What is Money?

by Roy Wiersma

Money is ubiquitous in our modern world.  It permeates most everything we do and has a large impact on most of our choices.  The purpose of this article is to challenge your perspectives regarding money and the meaning behind financial transactions.  

Definitions

In an economic sense money is a medium of exchange, a universal placeholder for a good or service.  This definition comes with the implicit understanding that money is the universal resource that can be turned into anything else.  Most people have a view of money that is resource centric and in consequence money itself has inherent value.  Subtly, but importantly, this belief also comes with another sneaky belief that there is a finite amount of money.  While this perspective is correct in a definitional sense, it overlooks a few crucial aspects of money.  

One of those is the transactional nature of money.  Money is meant to facilitate transactions thus its reuse is limited only by the number of transactions that occur within an economy.  The number of times a single dollar is reused is called the velocity of money.  This brings us to our first perspective shift.  

Money that passes through you is a measure of the value you have added to the world/economy.  This idea is a critical addition to our original understanding.  It serves to remove the finite nature of money and centers around value creation as the source of money.  If you do something the world values, then the money you receive will reflect that.  The world essentially votes with its money on the goods and services that are the most valuable.  This can also be individualized.  When you spend your money you are casting a vote claiming that you feel something is of particular value.

This connects to the next idea that money is a tool.  When you spend money to accomplish something you are leveraging it as a tool.  For example, paying a lawn mowing service as opposed to mowing your lawn essentially turns that money spent into a lawn mower.  The money tool can be used to improve or harm other areas of your life like your health, your relationships, your goals, etc.  You need to manage this tool carefully just like any other tool.  Money is a unique tool in that it provides social reach, allowing you to impact the world.  Money is an amplifier of your character and your choices in the world, good or bad.  As such, you should guard your character and your choices when it comes to money.  

Finally, along similar lines money is a way to store up labor you have done or time you have spent.  For every person, money translates to a certain number of hours invested to earn that money.  This conversion of money to hours is massively different for different people.  A construction worker may earn $25/hr, but a banking executive might earn $1000/hr.   Regardless of their position on the income spectrum, this lack of uniformity translates directly into behaviors and will subtly affect the way people perceive and handle money.  The most common difference in perception is about the abundance of money.  

Considering transactions

A transaction amounts to a judgment call involving all the perspectives discussed.  It is a decision that the time you invested and the impact that money provides is worth less than the utility of the good or service that you are getting in return.  The problem with these decisions is that there are too numerous to be a target for active management.  Trying to account for all these perspectives for every decision would be paralyzing.  

Instead, the main idea is to consider money more holistically and begin building these perspectives into your decision, like adding new words to your vocabulary.  This will help slowly reframe your perspectives when it comes to all major financial decisions and your handling of money. In the bigger picture as your understanding of money grows, you will be able to cultivate and manage it to match your values and goals.