Bitcoin News Today: Bitcoin Magazine Explores Money's Role in Economic Calculation and Trust

Money is the foundation of every market transaction, yet its price and value remain elusive because it is the very unit through which all other prices are measured. The commodity that becomes money is typically the one with the highest marketability — a medium of exchange that enables economic calculation and drives entrepreneurial activity. However, determining the price of money is complicated by the fact that money itself is the standard against which value is assessed. Individuals value money based on its future utility, and their decisions to save, spend, or invest depend on expectations about its purchasing power. This subjective valuation is shaped by diminishing marginal utility: as one accumulates more money, the satisfaction gained from each additional unit decreases.

This principle applies even to someone in isolation, like Robinson Crusoe, who might see gold as worthless if it cannot be used for immediate needs. In this way, money is not inherently valuable — its worth comes from its role in exchange and the network of trust it represents. People trade time and labor for money only if they believe the purchasing power of that money is worth more than the immediate use of their time. In every transaction, the cost of money is the highest utility that could have been derived from its alternative use. The marginal utility of each additional unit of money is determined by the individual’s goals and desires, making the value of money deeply personal and context-dependent [1].

Money’s function as a tool of communication is critical. Like language, it requires at least two people to function effectively. Without shared expectations about future value, money becomes unmoored from historical prices, making personal economic calculation impossible. Governments attempt to measure inflation through the Consumer Price Index (CPI), but this index excludes high-value assets like real estate and stocks. This omission creates a distorted view of inflation, as it hides the fact that price increases are often the result of monetary expansion. When more money is created, its purchasing power decreases, and the effects are unevenly distributed — those closest to the source of new money benefit while others suffer from rising costs. This dynamic, known as the Cantillon effect, exacerbates inequality and undermines long-term economic stability [2].

The origins of money lie in barter economies, where a good with non-monetary utility evolved into a widely accepted medium of exchange. Gold became the dominant form of money due to its durability, divisibility, and scarcity. Banknotes initially served as receipts for gold, but the practice of issuing more notes than the gold reserves allowed led to the rise of fiat currencies. Fiat money, not backed by any physical asset, is created as debt and exists primarily to facilitate government and banking interests. The expansion of the money supply through mechanisms like quantitative easing further devalues existing units, creating a system where more debt is necessary to sustain the economy. This model, rooted in Keynesian economics, prioritizes short-term spending over long-term value creation, leading to inflation and financial instability [3].

Modern fiat currencies are often described as the world’s largest pyramid scheme. Early recipients of new money gain purchasing power before prices rise, while others face the consequences of reduced value. This cycle benefits politically connected entities while penalizing ordinary individuals. Inflation is not just a technical or economic issue; it is a moral one that distorts incentives, rewards debt, and erodes trust. The long-term consequences include the collapse of currencies, as has occurred in the past through hyperinflation or absorption into larger monetary systems. The transition to sound money — money that cannot be counterfeited and retains stable purchasing power — is essential for fostering economic progress and protecting the most vulnerable members of society [4].

The case for sound money is not just economic but also philosophical. Money is a product of voluntary exchange and a shared illusion of trust. Any commodity that meets the criteria of durability, portability, and uniformity can serve as money, but only sound money enables sustainable economic development. When money is honest, it allows for accurate economic calculation, rewards thrift, and protects against inflation-driven wealth extraction. In contrast, when money is corrupted, it distorts incentives, undermines trust, and ultimately threatens the very foundations of civilization. The move toward a monetary system based on voluntary choice, rather than political decree, is a step toward a more stable and just economic future [5].

The article concludes by emphasizing the role of individuals in shaping economic systems. Markets, when left unhampered, tend to produce better goods at lower prices, while political interventions often create inefficiencies and inequality. Understanding these dynamics through praxeology — the study of human action — provides clarity on how real progress is achieved through voluntary cooperation and value creation. The most meaningful contributions come not from those in power but from individuals who produce, trade, and build outside of the political system. The real challenge lies in recognizing the hidden costs of fiat money and taking steps to replace it with a system that values honesty, trust, and long-term stability [6].

Source: [1]title1.............................(https://bitcoinmagazine.com/bigread/money-robinson-crusoe-praxeology)