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People are willing to give up 40 or more hours a week to have it.  The lust for it drives some people to betray their friends’ trust, and the lack of it has driven some to suicide.  In our culture, there is nothing quite like money as a motivator.  So what is it?

forex2I got into this recently when I tried to explain how we got into the current mess.  To me, it’s all a matter of values, a concept I’ve re-iterated a bit by dwelling on the way the rules of the economy are developed in a kind of social agreement.  But that’s not enough for a lot of you because, after all, this big thing called an economy is really all about money – and that’s what matters.  Right?

Asking what “money” is, as a concept, may sound like the stupidest thing possible.  It’s what it takes to survive and do all the things that a modern person likes to do, after all, and you don’t question something like that.  Yet the economy that we have is made up of money and the exchange of it, so the more we understand what money is the more we understand the current situation.  That’s why I turn to popular conservative icon Adam Smith, who said in “The Wealth of Nations”:

“All money is a matter of belief.”

Many people think there is a definite value to money, a sold meaningful purpose that underpins everything.  There isn’t.  Some will tell you that when we abandoned the Gold Standard and went to “fiat” (forced) currency we lost our sense of real value; they never tell us what gold is all about in the first place.  What matter is what people believe in, be that gold, the Federal Reserve, or Canadian Tire Corporation – money is always nothing more than what people believe it is.

Money only means something when it comes time to exchange it for something useful, such as a mortgage or cat food or beer.  That’s when we learn what the real value of it is, even though we have ideas about the value of money in our head from experience.  If there’s too much money floating around, the value of it goes down – which is to say the price of things goes up, taking more money per bag of cat food.  When lines of credit dries up very suddenly, there is a lot less money in the world suddenly, and prices may fall; that explains the massive sales many retailers have had lately.

This is true no matter what the money is made of.  When Spain found they could loot the bejaysus out of Peru in the 16th Century, it thought that its troubles were over – but a period of terrible inflation set in that destroyed the nation and left it vulnerable to a outside forces that ripped it apart for 300 years.  Even when it’s gold, too much money in the wrong places can create the stagflation that we experienced in the 1970s.

The Dollar is nothing more than a certain amount of numbers that are maintained by the Federal Reserve.   If it looks as though the Dollar is worth less, they make it harder to get – and currently the shortage of Dollars has them doing everything they can to get more out there.  The problems come when you have to compare the Dollar to the Euro or the Yuan or the Brasilian Real.  In this case, the relative values have to be balanced out, more Dollars making it fall versus everything else and so on.  It’s hard to balance both at the same time, but that’s what the Fed has to do.

The other dimension of money that some of us will talk about is how it is distributed through an economy.  It’s clear that when the money is concentrated in a small number of hands the potential for real disaster is even stronger.  Concentrations of wealth marks the start of nearly every Depression, and this one is no different.

I’ve said many times that you can’t have an economy based on making something from nothing.  That sounds like a call to a fundamental law of money, something like Newton’s Laws of physics.  It isn’t.  If everyone suddenly had a lot of money, then money wouldn’t be worth much anymore.  This is nothing more than a practical consideration.  That means that for the rich to remain well and truly rich, they have to not only have a lot of money, they have to have more of it.  That’s the concentration of wealth that leads us around the great wheel of history to Depression.  Note also that if one nation has a lot of wealth, the same principle applies as it relates to other nations – unless they are producing something of real value.

So what is money?  It’s a way of keeping score.  People get so obsessive about it because we live in a world that obsesses over it.  That’s about all there is to it.  You may or may not think this is a good way to organize things, and that’s your opinion – but the basic principle, that money is nothing more than a matter of belief, is certainly true.

12 thoughts on “Money

  1. “…unless they are producing something of real value.” As in manufacturing hard goods (excluding defense), for example…?

  2. Once again I don’t agree with you in the entireity but I did enjoy the time reading. My favorite historian quoted somone else saying wouldn’t it be easier if we just gave out blue and red ribbons or something to that effect. You’re coming up against some iron laws of city/states and that is hierarchy. It’s been around for over 3000 years or more and will continue methinks. It also runs across all cultures. Read the enlightenment scholars they actually were much in favor of the active man. Read the ancient scholars I may point you to gilgamesh. Read the oxford guide to ideas in the bible. It will blow you way when we see things in their original context. These are things that most of us know little about. Keep writing!!!

  3. Erik, I think you nail it by calling money a way of keeping score. We could get by without it if we so choose. We could deal entirely in barter.
    Even accepting the use of money, its value varies from person to person and for individual people it can vary from day to day. My neighbor might be willing to pay someone $20 to mow his lawn while I decide to do it myself. And then next week I might suddenly decide that with everything else I have going on its worth $30 to have my lawn mowed. In any case it isn’t the money itself that has value, but the service or product being received–money is just the scorekeeper.

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