Money
Money–the getting, saving, and spending of it–creates a lot of angst at the personal, family and public policy level. Aside from sex, it probably gets more mind share than most anything we think about. Beyond a certain age, money angst overtakes sex/romance as a percentage of mind share. For all of that attention, very little mind share is focused on the nature of money and its functions.
Our early ancestors didn’t have currency. The earliest trades were probably barter. I’ll give you two stone axes for one saber-tooth tiger skin. Somewhere along the line, informal currencies evolved. Such things still exist today. When, as a ill-behaved young naval officer, I first went to Bangkok in 1964, I rented a taxi for a day for a pack of menthol cigarettes. A year later, upon my return, an influx of American servicemen had ruined the value of menthol cigarettes by oversupplying the market.
Money evolved as a medium of exchange, because it was more efficient than barter. The earliest known universal money was coinage. You could sell your axes for coins and then shop the market for something other than a tiger skin. This function has served us well for thousands of years. It has evolved into electronic transactions with credit cards, wire transfer, and (my favorite) Venmo. We are approaching an era of almost friction-less exchange.
The other basic function of money is to serve as a storehouse of value. What happens when you are unable to fashion any more axes? If you get fired or are disabled or get too old to work, a storehouse of money allows you to continue to buy the stuff you need to feed, clothe and shelter yourself. This is the money function that should worry you.
The original currencies were metal–shiny metal. It was perceived to be valuable because it was scarce. Until the presidency of Richard Nixon, much of the paper currency in circulation was redeemable for a specified amount of gold. Today, we have fiat currency. The governments of the world print money (or create it electronically) and say it is backed by their full faith and credit. That promise merits careful scrutiny.
There are other creators of value storage–bonds, stocks, futures. But the example I like is frequent flyer miles. This is a currency created as a rewards program. If you flew a mile on Airline X, you got a reward mile, which could be used to pay for a future flight on Airline X. Like numerous other issuers of fiat currency, the airlines devalued their promise. If all the frequent flyer miles that have been issued were to be redeemed, the airlines would all be broke. So, they rig the process. More miles are now required to get a seat or an upgrade, a lot more miles. If you want to take the redeye to Cedar Rapids in the dead of winter, your chances of a free seat are good. Try going somewhere you want to go when you want to go there–good luck. Every creator of fiat currency is tempted to devalue. During my lifetime, the dollar has been devalued by 90%. In my young years, gas cost 25 cents a gallon (20 cents during price wars, plus a set of glasses). A luxury car was $3,000. Tuition, room and board for a year at the private college I attended was $2,000.
The dollar is the world’s reserve currency. It is held by central banks as reserve, along with gold. Some small countries that trashed their currency have dollarized. Meaning that our currency’s reputation gives us a huge free ride. We use dollars to buy goods and services and they never come back asking for anything in return. That privilege is fragile and we ignore it at our peril.
I believe that every person should have a philosophy of money. My old man used to say–“either get rich or get used to being poor”. You should decide how much money you want and what you are willing to do to get it and keep it. I know people who earn very little; live frugal lives; and are very happy with that outcome. I know people who work every angle to avoid spending the money they have–grinding out every sale, rewards program, insurance recovery and rebate they can find. I personally feel that generating one good earning idea is more fun and rewarding than juggling credit card cash back programs, but that’s just a matter of taste. I know people who spend most waking hours chasing a buck to the detriment of the other aspects of their lives. I know people who spend every dime they make–enjoy today; the future will take care of itself. I also know people who regularly spend more than they earn. To me, that is debt slavery. They are indentured to some bank.
My personal view of money is that it can provide freedom. I have a problem with authority. If I have enough money, I can work exclusively with people I like on deals that interest me. I worked at some truly unpleasant jobs in order to make money, and I am proud of the fact that I was able to wade upstream in those creeks. In fairness, I also worked at some fascinating and rewarding jobs, where it was a pleasure to show up in the morning. In some cases, it was the bad jobs that prepared me for the good ones.
If you choose, money can also be a source of power. Some people with large fortunes contribute to politicians and/or do philanthropy. The effort may be self serving or a simple desire to make the world a better place (usually some mix), but the course of events is often altered by those efforts. When I encounter someone who bemoans the detrimental effect of big money in politics, I like to remind them that an icon of the Left, Eugene McCarthy, who drove LBJ from office with his upstart campaign, was able to enter the fray and stay on the field due to one guy–Stewart Mott (a GM heir).
The next time you hit the ATM or write a check, think about currency’s function. And remember that its foundation is credibility. Better to preserve credibility than end up on the redeye to Cedar Rapids.
