It is a simple thing that we use every day. Little pieces of paper and metal discs we exchange for the things we need. And yet, nobody can seem to agree on WHAT money really is. The difficulty is that money is not just a physical object, but it is also a SYMBOL…one that has multiple meanings. There are three different ways to look at money:
1. Money as a STOCK
A stock represents something of value. Company stocks, like those sold at the New York Stock Exchange, represent the assets of a company…land, buildings, patents, etc. Money can act like a stock. On a personal level, when a person saves money, it serves to represent the work they have done to earn it. On a nationall level, all the money in the economy represents everything that can be bought using that money.
2. Money as a FLOW
In itself, money has no value…it only serves to represent value. If we were locked in a vault with nothing but a pile of money, we would die. Thus to get our needs met, we must exchange money for the value it represents. Thus when we receive money, it represents a FLOW of value from us to someone else. Our paycheck represents the value that we have given our employer in the form of time and effort. And when we spend that money at a store, it represents the value we have received in return.
3. Money as a PROMISE
Money can represent value that has NOT YET BEEN created. In this way, money acts as a PROMISE to create value. Money can be printed and used to buy capital that can in turn be used to create new value. For example, a person might borrow money to invent a product, start a business, or get an education. This money is called CREDIT and represents value TO BE CREATED.
How we see money affects how we act toward money, and these views can often conflict with one another. If we only see money as a stock, then our goal becomes to collect as much of it as possible. However, if we view money as a flow, then our goal is to get everyone to spend it as fast as possible. If we look at money as a promise, then the goal becomes to constantly pump new money into the system.
Those who favor one view will often be at odds with those who ascribe to another. Those who have a lot of money in savings often look at money as a store of value, while those who invest tend to view it as a flow. Unfortunately, few people today…other than economists…recognize money as a promise. People have forgotten that money can be used to represent goods and services YET TO BE created.