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Money is a Tool

What is money?  Your answer may depend a lot on how much of it you have.  Ultimately, the main purpose of money is convenience.  A system of barter works pretty well when two people have things each other need – someone with chickens meets up with someone else who recently slaughtered their pig and both have bacon and eggs.  But if you can also exchange those eggs for money you can save it up to buy something different or bigger.

As we’ve concluded before, Adam Smith was right – money is a matter of belief.  Whether it’s gold, Euros, or Canadian Tire Money it’s worth whatever you believe it is worth.  Our own US Dollar is backed by the “Full faith and credit of the US Government”, which is scary if you think about it.

But money is more than convenience and faith – it’s what it takes to make things happen.  And that’s worth thinking about some more.

moneyWe live in a time when there is both too little money and too much money.  One of the features of a Depression, as we live in now, is that jobs become scarce enough that the old “trading time for money” system starts to break down. The velocity, or turnover, of money in the economy means that there isn’t enough available to many people to satisfy their basic needs.  The government and Fed have responded to this Keynsian stimulus (profligacy?) and the glories of “Quantitative Easing” (printing it).

While policy has certainly helped get us through the hard times, inequality has increased dramatically – and this seems to be one of the best indicators of an economy on the decline.  Which naturally brings us to the meaning of money, something that depends a lot on how much you have.

What does money mean to you?  Odds are it’s one of these three choices:

1)  What you need to get by on a daily basis (a view typical of the poor)
2)  Something to get you what you want or need (a more middle class view)
3)  A way of keeping score (for the rich)

The last one may surprise you, but it’s very true.  The excellent History Channel series “The Men Who Built America” is a chronicle of the industrial titans of the 19th and 20th Century, such as JP Morgan, JD Rockefeller, Andrew Carnegie, and Henry Ford among others.  The size of their bankroll was very much a matter of bragging rights and what kept them to avariciously grab for more even when they were wealthy beyond their wildest dreams.  It was also mentioned as a serious problem at the Davos Conference early this year.

This view is not limited to the rich, of course, but is common among people whose needs are pretty much satisfied.  One version is “Keeping up with the Joneses”, circa 1960.  Those were good times.

Each of the views above typically go hand in hand with how long into the future you are comfortable looking – whether you are surviving or thriving.  But it’s when we get to “keeping score” that it all seems to break down.  The timelines and horizons of the very rich only sometimes get to the point where they honestly contemplate the longest view – and what money should mean to everyone in a truly equitable society.

I tell you this – in all cases, in all classes, money is a tool.  If it isn’t getting you happiness, it’s not always a matter of how much money – it may be how you are using it.

Forgetting something this happens when you just don’t have enough of it, but it also fuels the debt cycles that create Depressions in the first place.  Borrowing to invest in yourself and your productivity is very different from borrowing to stay alive or live in luxury.  This distinction is important, and whether we are talking about personal finance or the wealth of nations it seems to be forgotten.

Of course, some people simply do not have enough to get by – there is a basic “overhead” cost of life in America which we can call the “Poverty Line”.  It’s about $11.7k for a single person, $14.7k for a couple, and $22.8 for a mythical family of four.  Once you’re below that, or even close, it’s hard to see money as anything other than a desperate struggle.

But the goal for an equitable society has to be to get everyone – regardless of situation – to understand that of all the tools they have in heart and arm and brain, money is just one more in this integrated world that is far more complex than the bartering days.  For some, that means we need to help them.  For the rest of us, we have to re-evaluate what we are doing – as people and as a people.

11 thoughts on “Money is a Tool

  1. May I recommend a book?
    Ferguson, Niall. The Ascent of Money: A Financial History of the World. New York: Penguin, 2008. Print.

    I agree with your assessment that the meaning of money varies based on one’s socioeconomic status. For the wealthy, money really is just a means of keeping score.
    For the desperately poor, money is just a way to keep the creditors at bay; the destitute are always in debt.

    • Thank you! I may use this as a jumping off point, yes. It summarizes a lot of things I have been talking about lately and does set up a new line.

  2. This is a very good way to look at money and I appreciate it very much. It’s especially good that you included it by income range because if people are totally poor they can’t make good decisions for their future. But money is mostly a way to get things or get things done and a tool is a good way to describe it. I wish more people saw it that way.

    • Thanks! I think this is a good framework for both personal and public policy, and I’ll say more about that later. The goal is to get everyone thinking this way – those without enough as well as those with an awful lot of it.

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