How can we understand money? Cash in our pockets is one thing – or on our various devices like phones and computers. It is information, trust between us and the bank and the government, and we can spend it now. The now is crucial to our understanding of different classes of money. Money is sometimes called currency. It is no accident. Because money and time are intimately related.
Here are some other classes of money:
· A credit card with its limits lets you spend today and pay tomorrow. You see immediately how time is involved again. If you fail to pay tomorrow, it will cost you dearly in interest. That is the cost of borrowing on a credit card. This is the worst possible borrowing because the loan is unsecured. It will cost you $20 or more for every $100 you leave on your card balance for a year. The interest is again related to time.
· Loans that are secured will have a lower rate of interest: a car loan, maybe lower than prime rate, a mortgage or line of credit on a house, maybe a touch above prime.
· The loans that are secured imply another type of money, the value of assets. You may own a house worth a million dollars, but you can’t spend that money unless you take a mortgage on the property. You may own a car but you can’t spend it. You can only pay for its operation and maintenance.
· Collections, we may collect money on behalf of someone else. We will get paid for our time and effort, but what we collect is also not ours to spend, because it is someone else’s cash. This is to recognize a liability, something we owe now to another.
· Regular income, payment for what we do, or payments related to the money others made from what we did or what we invested. So: salary, commissions, tips, pensions, stipends fees, sales, supplements, guarantees, dividends, and so on depending on your employment and age.
All the payments may come to your bank or may be accumulated for you to come to your bank at some later time. So some of your taxes fund a pension plan. I.e. you can’t spend it today, until it comes to you after you retire. In that we have loaned this money to government for this purpose, we will expect a return on our investment. Money therefore is also strongly related to trust and faithfulness to each other. Society cannot operate without such trust. That is why some firms are called Trust companies. It is also why the financial collapse of 2008 so hurt many households. People lost trust in each other and in the assets that were being sold for investments.
Some of the things we spend our salaries on are transfers of money to others to do work we feel is useful for society. So our taxes also pay for government services like health, highways, education, social services, justice, and many more. These transactions between us and government are ruled by time also. We prepay taxes and we are fined or charged interest if we fail to pay them on time. One would begin to think that we would like to have our money to ourselves and not want to pay it on things like taxes. People argue over this! So money also touches directly on our needs and desires in real time.
Summary: money you can spend – like cash, money you can’t spend – like an asset that you live in, money you must spend on time, like interest and taxes. All these are defined in relation to time.
What policies should we agree on about these different classes of money? Should money you can spend and money you can’t spend ever be considered equal?