Money is probably the most misunderstood and misused tool that is used by everyone. There is a misconception that money holds value, but money is only a belief, faith, trust, and an unspoken/undocumented contract between individuals and the group of individuals as a whole. In other words, money’s value comes from the interaction, development, and stabilized relationship between individuals and the group, which results in the production of goods and services.
The following sections seek to provide examples that demonstrate that money is a reflection of the production of goods and services and the amount of money is merely the division.
An Economy and Money is Like a Pizza
A great example to explore the meaning of money is a pizza. More than likely, a patron that walks into a pizza parlor and asks how big a large pizza is, the response from the pizza maker is typically 8 slices. Unfortunately, 8 slices does not sufficiently describe the pizza to the customer to the extent to make a determination if the pizza provides the quantity of food desired. The same is prevalent when discussing an economy and it’s corresponding money.
An economy is like a pizza and money is the slicing or division of the pizza. Therefore, money is the decision of how to divide the pizza, merely cutting the pizza in more slices does not increase the amount of the pizza or provide more pizza for consumption.
Money Doesn’t Grow on Trees
The saying “money doesn’t grow on trees” is familiar by everyone in America, and provides a great inspection into what money is without getting into a technically wonky economic discussion. A cursory search on the Internet provides no background on this saying’s origin or how it was coined. Regardless of who coined it or why, when one contemplates this saying with the background of economics and human survival, there is a lot of common sense to the statement.
Plainly speaking, a human being cannot eat money for survival, but fruit grown from a tree can be eaten. Regardless of the status or development of a civilization, a human being can consume fruit for survival. Furthermore, it is entirely possible to grow fruit from a tree without the use of money. In a civilization, a human being can exchange fruit for money. However, when a civilization is not present or in good working order, all the money in the world may not buy fruit for survival.
This general analysis of a well know saying in America demonstrates that money, for all it’s worth at a certain point in time relative to interaction among human beings, does not have any inherent or intrinsic value at all times. Meaning, money is just a reflection of the belief, faith, trust, and an unspoken/undocumented contract between individuals and the group of individuals as a whole.
Money is the Reflection Seen in a Reflecting Pool
The breakdown of how a reflecting pool works is a great analysis of what money means. There are many components required for a reflecting pool. First, there must be an object that will be in the reflection. Second, a body of water provides the reflection of the object. Third, there must be the appropriate angle while looking at the water to view the reflection. Fourth, and most importantly, light is needed to project and see the reflection on the water. Without these four critical components, there will be no reflection to see. In other words, the reflection is dependent on a certain scenario or setup.
Money is the reflection in the water from the reflecting pool. Meaning, money is the result of multiple situations occurring at one particular moment and provides a snapshot of time at that moment. Money, for all intents and purposes, is not really a tangible item because it is just the reflection on water because it merely represents economic development, no more, or no less.
Therefore, money derives it’s value from a multitude of factors, and the reduction or elimination of any or all of those factors could seriously diminish the value of money or make it worthless as an exchange of value, similar to the reflection in a reflecting pool.
Pricing and Inflation is Similar to an Instrument Gauge in an Automobile
As demonstrated in the examples above, the pricing of goods and services and inflation is a reflection of the interaction of individuals related to the production of goods and services compared to the supply of money. The value of the money supply is dependent on the production of goods and services, and correspondingly provides the pricing of the goods and services produced. This is where the confusion begins that money is the value of goods and services, when in actuality money is an instrument gauge that provides a perspective on the operating status on the economy as a whole and the money supply that provides the measuring metric.
Therefore, it seems clear that instead of being so focused on the cumulative dollar amount of our economy, sector, or individual business, we should be more focused on the actual production of goods and services produced.
The goal of human beings interacting together is the maximum production of goods and services to make lives easier and better to live, money is merely the tool and to some extent a measuring stick on the process, while providing a tool to provide a division of the goods and services produced.