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Understanding Money


Money and You

Ever since the King of Lydia held the very first coin in his hands, there has always been someone nearby who was willing to take that coin by fair means or foul. Today's economic system is so complex that it is beyond the understanding of any one person, and yet all of us must somehow learn to master enough of the system to protect our own interests.

Such thinking does not come easily. Money is a totally artificial construct, one that is uniquely human, with no analog anywhere in the animal kingdom. As such, using money is not a natural activity. If you want to understand the monetary system and learn how to use it to your advantage, you must do so deliberately, and you must study, think and practice. If you have a flair for numbers and computation, you will have a definite advantage. If you find arithmetic and abstract reasoning difficult, you are going to have a hard time. Sorry, but that's a fact.

Still, you and I are never going to be called upon to run the U.S. Federal Reserve System, and we don't need to master the arcane minutiae of professional economists. If we are going to protect ourselves, all we really need to understand are the basic principles: What is money? How does it work? and What does it mean to us?

In this essay, I have traced the development of money over the centuries, from barter to commodities to coins to paper money, culminating in our modern system in which virtually all money is stored as intangible computer data.

Money is an idea, one that is based on faith. If I offer to buy something from you for a hundred dollars, you would not agree to the sale unless you had faith that the hundred dollars has value and that it would keep that value.

To say that money is based on faith is not an appeal to the supernatural, for the monetary system does not demand blind faith. The way we use money today is the end product of the activities of a great many intelligent people, and the system has been improved by centuries of trial and error. Moreover, in the last thirty years, the tools we use to deal with money have been significantly enhanced to meet the demands of a fast-moving, computerized society. Even though our monetary system may not be perfect, it does work well, and it is administered as wisely and fairly as possible.

If you are going to use the Internet for buying and selling, it is important that you learn to deal with money as a complete abstraction, one that does not correspond to anything tangible, such as gold, silver or even paper. On the Internet, money can move quickly and silently without leaving a trace— until you get your credit card bill or your brokerage statement. If you aren't firmly grounded in the realities of our modern monetary system, you are going to be at the mercy of the economic forces that swirl around you like invisible demons, manipulating you and desensitizing you in order to take as much of your wealth as they can.

If you don't understand your own motivations, you are going to get into trouble.

As a general rule, the world is a complicated place, and if you don't understand your own motivations, you are going to get into trouble. This is especially true when it comes to money, on or off the Internet. You need to understand, not only how the system works, but how you relate to it and what money means to you personally.

At the beginning of this essay, I described money as a medium of exchange. In this sense, the function of money is to separate the act of buying from the act of selling. You buy something from another person and the money you give him acts as storage, maintaining its value until he decides to buy something.

Because money can store value, it can be saved and accumulated, bringing wealth and luxury to its owner. But money has another, much more important characteristic. In large amounts, money confers power. The larger the amount of money, the more the power. This has always been the case, and it is the main reason why men have always fought over money, and always will fight over money.

In our society, we need money for many reasons: to satisfy our everyday needs, such as food, clothing, shelter and health care; to care for our children; to educate ourselves and our families; to plan for our retirement; to pay our taxes; and so on. When you stop to consider all the important things that money can provide — not to mention wealth, luxury and power — it is no surprise that our feelings regarding money are extremely personal.

Money interacts with the primal, unconscious forces that lay deep within us all. When we are young, money has little meaning in our lives, but as we grow older, money comes to represent security, comfort, power and hope, all of which we need to maintain our mental health in an uncertain and, often, hostile world. Our relationship with money is crucial to how we view the world, which is why I say it behooves us to examine and understand our motivations.

Money can bring security, for example, but only to a limited degree. A real feeling of security must come from deep inside. Some people, perhaps because of their upbringing, never develop an innate feeling that they belong in the world and that everything is working out just fine. As a result, such people are always worried. Watch them and you will see that, in an attempt to make their world secure, they will put in a great deal of time and effort into accumulating far more money than they actually need.

Similarly, money can bring comfort but, again, only to a limited degree. People who, deep down inside, feel unloved, will spend a lifetime fruitlessly looking for a feeling of comfort. For many of these people, money will take the place of love, and they will force their spouses, their friends, and their relatives to prove their love, over and over, by spending money and giving gifts.

Another reason people lust after money is the power it can bring. For people who thrive on power — and there are many of them — accumulating money is an effective way to increase the control they have over their surroundings and over other people. This is why you will see many rich, powerful people — especially men — spend a lifetime pursuing more and more money. Such people are really pursuing power, and power is addictive.

Finally, many people use money in a different way: to create the illusion of hope. For example, they will surround themselves with distractions and possessions, as if the money they spend can make up for the emptiness they feel when they contemplate their lives. In this way, money can act as a diversion, but it will only work temporarily. Eventually, life has a way of catching up to us all.

Life is not always easy. No matter what we do, there will be pain, disappointment, fear, uncertainty, and worry. Eventually, everyone dies, and there is nothing you or anyone else can do about it. This is the human condition, and the biggest challenge we face in life is how to come to terms with our mortality, our weaknesses, and our vulnerabilities.

As you use the Internet, you will find that it is a great place to buy and sell. However, it is a sophisticated environment, one that is difficult to master. Money on the Internet is completely intangible and transactions are transparent, with no physical context whatsoever.

It is important to remember that, deep inside, we all have weaknesses. No one is completely well adjusted, and, at times, everyone uses money for security, comfort, power and hope. This is normal.

If you take the time to examine your needs and your motivations clearly and honestly, you will be able to protect yourself from the forces that only care about your money. Knowing yourself has always been the best way to ensure that no one can take advantage of your weaknesses, your transitory feelings, and your vulnerabilities.

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