This is a guest post by Greg Linster, a graduate student studying economics at the University of Denver. He blogs at Coffee Theory about things philosophical and shares aphorisms (almost daily) at Aphoristic Cocktails.
The father of modern economics, Adam Smith, once wrote: "All money is a matter of belief." The question I want to pose (and hopefully answer in this article), then, is: Should we believe? I’m afraid, however, that the answer is a rather tricky one.
Since Kent’s blog is called The Financial Philosopher and since I'm an economics graduate student with a philosophical proclivity, it seems only fitting that I attempt to tackle a philosophical question about the nature of money.
Most of us wake up in the morning and go to a place called 'work' in order to earn money. And most of us surely spend money every day. In essence, money is a medium of exchange that helps us get the things we want and need. In other words, you provide your labor in exchange for this medium called money, which you can then exchange for others goods or services you want. [1] However, it’s important to note that money has no intrinsic value (unless it’s commodity money). Is money, then, really the thing we want?
It seems fairly obvious that most of us would prefer to have more money as opposed to less. In some ways, this is merely a truism. After-all, who wouldn’t want to be able to buy more goods and services? All other things equal, I’d certainly rather have more money in my life! With that point in mind, I’m not here to deny that material well-being can improve happiness because I believe it certainly can. However, the quest to acquire money can come with hefty spiritual costs that are oft ignored.
As such, I think most of us, when we say we want money, really mean that we want wealth. So what, then, exactly is wealth? Being wealthy means having the actual things, both tangible and intangible, that we want in our lives. An eclectic array of things can make us wealthy (and in many different ways), e.g.,: a place to live, leisure time, a loving family, wonderful friends, gadgets, a creative outlet, and travel.
What's interesting to note is that you can be wealthy without having money. As Kent is fond of saying, "True wealth is not measured by financial means." However, money is needed for some of these things (unless you are bartering) and so to say that money doesn't matter at all isn’t entirely accurate either.
Most of us want the things that money can buy, but often what makes us happiest are the things that money can't buy. Having a healthy balance between these two is the key to being wealthy and it's a different balance for each of us individually.
I think pursuing wealth is the more important thing than pursuing money, but we usually only hear public discourse surrounding money. If what we really want is wealth, why do we waste our lives chasing money? Starting at a very young age, society bombards us with the message that money makes people happy and successful. As you can see, however, this rests on the mistaken assumption that wealth and money are synonymous terms; they’re not.
I think the French political economist, Frédéric Bastiat, would agree with me. He famously wrote:
I cry out against money, just because everybody confounds it, as you did just now, with riches, and that this confusion is the cause of errors and calamities without number. I cry out against it because its function in society is not understood, and very difficult to explain. I cry out against it because it jumbles all ideas, causes the means to be taken for the end, the obstacle for the cause, the alpha for the omega; because its presence in the world, though in itself beneficial, has nevertheless introduced a fatal notion, a perversion of principles, a contradictory theory which in a multitude of forms, has impoverished mankind and deluged the earth with blood. I cry out against it, because I feel that I am incapable of contending against the error to which it has given birth, otherwise than by a long and fastidious dissertation to which no one would listen. Oh! if I could only find a patient and right-thinking listener!
As you can see, the answer to the question I posed at the beginning of this article is both "yes" and "no". However, I think Adam Smith, like me, would be fond of how Tim O’Reilly, founder of O’Reilly Media, thinks about money. "Money is like gasoline during a road trip. You don’t want to run out of gas on your trip, but you’re not doing a tour of gas stations."
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Notes:
[1] We can thank the Phoenicians for inventing metal money.
Related:
Financial Wealth: Real or Perceived?
The Diminishing Marginal Utility of Wealth
