What is money and where does it reside?

Ask your investment, budget, and other money related questions here
7Wannabe5
Posts: 9372
Joined: Fri Oct 18, 2013 9:03 am

What is money and where does it reside?

Post by 7Wannabe5 »

If Zone 00 is within the boundary formed by your skin, and Zone 0 is the exterior walls of your shelter, and Zone 1 is the exterior habitat you physically frequent more than once a day, and Zone 2 consists of the realms you physically visit several times a week, and Zone 3 and further are less frequently visited and less rigorously managed realms, and Zone 5 is the wilderness, then where does your money reside and what form does it take? Is it something you stack up like cord wood or preserve like pickled peaches, or is it more like a vector that sweeps across the landscape like solar energy or the wind, or is it most sensibly conceived of as social contracts? I was thinking about this because I noticed that although I do check on or "visit" my money almost every day, it doesn't really live within walking distance of me.

User avatar
Sclass
Posts: 2791
Joined: Tue Jul 10, 2012 5:15 pm
Location: Orange County, CA

Re: What is money and where does it reside?

Post by Sclass »

7Wannabe5 wrote: or is it most sensibly conceived of as social contracts? .

I like to think of it this way. Not that I actually know. I never took economics. Money made more sense to me when I thought of it as IOUs or promissory notes.

Now I kind of think of it as a battery to store up work. I've come to this watching people lose their human capital by exchanging it for money then having it drained off in a variety of ways by clever people who add less value for what they can extract - I.e. Efficiency.

Just my random thoughts. I turned the corner financially when I started looking at things this way. Instead of always trying to build something of value I started focusing on taking something of value in a game of arbitrage. It worked a lot better for gathering up the promissory notes or charging my battery so to speak.

BRUTE
Posts: 3797
Joined: Sat Dec 26, 2015 5:20 pm

Re: What is money and where does it reside?

Post by BRUTE »

brute thinks of money as social contracts/IOUs, but really likes the vector-analogy.

many things can play a money-like role. cigarettes in prisons. frequent flyer miles. cash vs. money in 7wannabe5s account when she lost her card and wants to take a cab home at night. gold coins in her safe deposit box. goodwill she's built up with a network of friends by providing them with value or favors.

basically anything that 7wannabe5 can trade for stuff without directly offering another item/service. each of them has its own currency, and can usually be converted into the other ones via certain mechanisms.

so brute very much likes the idea of money-vectors point in and out of humans and organizations. there's a big vector of dollars from the bank to 7wannabe5, via ATMs. there's some vectors between her and her neighbors. there's a vector from her employer to her bank.

brute also thinks it's important to realize that the money is not the value. the money may reside in 7wannabe5s bank account or mattress, but the value resides in the minds of other humans. if tomorrow nobody will accept 7wannabe5s wire transfers, the money in the account is worthless despite still being there.

the biggest implication for brute is that no form of money is safe. the banks could have a bank run. anything under your mattress can be stolen. cash is still devalued by inflation. stocked food might spoil or rot. real estate can burn down.

the only decision a human can make with value is to choose which risks to expose it to, by choosing in which form of money to park it.

IlliniDave
Posts: 3845
Joined: Wed Apr 02, 2014 7:46 pm

Re: What is money and where does it reside?

Post by IlliniDave »

I look at money as a medium to facilitate exchange, and in a sense it is a social contract. I like Sclass's battery analogy too, as a form of stored energy, but that is more philosophical than practical. Seems like it would exist in any of zone 0 through 4 (although 00 and 5 are doable). At this stage, we are highly dependent on an intricate worldwide network. Money flows to me from every corner of the world (and vice versa), places where I've never set foot and likely never will, but to actually touch it I have to physically go to a bank or ATM, possibly after executing a number of electronic transactions (e.g., if I wanted to cash out some of my investment in emerging market corporations and feed quarters into poker machines or something).

jacob
Site Admin
Posts: 15907
Joined: Fri Jun 28, 2013 8:38 pm
Location: USA, Zone 5b, Koppen Dfa, Elev. 620ft, Walkscore 77
Contact:

Re: What is money and where does it reside?

Post by jacob »

Money is a social contract but unlike a lot of the laws we have ("No eating hotdogs on Fridays"), money is closer to obeying laws of nature.---This is because money is used to transact real objects with real consequences. For the same reason money also obeys certain mathematical laws.

Sometimes humans try to bend these laws with either disastrous or unintended consequences, see e.g. Zimbabwe or QE.

It's also worth keeping in mind that money is only a CLAIM on goods IN THE PRESENT(*). Money is not a claim on stuff in the future, thus you can't hold cash for the next 20 years and expect that money to buy stuff 20 years from now. This is for the same reason you can jump out of an airplane and expect a parachute to magically materialize if you write a check. It seems that the economics profession is rather prone to forgetting this little detail, namely that money as a claim on stuff is not the same as the stuff itself.

(*) Technically money is legally valid to settle debt. I don't have to take your money no matter how strongly you desire to have my wheelbarrow. However, if you owed me money, as far as I understand, I would have to take your money.

BRUTE
Posts: 3797
Joined: Sat Dec 26, 2015 5:20 pm

Re: What is money and where does it reside?

Post by BRUTE »

jacob wrote:see e.g. Zimbabwe or QE.
does it smell Austrian in here?
jacob wrote:(*) Technically money is usually legally valid to settle debt. I don't have to take your money no matter how strongly you desire to have my wheelbarrow. However, if you owed me money, as far as I understand, I would have to take your money.
brute would presume that this is detailed in the initial contract. if jacob lends brute $100 in cash, it's probably implicit that he would like the money back also in USD cash, not interesting shells or ammo or back rubs. certainly jacob could make a contract lending out $100, but detailing payment be made in anything he desires.

Toska2
Posts: 420
Joined: Fri Nov 20, 2015 8:51 pm

Re: What is money and where does it reside?

Post by Toska2 »

I agree that it's a social contract to facilitate the exchange of human effort*. I say human effort because many resources are there to take. Granted some people forget that things like health and education only accept personal effort.

*location dependent, see geo arbitrage, governmental regulation and regional ethics.

7Wannabe5
Posts: 9372
Joined: Fri Oct 18, 2013 9:03 am

Re: What is money and where does it reside?

Post by 7Wannabe5 »

Thanks. You guys helped me figure out what was confusing me. Money you earned and didn't spend in the past is stored in social contracts with time-stamped valuation, but in the present moment money flows along the vector of value perception. Or something like that?

I was thinking it was like a vector because of cash-flow diagrams being like wind-flow diagrams, and also because I read that "money naturally flows in your direction when you do the work that other people want you to do." Except I think it should be more like "money naturally flows in your direction when you exhibit behavior or state of being desired by other people who possess money and believe it to be an appropriate medium of exchange in that instance." For example, your grandmother might give you a quarter because you weeded her garden or just because she thinks you are cute, or she may believe that it would be more appropriate to give you a hug. My point being that it is not necessary to have formed prior contract in order to create value gradient in the moment. If you expend your energy on looking cute while weeding gardens in any kind of social setting, it is likely that either money or hugs will flow in your direction. OTOH, if you are a stinky pumpkin-smasher in the moment then money and hugs will not so much flow in your direction.

George the original one
Posts: 5404
Joined: Wed Jul 28, 2010 3:28 am
Location: Wettest corner of Orygun

Re: What is money and where does it reside?

Post by George the original one »

Imagine what happens with the time-value of money were time travel possible!

Solvent
Posts: 233
Joined: Wed Mar 04, 2015 3:04 pm
Location: กรุงเทพมหานคร
Contact:

Re: What is money and where does it reside?

Post by Solvent »

Money is a veil on the distribution of real resources?
I don't know, I'm an economist so my view on the matter is clouded by education. Money is a number of things, you can change your view of it depending on what sort of analysis you need.

Also, agree on Jacob's "money is a claim on goods in the present." This is important. This is something that bugs me about people getting freaked about inflation or negative interest rates. Your money is a claim on goods now. It's not a guarantee of your future wealth, although you may wish it was.

Dragline
Posts: 4436
Joined: Wed Aug 24, 2011 1:50 am

Re: What is money and where does it reside?

Post by Dragline »

From Sapiens by Yuval Harari:

"[M]oney isn’t a material reality – it is a psychological construct. It works by converting matter into mind. But why does it succeed? Why should anyone be willing to exchange a fertile rice paddy for a handful of useless cowry shells? Why are you willing to flip hamburgers, sell health insurance or babysit three obnoxious brats when all you get for your exertions is a few pieces of coloured paper? People are willing to do such things when they trust the figments of their collective imagination. Trust is the raw material from which all types of money are minted. When a wealthy farmer sold his possessions for a sack of cowry shells and travelled with them to another province, he trusted that upon reaching his destination other people would be willing to sell him rice, houses and fields in exchange for the shells. Money is accordingly a system of mutual trust, and not just any system of mutual trust: money is the most universal and most efficient system of mutual trust ever devised."

On a very practical level, money in your locale is the thing you have to pay your taxes with. Any society can create money by demanding taxes in that form. Think how quickly the trees would be denuded if you could pay your taxes in leaves.

Money is outside any personal realm. It's only meaning is its value to other people.

IlliniDave
Posts: 3845
Joined: Wed Apr 02, 2014 7:46 pm

Re: What is money and where does it reside?

Post by IlliniDave »

BRUTE wrote: ... if jacob lends brute $100 in cash, it's probably implicit that he would like the money back also in USD cash, not interesting shells or ammo or back rubs. certainly jacob could make a contract lending out $100, but detailing payment be made in anything he desires.
In that case the contract wouldn't be a loan, it'd be a purchase, and I also believe that even in that case, return of the money (along with commensurate interest perhaps) would suffice as settlement from legal perspective if, say, BRUTE became paralyzed and could not deliver a satisfactory back rub.

Some other random thoughts:

I believe in the US according to law a debtor can always settle a debt with USD, as we can see the words, "This note is legal tender for all debts, public and private." on bills. It's origins probably go back to a time when people were leery of paper currency versus metal coins. Jacob is right, you can insist on two chickens and a garden hoe in exchange for your wheelbarrow if you want.

I understand that there's no absolute guarantee that your money will have value in the future, yet most everyone here piles it up to some extent, or purchases things to generate more of it, because we believe it will, and that belief is usually a valid one. I for one hope that the zombie apocalypse won't occur in the next 40 years as I enjoy the convenience of money as a way to make things happen.

But as a hedge I've purchased remote land, intend to purchase more remote land, and to lay in a supply of guns and ammo. :lol:

Dragline
Posts: 4436
Joined: Wed Aug 24, 2011 1:50 am

Re: What is money and where does it reside?

Post by Dragline »

IlliniDave wrote:
Some other random thoughts:

I believe in the US according to law a debtor can always settle a debt with USD, as we can see the words, "This note is legal tender for all debts, public and private." on bills. It's origins probably go back to a time when people were leery of paper currency versus metal coins. Jacob is right, you can insist on two chickens and a garden hoe in exchange for your wheelbarrow if you want.
Yes, as a legal matter, if someone reneges on a contract or otherwise damages you, your damages will be calculated in dollars and payable as such.

The exception is special cases where "specific performance" can be requested, particularly if an object is unique. But specific performance is a disfavored legal remedy and requires special proof -- money damages is the default.

There was a famous set of cases from the 1930s called "the Gold Clause cases" that dealt with claims payable in gold. The US Supreme Court decided that they were payable in dollars. You can read about them here: https://en.wikipedia.org/wiki/Gold_Clause_Cases

BRUTE
Posts: 3797
Joined: Sat Dec 26, 2015 5:20 pm

Re: What is money and where does it reside?

Post by BRUTE »

IlliniDave wrote:I've purchased remote land, intend to purchase more remote land, and to lay in a supply of guns and ammo. :lol:
no back rubs for IlliniDave?

Regarding the future value of current money, brute likes Mises' explanation: money has value at t+1 because it had value at t, and humans' expectation didn't change that much. This seems usually true in modern times, except maybe in hyperinflationary environments, where humans' expectations change wildly and rapidly.

7Wannabe5
Posts: 9372
Joined: Fri Oct 18, 2013 9:03 am

Re: What is money and where does it reside?

Post by 7Wannabe5 »

So, at a bare minimum, if you must pay taxes or are forced to settle an unfulfilled legal contract or pay legal damages, you will need some money. It is my understanding that in order for a social contract to be legal, it must involve clear exchange of value-able, legal goods or services. IOW, a one-sided promise is not a contract, and you can't make legal contract involving the exchange of home distilled vodka, "love and affection" (likely inclusive of back-rubs unless licensed professional) or mutual dare-you to eat 20 earthworms in most states.

Okay, so if we assume that a person has no current earned income, then it is possible that he would never need any money if he did not need to pay any taxes, and he did not enter into any legal contracts that could only be satisfied with money, and he fulfilled all his legal contracts that were to be otherwise satisfied, and he did not cause any others to suffer legally-collectable damages. Anything I missed?

User avatar
jennypenny
Posts: 6851
Joined: Sun Jul 03, 2011 2:20 pm

Re: What is money and where does it reside?

Post by jennypenny »

Money is just an easy way to store time and/or labor. Unfortunately, it's also an easy way to spend it. Or waste it.

I agree that money only has present value and that the value can be reduced significantly or altogether in the future, rendering our savings worthless. OTOH, that's not much different than having your house burn down after laboring over it, having a relationship collapse after investing years into it, or having your health fail despite doing your best to stay healthy, and the collapse of money is statistically much less likely to happen.

Of course, the less you need, the easier it is to replace or find an alternative.

IlliniDave
Posts: 3845
Joined: Wed Apr 02, 2014 7:46 pm

Re: What is money and where does it reside?

Post by IlliniDave »

7Wannabe5 wrote: Okay, so if we assume that a person has no current earned income, then it is possible that he would never need any money if he did not need to pay any taxes, and he did not enter into any legal contracts that could only be satisfied with money, and he fulfilled all his legal contracts that were to be otherwise satisfied, and he did not cause any others to suffer legally-collectable damages. Anything I missed?
If he wanted to acquire something the owner/seller/service provider wanted money for.

7Wannabe5
Posts: 9372
Joined: Fri Oct 18, 2013 9:03 am

Re: What is money and where does it reside?

Post by 7Wannabe5 »

@jennypenny: Or being made redundant after investing 30 years in your career, etc. etc. Of course, these aren't all really apples to apples. For instance, when marriage contracts are dissolved people are theoretically cashed out equitably and then set free to trade their resources on the dating market once again. Maybe all these examples just seem the same when our expectations don't match up to reality. IOW, negative interest rates are like a sex dead marriage or a mule you have to haul away with a tractor.

I guess I was just thinking about money in the same way I might think about how much asparagus vs. beets to plant.

User avatar
jennypenny
Posts: 6851
Joined: Sun Jul 03, 2011 2:20 pm

Re: What is money and where does it reside?

Post by jennypenny »

IlliniDave wrote:
7Wannabe5 wrote: Okay, so if we assume that a person has no current earned income, then it is possible that he would never need any money if he did not need to pay any taxes, and he did not enter into any legal contracts that could only be satisfied with money, and he fulfilled all his legal contracts that were to be otherwise satisfied, and he did not cause any others to suffer legally-collectable damages. Anything I missed?
If he wanted to acquire something the owner/seller/service provider wanted money for.
I'd add that there are people I don't like who produce things I need, and I find money to be the best/fastest/least personal way of dealing with them.

7Wannabe5
Posts: 9372
Joined: Fri Oct 18, 2013 9:03 am

Re: What is money and where does it reside?

Post by 7Wannabe5 »

IlliniDave: If he wanted to acquire something the owner/seller/service provider wanted money for.
True, but at the margin, that is still a want not a need, because he could maintain his freedom without spending that money. Even if he thought he might very well die if he didn't buy what that person was only willing to sell for money, he could choose to take the risk of trying to obtain it through other means.

Post Reply