Bentzen’s Blog

The Nature of Money
by Brian Bentzen

Money is both an abstract concept and a physical representation.  We exchange, earn, spend, save, invest, measure, or steal money almost every day.  Money is a means to achieve goals and sometimes an end in itself.  This previously taboo topic has become much more commonplace in recent months.

Defining Money

We live in a specialist economy.  In order to get your food at the local grocery store, you rely on any number of specialists.  The food is grown by a farmer, but he receives his seeds from a retailer, plants them with a tractor built by a factory worker and designed by an engineer. The tractor is powered with gasoline which came from a gas station, and before that a refinery and an oil field.  Once the food is grown, it is delivered by rail or road, processed, labelled, stocked, sold at the checkout, bagged, and finally delivered to your door.  At every step the goal is to efficiently provide either a service measured in time, or a product.  Money serves as the medium of exchange in all of these transactions.  It is the means of payment.  Otherwise, the farmer would have to barter for seeds, and trade food for a tractor.  This would be inconvenient, to say the least.

Money is a store of value.  The farmer buys his seeds at the appropriate time.  He sells his crops after the harvest.  His farm is only productive during part of the year.  The rest of the year, he can hold onto his money without unreasonable fear of it losing value.  Over the winter, he expends what is necessary and repeats the process.  In order to be a store of value, the money must still be useful when retrieved for use.  The current fiat-currency system, or government backed paper currency system, can be argued not to be a store of value.  Land, some commodities and precious metals can also store value but lack the liquidity of cash.

Money is a measure of value.  You can add, subtract, multiply and divide money.  The value of money can be measured in agreed upon units of account such as dollars and cents.  This allows for accurate accounting methods when the value of money is stable.  This also allows for the measurement of accumulated wealth.

Production and Consumption and Creation of Wealth

Whether you work in a service industry or manufacturing, you are a producer.  If you provide a service, you probably receive an agreed upon hourly or yearly rate.  You exchange money for your time and effort.  If you own the business, however, you no longer receive a rate.  You organize a system that produces more than you can produce on your own and make a profit on the exchange.  As a result your potential earnings increase exponentially.

Everyone is a consumer of resources.  Choice of consumption is up to the individual.  You decide, for the most part, how to spend your money and how much you want to spend.  If you want to save, you place your cash in the bank and earn moderate interest which helps you to maintain your money’s stored value.  If you place your cash under the mattress, you risk theft and are almost guaranteed loss of value over time due to inflation.  You create a small amount of wealth with this moderate saving.

It takes money to make money.  In order to become wealthy you must produce more than you consume.  The key to wealth creation is accumulating exponential profit from business endeavors over time.  Whether you own and operate a business, buy a part of a business in the form of shares, or lend your money in the form of bonds, the choice is up to you.  All have their risks.  If you are risk averse, you can consider investing in land for lease, livestock or precious metals.  Discuss buying bonds or stocks with an independent financial advisor and talk to your HR department about tax deferred retirement accounts.

The Root of All Evil

What you do with your wealth is up to you.  Retire early.  Travel the world.  Learn a language.  Take five years off and change careers.  You’ve earned it.  Now protect it.  There are people who want to get their hands on your cash.  Some of them carry guns, some carry pens, and the most dangerous carry both.  Money is not the root of all evil.  Evil is the desire for unearned wealth and the subjection of victims from whom it is taken.  Evil is the desire to take that which does not belong to you by force or deception.  Only a criminal can take your wealth without your consent.  Be careful.