A few days ago I mentioned that money in and of itself is of no value.
Consider physical money. Some cultures used beads, others used shells. The Romans used pounds of Salt (origin of the word salary). In short, money can be anything we collectively agree to use. The western world has agreed upon paper (now plastic) slips and metal coins.
Let’s contrast money against Maslov’s Heirarchy of needs.
- Paper money can’t provide you shelter. It isn’t big enough to cover you, and it would take a lot of other materials to stitch it together to form a blanket, rug or wall.
- You can’t eat money (for nutrition; yes you can chew paper…).
- It doesn’t provide you safety. And if you try trading it for safety, chances are the person you are trading with will try to extract all they can through threats of violence, so making you less safe…
- Money causes issues with Friends and Family. It changes the relationship. For friends, if you are using money to buy friendship, the friendship disappears as soon as the money does. For Family, unless you gift it, it can lead to stress and resentment when you seek to reclaim your money.
- If your self esteem is dependent upon the money you have, what happens if your money disappears? (Spending/inflation/theft/etc)
- An the last level in the hierarchy is self actualization. You can’t purchase creativity, morality or problem solving abilities.
Now, the world is in the midst of a transformation to virtual money (think credit cards, debit cards, e-transfers, crypto-currencies). You don’t even have the opportunity to sleep on a bed of money.
So why do we have money?
It is a medium of exchange. It replaces barter. If you and someone else have something the other wants, than a trade is possible. But what if you don’t? what if you need to broker a 3 party trade? Or worse, a trade of future goods (e.g. crop of wheat for shoes made from leather from a cow that hasn’t been born yet?). So we accept Money as the representation of our efforts in the past to be traded in the future.
But there is a risk here; the purchasing power for a unit of money (i.e. how much a dollar can buy) decreases over time due to inflation (size of money supply versus goods and services available to purchase).
How do we protect against this risk? Convert the money into Wealth (an asset). This would be an item that holds intrinsic value. It could be a physical item, or it could be rare skills (i.e. learn something not everyone knows/can do). This would put you into the later 3 stages of Money I wrote about a few days ago.
To learn more, give me a shout!
