The year is 1870. If you need transportation, a decent horse would cost you about $150. If you wanted to send a message to someone else, the brand new US postage system would cost you 6 cents per letter, the equivalent to $1 today. It would take days, weeks, even months to arrive, depending on distance. Travelling across the Atlantic between New York and Liverpool in style would take 8 days at least, and cost about $60 on a large steam powered ocean liner, or $1080 today.
What if you needed to get from New York to Liverpool in 1 day instead of 8. What if it was life or death, and you were the richest person in the country, John D Rockefeller. Even if you had all the money in the world, all the connections in the world, and all the willpower in the world, in 1870 it was physically impossible to get from one side of the Atlantic to the other in only one day. The airplane, which could easily achieve this feat wouldn’t be invented for another 33 years. No amount of money can buy something that doesn’t yet exist.
What exactly does money do? Money is a kind of social contract that acts as a medium of exchange. The exchange of money grants a person access to resources. Whether those resources be goods, services, land, or human labor. The price, or amount of money needed to gain access to a given resource, is generally determined in a market by the demand for that resource, or how many people want it, and the supply, or how abundant that resource is. A resource that many people want, that is also in short supply will tend to have a high price.
Money is a symbol that represents a portion of the resources of a civilization. The resources that can be accessed with money are limited to the available resources of that civilization. In ancient roman civilization, using the roman currency the sestertii, the only resources you could access would be, of course, those of ancient Rome. Slave labor, bread, fish, a chariot, a short sword or gladius, a horse, or a Villa. No amount sestertii could buy you pure aluminum metal, however, as aluminum was only ever chemically isolated in 1825. No amount of money in ancient Rome could buy you a steam engine, a car, or a cell phone, or antibiotics or vaccines. Those technological resources did not exist then, so they could not be accessed with any amount of money.
Without a society, without a civilization, money is meaningless. Alone on a desert island, there is no one to produce anything, nobody to trade with, so there is nothing for the money to symbolize. Money becomes totally meaningless. On a desert island, money has no ability to increase your effectiveness, so it does not have any value whatsoever, unless you use it to thatch a house. The true value of money, or the ability of money to increase human effectiveness, comes totally from the available resources of a civilization.
If a civilization gains access to more resources, for example if there is an exceptionally large orange harvest, the abundance of oranges will tend to drive the price of oranges down. This means that the exchange of the same amount of money will now grant access to more oranges than before. The true value of money has increased, because the amount of resources it can access has increased. In the same way, if a civilization develops a new technology, for example the airplane, the true value of money increases, because it can now grant access to a technological resource it couldn’t before. Because money is a symbol of a portion of the resources of a civilization, the true value of money represents a portion of the true value of a civilization.
What is the true value of a civilization? It is the total amount of useful resources that the civilization has access to. For example, the skills and knowledge of individual people, the time and energy of people, the food, water, and shelter, the crops, the technologies, the infrastructures. When the total true value of civilization increases, the true value of money increases correspondingly, because this is what the money symbolizes. The distribution of money represents how the access to available resources are distributed. Those with more money access to a higher percentage of the existing resources of civilization. The transfer of money, or saving of money does not create any new true value whatsoever.
Only when additional resources are created, crops are harvested, metals mined, technologies invented and produced, people educated and trained, does the total true value of civilization increase. This means the true value of money increases as well. Think about what resources money can grant access to in 2017 vs 1870. While David Rockefeller, the richest man in the world at the time, couldn’t get from new York to England in a single day no matter how much he spent, today anyone can travel from new York to London in under 7 hours, spending under $700. In 1870, the first automobile had not yet been invented, so no amount of money could buy one. In 2017, for $1000, a used car can be purchased that could easily outpace the fastest horses and transportation available in 1870 for any amount of money. Tropical fruits like mangoes and kiwis that would be almost impossible to find in the US for any amount of money in 1870, are now readily available for small sums. In 2017, the level of technology and trade of our civilization allows our money to grant us access to things that would have been completely unimaginable in 1870, like computers, cell phones, and televisions.
Understanding true value means understanding that money only means anything, only has value because of the generations of hard work, of innovation, creation, and genius of the millions of people that helped build our civilization. Without the roads, the bridges, the factories, mines, and chip production labs, schools, universities, scientists, and engineers, our money wouldn’t represent nearly the wealth of technology and resources we currently have ready access to. Money symbolizes a piece of the total sum of the great machine of human civilization. Therefore, the true value of money is totally derived from the true value of civilization.