Money: does it really exist?
“Even though the number of dollars in the world are real and finite, the value we assign to those dollars is completely arbitrary. It changes all the time.” ~ Sean Edwards, author, speaker, political thinker.
So the answer to the question is a quick no, it doesn’t exist. Money is something we made up in order to create a standard value for controlling barter and trade. And without it, life would become very complicated.
If you’re a shoemaker and need clothing, then you might trade shoes with a shepherd for wool. However, if the shepherd doesn’t need shoes but dog whistles, then you have to find someone who makes dog whistles who is needing shoes – all before you can get the clothes you need.
So because trading one product for another would became cumbersome, we invented a tool of exchange which could easily represent an agreed value, and be used as an acceptable leverage for moving goods around.
The value of money
Money used to have a definitive value when related to a specific weight of gold or silver – but since the world retreated from the gold standard after the first world war (see http://www.fosterwealth.co.za/2016/08/) money has come to have value only in our minds, in the way we believe it to be valuable. Money is merely numbers in a bank represented tangibly by pieces of paper. These numbers represent fluctuating values dependent on market mood swings, which are in turn dependent on perception, confidence, belief and agreement. And nothing much else.
Most people think there is a certain amount of money in the world and that some people unfairly have a greater percentage of it than others. They espouse the view that if poorer persons could just wrestle some of that money from the wealthy, they would be better off. But this would not necessarily be helpful – because money is actually an infinite entity. In other words, if you spread a finite amount of money around instead of using it innovatively to create more money (as the wealthy very quickly learn to do) the whole cycle stops and the value of ‘things’ quickly diminishes.
Money and labour
Wealth is created by creating new things: a product, a service, an invention, a solution to a problem. With a little scrutiny you will find that the wealthy are invariably engaged in these kinds of endeavours. Without inventive labour, the money wouldn’t exist to create the jobs for which so many others are waiting. Salaries are in effect, no more than an advanced labour bartering system. Even though we agree on how money represents our labour, its purchasing power fluctuates according to subjective perception. We are constantly evaluating whether a product is worth the asking price. It is the reason we buy different things at different prices, and why markets fluctuate.
So the value of money only exists in our heads. It only has value because we decide that an amount of money may be worth the product or service up for purchase. And the person who is selling the product, decides whether the price is worth the labour of their product or service. When we buy or sell we are reaching an agreement about the value of money. And since the value of money is merely dependent on our agreement, it therefore cannot exist. It isn’t real.
The creation of wealth
So how do we grow money if it isn’t real? We add wealth to the world by building a house, or designing a car, or creating a way to add speed and convenience to our busy lives. We create wealth by creating. We generate wealth by making something out of nothing. We produce wealth by taking an idea and making it a reality. This is real wealth. And money represents this wealth. But only with our concession. The moment we decide it doesn’t represent our labour, then it becomes worthless.
Most welfare programmes, minimum wage laws, and various other assistance programmes are based on the zero-sum paradigm, ie: that money is real and finite and begins from nothing and reaches vast sums that somehow create poverty, and it should therefore be shifted around to create equality. But if money is something that we can infinitely make then shifting it around is not going to help. When we do this we are not creating more wealth to encompass more people, we are just spreading it thinner on the ground.
There is no clearer example of the fiction of money. QE was a policy instituted to ease the burden of the sub-prime mortgage financial crash of 2008. It was a way to refinance essentially bankrupt banks – a mechanism whereby the US Federal Reserve bought up government bonds held by the banks, in vast quantities, thus raising the ‘value’ of the bonds and lowering interest rates.
However, borrowers were few and the banks had to keep lowering the interest rates until they were almost giving money away. Since interest rates are the price of money, money became cheap – flooding markets with fictitious paper. Interest rates rising would create more value for the system – but would also slow already moribund growth rates. QE, by emphasizing the fiction of money, has probably done no more than create the financial crisis of the future.
We definitely exist
At Foster Wealth we are fully aware of the delicate balance between belief and value. We understand the vibrancy of the stock market – engaging in the emotional ride with confidence, good judgment and vision. Creating wealth is a serious business and not in any way reliant on fantasy or guesswork – but rather the steady study of the markets, their economic underpinnings, and the mood of participants. If you value money, you must value the people you entrust to grow it. Real people who understand that money – fiction or not – is our most important every day reality.
Find us at: www.fosterwealth.co.za