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  • Money is Energy 0 comments
    Apr 28, 2010 2:56 PM



    Nathan Kawaguchi


    Because economics can be so complex, it is often helpful to break things down to their most fundamental origins.  Investors work hard at trying to make money, but many don’t even bother taking the time to ask the question, “What is money?”


    Before advancements in commerce, people were more or less self-sustaining.  You grew your own produce, raised your own cattle, built your own shelter, made your own clothing, etc.  While this self-reliance was essential to the security of one’s own life and that of immediate family, it was incredibly limiting to the progress of people as a whole.  After all, if you have to learn how to do so many different things, how could one develop an expertise in any one area to make things better and more efficient?


    People are creatures of the Earth.  Like any other living organisms, we need to consume energy in order to survive.  In a competitive world of survival, energy sources other than the sun don’t simply present themselves to us.  So we must expend our energy in order to obtain more energy on which we survive.  In early times, this meant expending energy for hunting and gathering.  In more recent times, this meant expending energy in farming.  It is only natural that we seek the most efficient expenditure of our energy to obtain more energy.  Being that we are a cooperative species, this eventually led us to the idea of specialization.


    Specialization allows for people to be experts in their respective tasks.  This allows for dramatic improvements in quality and efficiency.  Once people decided to specialize and cooperate by sharing ideas and trading with one another, a great wave of invention and innovation ensued, materializing in the agricultural, industrial and informational revolutions.


    Prior to specialization, people often worked hard early in life and saved up resources on which to survive when their bodies and minds were no longer able.  People were essentially storing energy by building self-sustaining farms and the like.  But farms still needed to be worked, which explains why children often took over and cared for their elders.  Specialization allowed the storing of a specific type of energy (food, clothing, etc.) and one’s surpluses could be exchanged for the surpluses of others that were needed.  This is where bartering first came into existence.


    Fast-forward to modern times.  Instead of directly bartering goods and services, people developed an even more efficient means of exchanging energy.  People started converting energy into currency, which could then be converted back into other goods and services that were needed or desired.  This was far more efficient because currency was much easier to transport and it was a common unit of exchange.  If someone had extra grain, they didn’t have to wait to find someone who both needed grain and had desirable goods to exchange.


    Viewed this way, money is simply stored energy.  We go to work each day, while our bodies and minds allow, and expend our energy.  This energy (our labor) is then converted into currency, which can then be exchanged for the goods and services that others provide.  Greed, which carries such a negative connotation in conjunction with money, is really no different than someone of yesteryear building and growing a great self-sustaining farm.  Because of specialization, many people only have one specific skill to utilize in obtaining more energy (money).  If that skill doesn’t command satisfactory income (energy), this often leads to the types of conduct that so often gives greed a bad name.


    Whether negotiating with an employer for pay or considering an investment, it is helpful to ask how efficiently energy is being used.  From a value investor’s perspective, is more value being produced than is being expended?  Placed into context, it is easy to see why automation in manufacturing has caused so many jobs to leave developed nations.  No longer does one need to really understand how something is made.  Only an understanding of the assembly line function is necessary, which requires far less education, experience and expertise—and thus, far less compensation to the worker.


    The value of a product, service or one’s labor hours is a function of two things:  1) The value which society places on that particular good, service or labor; and 2) The availability of others who are willing and able to provide that good, service or labor.  If you want to be paid a lot of money, it is best to specialize in a skill that is highly valued by society and do it better than everyone else.  If you want to make a lot of money on an investment, buy as cheaply as possible an investment that produces something highly valued by society that has no readily available competition.  Because money is stored energy and is generally convertible into any other goods and services, people and investments that can produce a lot of cash are usually worth the most in our world of commercial specialization.

    For additional insight, visit

    Disclosure: No Positions
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