The Meaning of Money
The same issue about economics and the free market arose about oil prices, and is discussed in this previous post.
The ideas are simple. But apparently, not very many people have thought of them lately. So here’s a very brief reminder of a very basic concept for as very many people as will read it.
Money is not real. It simply stands for something else. It is not edible, for instance; and even if it were, it would not be edible as money, but instead as whatever composes or materially represents the money. It does not buy or warm houses, invent new products, cure diseases, or entertain anyone. (Neither is it a spirit, for dualists otherwise unsatisfied by my sample list.)
But even when people acknowledge that obvious fact, they tend to think that it stands for the wrong thing. That is, they think the amount of money they have adds directly to their personal worth or their wealth. Of course, in some ways it does add to them, but only indirectly. In fact, it adds exactly the same kind of worth that an outstanding loan does to a lender. And it is that analogy which reveals what money is.
Very simply, money is an indicator of how much an economic society owes someone. Lenny builds a fence. But he’s not hungry and doesn’t want anything else at the moment either. So he receives some notes which will prove two things later, when he does want something: first that whoever is participating in the economy owes him something; and second, how much he is owed.
So what money really indicates about Lenny’s wealth is how many products or how much service he previously paid into the economy and has not yet drawn out of it in equivalent terms (goods and services.) So it is, in fact, what the economic society owes Lenny—what it ought to give him—which is indicated by those otherwise worthless notes he holds.
Ought is a strong word. It means there is a moral obligation. So next time someone’s wealth bothers an average Joe, Joe ought to remember that he has no reason to work for notes which will only indicate he can get something back out of the economy if he’s not owed too much, or if his industry happens to be popular at the moment, or if whatever he wants to draw out of the economy sits well with the people who owed him to begin with. It’s mind-boggling how short-sighted envy is.
Therefore any complaint about wealth, whether in terms of golden parachutes or “more money than anyone could ever spend,” are actually expressions of a desire to renege on everyone’s prior commitment to “pay up” what the person is owed. That relationship is one reason among several that every form of socialism is neither reasonable nor practicable. Once that reneging is done, not only is money not real, but it doesn’t mean anything anymore either.
So give the man his due, and stop complaining about what we owe him. (him being anyone)
Tags: Economics, Free Market
What a great post. I think looking at money this way really shows, not only how socialism of any kind messes things up (as you point out), but why forcing a redistribution of funds is a moral atrocity. Doing so is literally taking from those whom society already owes! As the lender-analogy above goes, it’s like borrowing from the lender and then punishing him for it by taking more.
[...] Published October 7, 2008 Uncategorized Dr. Barry Creamer recently wrote a post The Meaning of Money. I don’t have anything to contribute to his content, but would like to restate it in my own [...]
Unfortunately this is the precise problem that has bled into our monetary system. Historically, at many points in time, money had an actual intrinsic worth. In theory, one would exchange the value of his labor for something with real value, which could actually serve as a way to “store up” wealth, or labor, in order to save yourself labor in the future. So it has been extremely important in the past that the form of exchange be something which the market would naturally give value.
Of course, the most historically reliable currency has been precious metals, although a variety of valuable things have been used. Liquor has been used, as well as dried Codd, Salt, Oxen, etc.
However, with a paper currency the dynamics of exchange have degraded considerably. Becoming indebted is encouraged over saving. There is no real way to store up wealth because there is no real market value for paper. So now instead of Joe coming to the market with valuables, he comes to the market saying “See, you owe me one!” which caries considerably less weight. You can see how this has made it impossible to store up real wealth. With the simple guarantee of the government that “We’ll pay you back,” your wealth is not in something you actually have, but in something your supposed to get in the future.