Dollars for Dummies

Just a quick explanation of what money is for those who think the whole concept is evil.

 

If you can make or grow absolutely everything you need, that's great, kudos to you.  Most people can't, and there are probably things you want that even you can't make.

 

Let's play pretend.

You are growing your food.  Where you are, corn grows really well and this season you ended up with more than you need, plus you're just tired of eating corn.  Down the road there's a guy who is set up for growing rice.  You go down to him and say "hey, I'll give you some of my corn if you give me some of your rice".  He agrees and you have just discovered bartering.

 

Next year you go to the neighbor and make the same offer.  He says he can't because he is getting low on rice and the current crop is not quite ready for harvest.  You say "that's okay, I'll give you the corn now and you can give me the rice once you harvest it, you just write me a note so we don't forget".  He agrees, and you have just created a simple and limited form of money.

 

A few years later you're tired of corn AND rice, but you met a guy who grows apples.  You go offer him some corn for apples.  He says no thanks, but he'll trade for some rice if you have some.  You're fresh out of rice though.  Now you could go trade some of your corn for some more rice and then bring that rice over to trade for the apples, but that's a lot of work and you need to spend your time building the things you need to survive.  Then you remember, you have an "IOU" note in your pocket from the rice guy.  You offer him the rice that rice guy owes you.  He trusts you and he trusts the rice guy because you're all neighbors, so he agrees.  Now you realize that these IOU notes have value beyond their specified use.

 

This is great!  You know what would be even better?  If we had an even larger group of people who trusted each other enough to swap these notes as indirect barter for their produce.  Then it would be awesome if we could easily break these notes down into smaller quantities, because your note for thirty bushels of rice doesn't work well when you only want to trade away fifteen bushels of rice.

 

This is how money got started.  Originally money was only good in the local community.  Over time, people wanted to be able to trade with a larger and larger pool of people so they standardized their money to the point we are now where a US dollar is accepted for trade in many places around the world. 

At various times through history attempts were made to make money more universally accepted using materials that many cultures valued such as gold or silver, but that was never really the point of money.

 

The point of money has always been to represent units of work.  That dollar is a representation of your time and labor. 

Say I spent my time and work raising chickens.  You want one of my chickens.  I say I'll give you a chicken if you paint my barn.  You don't want to paint my barn.  Instead you offer me money that represents enough labor to pay someone else to paint my barn. 

Now not all labor is of equal value, you're not going to trade an hour of brain surgery for an hour of lawn mowing, so maybe you didn't want to paint my barn because you know you're bad at it.  It would take you 12 hours but you know I could hire someone else to do it in 6. That's a more efficient exchange rate for you.

 

Money allows you to find a task that you enjoy and do well so that you can avoid having to do the things you don't enjoy and don't do well but that are required to survive.  If you had to farm to survive, you might be so bad at it that you die, but maybe you're really good at baking pies.  You can bake so many pies so well that you can earn enough money to pay others to do your share of farming.

 

Money is a good advancement in society.  The values of labor may be way out of balance (like why do sports players get paid millions to chase balls or why do CEO's get paid millions when they run a company into the ground?) but the concept is good.  Money is one of the reasons society has advanced to the point that you're sitting around reading this on a computer.  Gates and Jobs and Ottman and Suckerberg would never have had time to create the things they are known for if they were busy growing all the food they needed to raise their families.