What is Money?
August 19th, 2009What exactly is money? Is it paper? Is it coins? Is it something you can exchange for a certain amount of gold? What exactly is it? We talk about and use money constantly, but have you ever stopped to ask yourrself: ”What exactly is money?”
I remember grappling with this question in a class when I was a graduate student at Duke many, many years ago. But I got a better angle on it, as you might guess, when I went to a round-the-fireplace discussion with J.B. Fuqua, the businessman who donated $14 million in the mid-1980s to Duke’s graduate school of business and thus had his name placed on it.
J.B. grew up on a Virginia tobacco farm and didn’t have any formal education beyond 7th or 8th grade. However, he developed a kind spot in his heart for Duke University when the school loaned him books through the mail. And boy, did it ever pay off for Duke. But on to J.B. and the question about money.
One of the things I remember J.B. asking us in front of the fireplace if we had read The Wealth of Nations and going on to say that he read the book every five years. Almost immediately, I went to the bookstore and purchased my copy of The Wealth of Nations and began reading it.
As you might imagine, it’s dry and confusing. What exactly is it? Adam Smith’s The Wealth of Nations is to capitalism what Lenin’s Capital is to communism. Basically, from what I remember, The Wealth of Nations is Adam Smith’s observations about what he was seeing in the British economy in the 18th century. In short, it’s sometimes referred to as the foundation of modern economics.
Of the things I remember from the book, one thing stands out: Money is a representation of labor. A true Adam Smith scholar would likely grill me for the inexactness of this, but to me it makes a lot of sense.
$100 will buy you a certain amount of a gardener’s time, another amount of a physicians time and still another amount of third world labor time. Money is labor.
But what about manufacturing? When you boil it down, manufacturing is really a service, too. That $100 buys you a given amount of factory time to transform raw materials, which came to the factory via someone’s…..labor. Yes, even gold comes from someone’s labor at digging up enough dirt in a given location to extract a certain amount of gold.
What do you think of all this? Does it make any sense? I look forward to hearing your thoughts.
Thanks,
Rod
11 Responses to “What is Money?”
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Rod,
Years ago, a smart young financial market trader said to me,” Money is just a concept.” He related ONE way of money creation from trading successfully in the markets such as the stock indices or forex.
In general, I think money represents the value we create for our customers or clients who pay for those service(s) and/ or product(s).
When there’s a “magical” (or should I say efficient and effective) way of creating money, then we say that we can create money ALMOST out of thin air.
John Ho
Numerology Expert Birthday Numeroscope
Numerology Expert Helps Understanding Personality for Better Influence & Persuasion
Rod,
I think it makes great sense. I grew up on my Grandfather’s North Carolina Tobacco farm. He also only had an 8th grade education and loved Duke.
He educated the young ones about how money is a representation of labor. Your labor and other peoples labor too.
Lynn Lane
Success Strategies For Life
John,
Your comment about “creating money” reminds me of my real estate professor’s comment about “adding value through creativity”. After making millions as a practitioner, he went on to teach us in Duke’s MBA program. I learned much through him, not just about real estate, but from business in general.
Thanks,
Rod
Lynn,
Thank you for your comment. There’s something hardy and wise about those from the NC tobacco farms.
Thanks,
Rod
I started reading The Wealth of Nations once. Then I found I needed a rest so I read the dictionary instead.
I never did manage to stick with it.
Stil… I reckon that this is a useful way of thinking about money. I tend to think about it in terms of “perceived value”. Which I guess is really a similiar thing, expressed in the way that makes most sense to me…
JJ,
Thanks for your comment, as Pam and I laughed out loud when we read it. It’s good to hear from you.
Rod
Yes, I think that definition makes sense. However, I would add that money is more a reflection of how a given society values a particular skill set in action (skills in action are “labor”). So, we in America tend to value a neurosurgeon’s skills pretty highly. Thus we’ll pay a lot of money for an hour of that skill set. We will pay less for the skills (or labor) of a McDonald’s cashier.
Health, Fitness — Darryl Pace
Fitness Product Review
I recently heard money referred to as energy. And if I recall, I think I heard Kevin Hogan once say that. Makes sense depending on what one means by that.
Anthony
Darryl,
You’re exactly right, as the neurosurgeon can command more dollars per hour because people are willing to pay the neurosurgeon more than the poor soul working at McD’s. However, if you could switch the training time around – 12 years, hundreds of thousands of dollars and a very high IQ, to train someone to work at McD’s, and if one could train a neurosurgeon to do his craft in a couple of hours, I think you’d see the salary scale reverse.
To command the high dollars per hour one generally has to have hard to obtain skills that are in demand. It takes both. So, in the end, it all boils back down to money is a representation of labor. It may take more of it to get one skill versus another, but it all still boils down to a representation of labor. Or that’s what I remember from Adam Smith.
Thanks,
Rod
Hi Rod,
I like that definition. Will have to go read that because that is the weird kinda person I am (prepped in Princeton, Smith for my bachelors, life long learner, stimulate my brain with good things).
Money is also… mmm VALUE. I say that only because in my pea brain, when I hear LABOR I think and hold an image (like I have to go do or be that) of a minimum wage task worker. I realize that LABOR is also Thought, Strategy, or Consulting LABOR. Just, I have to shift it in my mind so I don’t get caught up in thinking my only value is in the TASK of what I do.
It is in the VALUE as well.
And to remember that the same LABOR for one audience may hold a low value, whereas for another audience it is of High Value.
I aim to sell to and service those to whom my LABOR is of High Value.
Happy Dating and Relationships,
April Braswell
Single Baby Boomer Dating Success Expert
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