[Back to Money - An Overview]

Introduction

Money has financial value, but so too do many other things.

The value of things in society is constantly increasing, and (in general) we want to be able to trade these things, so too the supply of money within the society needs to be constantly increasing, to remain in step.

Price and Value

We tend to confuse price and value: the price is the amount asked for (or paid) for an item, the value is what the item is worth to the people involved.  In normal circumstances, when you purchase something, there are often several different prices and values involved, even if many of them are never made explicit.  We can list them in order, with the smallest amount first.

For the seller, we have...

• The value to the seller.
• The minimum price it might be sold for.
• The actual price it is sold for.
• The price it is advertised for.

For the buyer, we have...

• The target price.
• The actual price it is bought for.
• The maximum price they would be willing to pay.
• The value to the buyer.

In a normal sale, the owner will not sell unless they receive more than the item is worth more to them, and the purchaser will not buy unless it is worth more to them than they pay for it.   When this happens, the value of the item traded immediately increases, because it is worth more to the new owner.

Of course, not all purchases happen as a free choice, sometimes (as in a 'liquidation sale') the owner cannot keep the item, and sometimes the shelf life of the item is limited, which changes the dynamics.  But, in general, the value of goods in the society increases with every purchase.

Value is also created by farming, manufacturing and entertainment: in each case, people work to create something of value, and which other people are happy to pay for.

Wealth

We happily talk about wealth, and describe a wealthy person as having a lot of money, but it's often not terribly clear what we are really talking about when we say someone has a lot of money.  There is money which can be counted: both real, physical money (coins and notes) and virtual money (numbers in the bank's computer).

But most wealthy people don't actually have a great deal of money - not when you compare it to their 'net value'.  Most of it is held as tiems which can be converted to money if necessary: both real items that can be sold (bars of gold, houses, Ming vases and cars) and virtual items which can be sold (stocks and shares, intellectual property, the 'good will' of a business).  And none of this is actual money - it's only potential money.  You can look up the value of the house - or vase - on the Internet, but you only really know what something is worth when somebody pays you for it.  Most of the wealth of rich people is only a calculation, adding up a set of guesses and estimates of what the various items they own would be worth if they were sold - given a whole bunch of assumptions about the state of the economy and the relevant market.

The real wealth of rich people lies in the belief that others have in their wealth, so banks and businesses are willing to lend them large amounts of money, which they can then use to generate income - which they then pay next to no tax on, using entirely legal tools which are not available to the poor and those who are only moderately wealthy.

Value Beyond Money

There are many things which people value, which do not translate into a financial amount - things like pleasure, convenience and appreciation.  The sun on your face after a long rainy spell, your bus arriving as you reach the busstop, being told that your thoughtful words made a real difference to a person who was struggling.  In talking about money and value, we must not forget that, while money is often needed, the most important things in life cannot be given a financial value.