Monday, July 19, 2010

Money and Value

I wanted to put out some of my thoughts about The Money Fix. I enjoyed the program immensely and learned a few things I hadn't known before, but one of the most interesting parts was the realization that our money has gone post-modern on us.

This thought has occurred to me before, usually while I am trying to explain to my kids what a debit card is and how we pay for things. I am one of those people who very rarely carries cash. I have been known to use my debit card to buy a soda at a gas station, or buy a couple stamps at the post office. In fact, the only time I carry cash is when I am driving long distances and need money for tolls. For everything else, I use my debit card.

Money, for me, has become a ledger of credits and debits. Our paychecks are electronically deposited. Our bills are paid electronically online.

It's a little dizzying to think about. I go to the store and they move some numbers from my bank account to theirs. They use those same numbers to pay their bills and their employees. Those employees leave work and swap some of those numbers for a hamburger and fries, and then switch some more electronic numbers for a tank of gas.

All this can happen in a single day, and yet what has really happened in this scenario? When we cash a paycheck, actual, hard copy cash is not moved from the large bank in Fort Lauderdale that backs up the paycheck. When I buy groceries no physical cash is moved from the bank to the store. And when the store pays its employees, there is no physical movement of money from their bank to the employee. Those numbers can be turned into cash, if the employee opts to cash their check instead of depositing it, but the cash they receive is just a physical representation of a line of transactions that threaded their way through the state, zig-zagging from place to place electronically until someone decided to turn their electronic number into a physical reality.

It's uncomfortable to realize that if everyone decided to turn their electronic numbers into cash, there wouldn't be enough cash to take the place of the electronic numbers. So then, what do all of those electronic numbers represent if they don't represent actual physical objects?

I mean what is money, anyway? Just some paper with pictures and numbers on it. The only reason it has any value is because we all agree to follow the rules of the monetary system and attribute the individual worth of a particular piece of paper as determined by its markings.

Someone will say,"But the paper is just a stand-in for actual money, like gold." However, that's not true because our money hasn't been on a gold standard since the seventies. Many conservatives want the US to go back to a gold standard, and many people still see gold as a reliable form of wealth, but the dye has been cast and it will never be possible to go back to a gold standard, because there simply is not enough gold to back up the monetary system, not only of our country, but also the monetary systems of other countries.

People who worry about the devaluation of money have been buying gold, and even silver, and stockpiling it as form of true wealth, which is why gold prices have sky-rocketed over the past year and why we have to endure all those Cash 4 Gold commercials on TV. Here's something to think about, though: What makes gold a form of true wealth? Do we value it because it's pretty? Because it makes some nice jewelry?

There are some industrial uses for gold in electronics, but for the most part, gold is a vanity or luxury product. It isn't especially useful.

What would happen if gold lost its luster in the eyes of most people? It would lose its value.

Any form of wealth is only as valuable as the value that people agree to assign to it, and it isn't inconceivable to imagine a time when the utility of a resource, in its relation to people, becomes a measure of its value.

Humans decide what is valuable, sometimes based on supply and demand and sometimes because of the psychology or perception of the market.

We see the direct effects of this principle everywhere, especially here in Florida where our real estate market has plummeted to the bottom of the barrel. Houses have lost enormous amounts of their value, not because they are any different than they were three years ago, but because how valuable a house is has less to do with how the house is constructed and more to do with uncontrollable, abstract ideas.

Is the house in a desirable location? Are there good schools nearby? Are there jobs in the area for people? Do people want to live there?

The answers to those questions have little to do with the actual house and more with the usefulness of what living in that house will provide people; convenience, a pleasant living experience, and proximity to other things that people value.

Value is a property that is in the complete control of human wishes and desires, ranging from the completely necessary to the bizarrely superfluous.

I'll continue more of this later.

1 comment:

DH said...

It's interesting. In the course I'm taking, I've been reading about how globalization has impacted business and what has had value from a business perspective. In days gone by, land was a very valuable commodity. That was then replaced in importance by labor and capital. In recent times, however, with the ever shrinking boundaries between people and countries, knowledge and technology have become the most valuable commodities for a business (or a nation for that matter). This change has caused some to describe our current economy as a "knowledge-based" economy.

What does this have to do with your post on the value of money? I'm not quite sure except to say that it's another interesting example of how the changing value that we, as a society, place on the things around us impacts how we interact and live.