The original post I wrote became longer than expected. So I have broken up into 4 smaller chunks.
Part 1 evaluated the basic valuation of a currency by every person that uses it.
Part 2 starts to understand how a currency is spread out.
When wealth belongs to only small groups of people – then that wealth no matter what it is, becomes worthless to the people that do not have it. Diamonds, gold, money – these things mean nothing to the people that do not have it. Although people that do not have it may want it because it will then make them part of a group of people who can exchange this wealth. To clarify this example. If two people in a group of 10 have 100 pieces of gold which they swap between each other. The remaining 8 people will have no reason of meaning to care about this wealth. They can easily find another form of exchange. Ripping up a piece of paper into 100 pieces and writing 1 on each piece, becomes something which the 8 people can trade with each other. In this case it is likely the 2 people with gold will want to have also some of the paper currency so they can trade with the remaining 8. Gold, precious metals and gems have been used as a trading method for a very long time because they are limit in number and difficult to counterfeit. But there are many many other forms of currency that exist. As mentioned here already. Ripping a piece of paper into small pieces and marking them is a very simple currency. Favours are also another type of currency, although they are more emotional than a physical record of a trade.
When a currency is also horded like the pieces of gold between two people, then it becomes less valuable as others can not use it to trade. When it can no longer be used by others for their own means then it becomes meaningless. When a community are dependent on a currency which has been horded by very few people, then people become less trusting in the social fabric of their society, and aggressive self preservation becomes a stronger instinct. Crime, blackmail, coercion, aggressive business, and corruption become rampant in this type of environment. A dog eat dog world prevails.
Below is a very simple chart. This represents all of the euros in the euro zone. Like all the money has been tipped into a swimming pool. This is the total amount of euros which can be divided between all the people. Whether it is 100 million euros or 1000 trillion it doesn’t matter. It is the total amount all together.
This is how all the money can travel between people that use it. For all the different things we provide for others, and exchange it for money, which we then use to exchange with others for what they do for us.
This a representation for all the different flows of money. Teachers, doctors, engineers, artists, bakers and every other type of exchange of money. This is a healthy system where all the people can use all the wealth that everyone is sharing through the currency. It is important to remember this value of wealth in a currency is a shared concept between all. A currency (money) can be any physical form that people are willing to exchange between each other.