we are witnessing a strengthening of the economic recovery, and have a need for less potent monetary policy?

Well, there is no doubt that many concerns about the UK's short-medium term future do exist. The US economy is stuttering, a factor in the UK's trade gap widening - to 8.7 billion pounds from the 7.5 billion pounds in the previous month, with a 0.9% decrease in exports, unexpected against a depreciating pound - raising fears over the Government's idealistic export-led recovery. The Government is set to embark on a rampage of spending cuts, causing job losses in the short-term, and less investment in the long-term. Many European countries are still only staggering away from the brink of collapse. Add to this a growing business pessimism, particularly in the manufacturing industry, as Inventory purchasing slides, showing low future business confidence, and the picture isn't rosy. Which makes the Bank's decision seem extremely obvious.

Which it may well be. However, there are still some strong arguments as to why Interest Rates should now be increased. Inflation - which the Bank of England is obliged to try and restrain towards 2% has been above 2% every month in 2010 so far, when measured by both CPI and RPI according to the Office for National Statistics. Inflation will decrease the value of assets, may cause a price-wage spiral to begin (although this is not appearing to happen at the moment due to the high amount of supply available in the Labour Market), and cause a decrease in the UK's competitiveness.

However, the majority of the issues caused by inflation are minor in comparison with the catastrophe a slump in growth could signal in the long term future of the UK.

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