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•Six Greatest Financial Necessities of Business Life 61

4 To provide a store of wealth, a convenient form in which to hold any income
not needed for immediate use. It is the only truly liquid asset, the only one that
can be readily converted into other goods.

The complexity of money increased enormously with the abandonment by most
countries of the gold standard. Up until the 1930s the issuers of banknotes prom-
ised to exchange them for a given amount of gold or silver. The depressions of the
1920s changed all that, and paper money is now issued on the general creditworthi-
ness of the country of issue.

To most individuals money consists of coins, banknotes and the readily usable
deposits held in banks and other financial institutions. To the economy, however,
the total money supply is many times as large as the sum total of individual money
holdings defined in this way. This is because a very large proportion of the deposits
placed with financial institutions is loaned out, thus multiplying the overall money
supply several times over.

Without this device and the concept of interest, the economies of developed
and developing countries could not happen at the present pace. It should continue
to work, at least until we all decide that we want our money back at the same time.

Idea 40 – Raising cash with limited liability

In the introduction we said that one of the biggest necessities of any great idea was
to sell it. To sell a product, great idea or not, you need first to produce it. To
produce it you need money up front. If you have money and no great ideas, you
need to get someone else to use your cash and earn a return. The joint stock com-
pany is the vehicle that brings these two things together.

The Joint Stock Companies Act, as amended in 1855, permitted such compa-
nies to limit the liability of their members, shareholders, to the nominal value of
their shares. In effect, by applying for a £1 share, a shareholder agreed to subscribe