Money: expectation of future value
Value: effort saved over time
Let’s start with the idea that money can store or transfer value, this doesn’t seem controversial, but it does completely fall apart in one important case. Money can’t be used to store value by yourself. If I have a slice of cake that I really want to eat, that cake has some value to me. Someone could pay me for the slice of cake, if they gave me enough, and I’d have the money instead of the cake. But enjoying the cake is something I can do without help from anyone else, it’s value is inherent in my enjoyment of it. Money on the other hand doesn’t have any value by itself, I can’t enjoy it the way I can enjoy cake. If someone gave me $2 for my slice of cake, I’d have to spend the money to get something I can enjoy first, I couldn’t eat the money or do anything else with it to “unlock” the enjoyment it’s “storing”. Maybe I could buy another slice of cake and enjoy that slice instead.
An even more specific example would be if someone paid me not to buy the cake from me, but paid me not to eat the cake for some amount of time. Let’s say they gave me $1 to not eat the slice of cake for 5 minute. In this case it seems like the cake still has it’s value to me, the money isn’t storing that value for the one minute, the value is still in the cake. So what is the money buying? It’s buying my time, or more specifically my effort, since it wouldn’t take anything to keep me from eating cake I didn’t want.
From my perspective the two examples here might be exactly the same. If I sell my slice of cake for $2 and buy a new one 5 minutes later for $1, or if get I one dollar to not eat the slice of cake for 5 minutes, I end up in the same place. $1 dollar richer in exchange for forgoing cake for 5 minutes. This might not be a likely scenario, but it’s certainly possible, and it illustrates three things about value and money:
- The amount of value that money represents isn’t fixed, two people can have very different ideas of what a worthwhile trade for a dollar is
- The value of money is dependent on at least two people, one person with money can’t do anything useful with it. They need someone else to trade it to, and likely they need a lot of other people who would accept it. All of those people might value a dollar differently
- Money doesn’t store value, it can help exchange valuable things, or it can help to express how much I value something, but it doesn’t hold on to the value of something or someone’s time, that value exists regardless of what happens with the money.
So what does money represent then? It represents someone’s time, or specifically someone’s effort over time. In both examples above what physically happens with the pieces of cake, or how much I value them doesn’t really matter. What matters is how much I value my time, and how much effort it takes me to wait an extra 5 minutes to eat some cake. The money allows me to easily express what that effort for that amount of time is worth to me, and when I accept the money what I have is not some inherent value, but an expectation that I can trade it to someone else in exchange for them putting in effort in to some task.
Anything that has value, whether it’s an object or a service or anything else, has value because someone put effort in to it. The definition of value is “effort over a period of time”, and it can be expressed in a lot of different ways:
- A pencil’s cost is based on the value that represents all the effort that different people put in to creating it, that’s what they’re willing to sell it for
- To me, a pencil has a value because it can reduce my effort to achieve some task, that’s the amount I’m willing to buy it for
- The wood that makes up the pencil has value because someone had to go cut down the trees, and pay someone for the right to do it
- The trees have value because someone planted them and/or protected them for the years that it took to grow
- The land the trees grow on has value because people could use it for other things, and also it takes someone’s effort to keep other people from just using the land without paying for it
- There’s also value in being able to avoid something. If I have too many trees I can pay someone to take them away. Or I can pay extra to get some pencils shipped to me sooner, avoiding the effort of having to wait for them. Or if I want a really fancy and rare pencil (or painting or car) I can buy it and enjoy the value of not having to wish for it.
If something can be achieved or created with no effort or no time, then it doesn’t have value. And the closer anything gets to this idealized situation, the less value it has. The more effort someone has to put in to creating something, or protecting it or transporting it, the more they’re going to want in exchange for giving it up. When you give someone money for their effort, they’re essentially accepting an IOU for someone else’s effort. And the amount of that effort is uncertain because effort can’t be store or transfered, it’s gone as soon as it’s used. The money represents an expectation of future effort, and it has to be someone else’s effort because I can’t consume money directly to reduce my own difficulties.