What is Money? Where it comes from? An eye opener

We deal with money every day but most people don’t understand the true nature of money. They understand the “currency” they give to the shopkeeper or the “salary” they receive every month but tragically many never understand “money” their entire life. So they end up with a love-hate relationship with money where they love it when it buys them joy and hates it when they don’t have enough. In this blog post, I will share some of my original insights on money and some of my painful unlearning. Fair Warning: My examples are highly over-simplified to explain the concept. You’ll have to empty your mind temporarily of old baggage you might be carrying about money to understand what I’m saying here.

TABLE OF CONTENT

How we get wrong ideas about money

By the time we are born into this world, some people already have more money and others have less money. That is the root of all misunderstanding about money. Because we don’t understand how the world got to be that way by the time we make our entry into the world. So when we see others have more money than our family we only see inequality and feel envy or anger instead of realising the magic of wealth-creation, compounding etc, the exposure to which naturally comes if your family is engaged in business.

• Not helping matters is hearing elders in our family repeat half-truths about money and speculating wildly about how someone made money etc so we grow up biased against money but wanting it nonetheless.
• These days with extremely specialised jobs we are far removed from the source of value-creation that we don’t even understand why we deserve our salary or what purpose our job serves. As a result, we simply feel entitled to a market salary or a bonus regardless of the actual value we added that year.
• As if all this were not enough, the media is full of daily stories of people who got rich(er) by unethical means or due to their closeness to government. So we view anyone who makes a lot of money with suspicion.

The net result is that the basic clarity of what Money/Wealth signifies gets lost in a brain-fog of Maya weaved by society’s collective misperception.

Does anyone remembers their parents telling them this:

Kya paise paid pe ugte hai

How Money is created out of thin air

You work for a company and they pay you a salary. So you got some money “transferred” to you from the company. But how did the company get its money and the person before it and so on till the source of it all? Let’s time-travel to a hypothetical beginning of a caveman who while wandering in the jungle finds a wild banana tree. He likes the taste of the fruit, so he takes a sampling and clears a small area near his cave and plants it there. Over time it grows into a banana tree and gives him about 100 banana fruits on harvest day. Other cave-people know that the banana plant and the fruits “belong” to him since he planted it, watered it, protected it from bad weather and animals. They love the fruit since it is filling, ready-to-eat and can be carried with them wherever they go. They see the value in getting the fruit from our banana-man nearby instead of a dangerous trek to the jungle and lugging back wild bananas. In exchange for bananas, they offer him things of value they “own” like meat, weapons, footwear, farm tools etc. This part most people already know as the Barter System or Exchange of Value.

But what is truly mind-blowing is what happens next.

Our banana-man now understands that he has something very valuable to other cave-people. Someone just gave him a wooden spear the other day in exchange for a whole bunch of bananas. This saved him a whole lot of work trying to make the spear himself from scratch to replace his blunt old spear. Then another fellow just gave him some fresh fish he caught, again for another bunch of bananas. Wow! he thinks…if only I could make more bananas, I could maybe move out of this cave I’m sharing with other people and build myself a house facing the sea. So he offers a cave-buddy a bunch of bananas every month if they help him plant another 10 banana samplings taken from the original tree and take care of watering them, protecting them etc. Within a year, our banana-man’s wealth increases by 10 times since he now has 10 more banana trees!

In the hypothetical society above, banana is the currency people are using to exchange goods and services. Our enterprising cave-man literally “grew” more money by simply planting more banana trees. Talk about money growing on trees! This is what I mean by money getting created “out of thin air”. A year back people were making a long & dangerous trek into the jungle for bananas but just a year later they are getting bananas delivered right at their cave-door.. it wasn’t there before and now it is there as if by magic.

The Big Secret: Money equals your potential to be useful to others

Now, what is the source of our banana-magnate’s wealth here? Is it the bananas he is selling, Is it the banana-making trees he owns or Is it his desire for a sea-facing house and lifestyle he can afford with his banana business? The real source of his wealth is his “enterprise” where he took risks to bet on planting more trees, collaborated with others to maintain them and ensure all the ripe bananas get sold before they go bad. Now not all of the cave-people need to be entrepreneurial to generate wealth. For example,

1.The farm-help that our banana-magnate hired to plant more trees simply exchanged his day-labour to get bananas.

2.The fisherman who sold fish used his fishing skills to get bananas.

Each of these humans used their natural talents to give others what they wanted and got their own wants fulfilled in return.

Your ability to make money is nothing other than your potential to be useful to others. Just as your human potential is limitless so are human desires which means your ability to make money using your potential is also limitless.

-Naren

What does this mean?

• This means that Nobody is stopping you from making more money other than yourself.
• Also, money is not “given” to you by others with more money: You “generate” money out of thin air by giving others what they want. Money merely represents the value you’ve provided others.

Money is simply the external manifestation of the potential that is already inside of you. You just have to bring out your potential as money. It is like speaking.. the words are already inside your mind.. you just bring them out as… Click To Tweet

Homework for Readers

Try and apply the above banana & inner potential concept to understand more sophisticated ideas like

• Is there any limit to the number of bananas that can be planted?
  
• Can you see Compounding at work in the banana farm above?
  
• What if someone has nothing of value to offer to afford a banana? How can this poor person solve their lack of money problem?
  

While answering these questions don’t forget that Money = Your Inner Potential. Otherwise, you will fall into the classic trap of looking only at the bananas and not realizing how they get created in the first place.

Further Reading – if you are interested in how this translates to the real world

Central Banks around the world “create money out of thin air” using the Fractional Reserve System. Think of it simplistically as governments printing money to represent the bananas that “will be” be planted in the future.

How to Make Wealth : http://paulgraham.com/wealth.html

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