Money is not wealth

Goods and Services

Far too often, people confuse and conflate wealth with money (and vice versa). This series of posts will try to help the reader separate the two concepts.

Money is anything that is generally accepted as payment for goods and services and repayment of debts (see wikipedia article). So anything from pieces of gold, silver, electrons or pieces of linen based paper with Tim Geithner’s signature can function as money, as have sea shells and wampum belts. Money is an abstract concept, which is only useful to the extent that it can be used to purchase a product or service. Money is worthless without the existence of wealth (something to buy).

The definitions of wealth are much more diverse (see wikipedia article), but all definitions hint at the ability to produce useful products and services. Essentially, wealth is something concrete that is exchanged for something abstract (money)

Let me use a few examples to illustrate the difference between wealth and money, and why it is important to use money to create new wealth instead of hoarding it for an uncertain future (zero sum based thinking).

Throughout human history, the lives of the poor and rich were quite miserable and hard.

I am writing this post in a Starbucks drinking a standardized and good quality beverage. The water used to make it and other sources of water are potable. The quality of food in nearby restaurants is good and is quite safe (sushi excluded). Every place I go to is climate controlled. Public utilities such as clean water, sewage disposal, garbage pickup, electricity and the internet have extremely high ‘up’ times. The quality of emergency and elective medical care is quite acceptable. Consumer goods like the clothes I am wearing, laptop/ iPhone I am using are also quite cheap and reliable. I am not in immediate danger of theft or violence.

For most of human history such a lifestyle was not achievable for even the richest human beings on earth. You see, they had lots of money (gold, silver etc) and followers (henchmen etc), but their lives were not much more secure, productive or pleasanter than a farmer who owned a few hectares of productive land. Indeed treachery, intrigue and violence made the lives of rich and famous more uncertain than anybody except the landless poor or slaves.

However the worst aspect of that system was widespread zero sum thinking that manifested itself in the belief that wealth could only be accumulated through pillage, cheating and mercantilism.

A system where everyone tries to prey on everyone else, does not encourage innovation, justice, decency or prosperity. It is no wonder that the true benefits of industrialization to the common man came about only after the ‘new deal’ or similar “socialistic” policies. Many libertarians (useful idiots), free marketers (lucky con-men) “intellectuals and professionals” (new priests) try to convince the gullible masses that money spontaneously creates wealth. However that is not so.. read your history critically.

The only two uses of money are to create wealth and ensure that people satisfy their desires through commerce, rather than war and pillage.

Money cannot however create wealth spontaneously. New wealth is created through the circulation of money in a society that is perceived as being reasonably fair and secure. It is investment of money in new, often unconventional ideas and concepts, that creates the most new wealth. However such a system requires a stable society with the ability to consume (discretionary income). Such a society existed in the US from the 1930s through to the 1970s. It started dying when its beneficiaries decided to stop expanding it to cover “others” and scam each other. The effects of high productivity on nature of jobs was also ignored.

Since the 1980s, we went down a path that exalted ivy-league priests, con-men and sociopaths over any sense of human decency or reason. We celebrated glass-marble games (stock markets, 401ks, financial instruments etc) instead of a more affluent lifestyle for everyone. We were happy and willing to deprive, abuse, incarcerate those who did not look like us. Many believed that their race, sub-race, class, peer group gave them the divine right to abuse others less luckier than them (note the word ‘luck’ not ‘ability’). We reveled in various ponzi schemes including creating jobs that encouraged malinvestment (housing bubble, management, security theater related etc). Neither gold, the ‘free’ market or any other popular economic theory (delusion) can solve a problem whose origins are in the intersecting effects of technology and our ape mind.

But zero sum behavior has only logical conclusion- a poverty ridden, malfunctional world where death is often a better fate than living. People get what they work towards, even if they don’t like the results.