Understanding Money: Why It Matters & How To Build Wealth

I want to focus on money from a wealth building perspective.

For a deeper understanding of money from a macroeconomics perspective, you can read my best selling book, Money, and my next book in the money series ‘MEconomy’, still to be released.

In its purest, economic form, money is:

1. A (universal) medium exchange (of value)
2. A unit of account
3. A store of value and worth

Some would say it is a liquid asset, I don’t agree with this for many reasons. It is ‘liquid’, but it is not an asset, because it goes down in value, not up.

In fact, one of the rules of making money is to earn it in fiat currency (mostly how you are currently compensated) and then get it out of that depreciating liability as fast as you can, and into an appreciating asset; a hard, real asset. Soft money into hard money.

If we look at the definitions of money one by one:

Money in the form of fiat currency does this well. It is universally recognised, liquid (for a long time the most liquid form of money) and is free flowing and trusted to be worth what it appears to be worth. It is a great man made invention of leverage. For now, at least.

In its essence, it is not tangible and has no inherent value. Instead, it is a belief system, a shared story of fiction that people in society agree to accept as a medium of exchange. It is valuable only because we collectively believe it to be so. As soon as we don’t believe in it, it becomes instantly worthless.

Money has symbolic value. Unlike barter systems, where actual, tangible goods were exchanged directly for other goods, money represents a universal measure of value. It allows people to compare the worth of different items and facilitates complex transactions.

Yuval Noah Harari, a prominent Israeli author, public intellectual, historian and professor argues that money is a tool for cooperation. The invention of money was essential for human cooperation on a large scale.

By creating a universal medium of exchange, it allowed people to trade goods and services more efficiently, leading to increased economic activity and specialisation. If evolution is the ever increasing specialisation, as cells divide, it stands to reason that money would follow the same path.

It is interesting how Harari uses the word cooperation; I wonder if this is in the sense of cooperating with each other. Co-existing and interacting, or cooperation in the form of compliance. You can make your own mind up about that.

You can certainly see the ‘Imagined Order’. Money is part of what Harari calls ‘imagined orders’. These are social constructs, such as religions, nations, and economic systems, that exist only because people collectively believe in them.

Money plays a crucial role in creating and maintaining these imagined orders. What would religion be without money? What would a government be without full control of the money?

The existence and stability of money relies on trust and faith in the institutions that issue and regulate it. People accept money because they have (dwindling) confidence in the government, central banks, and financial systems that support its value. As soon as they don’t, it becomes worthless very quickly, and things of real, inherent and tangible value replace it.

Because money totally relies on trust, and not reality, this is why money could be the ‘greatest story ever told’. And a great story, to be embraced, believed and universally accepted, would need great PR, or propaganda.

Functions of Money

Money is a good way to measure the value of something, universally. It is easier to measure than comparing a pair of shoes made by a cobbler with a leg of meat from a butcher.

Until recently, money was an effective store of value and worth. If you have meat, storing it can cause issues because it can decay quickly, eroding to zero. Or the size and weight of an item might make it difficult to store (space) and transport (time). There can be security issues with transportation too.

Money is easily stored and transported. The current problem with fiat money is the high level of inflation and devaluation since 2020.

Properties Making Money Effective

Properties of money that make it effective at being money are: portability (space), divisibility, durability (time), and widely accepted. Traditionally, money has taken the form of coins and paper bills, but in modern times, we also use electronic forms of money, such as debit and credit cards, online banking and cryptocurrency.

A Driver of Economic Growth

Money is essentially a lever. You could say it has given mankind as much leverage as the wheel. The existence of money and the ability to accumulate wealth have driven economic growth and technological advancements throughout history. It motivated people to produce more, trade more, and innovate to improve their economic situation.

The rise of money has transformed social structures, leading to the emergence of merchants and bankers. It has also influenced power dynamics within societies. Of course this isn’t all good, you have vast economic inequality, exploitation, taxation and manipulation.

Personal Perspectives on Money

There are universal definitions of money, as stated above, but there are also very relevant, specific and individual definitions of money too.

I also see money as the ability to say no to things you don’t want to do. You don’t want to work for someone else? You don’t have to if you have money. You don’t want to wait in a queue? You don’t have to if you have money. You want to fly to the other side of the world to meet a celebrity and interview them on your podcast? You fly yourself, your producer and your expensive equipment first class. You want the very best materials for your art? No problem.

With money you can buy life’s greatest, most valuable commodity, which is time. Without money you have to sell time. Money is the tool of leverage to make life faster, easier, better, more convenient and to aid the full range of experiences that life has to offer. It is always more preferable to buy time than it is to sell time. And to buy time, you need money.

Money can be a hedge against an uncertain future. It can be a resistance to control and violence.

The True Value of Money

Many people say that the best things in life are free, I disagree, the best things in life are very expensive and rare, and alas most people do not get to experience them, which is sad and unnecessary.

This is the gift of money.

An abundance of riches gives you the ability to afford all the things that money apparently cannot buy, but it turns out are very expensive. The best education, the finest foods and the most glorious locations; all cost money. So whilst money might not directly buy happiness, it affords the things that make you happy.

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If you don’t risk anything, you risk everything.