More about money

I'd like to expand on what I wrote in the last post. I used desalination as an example, but my point had to do with how we use money to value things. I believe this has led to a common mental error. Money is so commonly used to measure wealth that we take it to actually be wealth.*

It is not. It is what we use to value wealth, and to buy wealth.

The difference is important, though it may not be obvious. I'll give an example. Take a cow. You can buy it with money, or sell it for money. In other words, we give the cow a value in money. With that money, you could also buy lots of things more useful to you than a cow.

That's all however. If you were on a desert island, the cow would be valuable, but the money would not be. The other things you could have bought with money might be valuable, but the itself would be of no use. We use our money to value wealth, and buy wealth. It is a store of value in the sense that we can hold on to it in order to buy valuable things in the future.

But it itself is not actual value. It is the resources and inputs at the base of our economy which provide us with value.

The prevalence of money makes this easy to forget. What is the practical impact of this?

It means that we mistake money for actual wealth. Currently, the actual source of most of our wealth consists of fossil fuels, and the machines we have built that are powered by fossil fuels. If these get more expensive, either because production of them peaks or because we put the proper environmental price on them, then the dollar cost of things that require their use increases.

So we say things like "Nuclear power costs X$ per kilowatt of energy" or "if we switch from oil, wind power can produce energy for X$"

But, we don't build a wind turbine or a nuclear plant from money. We build them using machinery powered by fossil fuels. We extract uranium using machines powered by fossil fuels.

And so on. This analysis applies to more or less everything. But when we discuss these and other issues in the newspaper, we hear of the dollar amounts, with little discussion of the underlying sources of use and production.

It is possible to figure out the dollar prices of the things in the human created economy you see about you. Much less possible is figuring out what was required to create them. They are the products of an incredibly complex system.

If there is one thing that the financial crisis ought to have clearly demonstrated, it is that those in charge of this system do not understand it. It is certainly beyond the grasp of even the brightest human to understand it both in breadth and in depth.

Money masks this complexity for us, by giving a perceived order and intelligibility to things. It gives rise to the commonplace illusion that we can actually produce things with money.

As I mentioned in the comments to the previous post, it does also serve many valuable functions. But one of its harmful functions is masking our awareness of the nature of the world we live in.

I will say it again, and clearly. Money is a way to measure wealth, and is a means to acquire wealth, but it is not itself wealth. Thinking of it as actually being wealth is a mental error.

It controls and facilitates many things in our economy, but it is not the basis of the economy, which is and will always be the resources needed for what we make and consume.

* wealth: 2. abundance of valuable material possessions or resources

4.all property that has a money value or an exchangeable value b : all material objects that have economic utility; especially : the stock of useful goods having economic value in existence at any one time

note: If you think I mean that a man with 100 million dollars in his bank account is not wealthy (a synonym for rich)....well, that's not what I mean to say.

A man with 100 million dollars can buy lots of valuable things. Hence he is wealthy (rich).

Unless he happens to be on a desert island.