Home » Money » Money is Just a Tool

Money is Just 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.

Not everyone can do this.

Not everyone can do this.

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.

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.

The first tool I ever bought.

The first tool I ever bought.

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.

24 thoughts on “Money is Just a Tool

  1. Money is nothing more than a tool AND a way to keep score. People make far too much of it. If we can take at least some of the emotion out of it it becomes much easier to manage the way it should be.

  2. Do you still get mad when debt-to-income ratios go up for households, businesses and government?

    The whole thing about not taking on too much debt and grandma.

      • Oy Vey…Uff da,,

        Things have come around full circle since the go go days of the middle George W. years.

        A decade or two ago there was a 60 minutes segment on real estate. One person said that real estate was the new drug.

        There are always multiple angles of any story and it would be interesting if there was a qualitative study on how people felt about themselves and the country during the go go days prior to the recession, when housing prices were going up.

        It is hard to know if one generation as opposed to another was more responsible for the recession. We remember the yuppies. That was circa 1980s all the way thru Bonfire of the Vanities.

        We always used to hear about McMansions. I assume most of those Mcmansions are still standing. Those folks just wanted a nice place to live like everyone else…

        Let me just translate: if people–household–had more access to credit the main thing to do with it is to buy a house–a bigger one or move from and apartment.

        If you meant that there isnt enough credit being extended to start businesses or expand, that is another story and my comments do not refer to that. I suppose that’s what you meant since it would be hard to say something bad about trying to start a business. ; )

      • I guess I can’t say why credit is down. It may be all credit card or discretionary debt, but it may be that after foreclosure, short sales, and government bailout refinancing that mortgage debt is down, too.
        What is happening to the McMansions? A good question. I think the younger generation is much less likely to spend a lot on a home and much more likely to spend on a nice car or something they can wear like clothes and jewelry. They may grow out of that, but something tells me that they’ll always want to have their wealth with them to a large extent. Children of a Depression, and all.

        And, again, it’s called a “Depression” because so much of the effect is psychological.

  3. Excellent observations and sensible advice! Thank you for that. If I may, I hope that I may add some points of interest to your post that may be interesting:
    -On the matter of money; we must remember that money, by definition (Breton-Woods agreement 1945) no longer exists. On Aug 8, 1972, when President Nixon severed the convertibility of the paper dollar to gold, we “broke” money, given than gold is the official currency of the world, its price is fixed in dollars and therefore the dollar is the reserve currency of the world. Cutting the link between the two broke the mechanism and created yet another systemic defect by giving the authority to “create new money” to banks, who do nothing of the sort. It’s also easy to fix: rewrite the rules of value & wealth.

    -We are at a point in the cyclic dynamic known as human civilization where it’s unyielding and singular purpose: to grow, has exceeded it’s own ability to sustain any further growth and as it as done before, fragments and leaves us with no infrastructure; we rebuild infrastructure every time this happens by a process called “peer polity”. It’s happening right now and it offers us an opportunity to re-write many social rules and mechanisms that are simply obsolete an cruel, besides, everyone knows what the deal is at this point.

    You share important and valuable information that can inspire us to manage the change instead of submitting to it. I hope these observations may be of use. Consider me at your service, Sir! Thank you for what you offer everyone!
    ctwfrank

    • Thank you! That is indeed where I hope we can find ourselves, at a place where we are looking at the world as abundant and satisfying rather than full of scarcity and struggle. I think we are nearly there by any measure – but we have to change our outlook. That appears to be happening.

  4. Excellent observations and sensible advice! Thank you for that. If I may, I hope that I may add some data to your post that may be interesting:
    -On the matter of money; we must remember that money, by definition (Breton-Woods agreement 1945) no longer exists. On Aug 8, 1972, when President Nixon severed the convertibility of the paper dollar to gold, we “broke” money, given than gold is the official currency of the world, its price is fixed in dollars and therefore the dollar is the reserve currency of the world. Cutting the link between the two broke the mechanism and created yet another systemic defect by giving the authority to “create new money” to banks, who do nothing of the sort. It’s also easy to fix: rewrite the rules of value & wealth.

    -We are at a point in the cyclic dynamic known as human civilization where it’s unyielding and singular purpose: to grow, has exceeded it’s own ability to sustain any further growth and as it as done before, fragments and leaves us with no infrastructure; we rebuild infrastructure every time this happens by a process called “peer polity”. It’s happening right now and it offers us an opportunity to re-write many social rules and mechanisms that are simply obsolete an cruel, besides, everyone knows what the deal is at this point.

    You share important and valuable information that can inspire us to manage the change instead of submitting to it. I hope these observations may be of use. Consider me at your service, Sir! Thank you for what you offer everyone!
    ctwfrank

  5. In the beginning was barter. I have something you want and you have something I want, sounds like a done deal. But what if you have what I want but I don’t have what you want? Now I must find someone to trade what your want and they have for what I have and your don’t want but they might. The two problems with barter is the inconvenience of this type of trading through third and fourth parties and the fact that at least one of us gets the short end of the stick when it comes to value.

    So what is money? A convenient unit of value that is exchangeable for goods and services of perceived value as denominated by the unit of currency or money. It’s a medium of exchange and comes in many forms. Credit is money and quite usable. Credit spends almost exactly like money. As long as your credit card, letter of credit, or other instrument is acceptable it can be spent as if it were money. The government doesn’t need to print the paper script, it just keeps track if the money/credit in electronic computers.

    Now the one thing that so many gold bugs warning the hyper inflation is coming is that they do not understand credit. One either has gold or one does not. And I do not need to possess gold to have credit or to buy beyond what amount of gold I may possess. Hence, the excess it credit given in the financial world leads to inflation the way that printing too many paper bills does. And it is credit that is really at the heart of income inequality or redistribution of wealth. Think about the ramifications of not having the prerequisites for the issuance of credit. One’s ability to form wealth through the use of credit is greatly impaired.

    But credit gives way to debt, that ugly red headed stepchild of credit. What does debt do to one’s earnings? What does debt do to one’s future? Esau refused Jacob credit, Jacob had to sell his birthright, he couldn’t borrow against it. The debt of one brother would have made a slave to the other. Economics is more than a few simple answers.

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