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?
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