How to think more rationally about money : It's all about the resources.
October 27, 2017
Imagine what would happen if, suddenly, all the money everywhere simply disappeared. Vanished, into thin air. All the coins, the notes, all the bank account information, all the credit, all the debt, all instantly gone. What has really happened? What has really changed? To an outside observer, everything will appear to have stayed the same. The cars are still there, the buildings the people. Factories, mines, forests and fields remain untouched. Individual people are still the same. Their wants, needs, personalities unchanged, at least at first. If all the money disappears, the amount of real resources remains exactly the same. So what is money then? If it isn’t a resource, if it isn’t a physical thing, then what is it really?
Money is a kind of information, information tied to how resources are allocated and distributed. It is, of course, not a resource in and of itself. If you have a lot of money, you essentially have information that gives you access to a lot of resources. If you have a million US dollars, say, that gives you access to 102,459 bushels of soybeans or 316,456 pound of copper or a small shed on the outskirts of Santa Monica, or a fleet of 14 Tesla Model S cars, or 781.86 oz of gold, which is just 1.26 Liters of gold in volume. The price, or how much money is required for each resource, is related to how much of it is available, how much of it is needed, how much time and effort it takes to produce, is set artificially, or many more possible factors.
So when all the money disappears, what really disappears isn’t the amount of gold, isn’t the wheat, or the Teslas. It is the information that describes who has access to what amount of these things. Money is, in fact only one of many kinds of information that determine resource access. Property rights, mineral rights, laws, even personal values are all systems of information that determine how resources are distributed and used. If you own a car, for example, “Ownership” is just socially and legally accepted information that you alone have access to the resource of that car. It can then be converted back to money if you sell the car to someone else. If money disappears, ownership information won’t necessarily disappear. You wouldn’t have money, but would still have ownership and access to your house, car, and food.
There is an enormous fundamental difference between resource allocation information like money, and the resources themselves. Money itself does not create resources, all it can do is create incentives that change what resources are created and distributed. Think about the difference between buying and building a house, or buying copper vs mining it out of the ground. In the case of buying resources, the total amount available stays the same. The only thing that is changing is resource distribution information. If you build a house or mine copper, new resources are created. There can be plentiful amounts of money, and exchange of resources, but if no new resources are created as the old ones are used up, eventually there will be less and less resources available until there is scarcity, poverty, and shortage no matter how much money exists, even, in fact, if infinite money exists. On an individual scale it is meaningful to have more money, but taking the entire system into account at once the amount of total money is absolutely meaningless. It is only the amount of resources that matters.
So how can this help you think more rationally about money? On a personal level, money can be understood as one possible way to acquire desired resources. First, consider for yourself what resources you actually need to accomplish what you want, and the multiple avenues that can be taken to acquire those resources. For example, if you need food, you could buy food with money, or grow the food yourself, or trade for the food, or work directly for the food. In the special case of growing your own food, you are creating your own resources, so money isn’t needed at all. If you do need money for the resource, think about what the best way is to use money to acquire that resource. What really matters isn’t the money at all, but the resources that you have control over, and if you have the necessary resources to accomplish what you want. Thinking about resources as primary and money as secondary provides a much more rational and meaningful view of what money really is.
On a large, or global scale the amount of money doesn’t really mean anything. What matters is how many resources there are, how they are being distributed, how much is created, and how much is needed. Understanding how money effects the creation and distribution of resources, including individual people’s time and energy, is therefore the important question to ask to understand what money really does on a large scale. Again, the money is only information that effects resource distribution.
So back to what really happens if all the money disappears. Enough resources already exist in the world for everybody to live, in fact there is a lot of waste. Enormous food waste, plastic waste, electronics waste. So the total amount of resources isn’t a problem. Enough is being produced. Enough is available. What will happen is that the way these resources are ultimately distributed will change radically, ultimately what is being produced will change radically. A new way to distribute resources will have to emerge. The question must be asked, now that there is no money, exactly why and how should resources really be distributed? Who should have control over what resources? Who really deserves more resources than others, and exactly why is that. If no way emerges to distribute resources, many will simply starve or go without.
Without money, everyone still needs to eat. To have shelter, clothing, and today energy. To have medicine. In this world without money, suddenly the people who provide these essential resources are the most valuable people in the world, as they provide the resources necessary for people to live. Those that own, control or produce vital resources will have the most power. How do you think the resources of the world would end up distributed if all money vanished?