Tuesday, May 03, 2005


On my time is money blog.

What I said was not earthshaking thought; after all, we have the saying that "time is money". There is a deeper money to that than what is apparent. If you don't see that deeper meaning than you can not fathom inflation and are bound to have a hard time with economics in general.

What is money? It is much more than fancy artwork and is certainly more than the stuff Scrooge McDuck and Thurston Howell III love to be around. The beginning economics student starts off with the basic definition that money is a medium of exchange. That is it is used in lieu of goods or services to obtain other goods or services.

I brew beer and you sanitize telephones. You may want my beer and in order to get me to give my beer to you, you need to give me something I want. Now, rest assured I do not need my telephones sanitized so you have nothing I want. You then have to go around and work out some sort of multiparty agreement to get my beer. This is where money comes in. Money can be valuable on its own but more often than not is some kind of standin and is acceptable to many people. The greenback in and of itself is nothing valuable but it is something most people in the USA and around the world are willing to take in exchange for goods. So you pay me money and I give you beer.

Now the fundamental structure of our economy leads to inflation. Why is this? For the life of me I can not recall the exact mechanics but it has to do with our lending and checking account practices. What the bank loans money and deposits that money into a checking account money is made. I have read that economies that have money based on gold (or similar precious and finite metal rather than an abstract fancy of mind) do not experience inflation.

Mild inflation is expected and it can be dealt with by almost all people. We all expect at least a nominal increase in pay every year, this handles inflation, our food costs rise but as long as those costs rise only nominally everything is okay. Inflation devalues the currency but as long as that inflation is mild our purchasing power should stay the same or increase.

Now back to the time is money. The fact that the price of oil is rising to record levels in current dollars does not mean it is really at a record in terms of real worth. The earning power of people is now a fair amount greater than it was back in the '80s (when it was reported that the real value of oil was at its highest). Think of it in terms of your school days gas no matter how cheap it was, it was still expensive and now you have a good job gas is not a problem. Even at its current price you still fill up when you pull into a gas station, correct?

All prices have to be made in comparison with a person's or a nation's buying power. It probably still takes the same amount of work to go (actually productivity gains work to lower the cost of goods and services over time, but let us neglect them here) to the movie than it did in the 1950s!