This pair of posts will highlight some assumptions about and practices with money in order to challenge them.
At a basic level, most people recognize that money is a token representing some amount of effort—people work to “earn” money which is then used to purchase things the ‘worker’ desires; this also means that, as a token, money is meant to be spent. [The word “earn” is loaded with connotations about “worth”, “deserving”, and how society values different professions. While this post will not get into those weeds, it is important to recognize such beliefs as a part of the system.] In part, this means money does not drop from the sky, it always comes from an entity or person. The money you have came from someone who got it from someone else who got it from someone else, ad absurdum. The point being, it does not stay still. The purpose of a token is to be used, since tokens are exchanged for something else. For example, money has no use as food, but can be traded for food. Additionally, because its function is to obtain other items, it is not serving this purpose when hoarded. Of course, someone from a poor background will object that any unspent money must be safeguarded, and rightly so. There is an unceasing need for those savings to be used at a moment's notice, often for essentials. Generally, in such circumstances, it is held against need using the "hiding it in a mattress" method; the mattress is unimportant, as the expression only indicates someplace “secure” enough and easily accessible. Because people who are poor have short and urgent timeframes, this ‘saving’ is insignificant from the viewpoint of economics, as it will be back in circulation soon enough. Once again, the morality of people being made to live in these circumstances must be a separate discussion, despite the need to bring such underlying issues to the surface. The reason for stressing the point about spending is because “saving money” is treated as though it is a positive accomplishment, as well as demonizing those who spend. However, it is possible that this is backwards, and mere marketing. Hoarding tokens serves no purpose but bolstering the ego of the hoarder, after all.
Next we will briefly differentiate the personal from the business activity of economics. Basically, gaining possession of something with the intent to sell it is a business activity rather than a personal one. In keeping with the notion of money as a token, we can use event tickets for our example. Ticket scalpers can give a general sense of how the personal differs from business activity. A person will buy a ticket to attend the event, whereas a scalper has no interest in the event and only wants to profit from the ticket. Money is like those tickets, meant to provide the holder with something the person wants. One major difference is that money is infinitely transferable. Once the money is spent, its purpose is served for that person, and it becomes ready for the next person to use. This also fits with the idea that it is meant to “circulate”, a word to describe spending or making money available to the next person. One thing to note is that while the Economy is reported as Gross Domestic Product (GDP), approximately two-thirds (66%) of this is spending! It is not trivial to focus on the circulation of money as an important part of economics. Finally, we can briefly consider using extra money to invest for profit. It turns out that much of the banking system works to ensure money is available for use through lending. For example, banks do not just lock up everyone's money in a vault and wait for them to come claim it. There is a certain amount that any bank is required by law to "hold in reserve" and make available to customers. The rest is used to lend out, as lines of credit and loans for business, homes, et cetera. Additionally, there are private investors (such as "private equity firms") whose entire business is lending money. This all continues the circulation of money while it is understood that the ‘investor’ (lender of the money) is owed the initial amount plus some extra from the ‘borrower’, or person receiving the money. This is the ‘profit’ of investing, oftentimes based on an interest rate agreed-upon beforehand. The Federal Reserve controls interest rates on most loans with the goal of encouraging or discouraging borrowing, depending on their read of which will maintain stability more effectively. This same federal system supports investors to feel confident in loaning out that money with laws around default on loans, collections, bankruptcy, and such. Not all loans go to individuals, of course. Much of investing has to do with lending money to businesses. Because of this, it is accepted practice that businesses publish accounts of their finances for review, which allows investors to determine the risk of lending money to these companies. All these safeguards create more stability throughout the economic system. This also means that, generally, there are records of where money goes and what is done with it. A few years ago the Panama Papers lent greater context to the importance of this transparency.
In addition to the embedded links, the citation below is a useful source of some of the information used herein.
Bowles, S., Edwards, R., & Roosevelt, F. (2018). Understanding capitalism : competition, command, and change. Oxford University Press.
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