In the beginning there was Money. Well, not exactly. There was barter. There was a high degree of vertical integration, which is a fancy way of saying if you wanted something back then, it was pretty much up to you to grow it or make it yourself. What trade existed was largely between members of the tribe or village or group. If some guy made a pretty cool hunting knife, and his wife was nagging him for a deer to butcher and eat, a trade of the knife for the deer (or parts of it) might take place. Trading was simple, uncomplicated, and very very slow. Life was brutal and short. At the end of the day, when you had run out of you, you had also run out of future. You aged quickly and died young. When groups of nomads found a place to their liking, they sometimes stayed, settled in, and became agrarian. Society became more complex, and slightly greater specialization of labor became possible. One family could grow things from the soil; another could domesticate animals as a source of meat. There was still no Money.
Trading in this primitive context was still taking place among the so-called Indians on this North American continent when the first Europeans arrived. The native Americans were fascinated with some of the baubles brought over by the Europeans and willingly traded furs for them. Eventually some commodities became so commonplace and essential to daily life in primitive societies that they took on new importance as a means of facilitating trade. Salt, because it was needed by everyone for daily purposes, came to assume more importance as a form of “money” than it formerly had as just salt. Since everyone had salt, and used salt, goods and services were traded using salt as the store of value and medium of exchange between trading partners. The same was true of other things of universal value, including furs. Because of their prized ornamental value and scarcity, gold and silver became universally accepted as Money.
The term store of value is very important. Without some universally accepted warehouse of value that had been produced, all exchange was limited to what could be immediately produced and immediately consumed. No long term planning was possible, and without long term planning, the Industrial Revolution with its complex machines and processes was impossible. Modern society was impossible. The invention of Money was a prerequisite to all the amenities of life as we know it. Without the invention of Money, we would all still be primitives. In spite of Rousseau’s idealization of the Noble Savage, the Garden of Eden it was not. Man was the victim of ignorance, superstition, disease, and unmitigated natural disaster the likes of which are only occasionally experienced today in the poorest parts of the world.
In primitive society, wealth was limited to whatever a person could produce in a day, or a month, or a year of his own individual effort. All other wealth was acquired by confiscating the values produced by others at the point of a spear, or in time, at the end of a gun. All great monuments of history were made possible by the confiscation, not only of others wealth, including their grain, their herds, their tools, but also the confiscation of the people themselves, physically. People became property, to be used and exploited by their conquerors. When Rome was starving because of crop failure, their solution was to conquer Egypt with their legions, make that part of North Africa a vassal state and require them to ship their grain to Rome at prices Rome dictated. You might say that Rome “nationalized” Egypt; Cleopatra, in name at least, still “owned” the means of production, but the prices were dictated by Rome, her Master. For a while, she was able to continue her pretense of being in charge of her country, of being Queen. Then one day Caesar extended an invitation she could not refuse: to come to Rome to visit, as his “guest”. The dress code for the event was a little intimidating–naked, in shackles, to be paraded as the spoils of war through the crowds of Roman rabble and oglers, the nobility and the great unwashed. Cleopatra committed suicide.
I have defined money many times in articles on this blog. Money includes currency; it is a means of exchange and it represents value outside of itself. Money has no intrinsic value; its value is directly related to its general acceptance in the population. Money is a means of measuring wealth, and a store of wealth, but it is not the wealth itself. So what is wealth? Wealth is personal, material property; wealth is accumulated income, earnings, savings (stored as money); wealth is income producing assets. Wealth can be created, earned, dissipated, stored, inherited, accumulated, expropriated. Wealth is always relative; when we say a person is wealthy, we mean in comparison to others. A person on welfare in our society today often lives much, much better than the wealthiest of the so-called robber barons of 100 years ago. How do we compare a poor household of today with a large flat-screen TV, numerous digital toys, e-mail, and air conditioning and a microwave with the rich of the 19th century who did not have indoor plumbing or telephones? When we talk about eliminating poverty in today’s terms, we are using very, very relative terms.
In any context, wealth represents a responsibility and potentially a burden; wealth requires action not only to earn, but also to preserve. If a person’s wealth is greater than he is, he will lose it (or she, of course). Wealth is created by work, primarily the use of one’s mind, and by good judgment. When the mindless inherit wealth, unless there are appointed guardians of that wealth to protect them from their own foolishness, the wealth will diminish and eventually disappear. The most important type of wealth, for the financially literate, is assets that produce income. This is when your wealth is working for you. Ultimately your wealth is measured in time, not money. How long can you survive financially without working, without even getting out of bed in the morning (if you didn’t want to)? Are you one-day wealthy, one month wealthy, one year wealthy, or the rest of your life wealthy? Likewise, whenever the human mind devises a way to produce more goods and services that improve the human condition with less time and effort, wealth is created. Wealth and money are frequently confused, and those who cannot understand the difference are at a serious disadvantage in the competition for limited resources. For a short video on why money is not wealth, go to: http://www.youtube.com/watch?v=9iVebppIIFA