What does money represent?

The smallest unit of wealth represents the smallest unit of work, which is ultimately the extraction of value from the earth.

Money comes from work.

This is the essence of all wealth: markets, assets, trade, invention, speculation, investment, commodities.

The smallest unit of wealth represents the smallest unit of work, which is ultimately the extraction of value from the earth.

We can quantify this smallest unit of work as a single motion: a single swing of an ax, a single stroke of the pick, a single pull of a hoe, a single toss of the hay-fork, a single throw of the spear, a single strike of a hammer. Every single other thing in economics is an abstraction developed from these small, simple actions.

For the purest description of this model, we must go back to the beginning.

A man faced with a plot of wilderness lives at the foundation of economics. At this foundation, it is mostly about survival. In order to feed a family, clothe them, shelter them from the elements, work must be done in order to simply survive. A garden is planted, food is foraged, animals are hunted, animals are domesticated and water is collected.

At some point, a homestead has a surplus of items and a shortage of others: this is where trade comes into play. One fellow is very good at mining rocks, so he trades these rocks with a neighbor who is good at hunting deer.

When enough homesteads have a surplus, facilitators of trade come into play: the village needs a general store, or a traveling tinker selling items here and there. Eventually, specialists develop: blacksmiths and miners and beer-brewers and midwives and barbers and tailors.

Of course, at some point barter becomes impractical, so the first forms of money develop. Money makes work more efficient: it’s a store of value, a medium of exchange, a unit of account. This is the genesis of coinage: a bit of copper, or silver, or gold, things that serve as a permanent representation of work.

Let’s fast forward to today, where it can seem that money can appear without work. It’s a mistaken assumption, because even the most vague and dubious job position is simply an abstraction layered on top of a single “stroke of the ax”. Increasing productivity and efficiency and stability is work: something that allows a single man to extract more value from the earth, like a tractor, only exists because of an almost unimaginable collective amount of work behind it.

A pre-industrial homestead is perhaps the purest form of work. A homesteader is engaging in direct extraction of value from the earth. But the instant this process is improved, it means that an incredible amount of work has been done to enable this improvement. A farmer who buys a tractor can perhaps extract 10,000 times more “value” from the earth, but that efficiency didn’t come from nowhere. The farmer buys the tractor from a dealership, who bought it from a manufacturer, who built it from steel and components, which came from a foundry, which came from an iron mine, which used jackhammers designed by an inventor, who perhaps had the luxury of spending time designing the jackhammer because he was already saved from a life of menial toil by other modern efficiencies.

Perhaps the farmer doesn’t have enough money on hand to buy the tractor outright, so he must leverage himself. This is where the entire financial industry comes into play. An investor, who has a surplus of wealth garnered over the years by previous work, deploys his wealth by offering loans to farmers. This investor sets up a bank, which makes money off risk. They make a calculated risk (this farmer is a productive individual who needs more efficiency) which allows farmers to buy a tractor at the cost of a few percent of interest.

It gets complicated fast. Sometimes these investors borrow money from wealthier investors. These wealthier investors are also putting their surplus at risk, so an entire industry of insurers, auditors, analysts, bookkeepers, security, researchers, and even ivory-towered academics spring up to support the surplus and movement of wealth.

But it all stems from a single thing: work. Extraction of value from the earth.

Every thing that you see around you is the fruit of this labor. If you have the patience and time, you can trace every single asset you see around you back to a single stroke of the ax, where a man chopped down a tree into firewood and then either used it to build his house or trade for food or smelt some iron.

Many of the societal problems of today stem from the fact that our work is abstracted almost beyond recognition. The work, for most of us, is so distant from the actual boots-on-the-ground extraction from the earth, that when you hear about despair or dissatisfaction with jobs or lack of direction, it’s because we no longer see our work as meaningful. It doesn’t feel like survival.

If you are sitting at a desk running numbers in Excel, it doesn’t really feel like extraction of value from the earth. If you are cooking fries in a fast food restaurant, it doesn’t feel like you’re part of the global economy.

Every job that exists is important, in some way or the other, because otherwise it wouldn’t exist. That doesn’t mean that every job should exist, or will exist forever — it just means that it exists now, and plays a part, however small, in the functioning of the world.

This distance from meaningful labor causes a significant amount of understandable frustration, and it’s often amplified at the lower levels of compensation.

And this is where the pragmatic part of pragmatic economics comes into play.

I am sure that the line cook, sweaty, plunging hash browns into the fryer for ten bucks an hour, finds it hard to establish his place in the economy when a line of luxury vehicles circles the restaurant to buy some hash browns with a metal credit card. But the pragmatic reality is that wealth comes from an efficient leverage of time and energy and intellect and work, and the doctor in the Porsche has benefited from that leverage.

It is an interesting pattern that folks who spend their lives in the highest abstractions of work often retire to a life close to the earth. I know of an oddly large number of folks who retired from mostly mid-level positions in Silicon Valley or Wall Street to live on a ranch or a farm, raising cattle or growing orchids or fishing trout. Very few folks retire in order to pursue a higher level of abstraction: with any level of success, they want to get back to the earth. To me this indicates some level of acceptance that abstraction is tough to deal with. Nobody wants to die doing pivot tables in a spreadsheet. (Nobody wants to die making hash browns either).

If you at all agree with this definition of money (that it represents value that ultimately comes from some form of work…even if it’s abstracted work) then it becomes very difficult to accept any form of economics other than capitalism.