Is Money Real?
| May 14, 2012 | Posted by Roshawn Watson under Uncategorized |
By: Roshawn Watson
The other day I noticed “is money real?” scribbled in my notebook. Many of us spend more waking hours at work, preparing for work, complaining about work, and commuting to and from work than enjoying our families and friends. My question is “to what end?”
Consider that a generation ago, single-income households were the norm. Now, two-income households are, but what is interesting is that after you factor in child care, taxes, health insurance, and a separate car for the second spouse to get to work, the typical two-income household has less discretionary income than the single-income households of yesterday, despite earning ~75 percent more gross income. That’s partly because the purchasing power has eroded. In fact, one of the challenges currently plaguing the Euro is that some of the participating countries want to pay off their debts with devalued currencies but can’t because they are tied to the Euro. When these countries issue bonds to raise money, one would hardly expect the market to enthusiastically embrace them. After all, their spending and tax problems are secondary to their credibility (or lack thereof) issues.
That’s because money is only real to the extent that we believe that it is real. The value of money relies on someone else’s interest in receiving it. Consider an area that has been recently ravaged by a natural disaster. Temporarily, canned goods and other foodstuffs may be more scarce and thereby more valuable than than a $20 bill. Money is simply a medium of exchange, nothing more or nothing less.
Moreover, in the present age, money is often not even changing hands directly. Millions can be made from a few hand signals in a trading pit and agreements. Billions can be made from intellectual property, such as merchandising deals and royalties. For example, Cars made a respectable $462 million in the box office; Cars merchandising exceeded $8 billion (16 times box office receipts).
Why Understanding Money Is Not Real Is Important
The financial value of an idea can far exceed perhaps the monetary potential of the most intuitive applications or venues. The Cars example illustrates this point. This brings me to a fascinating concept called the principle of adjacent possibilities. It has been used to describe how innovation occurs. It suggests we innovate when we go from where we are to “the next room.” Imagine if you enter a room, of a castle, that has 5 doors. Each time you walk through one of the 5 doors, you enter another room with 4 new doors. You can only investigate new rooms from the context of the room you left. In other words, innovation is not occurring by “leaps and bounds” but by the next “adjacent possibility.”
Related Article: Through The Looking Glass
This principle explains why some ideas are simply ahead of their time, such as Video Mailbox. What is Video Mailbox? Well, it was the Netflix before there was a Netflix. It offered a VHS by mail service to subscribers for a fee in 1987. Like Netflix, Video Mailbox also provided subscribers a pre-paid mailer to return movies.
Obviously, it didn’t last. Sadly, for Video Mailbox, some ideas are just too revolutionary for their time. In contrast, Netflix still has a market cap of $4 billion at the time of writing this, even after an ill-executed and significant price hike, failed plans to split the company into two (streaming and DVD services), and their loss of Starz content.
If you have a great idea, that’s fantastic. You’re 10% done.
An additional takeaway from the principle of adjacent possibilities is that you are in a castle of expanding possibilities rather than in a conventional (limited) construct. In other words, your potential is limitless. Consider how you would use 10 pounds of iron: I can come up with three different ways to use it which would help you derive 3 different levels of income:
- You can create horseshoes in which case, the iron would be worth $30.
- You could alternatively create needles. In this scenario, the same iron would be worth $300.
- You could create watch springs. The same iron is now valued at $3000.
This is why whenever I hear about someone who is dissatisfied with his or her present, I ask “what future do you see?” Do you see a world of poverty, lack, and abuse, or do you see a world of prosperity, provision, and harmony? In either case, you’re right.
“Think you can, think you can’t… in either case you are right.”
Related Article: 4 Reasons You Should Set Unrealistically High Goals
Now, I recognize we can be more complex. For example, the following parable provides some context to just how challenging choosing a positive outlook can be:
“within me there are two dogs. One dog is mean and evil. The other dog is good. The mean dog constantly fights the good dog. When asked which dog wins, he reflected and said it is the dog that I feed the most.”
Within us, there can be a kind of duality. However, we determine which voice is the most credible. We decide the one we nurture. At some point, we are choosing our financial opportunities or limitations.
Closing Thoughts
In suggesting that money is only as real as someone believes, I am not advocating creating counterfeits bills. I am suggesting that you write your own ticket. This very year could be the year of your uncommon success. After all, what is too much for you? Seriously, is it $5,000 per month? What about $50,000 per month? I remember hearing a keynote speaker a few years ago who was not satisfied with his company’s income. He had devised all sorts of stretch goals to expand it. At the time of the talk, it was $30,000,000 per month. I don’t know what adversity you face to make your dream a reality, but I do know that you cannot listen to the mean and evil dog. I hope you begin your journey towards infinite income potential. I certainly believe that is your possibility, but tell me, what future do you see?
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Image Credit: Images of Money
So much to think about in reading this post, Shawn. I am forwarding it to a good friend who greatly enjoyed your post from a week or so ago on "Why Do the Rich Get Richer?". I think he will enjoy this one even more.
Wow, I'm so honored. Thank you so much Thad!
“Think you can, think you can’t… in either case you are right.” – I love that quote! When you think about it, the quote is spot-on.
Thanks MC,
I love that quote too. When I first heard it, I was absolutely floored. The speaker was dynamic, and it perfectly characterized the ground that he covered during that talk.
I think an interesting thing to remember is how income is pegged to expenditure in a feedback loop. For example, if everyone is willing to spend say 30% of their single-income household income on their home, then when you get a double-income householder the rational action of an aspirational person would be to increase that to 40%. Replicate that action plus the action of moving to double-incomes across a nation and you get maybe a 90% increase in house prices against wages.
The big question is whether that makes you 90% richer or whether you've just given up more time to buy a house that otherwise would have been more affordable. Since your buying the same house you would have done at a 90% premium, I fail to see how you can be any richer for that additional loss of time.
Hi Rob,
I like how you framed that. I think it is VERY important for people to get a handle on their expenditures. Often, at higher incomes, there are such feelings of entitlement that handicap us from making reasonable and straightforward decisions regarding our financial futures. It is all quite sad how often people believe that they have a money problem when in actuality they have a knowledge or wisdom problem. Like you, I am becoming more conscientious regarding my time too.
I remember the phrase from a kids show growing up " i think i can, i think i can…". This is the root of all our success. We need to believe things are possible and we need to believe that we have what it takes to get where we want to go. If we don't we will never succeed. It really is amazing the effect faith can have on our lives.
Great observation! I think people are too quick to dismiss the impact of faith. You have faith in something, regardless of whether you acknowledge it or whether it is immediately evident. That faith is indeed setting the course of your life. Thanks for the great comment.
We are in the midst of a great experiment in fiat currency in the US, and unfortunately this is a question that will be asked more and more often in the coming years. Can we design a currency backed by our word that will last? Another great post, Roshawn!
Hey John,
That is the question. It interesting because there have been so many calls to go back to the gold standard. Oh well, we'll see the results of this experiment yet, but I wonder if we will like what we find.
As a civilization we've moved from sea shells to gold and silver to paper currency and finally to virtual currency in the form of numbers on a computer screen or a piece of paper. It all comes down to what you can buy with it and how much you really need to live happily….. for some people it is 30K a year and others it is 300M a year. At least we don't have to walk a cow down to the supermarket and try to barter it for food.
Haha, that's hilarious. Yes, I am glad I don't have to walk a cow or geese tot he market every week to barter. It's interesting how that works out. It sounds like you are reinforcing the fact that money is simply a medium of exchange. The value in it is for what it provides, whether that be a $30,000/year life or a $300,000,000/year life
All the money in the world won't buy you a loaf of bread if there's no baker willing to produce one for you.
Great point. That's provides a good deal of context. That's why I believe people who are not concerned about others have a hard time becoming rich anyway. It's helping others, making life simpler or somehow better, is what people will pay for.
I like that Drew – and it's so true!
Thanks for the comment!
Sometimes, I feel like you and I must be the same person – because I have totally had this thought (similarly, have you ever said your name out loud so many times that it starts to sound like gobbledygook?). Anyway, paper money is, essentially, worthless. It's only as good as the government that backs it and the other nations that recognize it. It's why a farmer with lots of land, animals, and crops is better off than someone with a million bucks in the bank. The farmer's wealth is tangible; the millionaire's essentially isn't.
Elizabeth, we're definitely on the same wavelength! I think the assumption that paper money is real drives a lot of behavior too. However, tangible wealth based on more than a promise, especially in countries that don't keep their words, is certainly more real than some of the junk that passes for money. Of course, Spain and Greece come to mind as some of the latest countries who have struggled or disregarded their financial responsibilities.
Well, how very interesting. Have you heard about the Thomas theorem? This roughly (and in much less straight foward way) says that everything that has real consequences is real. So, money is real. Is it objective and with set value? No. It's vealue depends on the conventions that we use to set it as a 'universal mediator'. Roshawn I loved your example with the bar of iron. But I would argue that what costs more is not only the iron but also the labour and skill that goes into crafting the different products.
Fiat or commodity currencies are interesting; but it get really exciting when you include labour into the whole matter of money and value. Apart from that, what we use as a means of exchange and the value of money depends on scarcity. In extreme economic situations people resort to bartering – latest example are villages in Greece that have gone completely on bartering systems. In times of famine money is pointless – what has extraordinary value is food.
Money is an idea that can be exchanged for things that are tangible enough. I have PayPal bits somewhere on a server that can be immediately sent to purchase, say a power tool or a DVD… or junk silver coins, another construct of value.
Andrew,
I like this comment. It shows how the power of money no matter what medium, i.e., PayPal. Thanks!
You are right on the money Shawn. Money is just a medium that we can use to make things happen. But, those who dream big don't allow lack of money to make things happen. Money is less relevant to them than to live their dream. I love this quote, "Think you can, think you can’t… in either case you are right"
Shilpan,
"those who dream big don't allow lack of money to make things happen" That's very true. Sometimes we think that we have a financial problem when in truth we have a wisdom, knowledge, or revelation deficit. You can create money (find money in unexpected places) if you know how.
"Consider an area that has been recently ravaged by a natural disaster. Temporarily, canned goods and other foodstuffs may be more scarce and thereby more valuable than than a $20 bill. Money is simply a medium of exchange, nothing more or nothing less"
This paragraph brings to mind pictures from around 1914 – 1924 in Germany when inflation was so rampant that people had to haul around suitcases of paper money just to buy things.
Wow, that's such a powerful image! I had no idea inflation got that crazy then. I would not be mistaken for a historian. I agree that would be a very awkward and sad scenario.
Money is real, depends of each person how to use it, the actual situation is really alarming, for example I have a big loan for pay my college thanks god I have a job to pay for my debt but I had difficult moments when I finished my college studies, for this reason I decide save money because this way all economical problems can be solved, the money is real, but the problem begin in each mind of each person in the world.