What is money? Money is a social resource—the primary social resource. Money has no inherent value of its won, but we assign it value through social agreement. If you have $100, you can withdraw $100 of value from society by spending that money. The reason this works is that we agree by consensus that $100 has a certain value. If we all agreed that money was worthless, it would have no value whatsoever.
Because it’s a social resource, money isn’t a perfect medium of exchange. The value of anything, including money itself, is determined by social consensus. That may be the agreement of only two people, such as when you buy an item from another person. Or it may be the consensus of a large group, such as when you buy or sell stock in public companies.
Although there are serious consequences to doing so, you’re free to opt out of the social contract of money. Most people would find that totally impractical, but the option is available. However, if you still want to take advantage of social resources, you’ll need to create your own social contracts on a case-by-case basis. This could include barter or other forms of exchange, or it could involve leveraging relationships to meet your social needs.
For most of us, the social contract of money is far too advantageous to ignore. While the monetary system certainly isn’t perfect, it’s more efficient than the alternatives. By assigning a monetary value to our social exchanges and by making it easy to transfer money from one person to another, trades can be performed with relative ease. Buying groceries, working at a job, or connecting to the Internet are all examples of social trades, and by consensus all of them are reducible to money. Even money itself can be assigned a price, as anyone in debt can readily attest.
Money is essentially social credit. It’s an IOU from society, enabling you to extract a certain amount of social value whenever you spend it. The more money you have, the more society owes you, and the more value you can extract.
Let’s now consider the truth about what it means to earn money. Since money is a social resource, earning money means acquiring more of that resource. When you spend, you convert money to value; but when you earn, you convert value to money.
One way to earn money is to sell possessions. Take an item and sell it to someone else who wants it and you’ll receive money for it. Another option is to acquire items at one price and turn around and sell them for more than your costs. Companies dig up resources all over the planet and sell them for a profit. For individuals, this approach might take the form of buying objects, stocks, or bonds at one price and selling them at a higher price. Sometimes value is added in the process (which may just be added convenience); other items money is earned through market inefficiencies, whereby one party in a transaction profits from an unbalanced exchange that extracts more value than it provides.
Perhaps the most common way to earn money is to sell your time. Get a job and trade hours for dollars. The greater your ability to deliver social value through your labors, the greater your earning potential becomes. The difference between earning $25 per hour versus $250 per hour is that the latter work has much greater social value. This isn’t anyone’s fault; the difference is due to the social consensus about the value of certain work. Take note of the difference between absolute value and social value. Top competitive athletes may not perform useful societal work in an absolute sense, but their compensation is based on the collectively agreed upon social value of their performance, which currently runs very high.
Another way to earn money is to build a system that earns money for you, such as a business. This is my (Steve Pavlina) personal favority, since it provides much more leverage than selling time. It’s also less risky in the long run, since owning and controlling an income-generating system is more secure than having a job where you can be fired or laid off.
You can also earn money by selling money itself. By investing in assets, you can earn interest, dividends, or appreciation in the form of capital gains.
So far, this is really just common sense, but it’s amazing how easy it is to lose sight of the simple truth that money is a human invention to facilitate the exchange of value. To shun money as something evil or unnecessary is a huge mistake. When properly aligned with truth, love, and power, it becomes a valuable tool of conscious living—one that’s too important to ignore. If you want to live consciously, you must learn to use money intelligently.
* Source: Personal Development for Smart People by Steve Pavlina