What is money? What is it to you?
Many of us go through phases in our understanding of money. Some of us grow up in churches and schools where money is demonized. Others grow up in shops and entrepreneurial families, where money skills are taught and become second nature.
Money is like water in a fertile field. Too much and everything drowns, too little and nothing grows, just enough and you get the optimum growth.
The topic of money is fascinating and it is very challenging writing just a short article about it. I would encourage you to read as much as you can - without getting discouraged! There are more technical terms about money, that most people would care to understand, and I think it's very important that we explain it simply.
Enough with the abstract concepts!
"Supply and demand?" You won't believe how abstract even this is to most people. These words can not make you understand, unless you understood it first. (Isn't that a catch-22. Isn't it a small miracle, if you think about it, that we can learn anything!? But fear not... with some parables, your brain will figure it out on its own. Read something again in a week, or in a month, and you might be surprised by much your understanding of it had changed - how many connections your brain grew, all on its own. Your mind is a pattern seeker. Give it something it doesn't understand, and you will almost certainly figure it out - many times over, in surprising ways that you wouldn't have believed when you started.)
There is a money revolution underway in our world, today.
It is all underpinned by the fact that the internet has allowed us to introduce "toy money" into circulation, and a whole generation of even younger scientists and technicians can now, for the first time, play with this "toy money" to see how it works and come to understand how money became what it is today.
Websites like Coinmarketcap and Coingecko help blur the lines between "toy money" and "real money".
We can access "virtual stock exchanges", and now "real" ones like Poloniex and BTC-e and literally hundreds more, things that previously were only available to the rich and we can trade and invest in virtual assets with almost no barrier to entry other than that of being literate and having a smart phone or computer.
It's more than just knowledge, it's that the ability to gain experience at "playing with" something that was solely the domain of a few million people, that is now within the reach of billions of people through fantasy sports, computer games and virtual currencies. That is exciting.
The older generations: scarcity
Most of us learn about money from our parents and grandparents - most of whom grew up in times of poverty and scarcity. To most of them, and even today, to most of the world, money is a very scarce resource - something you preserve and don't spend or use unless absolutely necessary.
It is easy to see profit seeking, interest or rent as being downright wrong if you look at money coming from teachings of compassion and generosity. If you have a scarce resource that can help someone, isn't it bad to try to get more of it, and to withhold it if someone is in dire need?
The origins of- and shift in how religions have viewed money is enough for several fascinating articles on its own.
You only have to walk into a supermarket to realize that we now live in an age of abundance.
What really got me: Property ownership
Coming from the above upbringing, I almost had a heart attack when I learned how much money an estate agent can make just on commissions on selling a house! How is it fair that I have to work for years to make as much money as an estate agent can make in one single transaction?!
Clearly something was wrong. Either I didn't understand money at all, or estate agents were evil! Right? I did not know much about buying, selling and the expenses of running a legitimate business back then; but I think it's fair to say that you can "make more money" out of someone who doesn't understand money, than from someone who does.
(I do think it's fair to say that people who know less than others get taken advantage of every day - and this is not limited to property transactions - it doesn't benefit anyone in the long term, however - neither a poor education, or ripping someone off. If you deprive someone of the means they need to make a decent living, that person could become a burden on society and you will ultimately pay more tax, or lose a lot in a revolt.)
Why is free parking so rare and what can that teach us about money?
I really only started understanding economics when I got frustrated paying for unaffordable parking.. and had to justify to myself to obey the law.
Imagine a popular mall - but one that has limited parking. If the parking was free, wouldn't the staff and the first few shoppers perhaps just occupy all the parking spaces, and nobody else would be able to visit the shops?
Now, what if the parking cost too much? Only a handful of rich people would be able to visit the mall and the shops wouldn't make a lot of sales - or everyone would just disobey the rules and park there anyway.
Now, what if the parking price was just right, so that the average person could afford to park there for just enough time to do enough shopping. Would that not result in a constant flow of cars into- and out of the parking lot, and customers into- and out of the shops, and result in the optimum number of sales at the shops in the malls?
There is a limited resource: Parking space. Money is used to regulate its use.
Tax and Value Added Tax (VAT)
Similarly, a tax on something can discourage people from doing it - and so too tax exemptions can encourage people to do things.
For example: It is easy to make money if you are a banker or a lawyer. But to discourage everyone from becoming bankers and lawyers, the government imposes a lot of taxes on them. To ensure that there will always be people who produce food, governments often make the growing and supply of basic foods tax exempt.
So too, is Value Added Tax a tax on "soft jobs" and middlemen - so as to encourage people to build companies and manufacture things. If you buy things for your company's use, you effectively get it at a discount. The fear is that, without these taxes and incentives, it would become too easy for everyone to do just the easy, profitable things, and nobody would do the really necessary things.
Things get really interesting if you go into the history of market economics and how the world has moved from protecting the production of goods to protecting consumer rights and the consumption side of things - the thinking is that this will allow the needs of people to drive what is produced, rather than what the producers think people need - and money can act like a kind of central nervous system feedback-loop to measure what works and what doesn't. (But it's not that straightforward!)
Goal-oriented Earning, Saving & Investing
While these are just small bits of the story, I think a a good understanding of money is very important for a healthy society. So many of us are constrained by money our entire lives that we develop a warped sense of what money is.
We develop a tunnel vision to just make more and more money, without knowing exactly what we would like to spend it on - or we develop fantasies about what we would spend it on - because we think that we'll never be able to save that much, or because we think that it will be a good place to be in life.
For some, only when those prospects become real, do they realize that their fantasies were a hell they wanted to avoid, instead. You only have to read a few sob stories about how lottery winners lost everything, and retired to poverty, much less happy, to realize this.
You might have seen this video:
The morale of the story is, that - most people only need enough money. Too little, and money becomes a problem; too much, and money becomes a problem.
History? Politics? Value?
You probably have heard about "the gold standard" or "the petro dollar"; the notion that something real and tangible with real value, has to underpin what the paper money represents. More about this in another article... just know that the understanding of money is core in political ideology and that wars are fought over this thing that people can't come to see eye to eye about.
Backed by something? Inflation?
If there are no checks and balances in place, nothing prevents all the countries and all the banks from just printing more and more money and in so doing devaluing the money that people keep under their beds. That means that your money will be worth more if you spend it on things.
Money doesn't disappear when you spend it, it goes to someone else who can do something else with it, and so on and so forth. It can be like oil in an engine that keeps the gears grinding together smoothly.
If a country prints a lot of new money, it devalues their money and makes that of neighboring countries more valuable. Governments do this so that people are incentivised to do things with their money, and it's called inflation. This means that it's cheaper for neighboring countries to buy things from your country, so it becomes more profitable for the companies in your country to export to those countries.
If there is deflation, ie. money is destroyed, then there is no incentive for people to spend money, because their money becomes worth more and more. If you keep all your money in a shoebox, under your bed, it will actually be worth more in a few months time, than it is today, if there is deflation. If everyone does this, economists fear, commerce will grind to a halt and companies will go bankrupt. People will go back to being super conservative with their money.
So how do countries keep each other in check, and make sure they don't just print more money than the others can find out about? They used a precious, limited resource to back it with: Gold. Plus constant audits.
Moreover, underpinning the value of currency with gold worked, because societies needed to reach a certain level of maturity in order to be able to mine gold - and if they could mine gold, it would mean that they could also build houses and make tools.
Similarly, oil is very important in our current economies - if we run out of oil, everything we know will grind to a halt within months if not weeks - and this has indeeed happened in a handful of countries just in this decade - you should read up about what happens when a country experiences long blackouts.
Cryptocurrencies, or virtual currency, or smart money gets very interesting. Most run on ledgers that require electricity, connectivity and computing power - curiously all things that serve a similar function that oil and roads does in the normal economy. These things are all necessary in- and can accelerate our modern economy greatly.
Money is just a means to an end. What is your end?
If you really start thinking about money and realize that it is always just a means to an end and that if you have a clear goal about the kind of life you want, and research and pretend to- or try to live that life for a short while - to see if it really is what you want, then you can either realize that it's not at all what you wanted - or you can find the means and reach for it and make it happen.
Not all of us want the worries of wondering if our company will be able to provide employment to hundreds of employees, or be in charge of a government that will be blamed if things don't go well for millions of citizens... and be able to care for them into old age. Not all of us want yachts and islands and the headaches of dealing with the staff we'll need to keep everything the way we want.
"Can't buy me love"
Not all of us are happy with our station in life.
I think if we understood money better, then we could be- and the first steps toward that is to start thinking, reading and talking about it more.
Also, to not feel bad, judgmental or envious when you read these little numbers at the bottom of each post and comment on this platform. Sounds easy right? Try it! No envy. No judgement.
Yes, it means that "this person got some toy money"; it also means that this person will be the one deciding how, what- and who to pay that toy money forward to, and what to grow with it - all money makes something grow - let it not be your ego, but rather the inclusivity of your community!
I tried to guess what the numbers at the end of this post will be...I guess wrong! 400$ is not enough for such a great entry. No envy from me, friend. Looking forward to your future posts.
I think it's still a dream to think that people will see money from an altruistic point of view..it's still a dog eats dog out there, if for no other reason that the biggest dogs seem to act like this and everyone copies them...I dream too of a day where money is a given and work is the true reward.
Good post!
It is quite simple really:
Money is trust
Nothing more nothing less.
Yes, agreed ... it is trust.
And that trust is grossly abused by those that privately control and issue as debt + interest the money we need in order to survive and thrive. We need to release ourselves from this bondage in order to find freedom.
Completely agree. That is the most concise summary!
I don't think people realize how complicated trust can be, though!
Thinking about this ... I'd like to add ...
As things stand in our society/economy money depends on trust ... but really it is energy, or at least a symbol of it. We generate it with our energy and agree to recognise and value that energy in the money-symbol.
Where the symbol is privately-owned and lent as debt+interest it is a theft of energy and an abuse of trust.
Steem is not debt - we create it directly with our energy, no middle-man, and interestingly, no trust required. Just the blockchain.
Awesome. Game-changing.
Anyway, great post which has generated an interesting conversation.
Most of the money in our economy is created by banks, in the form of bank deposits – the numbers that appear in your account. Banks create new money whenever they make loans.
If people would understand how the money system works, they would not use it. Because in our society money ins't real. Money is just 1 and 0. It's just a number you see on a screen. Most of the money is digital, only a small amount are coins.
The problem with that is, that you need to make very real money decision but money becomes more and more abstract but has real consequences. Especially the younger generation need to learn to handle money.
Yes yes yes 100% this.
Nice article...more people should learn about money especially bitcoins . if more people used Bitcoins or Ripple XRP then the world would be a better place
Nobody understands money because nobody understands the nature of this reality.
This reality is a hologram, a simulation, a "virtual reality". It is a programmed reality based on information. One such piece of information is the nature of "currency". It's like when programming a game, where you must create the in-game currency.
Gold and Silver were the hardcoded "constants" of what money is in this reality domain by the "reality programmers".
Then came along the Elite who wanted to hoard the real money, which was too valuable to be left to the common people as currency, and replaced Gold and Silver with fiat currency.
And then came Satoshi. Satoshi was the man who emulated the reality-programmers by programming a new form of money within this reality domain.
We could say that up until the fiat system (including the fiat system), the hardcoded constants were honored. The Elite were honoring them, indirectly, because their motivation for using fiat was to keep their purchasing power to acquire Gold & Silver. If money was Gold, then they would need Gold to buy Gold - and that doesn't lead to more accumulation. So they needed the fiat scam (using paper to buy more Gold).
The programmed money of Satoshi was a radical departure from both the hardcoded money constants and their fake supplicants (fiat). Predictably it will face all sort of opposition as it moves forward. One does not simply "revolt" against the programmed rules of the "game".
Long before people used silver and gold, they used sea shells or other found objects. In fact, when gold was first used by a king who needed an easy way to pay his army, he had to personally guarantee that a certain amount of gold would be worth a certain amount of livestock.
Money, in all it's forms, is nothing more than an agreed upon means of storing and transferring value.
It's actually somewhat amazing to me that Cryptocurrency backers and users still think money needs to be backed by gold. Steem isn't backed by gold, so why do you think the USD needs to be?
These objects were always used in the context of a small society and had no universal standing among humans due to geographical and other differences. A mountain tribe for example would use furs or something similar instead of seashells.
Money, in the context I'm describing it, exists as pre-programmed "information" in our "virtual reality program". If you see a cat that is 2 months old, it tries to dig the ground before it poos. This is preprogrammed information. Nobody taught the kitten to do that, not its mother, not the TV, not a book. Likewise humans were hardcoded for using gold by the "programmers" of this reality.
As for cryptocurrency getting backed by gold, I'm not supporting that idea. Crypto is typically supported by energy, just as precious metal extraction. POS is kind of different and hence has some flaws.
The USD needs or doesn't need to be backed, depending on your "caste". If you are the Elite, it doesn't need to be. That's how you make the poor people poorer by debasing the money and using paper to buy all tangible assets and actual money (gold and silver). If you are among the non-Elite, it is in your interest for money to be backed by gold because that's what preserves your wealth and disallows the Elite to print money out of thin air.
Plus, the debt-based system ensures that society will go bankrupt in the long run. You issue 1 trillion and you want it back with an interest, say 1trillion plus 10 billion (1%). The 10 billion extra obviously don't exist. So you'll need to borrow again, and again and again, because the monetary supply is always less than the debt accrued for its issuance and thus prevents its repayment with money. So what will you repay with? Your assets. Fiat money is thus an asset of wealth confiscation due to its issuance as debt. And that's aside from the problem of inflation and printing money out of thin air.
" Likewise humans were hardcoded for using gold by the "programmers" of this reality."
Except no, we weren't. That's why gold originally had to be backed by livestock.
"As for cryptocurrency getting backed by gold, I'm not supporting that idea. Crypto is typically supported by energy"
Exactly, no one needs it to be backed by gold. There's no programming saying we need gold.
I never said crypto to be backed by gold. It's a new class of money where humans have created a new program within the program and that this will predictably face opposition.
Now, regarding gold backing in fiat, as the topic says, people don't understand money. If they did, they wouldn't accept scam paper money or be ...critical of gold. If they understood the system they would also understand that the fiat system is unsustainable since it creates an ever expanding debt-bubble because fiat money equals debt and further debt creation, which is not sustainable in the long run.
An unsustainable monetary system obviously can't endure competition and that's why gold purchases were banned in the 70s and the gold markets have been suppressed since the 80s. Still people who had gold post-bretton woods went 30x in net worth compared to people with fiat. This wasn't by accident. One was bullshit money, the other was sound money. How could bullshit money ever compete with sound money?
"Because gold is honest money it is disliked by dishonest men." - Ron Paul.
Tx for the post dagelf. Money is a fascinating topic to discuss. In short money is the concrete representation of the abstract concept of value and value gets created by work. A fish in the sea does not have a value, but the work to catch the fish does and for that reason, the fisherman can charge a price for the fish. You buy it and eat it. The value has been destroyed, but not the fish. Therefore, money not only represents value but the tempo of value creation. If the pace of value creation goes down, there are too much money in the system, and you get inflation (need to destroy money). If the tempo of value creation is increasing, you get deflation (need to print more money). In theory, they should be in balance.
" A fish in the sea does not have a value"
LOL. Tell that to the fish! ;)
Wow that was quite a post. I need a nap now. Just kidding. I've had money before and I've been so broke I couldn't afford a jar of peanut butter. I've never been really good at holding onto it because it feels so good to spend it. Keep Steemin on my friend...
very ionteresting post, thank you for share but about inflation....wel in XVI century in spain arrived a lot of gold from America and the prices skyrocketed, and they paid with gold, Inflation usually is an unbalance between supply and demand
I really enjoyed your post!
When I was in elementary school I really enjoyed forming cartels with some of my classmates and we sold stickers for sticker albums. Money in my childhood was an easy come easy go concept.
Later on we learned about it in a philosophy class and I was totally lost on what money really is.
It took me almost 3 decades to figure out that the true value of money is defined by the exchange we use it for.
But vica versa. The amount I earn is defined by the value I provide for others.
This is what really changed my life .
awesome post @dagelf i enjoyed too much! 8]
Hey @dagelf,
Interesting and useful post, thank you.
In the interest of understanding money, I think it would be useful to add the every enlightening fact that most money (97%) is created as debt by private banks when loans are taken out.
They just tap their keyboard and the 'money' appears and then they 'loan' it to us and/or our governments plus interest (yeeowch!)... hard to get your head around this when first one hears it ... but its true.
This subject is so critical to our future freedom and security as it gives banks huge and undemocratic power over our society.
More info on that here ... Positive Money (I'm not affiliated with this UK campaign group btw)
This for me is one of the things that makes the whole crypto-currency thing so appealing ... central profit-based control is reduced/eliminated.
Love and Peace.
Last night I could still edit it - so I thought I would be able to improve it this morning, but I see it won't let me edit it any more. So you learn!
For such a complex subject I think having more frequent shorter articles will work better, this one was way too long and I feel a bit ashamed for posting it without more editing (which I have done since! Not sure what to do with that, now... :-D)
#Steemit has attracted a really great community! It's really refreshing and encouraging to find a community where people actually read and contribute to the conversation.
Not quite... banks store money, typically your money. When they make a loan they are lending out your money, along with thousands of other customers' money.
They can loan out more than they currently have, but it needs to be balanced against the amount they expect to receive in payments on said loans. Which is money coming from other people working and paying their mortgage.
Nowhere is money magically created, except maybe when the government prints it.
you really need to look into fractional reserve banking...
they are literally making money out of thin air.
It works like this:
You put $100 in your bank account
Bank is required to keep a 10% reserve- $10
Bank loans out $90 to me, and I deposit it in my account
Bank now loans out an additional $81 (the $90 I deposited - a 10% reserve) to Bob, Bob puts that $81 in his account
Bank now loans out an additional $72.90, which someone else puts in their account
Then $65.61, Then $59.05, etc
This allows them to create debt in the amount of nearly $1000 ($999.96) off your $100 deposit, which they are owed with interest.
If you request your $100 back, they have still made $899.96 + whatever interest they decide to charge off it (up to say, 25% on a credit card)
Since the 'reserve amount' can be covered wholly by their accounts receivable, they never really need to hold actual cash anywhere unless it's requested. This is why you can't necessarily ask for your entire balance, or why there's limits on withdrawals per day. It has ZERO to do with security and everything to do with protecting the banks from everyone deciding to take their money back at once and the bank not being able to meet their reserve requirements.
Who would take out a loan and then deposit the money?
Even in that highly implausible scenario nothing is being "created." They are making the money through their accounts receivable... Which is exactly what I had said.
when you get a loan from a bank, they immediately deposit it into your account AND loan out that massive amount they're allowed to now due to fractional reserve holdings.
By the time you can take out that $100 loan from your account, the bank has already duplicated the money so to speak. That's why there's a 'processing time' on loans- so they can make more money off the new capital assets they've created.
How is turning $100 into nearly $1000 through doing literally nothing not creating money?
also I hope by 'highly implausible scenario' you mean 'how it actually works'
It gets a whole lot more complicated (and more money from nothing) when you consider that the person receiving the money gets involved.
we may not have the same bank, but all banks work on the same principle, and the money loaned out by bank A to person A will eventually make its way into another bank, who will loan out the money again.
so, if I take a $100 and put it in my account, not only will the bank loan $90 to one of it's own customers, the $90 (which the bank will immediately loan $81 out against and whatnot) loan that was created will get put into another persons account, so the $90 deposit will get another $81 loaned out against it. This makes two loans for every actual loan made, increasing that amount to about $2000 off a single $100 deposit.
they are making this currency out of thin air- it did not exist in the first place for them to actually loan out, it's paid out of the banks reserves if someone decides to turn it into cash. This is an incredibly rare scenario though- the money borrowed is always for something, so will make it's way back into the system without ever actually having existed. As the made up loans get paid back, the bank continues to loan out more and more money as the new AR payments allow them to do so based on the fractional reserve system, at a rate of about 20:1, despite them "having to have a 10% reserve fund."
lets assume this is a series of low interest business loans at 8% yearly for 1 year
that $100 deposit generates for the bank in the first year (assuming NO repayment vs the loans);
$1900 in fractional reserve principle amounts
$152 in loan interest
If the any of amount of the loans are repaid, they generate even more money at a huge rate that's literally created from no where. They are not loaning out money that exists, it only exists once someone removes it from the bank and requests cash.
This is a great explanation of something I'd heard, and hadn't found the most effective way to reiterate. I believe that's the same structure that's used with mortgage loans - or that in some way a bank is creating debt in an account without having actually paid forward that value elsewhere.
Even more interesting is how it came about!
People used to trade in gold and bigger assets. Gold became too cumbersome so people made banks to keep the gold and trade paper IOU's. Banks realized that people just use the paper, and never come back for the gold, and that they could get away with issuing more paper IOU's than they could fill from their gold supplies. And what you have there is a slippery slope, just look where we are today!
A bank run isn't even about getting back your gold any more, it's about getting back your paper!
Well, actually, no ... :)
They do lend out deposited money but really waaay the majority of the money is created out of thin air, as debt + interest.
As jfeenstra has explained so well, fractional reserve banking is the trick that lets them do this. And they don't even follow the rules for this like they should.
And government don't generally really print it .. they create it by borrowing it in the same way as we do as individuals ... as debt+interest.
The way money is created in this way (as debt + interest, by private profit-driven banks) is a fundamental source of imbalance and injustice in our world.
We are obliged to chase this debt-money in order to survive in our society as things stand. We spend significant amounts of our time doing things in order to get it.
Imagine what would happen if we had no access to money - it is not an exaggeration to say that we would die cold and hungry - as indeed do people who do not have any, or access to someone who does.
Our society-level agreement to recognise money as a holder of value, and a proof-of-work, is what makes it function. We agree that it represents our energy, thus the creation of privately-controlled debt-money in this way is a gross theft of our energy and enslaves us.
It doesn't have to be like this and our salvation is much supported by the emergence of crypto-currency and the likes of Steem and BitCoin. We agree that Steem has value, we create it with our work, with our energy. There is no debt involved. It is equitable and fair. It is beautiful.
If anyone wants more complete and authoritative analysis of this important issue, I offer again the link to Positive Money. These guys really know their subject, and are making waves here in the UK with the understanding of this profoundly important subject.
Love and Peace.
Money is a medium of exchange. People believe that currency holds value and so it does. There is no difference between a Bitcoin that is mined and a US dollar printed. The only difference is we know how many Bitcoins will ever exist, where as the US dollar can be inflated unlimited amounts. So is it really fake money? Or is it real money if people believe it holds value?
One of the missing lessons in all the schools is precisely this one: the understanding of money and how it works. If we learn this since our first years then, absolutely, we would end being better financially. At the personal level, but also at family and society levels.
I agree this topic is incediably important and not enough of us understand money as we should. Thanks for the article you got my vote and youre my first follow, keep it up!
Great well written and thought out post covering a great subject. Keep up the good work! Cheers.
#Money used to be something that I persue alot in life until I have my own family. My objective in life changes a lot and my perspective about money is different too. Money to me is just a tool that help me achieve the objective in my life and should not the ultimate goal in my business nor career planning.
If you aim for only money in life, you will soon realize that you lose more than you gain. And the irony is that money seems to deviate further away from you the more you chase after them.
This is just my view so not sure if you guys agree with me?
👍great post @dagelf
The topic of money should be required in public education. Too much emphasis is placed on working for money instead of having money work for you. I suppose the government would rather you be a good little tax paying worker. I do agree that Cryptocurrency is a great way to learn about money.
Anyone who has the nerve can run for office and become part of the government... I don't think "the government" has any mind of its own... it's more a case of "decision by committee", trying to be "too politically correct"... ie. if people can't agree on something, just ignore it. "Ignorance is bliss". It takes one hell of a personality to get anything changed, even in a private company. Government is 10 times harder.
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