In God we trust, all others must pay cash! -- An American Saying

We love our dollars! We work hard for them, think about them, worry over them, and care for them! The Europeans do the same for those euros, the British for their pounds, and the Chinese for their yuans. But these are all, in the end, paper; however fancifully or skillfully they may be made, they are nothing more than paper. Why are we willing to accept a bunch of paper in exchange for our services (as we do at our jobs), and why is someone else willing to exchange their goods and services with us for some more of the same type of paper? The answers to these and similar questions lie with the notion of what we call "money".

Money
History of Dollar
Four Pillars to Rapid Wealth Generation
Recommended Reading
From the Financial Glossary
Quote from the Wise

All business transactions between two human beings are a trade of their goods and services.

It may surprise you to know that we are still essentially in the age of the barter system. Barter is the practice of exchanging goods and services between two persons, with the hope that at the end of the transaction each party has more of what they need and less of what they don't. For example, exchanging two fishes that I caught for a pair of shoes that I need would be a good barter. Of course that means I need to find someone who has shoes to sell and needs my fishes in exchange. And it is possible, and quite likely, that my fishes will start rotting before I find someone to trade it with!

To get around this fundamental limitation of having to seek the right person with the right goods and the right needs at the right time to trade with, all societies across time have tended to gravitate towards some item that could be used as a valuable intermediary, that is, as money.

In fishermen colonies, fish has frequently acted as that commodity, since fish is useful in and of itself (you can eat it) and thus represented a certain amount of value. A fish could not be manufactured out of thin air, and it required a certain amount of effort to go out to the sea and catch it, and this controlled the supply of fish to the area. And fish could be carried around fairly easily. Fish was money for these societies.

As another example, in the Nazi prison camps, the prisoners formed a secret system for the exchange of goods and services amongst themselves, and the commodity used as money was cigarettes! Cigarettes had a value in and of themselves (one could smoke it), had a restricted supply (owing to prison security). It could be carried easily and had a reasonable unit value which could be exchanged for a number of services.

We can draw some common themes here as to the property of the commodities that have acted as money in society:

• It must have some intrinsic worth
• One should be able to carry it easily
• There should be sufficient supply for it, yet require efforts to extract it
• It should have a reasonable unit value

The one thing that fishes fail in as money is that, ideally, the commodity acting as money should have a long shelf life, which fishes do not. Comparatively, cigarettes do better in this regard!

Salt, cattle, poultry, grain, agricultural implements, weapons, and so on have all acted as money in different societies across the ages. Eventually, most societies converged towards the precious metals such as gold and silver to act as money. These metals were valued for their use in jewelry, in religious ceremonies, and in royal dwellings. Their supply was controlled, and their malleable nature allowed units of different sizes to be created since the value of the metals was entirely based on their purity and weight. With the increasing use of these metals in trade across societies, their status as money became more prevalent and useful than their other practical applications. Gold & silver thus attained an almost pure money status and this is true to this day.

History of Dollar

The history of the dollar itself starts as a form of a precious metal coin. The name dollar is an anglicized version of the name thaler used for silver coins minted back in 1519 in Joachimsthal (currently in Czech Republic). This name was then applied to Spanish pesos, which were very similar silver coins, and widely circulated in North American British colonies. When the United States achieved its independence, it chose the dollar as the basis for its monetary unit as opposed to the British pound. Thus the first US dollar was a silver coin of very precise measurements. Since it was not very convenient to carry silver coins around, banks issued certificates corresponding to the amount of dollar (silver coin) deposits each person had. These certificates slowly began being used in lieu of the actual silver coins in trade, especially in larger transactions. Until 1933, a US citizen could exchange their dollar bill for actual gold or silver from the US Treasury. Here is a statement from such a certificate:

Note the use of the term silver in the guarantee on the certificate. Then in 1934, gold and silver coins were removed from circulation within the US, but foreign banks could still demand payment in gold. Inside the country, the certificate itself was deemed as sufficient for payments against all liability (debts & purchases) and for tax purposes.

We still see the use of the term silver in the certificate, but now the certificate is a legal tender for all debts, public and private. A US citizen could no longer exchange this certificate for actual silver, but could use this certificate as money.

In 1970, foreign banks were also barred from exchanging their dollars for actual gold or silver and dollar became a currency backed solely by the full faith and credit of the US government.

Here is a 1988 modern day note, without any mention of gold or silver.

Thus the dollar you hold currently is a legal tender which can be used to pay your taxes, pay all debts and be employed in trade and commerce. Of course since it is not redeemable in gold or silver, it is fundamentally dependent on the confidence of all participants in the dollar and indirectly, in the US government's ability to manage the currency. And those are the bills that you carry, and work hard for, and hope to have a few million of, before you are done!

There are some consequences of not having the dollar backed by any physical commodity, and we will deal with those in an upcoming issue of this guidebook (think inflation!).

Four Pillars to Rapid Wealth Generation

Personal Finance Pillar

We talked about the meaning of net worth in the last issue in this section and our recommendation was for you to calculate your net worth and calculate it every quarter. We hope you did that, and if not, do so today! It will give you an immediate sense of where you are and where you are going.

To start off your progress to great wealth, it is always important to have a rainy day fund, sometimes called the emergency fund. There is a tendency amongst us during our days at the University or early in our career to depend on our credit cards as our emergency fall back. In reality though, an emergency is often the worst time to go further into debt, especially for expenses that may not be very large. Our recommendation is to have at least $500.00 put away as emergency funds, and if you have a larger income, then $1000.00. This should be your first savings goal. Save up for this money and put it away in your savings account and forget about it. It is your safety net and will help soften any unexpected expenses or emergency situations. Do this before paying down any debts, and put any money not used for eating, shelter and transportation towards this fund, making minimum payments on your debts, if any.

Recommendation

Career (Main Income Pillar)

In the previous issue, we talked about your creating a personal portfolio for yourself. Have your created one? Did you at least start? Here is a checklist to make sure that your personal portfolio is complete.

• List of all Projects
• Separate page for each project highlighting your leadership roles and toughest problems solved
• Names of every individual with contact information involved in that project

Now note any patterns in those projects and your role(s). Do you frequently become a leader? Do you play well in a team? How do you deal with the tough problems? Do you believe you need help in persuading people? Do you believe you need to be a better negotiator; a better organizer?

Make a list of areas that are your strengths, and areas that you think are your weakness in the form of a table as shown below. Rate them on a scale of 1-5 with 5 being very strong. Use your friends help if necessary.

Skills	Strength (9/2005)
Leadership	4
Organizing	2
Negotiating	1
Crisis Management	2
Persuation	3
Speaking	3
Reading	4
Writing	3

Every year, this table should be revisited and a column should be added for the new year, with new entries for all the skills listed. Add as many qualities as you can think of to this table. This starts your analysis of your personal portfolio, and adds more material to your portfolio which will aid in furthering your career. And importantly, this gets your mind thinking about your soft skills and ways to improve them. This portfolio of yours is to be guarded and used like a company secret, allowing the world to see it through an appropriate filter such as your resume, your interviews, your proposals and such.

Recommendation

Recommended Reading

From the Financial Glossary

Arbitrage: Profiting from differences in price when the same commodity is traded in two or more markets.

Simplified Meaning: Let us say you buy a T-shirt from one retail store in Chicago for $10, and return it to another retail store for $12, and pocket the profits, you are then acting as an arbitrageur, exploiting the price difference for the same T-shirt between the two stores. This particular example is not ethical, but arbitrage is frequently used to exploit price differences for commodities across markets when trading in commodities such as copper, oil and gold which are traded in multiple markets across the world. This helps the global economy by keeping the market prices in-line and thus more efficient.

Quote from the Wise

The fate of the nation and the fate of the currency are one and the same. -- Benjamin Franklin

At all times, we appreciate your feedback on improving this journal, any experiences you wish to share, or any disagreements you may have! Mail us at: shri_ajay@characterandwealth.com or post on the forums!