What is Money Anyway?

When you think about money, the first thing that comes to mind is wanting to have more of it.  Have you ever wondered what it really is?  Sure, it pieces of pretty paper in your wallet, metal coins under the cushions of your sofa, and what the government likes to take away from you.

Did you know that money is actually a commodity?  Huh?  In case you need a refresher, here is a short post explaining what a commodity is:  http://economicefficiency.blogspot.com/2009/01/what-is-commodity.html.

Money is indeed a commodity, but first, it is a commonly agreed upon representation of a unit of work.  Chew on that one for a minute.  Because Amazon doesn't accept chickens for Kindles, and the bank doesn't accept lawn mowing for your mortgage.  People agree to accept money in the form of their local currency in place of chickens, or whatever work you perform.

Historically, money has taken the form of gold, silver, sea shells, and any other item people agree has value.  Paper money has been around much longer than people think.  Letters of Credit, which allowed a traveller access to money in another town or country have been in use since the before the Middle Ages.  The Knights Templar were known as the world's first foreign currency exchange, using Letters of Credits and other instruments to exchange money.

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Even the Bible (John 2:13) records Jesus running out the money changers in the Temple.  2000 years ago, Jews would bring local currency to the Temple to buy doves or other offerings.  However, they were only allowed to buy those things with Temple currency, and thus the exchange.  Jesus was angry that people were using a holy place, a place of worship, to make a buck off the average Joseph.

Fast forward to today with discussions of "the Fed printing money" (which is inaccurate) and rapid devaluation of the dollar as well as the Euro.  What does this all mean?  In short, governments can determine, through multiple means, the value of their national currency.  The value can be manipulated (lowered, ahem, China) to encourage cheap exports, or supported (Japan) to help stave off recession.

Ultimately, it is a matter of perspective.  A strong currency means imports are cheap, foreign travel is affordable, everybody likes to feel strong.  However, it also means that exports are more expensive (less competitive), tourism is down, and it is only a matter of time until the market swings the other way.

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Weaker currencies also spell inflation.  As the value of the US dollar has decreased, the cost of crude and other imported commodities has sky rocketed.  Why?  Many international commodities such as crude and airplanes are sold in US dollars.  When the dollar is weak compared to other currencies, it takes more dollars to buy the same things.

Money is a medium of exchange, the representation of a unit of work.  It only has value because society at large agrees to it.  For centuries, it was gold, jewels, and other finite things.  In modern times, paper money, also known as fiat money, is not backed by material things, but rather by the productive capacity of the nation that issues it.

So, the next time you put your money on the counter for what ever it is your are buying, think about how much time you had to work to purchase that item.  When you do, budgeting becomes much easier and you really start appreciating what it takes to make and spend money.

Falling Commodities Crush Recyclers

The end of 2008 through March of 2009 has seen a precipitous drop in the price of commodities, particularly aluminum, steel, and iron, though copper is improving in China. This drop has caused a similar drop in the price of recycled, or scrap materials from recyclers.

As I have written previously in, "Your Garbage, My Money," recyclers were seeing a real boost in the price for their metals, etc. However, the cratering of commodities and the global economy as a whole, has seen the demand for scrap drop accordingly. eFax Annual Subscription

For all my readers who love charts, I have included charts from metalprices.com, who kindly allows the reproduction of their charts. Below, you will find charts for scrap iron, which includes steel, and scrap aluminum.



What does this spell for recyclers? Simple, the gray old mare ain't what she used to be. Like every business in the industrial supply chain, from oil to scrap to finished products, demand has fallen and everyone is pinched. Some recyclers are refusing new items, as their yards are filled to capacity. Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

Some of the largest recyclers are US municipalities. Solid waste fees were paid in part by the sale of recycled local waste. Now, according to americancityandcounty.com, municipalities are seeing drops of 50% in their recycling revenue and now are considering additional user "fees" to cover the short fall. In other words, taxes. Compare Auto Insurance Quotes and Save!

However, some localities are fighting the decline in prices with an increase in supply, "Others, like the Philadelphia suburb of Cherry Hill, N.J., are even paying residents with retail vouchers to recycle through a program from New York-based Recycle Bank."

Even when it comes to trash, the market sorts itself out. As long as steel and aluminum are being produced, there will be a market for scrap, though watch for many of the smaller players to get consolidated as the demand for continues to drop.

What is a Commodity?

Commodity is a word that most everybody has heard but may not really know what it is or how it has any impact on their daily life. Below is a brief explanation and example of a commodity and why you should know what it means.

According to dictionary.com,:

.	an article of trade or commerce, esp. a product as distinguished from a service.

Stock Exchange. any unprocessed or partially processed good, as grain, fruits, and vegetables, or precious metals.

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Talk about vague... Here is a easier explanation. We are remodeling our kitchen. My wife wanted the Grohe K4 faucet to replace our existing one. I looked it up and the MSRP was pretty high, so we asked our contractor to see what his best price was. Even then, it was pretty pricey, so I looked on Costco.com. Voila! They had the faucet and it was almost half of MSRP. I verified the part code to insure it was the right one, and purchased it.

The K4, whether sold by a retailer, supplier, or Costco is exactly the same. As a consumer, I spent a little time to find the best price, in other words, had full information, and made the decision where to buy it on price alone.

A product that is differentiated by price alone can be defined as a commodity. Another example of this would be of onions in the grocery store. An onion is an onion, regardless of where you buy it.

While it seems simple to think people comparison shop, many don't. With the availability of information via the internet, there is almost no excuse not to. However, a person may pay more for a commodity if the seller provides some service.

I traded taking the faucet home that day for waiting until it gets shipped. That onion that costs $.02 more a pound may come from the closest grocery store. People consume not just goods, but the conditions that surround the good (convenience, timeliness, returnability, utility, etc.). Many of these decisions are subconscious and provide little value. However, once one begins thinking about why they purchase things, one becomes a more efficient consumer. Click here to visit BloomingBulb.com

A commodity is a good that is differentiated by price alone. However, even though a good is a commodity, it doesn't mean that it is priced the same, as the seller may offer some service around the good. Why am I writing about this? I am writing about this so people can better understand and articulate why they make economic decisions, and further hoping they will make better decisions in the future.