Most people think money is finite. Meaning there is a limited amount of wealth in the world. This gives rise to the idea that for some to be rich others have to be poor. Basically, if a few people own 90% of the pie, then everyone else has to live off of the crumbs. Which doesn’t seem fair at all.
And they are right. That wouldn’t be fair!
Fortunately though, this isn’t how the things work.
This understanding of money is fundamentally flawed. And it keeps people poor (rather than helping them).
What most people don’t realize is that money doesn’t exist.
It isn’t real.
I will prove it to you.
And once we realize that money doesn’t exist, we can end world poverty.
1. Money Represents Our Labor
Despite what many believe, money is nothing more than an advanced barter system.
In a barter system, we trade our services with each other in a way that helps all parties. If I’m a farmer and I need wool for clothing, then I will trade my apples with a shepherd for wool. I need wool, and the shepherd needs food. Everyone is happy.
But this system gets unruly very quickly. If I need wool, but the shepherd doesn’t need apples, then I have find what he needs, go find someone who makes what he needs — and who wants apples, trade with them, and then come back to shepherd to trade for wool.
Fortunately, humans are geniuses and we figured out a better way: If everyone trades their products or services in for one one item that everyone else values, then we can all trade with each other much easier. For instance, if everyone values gold, I can trade my apples for gold, which I can then use to trade with anyone else for anything else… even if they don’t need apples.
This “trade medium” streamlines how we interact with each other. In a nutshell, money represents our labor so that we can trade our products and services for anything with anyone.
The important point is this: Dollars, gold coins, and Euros do not have value in and of themselves. They only have value because we as a society have agreed that they can represent our labor.
2. Money’s Value Is Subjective
Even though we have agreed that money can represent our labor, its purchasing power (what money can buy) is not set in stone. It fluctuates based on how we value things. In this sense, money’s value is entirely subjective.
When we shop, we are constantly deciding if something is worth the price. We are asking, “Is this product worth the labor I expended for the money?”
We face this choice all the time. And it is why we buy different things at different prices. It is why markets fluctuate. It is why gas prices go up and down. It is why new cars are more expensive than old cars.
The take away is this: The value of money only exists in our heads. It only has value because I have decided that my money is worth the product or service I am purchasing. And the person from whom I am buying has decided that the amount of money I am giving them is worth the labor of their product or service. We have decided it is a fair trade. That is the only reason money has value — our agreement.
3. Money Does Not Exist
This leads to a startling conclusion: Money cannot exist. It is not tangible. It is not concrete. Since the value of money only exists in our agreement, it can’t be real.
Even though the number of dollars in the world are real and finite, the value we assign to those dollars is completely arbitrary. It changes all the time.
And the wealth those dollars represent fluctuates and changes based on what we do or create.
Real wealth rests in our creative labor.
We add wealth to the world by building someone a house. We add wealth to the world by teaching children mathematics. We add wealth to the world by creating a faster computer that makes life easier.
We create wealth by creating. We generate wealth by making something out of nothing. We produce wealth by taking an idea and making it a reality. This is real wealth.
Not money. Money doesn’t exist. It only represents what we have created. And as soon as we decide that it can no longer represent our labor, it will be worthless.
4. Wealth Is Limitless
This means that wealth is unlimited. Wealth is only limited by the lack of creation. Meaning, if people decide not to create (i.e., labor), then wealth is capped. But there is no physical or real limit on wealth.
Money does not limit our wealth. We limit wealth by how we think about money.
5. Our Policies Keep People Poor
Returning to our pie analogy, most of our laws are based on a zero-sum paradigm. Welfare programs, minimum wage laws, and many of other assistance programs are based on this idea.
We are saying that the rich (businesses, corporations, and the wealthy) need to give up some of the pie so that the rest of us have more to live on. It isn’t fair that they have 90% of the pie when the rest of us are just trying to get by.
This whole paradigm is blind to the fact that money doesn’t exist and that wealth is unlimited! It is flawed and hamstringing our country!
When we enact policies based on this zero-sum framework, we are not creating wealth. We are taking it from some and giving it to others.
Putting aside the immorality of legalized theft, this actually keeps people poor.
This does not create more wealth. It just moves it around. And it inhibits wealth creation by reducing the capital creators have to create more wealth.
In the short term, welfare may seem like a good idea. And it may even temporarily address some very real social ills. But in the long run, it hurts everyone by inhibiting wealth creation.
If we let wealth creators make more wealth, they will generate more jobs and everyone will prosper. This is what has created the massive explosion in prosperity in the last 200 years.
What Do We Do Now?
Welfare programs are built on the zero-sum fallacy. And when a house is built on a faulty foundation, you can’t fix it. You have to tear it down and rebuild it with a strong base.
The sad part of this is that we are perpetuating the very thing we are trying to get rid of: poverty.
These policies are not increasing prosperity in the world. They are inhibiting it. The only way we can get rid of poverty is to create more wealth (and to teach the poor to do so as well). That is it.
This is the only path to true prosperity for everyone on the planet.
Which is good news!
It means that everyone can be rich. This is not a zero-sum game! No one has to be poor.
But to see that happen, we have to realize one thing: Money does not exist.
I’ll leave you with these questions:
- How many of your thoughts on money are based on the “zero-sum fallacy”? Are those thoughts helping you? Or hindering you?
- How can you create wealth in your personal life? Is it through a job where you get paid to help a business generate wealth? Or can you “create something out of nothing” and generate your own wealth?
- What are 3 things that you can do to start generating more wealth in the next 30 days?
I would love to hear some of your answers in the comments, so feel free to share!
Originally published at www.seanedwards.com on August 14, 2014.
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