Confidence = Worth.

Posted on: 08/01/2017

What is something worth? It is simply what you are prepared to pay.

A very simple truth and one that has not changed since our distant ancestors hunted to survive on a  very wild planet.

Hunting wasn't, of course, solely about trying to catch (and kill) animals. It included battling fellow homo sapiens. Those battles were to do with "possessions" in the widest sense, including access to territory and mates.

At some stage, some wiser humans worked out that there had to be a better way than fighting all the time ( sadly, a wisdom that has not survived down the ages). 

Barter was the answer. Rather than killing to get a desired possession, swapping one item for another was a peaceful solution. Apples for pears; chicken for geese; beads for cups; and so on.

Money came along as part of the barter process. Coins were minted with a value strictly related to the agreed worth of metals from which they were manufactured. Such coins could then be swapped for apples or pears, with the suppliers of those goods agreeing with the holders of the coins how many were an acceptable exchange. The original "exchange rate".

Who decided the worth of the metals from which coins were struck?

An Emperor ; a King ; a Chief. In other words, the most powerful decided worth.

Nominally, worth of metals was (and remains today) related to rarity value but rarity is often artificially contrived. He who controls supply can create rarity.

Today, diamonds are only "rare" because those who control supply limit the availability of new stones. Oil is similarly rationed ( or, at least, OPEC, a group of 13 nations, tries to arrange that this is so). Picasso's are only rare because the estate of Pablo only releases a small number of paintings each year from their stocks of thousands of canvasses.

So rarity is almost always dependent on who is in control of a given tap.

The part confidence plays is obvious. If you are confident that supply of precious stones, minerals or Picasso's will remain short, you will be ready to accept todays market price. If not, you refuse the price and look for a lower one which better matches your view of future supply.

Today, the worth of tangible assets is inextricably linked to the success of world economies.

Where confidence in rarity of assets is shaken, worth is undermined.

This is an across the board impact. Every asset suffers, including values of currencies and buildings. Nothing is exempt, because, in economic terms, there is no such thing as real worth. It is simply what you are prepared to pay.


©2024 Cash Is Cool
Website design by Modern Websites