What Is Money?

A piece of paper? A piece of metal? A number on a screen?

It's surprising that this topic hasn't come up during my years of schooling. The history of currency and money is intriguing to study and how it influences our world. As an entrepreneur, it's crucial to have a basic understanding of this concept before embarking on the journey.

The Old System Of Exchange

Bartering, also referred to as trading, was the original method of exchange between individuals. The issue with bartering was that it was based on the mutual desire for each other's resources. For instance, if one person had a cow and wanted to trade it for two sheep, they would need to find someone who also wanted a cow and had two sheep. This often made finding a match between parties difficult and time-consuming. This led to the creation of currency.

Currency acts as a mediator between the different goods or services being traded. Money unifies the parties' diverse desired trades, often in the form of rare coins or even seashells, which were quantifiable and not readily available in large quantities.

With currency, I can sell my cow for 10 shells to anyone who wants to buy it. Then, I can purchase two sheep from anyone selling sheep. We no longer need to find a coincidence of desired wants, as we have established a mutual want in the form of one currency.

The Idea Of Value

Value refers to the perceived worth of a good or service, which typically satisfies a need or solves a problem. This is what money truly represents - an exchange of value. People do not desire money itself, but rather what they can purchase with it. From an objective standpoint, money may be just a piece of paper or a number on a screen, but its purchasing power is what people desire.

The market is a reflection of the dynamic between supply and demand. When people want something, someone will provide it in exchange for value. If a commodity is scarce and in high demand, its price will be high. Conversely, if a commodity is abundant and in low demand, its price will be low.

Wealth is a result of providing value to the market. Wealthy individuals are often problem-solvers who take on the issues of others and create solutions. These solutions are in high demand, as people are willing to pay for them.

The Idea Of Time

Taoists view reality, including money, as energy. The phrase "time is money" is often heard and implies that time is equivalent to money. This means that the value of money can vary based on how much time is required to earn it. For example, if someone is paid $20 per hour and sees a $5,000 Rolex watch in a store window, they may consider it expensive. However, if someone is paid $1,000 per hour, they may view the same watch as cheap. The difference between these two perspectives is the amount of time needed to earn the money to purchase the watch.

Time can be viewed as potential invested energy, as work requires and consumes energy. With this mindset, one may begin to calculate how much time it would take to purchase certain items. For example, if you wanted a burger that costs $30 and you are paid $15 per hour, would you be satisfied with the reward of a burger after working for two hours rather cold, hard cash?

Opportunity Cost

Lost time can also be seen as wasted potential to make money. For example, if it takes two weeks to create a website for a product when it could have been done in one day, this represents a loss of 13 days of earning potential. In the world of business and making money, speed is considered to be the most important factor.

Inefficiency in the workplace can also cost employers money, as workers who are not efficient with their time are not maximizing their potential to generate revenue. In this sense, lost revenue is the same as lost potential revenue.

Cutting From The Gold Standard

 After the Second World War, the US dollar became the international reserve currency. This meant that countries would use the USD in their trades due to its stability and widespread use.

In 1971, Richard Nixon announced that the US would abandon the gold standard, which meant that the value of the USD was no longer backed by gold. The USD became what is known as fiat money, with the government simply declaring that the currency has value, even though it is not backed by anything of tangible value.

The reason for cutting the currency from the gold standard was to allow the government to print more money than they had in gold reserves. However, this led to a decrease in the value and spending power of the money due to inflation, as the circulation of currency exceeded the supply of goods, causing prices to rise.

This has led some to argue that this is one of the ways the rich continue to become wealthier, while the poor remain in poverty.

Have Nots And Have Yachts

 Wealthy people have assets, which are things that make them money. This can include businesses, real estate, domains, commodities, etc. These assets can be acquired through capital or debt, and their cost often rises due to inflation. This makes it difficult for middle-class and poor people to acquire assets, as the barrier to entry increases.

 Slowly, we'll see a larger divide between the two classes. So, it's better to be at the top than at the bottom.

Fractional Reserve Banking

 A system of modern banking.

 When you deposit $1000 into your savings account, you trust that it is still there. However, this is not the case. The bank is allowed to keep at minimum 10% of what is deposited into their accounts.

 As an example, you deposited that said $1000 into your savings account. The bank only keeps $100 and lends the other $900 to Customer A. There is $1900 in circulation now due to the bank creating debt. Then the cycle can repeat again! Customer A deposits that $900 and the bank keeps $90 and lends $810 to Customer B. There is now, do the math now

 $1000 + $900 + $810 = $2710 in circulation.

 Some crazy percentage like 99% of the world's economy is debt. All because we have this system of banking. It can only last for so long until people want their money back. This is what we call bank runs, and it has before in the past during the Great Depression. And it even happened during the collapse of Sam Bankman-Fried's FTX crypto exchange

You Can Never Make Money

 As you can see, only central banks have the authority to print money through mints. If an individual were to create their own money, it would be considered counterfeiting and result in legal consequences. Therefore, when you earn money, you are actually exchanging value for it.

 Only the banks have the power to "create" money, but you can increase your earning potential by providing more value to the market. By considering this, you can position yourself to receive greater rewards.

Don't Hate The Game, Nor The Player

Luke Belmar said it best, "I'm a lifelong learner. I'm here to learn," when asked about the elites of the world. Instead of being angry or outraged by the monetary system and the big banks, learn from them.

You can profit from it if you understand value: how to both give and take it. There has never been a better opportunity to become wealthy like never before. With all the educational resources, videos, platforms, and jobs; money is everywhere. It is like a stream of water, you need to know how to position yourself in its current.

Reach a point where money does not seem real. Think from the outside in. People are willing to trade numbers on a screen for a tangible object that you can see, touch, taste, hear, or smell with any of your senses. Money is not real. It is an idea. A trust we have that exchanging our time, goods, or services can be exchanged for other commodities. It is the means to an end.