How Money Moves

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We all handle money every day. On the surface, it seems pretty simple. It's not as simple as you might like, but it's simpler than you're probably thinking by now. There's some subtleties that, once understood (and perhaps experimented with), can lead to a real mastery of money. Over the next few articles we'll go over what money is, the principles under which it operates, some more complex systems we've built on top of it, and finally we'll look at some of the wisdom surrounding money from different cultures and eras throughout the world.

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Today you're going to learn a new way of thinking about money, and in the process you'll also discover where this blog got its name. Buckle up, because you're going to have to use your imagination a little bit for this one.

Too many people seem to have the idea that money is a consumable and treat it as such. While understandable to a point, this is not really how money operates. This kind of thinking can lead to bad financial and personal health.

The mindset encourages hoarding, penny-pinching, and distrustfulness of financial institutions and those learned in the handling of money. On the other hand it leads to people chasing larger and larger incomes; this is not bad, in and of itself, but it becomes an obsession and it can actually cause more stress than it relieves.

Money is created and destroyed all the time, but it isn't created when you get your paycheck and it isn't destroyed when you spend it. Money moves through society in a flow, which we call the economy. The overall consequences of this fact are that since flows behave in the fashion they do, money moves through civilization flowing from point to point, wallet to wallet, much like a flow of water would through the land. One word for a body of flowing water is river.

Except that, since money is not water, and water is a very poor analogy for money, we'll have to use some other one for its substance. Traditionally, gold has been strongly associated with wealth and money, so what we have is a river of gold, with this flow of money exhibiting properties such as mass and velocity; sometimes finance overlaps with physics, and it looks really weird when it does, no?

Viewing all money this way changes a couple of things:

  • You always know there's money flowing around you, somewhere. Your income is the portion of that flow that you have channeled into your wallet; your expenses are that which you channel into the hands of others.
  • It's much easier to visualize the flow of money through a larger community like a nation this way. I think this is because, in a mental sense, there's fewer moving parts and everything is much more passive, which makes it more predictable and easier to abstract away.
  • It relieves stress because the analogy is simpler and easier to manipulate mentally, which allows you to solve the same problem in a less tedious way.
I like to picture the flow of money not as a river in the traditional sense, and not as gold in the sense of the substance; to me, the river of gold is the flow of a stream of value through the world. It could be likened to ambient energy or mana, but if that offends your modern sensibilities you can think of money as a field, and the economy is what we call the pattern of disturbances—eddies, currents, ebbs and flows—in that field.

Now, as I've already said, money is not a consumable. Money is only created and destroyed under certain conditions through various yet specific means; spending is not one of them. Money is a resource.

Photo of Man Leaning on Wooden Table
Fig 1: This guy was just told that someone got hold of his debit card and emptied his bank account, and is now wondering how he's going to pay rent and buy food. If you obsess over your bank balance, this could be you. Photo by Andrew Neel from Pexels.

Treating money like a consumable makes it precious to the user. When something is precious to you, you want to keep it, right? This only makes sense, but it also runs afoul of the idea that money is meant to be used in trade for things that are precious, or that you otherwise want or need, it is not itself meant to be held precious. If your income is a constant (it requires no effort on your part to happen) then you don't need to value money and you don't need to worry about your bank balance; so long as you bring in more than you spend it will always fill again!

Couple Walking on Seashore Wearing White Tops during Sunset
Fig 2: This couple have learned to stop valuing money, and now instead value the things it gets them. Note the relaxed and tranquil atmosphere, because they realize money can buy happiness—if it's properly applied. Photo by Asad Photo Maldives from Pexels.

You should absolutely demand maximum value for every dollar spent. After all, time is a factor in your income and so you should try to make the most efficient use of your resource that you can. But attach value to the things your resource can get you instead of the resource itself, and financial decision-making becomes a breeze because then you're forced to appraise each potential use of your resources to discover its net worth; at that point, the most efficient choice should be obvious.

Money has underlying value, but in reality this is often factored into its price. Money that no one wants is of no value; money that everyone wants does not have limitless value, but instead has the value of whatever you can get for it. Money that one person values above all other things is no more valuable to everyone else; in other words, you wanting to hold on to your money won't make it worth more to anyone else.

What this means is that while your money is backed by value (or it should), that value is combined with other certain factors to determine its price. This is how you can gauge what you can actually get for your money. Going back to our house example from before, if the price of the house you want is $100,000, then the price of a dollar could also be expressed as 0.00001 houses. If the currency of your community is houses, dollars are cheap!

If you can give something a price, it clearly has some value, and now, it looks like we're back to ascribing value to our money, which is exactly what I just said you shouldn't be doing. The difference is that the market and underlying value are deciding the price, not us.

This is better, because these things are neutral, and aren't affected by emotions, and behave according to a set of laws that can be strayed from, but ultimately cannot be broken or outran. Letting these natural forces of the money field do the deciding for us takes us out of the equation and provides a clear path forward. These forces are not bound by an upper limit, and so opposing forces will grow to meet each other by an infinite size, and if one force is greater than the other it will never be overpowered. This will drive the price of your money to extremes in either direction. In order to anchor and bind these forces to keep a stable price for our money, we can set the value of our money as a portion of some standard unit of a stable substance that maintains value reliably over a long period of time.

So how does this relate to how money moves? Well, if you remember I compared the idea of money to a physical field. All these factors we've been discussing, could also be called the tensors of this field. These tensors create disturbances in the money field which cause value to flow from one place to another.

There are other things that can affect the economy, chiefly politics and war. Government policy has a profound effect on how money is allowed to move through the economy, and too much regulation will ultimately cause the economy to fizzle out from not having enough freedom to move—much like a nuclear reactor with the control rods all the way in. War also has a tendency to do terrible things to an economy; when the war is on, there is a surplus of jobs and the people prosper—once it's over, or if it's total war and your industrial base is being targeted in earnest, everything turns to crap. Furthermore, if a country becomes too dependent on wartime production, it will need to be embroiled constantly in war on some level, basically in order to dump resources into a grinder so as to justify continuing production.

At any rate, money is a resource that can be used to acquire many things, from simple sustenance to the best the Earth affords. It springs into existence from very specific and well-defined points in the field, and from there its flowing is affected by:

You can see, I'm sure, why viewing money as a consumable is really not very healthy in the long term, and that the way money actually behaves is much more logical, familiar, and—I hope—reassuring. This knowledge has always helped me maintain my drive and focus to widen my income stream, my own River Of Gold.

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