We buy stuff with money. We can and do keep score, keep account of our belongings, and our status relative to other people, in the common expressions of money – how much we're worth. And the conventional view holds that money, whether in the form of a coin, a note, a commodity, or a promise – that is a credit – is a thing of real and enduring value.
Most of us are realists; realists in that, we usually are only definitely persuaded if we can see it, touch it, taste it, smell it, and or hear it. We're tactile and tangible. We view money as something tangible. But in fact, most money these days is digital. I don't mean cryptocurrencies here, I mean U.S. dollars, or euros, or yen. Most holdings of money are in digits in cyberspace – nothing to touch, taste, sniff or hear.
Yet we put our trust in these digits and we want more; we want more money. Is money what we really trust? Is money what we are really after?
Money evolved from a system of barter – when people traded products or services person to person. Money streamlined and improved the trading process, saving people time, energy, and effort. But that isn't the whole story.
Let's say you were going fishing. I don't know if you fish or not but play along with me. You are departing early to go fish and you need some bread to eat to hold you over for the day. I just happen to have bread. You don't have any money but you tell me you'll bring me a fish later in return for a loaf of bread now. I'll agree to that – I trust you. I've just extended you credit. You picked up a loaf of bread; and got into debt. We have just introduced time into our system of trade through the function of credits and debits.
That next critical advance of money was incorporating time and evolving into a system of accounting for the transfer of credits and debits. These days, most of what we consider money – even by our formal definition, is leveraged and contained or committed in our system of credits and debits.
Most of what we're using these days to buy stuff – the home we live in, the car we drive, perhaps the food we eat – is typical, at least for a short period of time a function of debt. We take bread now and pay with fish later.
Money can be but usually is not a real thing at all. Money is the key tool in a social system; a sophisticated social technology we use to order our world.
Whoa, whoa; you might be thinking to yourself, okay, but so what?
What is the basis for money?
Money is a medium of exchange, a unit of account, and a store of value. It's a sophisticated social system conferring value, established and maintained strictly and only on the basis of trust. Our money is a system, made up by people to serve people.
Behind money – that thing everyone wants more of – is trust. Money only works if people trust people.
But what is it we are trusting each other about?
Before I lose you, thinking we're getting too esoteric, let's peel a couple more layers back. I promise you the revelation we get to is going to be worth the churning of your brain cells.
Our money system is built on trust. Therefore the most fundamental and significant aspect of money and markets is people; people trusting people.
Everything happens in life, I'm talking about our human lives because we want.
We are motivated to move; to explore and experience, learn and grow, create and contribute – by our wants, our desires. And what is it we ultimately desire?
A shiny red Lamborghini? A ten thousand square foot mansion? A family, friends – a dog?
People want all kinds of things, but in the end, what people want, what they seek, what they, we, you and I, do any and everything for, is a feeling. We want to feel full, we want to feel warm and safe; we want to feel love and belonging; we want status and prestige. We want to be fulfilled. Everything we want, tangible and intangible; is for the purpose of feeling something. We want to feel. Human beings always and only are after feelings – we want to feel. And we always want to feel better. We just quite often, particularly in our material-oriented society think the way to feel better is by getting stuff.
Stay with me now.
How much is something worth?
Any thing is only as valuable as what a person will do, give up, trade, or pay for it. People determine what things, everything is worth. Human desires – desires to feel – determine the value of all things. Keep this idea of "feeling" in the back of your mind.
Four things make up an economy.
First physical resources – land, water, minerals, oil, plants, animals – all that stuff. Second labor – human beings doing stuff. You and I getting what we want and need depend on people doing stuff. There is no such thing as going it alone. It's impossible. For us to get virtually anything we want – I guess except for maybe peace and quiet – requires that other people make things or do things. So our second component of an economy is labor.
The third component is ideas – information, insight, imagination, creativity – ideas improve how we do things.
This brings us to our fourth component of an economy: the rules of the game – ownership rules; social agreements – the system we agree to play by.
The four components of an economy are physical resources, labor, ideas, and rules.
This is not meant to be a trick question, and I'm not trying to get you to do mental gymnastics, but when you consider these four components of an economy – what's the common denominator?
Maybe the common denominator isn't the right characterization. So let me phrase it this way: what is the one critical thing without which we would not have an economy?
People; people doing stuff.
So let's bring this all together now.
People are moved to do things because they want; we want to feel. The foundation of our economy, any economy, is people doing things; ultimately doing things for each other. Our monetary system facilitating our economic exchange is built on trust. People trusting other people to do things.
Money is the currency of trust. People and trust. Our entire economy, our monetary system; us getting what we want and need, all rest on a foundation of people and trust; in a word: relationships.
Our economic life, our monetary life – our lives – depend on relationships. Our system relies upon people doing things for one another because they trust one another.
Money only has value because we say it does. That value is people – people doing things for each other. What does this imply; about money and about making money?
We'll pick up these themes in session four.