BTCBitcoin. A math-based money anchored into physics.An extract from the book Entropy Demystified: Potential Order, Life and Money, written in 2000 by Valery Chalidze.
https://web.archive.org/web/20181101233633/http://www.worksofvalerychalidze.com/uploads/1/0/2/8/102863812/entropy.pdfCHAPTER 11: Mystery of Money (p.172-175)
Why Is Money Valuable?
Interestingly enough, the peculiar procedure of economic measurement is opposed to the methods of measurement in science. Indeed measurement in science is based on the impartiality of the measuring technician. Measuring by money is actually based on the bias of everyone involved. What is more, in science units of measurement are presumably stable, yet money as a standard of economic measurement is constantly changing value.
Before I discuss the instability of money, the following question should be answered: why money generally retains value despite many reasons for value variations, why we somehow expect money to be stable despite the knowledge that it is not?
The utility of a certain consumable commodity be it cattle or sheep skin when that commodity played the role of money was an understandable reason for that money to retain value. In the case of gold or paper money rarity, social convention or respect for the government which issued the money can be the reason behind the fact that such things can start playing the role of money but not yet the reason why that money will retain its value.
The actual reason for money to remain valuable is the fact that people want more of it and once they get it, they choose to hold it and not give it away easily. Once a certain symbol like money is accepted by humans as the representation of order, it finds itself under the protection of an innate drive to guard the acquired order and increase it if possible. The value of money is connected with the main quality of life itself-a desire to lower entropy and to safeguard the achieved reduction of entropy. In this sense holes in our pocket have the same significance from a life guarding point of view as holes in a cell’s membrane which lead to insufficient protection of a living cell from an orgy of outside entropy. Life is local order, life’s goal is to protect and to increase order. We are back to our discussion on the second law of thermodynamics: our struggle for low local entropy will be lost if we don’t protect the achieved order and money, which represents that order, must be held at least temporarily as a defense against us becoming an object with growing entropy.
There are needs which can be satisfied by giving away money, there are many temptations and traps set by those who want us to part with our money. Yet the desire of people to keep money and spend it mainly when necessary, in most cases prevails and thanks to that, and not thanks to government decrees, money loses its value only gradually and some times may even gain in value. This is the main reason for money to retain value and that reason comes from the physics of life itself. The social and economic question is how this reason holds against many factors which push the value of money down.
Indeed, reckless spending by people would ruin the monetary system in no time. We may say, that the influence of life’s goal to guard life, to protect local order from destruction, gives us the ability to guard our money and this is a stronger element of our behavior than even many moral or even religious prescriptions. It is interesting how this desire to hold money (and property in general) survived throughout centuries despite many dissenting moral teachings including one of the mightiest religions humankind ever knew-Christianity. Indeed, Christ’s rebellion against embryonic financial enterprise as he “poured out the changers’ money, and overthrew the tables...” (John 2:15) characterizes the early position of the Christian sect in Israel. Christ’s words: “sell all that thou hast, and distribute unto the poor, and thou shalt have treasure in heaven: and come, follow me.” (Luke 18:22) actually prescribed a life without money as money would lose value if given away on a massive scale.
This and many others’ dissenting moral systems were apparently produced as a protest against material inequality and until Marx and his followers did not have a basis in economic theory. As we saw, Marx’s approach was primarily energetic and did not properly take into account the organizational and informational components of the economy. One has to note though that even in an economy with a negligible low-entropic component the desire to hold money is also crucial for the economy. In such a stage of the economy money represents labor (energy) to a bigger extent that in a developed economy and cautious spending of money represents the principle of work minimization. One may reasonably expect that the human ability to measure energy, order and potential order by money is higher when there is a simple connection between the amount of money and the quantity of hours of work. Using money as a measuring device for higher and higher levels of p-order increases the possibility of erratic mistakes in measurement.
In any case, for money to be a measuring device there are the following rules:
1. everyone wants to get money
2. everyone holds it or exchanges it for goods or services in extent of the amount which corresponds with the desired value of those goods or services.
Rule one is not absolutely crucial as some people may choose not to play this measuring game at all and become hunters and gatherers in a forest or on the city streets. Rule two is crucial as giving up money for not deserving values certainly devaluates money.
Each person who participates in economic life is actually a member of the giant jury which evaluates money and the economy’s produce every day. If I put $1000 in a bank it is not safe there simply because of FDIC insurance-that insurance will cover my dollars in numbers only, not in value. Actually my savings depends on the verdict of hundreds of millions of people to decide what that $1000 will worth tomorrow. My real insurance, as far as the value goes, is the hope that the value of my savings will be judged by a non-impartial jury because if I lose, then members of that jury will also lose the value of their money.
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