I just stumbled on an interesting post over at Moneymonk with a title suggesting that money only exists to be spent.

I disagree. I think money also serves to delineate the wealthy from the broke.

To reiterate the definitions: wealthy means having having enough money to buy everything you want (I’m wealthy), broke means not having enough money to buy everything you need (that’s where you never want to go). Conversely, rich means earning a lot of money (I am not rich compared to my neighbors, but obviously compared to 95% of the rest of the world) and poor means earning little money (I am poor).

Most people think only along the rich–poor dimension, where money exists as a purchasing tool rather than a tool of social control. For instance, have you noticed how the tax laws seem to be written by the wealthy? Capital gains taxes are far less than income taxes for any given level of income.

Despite this, very few people make an attempt at wealth. Many who achieve wealth seem to get into it accidentally by first becoming rich and then not finding ways to spend all their money. The wealthy types are the millionaire next door types: They do not accumulate money to spend it. Now, you can be wealthy without having a million. It just requires spending less than $40,000 a year on things like food, transportation, and shelter. That’s easy enough!

The dominant attitude (which I do not share), that is, money should be spent, is the main reason why I could get out of the rat race so quickly. If money wasn’t being spent so freely, interest rates and financial returns on investments would be much lower and require far more work for those who wish to retire early. Even those who have no debt acts to shift the baseline of expectations of those who are in debt and thus make a larger fraction go into debt. This is similar to how luxury item manufacturers make a few exorbitantly priced items; they do not expect those to sell, rather the point is to change customers’ expectations and allow them to sell they second most expensive item more easily.

Ethically speaking, this is a funny situation. One could say I was taking advantage of people, you know “oppressing the working poor”. One could, however, also say that I am helping the system function. For instance, if I wasn’t lending out my money and investing it, there would be less for other people to spend and it would be harder for companies to, say, build a windmill. It would, however, also be harder for them to build guns. It is really a sword that cuts both ways and ultimately I have little control over what my money gets spent on other than boosting the “energy” of the economic world. Some people think the economic world is bad, so they literally burn the money they earn. I am still confident that that world could change for the better, so I don’t burn my money.

It is a strange situation, so I try not to spend too much time pondering the morality. It basically comes down to whether one believes that other people should be _free_ to engage in behavior that one fundamentally believes is _stupid_. I think everybody agrees that they themselves are pretty smart and should be free to do whatever they want(*). This obviously is a question of politics.

In general left-wingers as a group are pretty smart when it comes to dealing with other people and making their own choices and pretty dumb when it comes to dealing with resource distribution, and hence they believe that they should have their personal freedoms but that the economy should be regulated. Right-wingers as a group are the exact opposite: Good with work and resource distribution but pretty dumb when it comes to understanding other people’s behavior, and hence they believe the latter should be regulated but that the market should be free. The political left–right axis is therefore not so much an indication of people’s orientation as it is about their fundamental skills and experiences. That’s typical politics for you in a nutshell, but I digress.

From my perspective, money still has power which only exists when it is not being spent. I fully, completely, and utterly realize and understand that money is only powerful as long as the social convention that if you give someone your money, they will give your their stuff or provide their services. That is a the liability of money and it is a BIG liability. However, that does not mean it should be spent per se. It means it should be protected.

Originally posted 2009-04-30 11:32:45.