Money Doesn't Grow On Trees, But It Does Talk

Sure, money doesn't grow on trees but so far this saying is one of the best frameworks that I've heard when it comes to framing money in a way that's both intuitive and practically useful.

I think a common saying as such captures something inherent about both scarcity and effort, in that it points out money represents stored energy, time, and resources that someone had to invest.

Unlike natural abundance where an apple tree might produce fruit with minimal ongoing intervention, money is an artificial construct that requires continuous human effort and value creation for its very existence and maintenance.

The monetary system depends on ongoing productivity and exchange between people to retain its meaning and function.

Every dollar represents someone's labor, creativity, or risk-taking, making it a condensed form of human contribution to society.

Of course, this is how it ought to be but the reality doesn't necessarily reflect that at this point in time.

Many Faces Of Money

Over the years, I did pick up on a couple of money frameworks that mostly help in having multiple perspectives on this important currency, each revealing different aspects of how money functions in our lives and the broader economy.

For example, viewing money as a store of value emphasizes its role in preserving purhasing power over time, whereas seeing it as a medium of exchange highlights its function in facilitating transactions.

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One of those that still seems a bit exotic to me is perceiving money as a distributed resource, in terms of information flow and coordination mechanism across a network of participants.

This model suggests that money isn't merely a thing you possess, but rather a signal that carries information about preferences, scarcity, and value throughout an economic system.

An example here could be that when prices of goods or services change, they're essentially broadcasting information about supply and demand conditions, helping coordinate the actions of millions of people who never directly communicate with each other.

Money As Information Highway

If I remember correctly, this model draws heavily from the work of Friedrich Hayek, who argued that prices serve as a distributed information processing system that no central authority could replicate.

In simpler terms, I think it means that every time you spend money, you're essentially voting in a vast, continuous election about what society should produce more or less of.

Your purchase decisions send signals upstream to producers about what's valued, which then influences what gets made, how much gets made, and where resources flow.

Despite explaining it in simpler terms, how it seems exotic to me is that it's a bit far removed from how we traditionally associate with money or utilize it in a practical sense.

When I buy coffee, I'm not consciously thinking about sending price signals or coordinating with global supply chains.

I very well understand this model from a structural perspective with regards to money, but I tend to miss the connecting link between money as a distributed resource and the practical usefulness of that understanding in my daily financial decisions.


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