Chapter 2 - Money Defined

By Richard Valentine Reily, author of Gregory's Hero.


What exactly is money anyhow? Can you define it? Think about that for a moment. Ask anyone; they all have a definition. Money is what you get paid for going to work. Money is what you get when you sell something. Money is what you never have enough of, no matter what you do. Money is what the rich people have. Money is the green paper in your pocket. Money is what you need at the store. But, what is money?

Money is a vehicle for the storage of value; and useful for the transfer of value. Value is created when you provide, produce or deliver a product or service. You are entitled to money when you create value.

Here is an example

Rancher Smith raises cattle. His ranch is in the Midwest and his cattle spend much of the year happily grazing on his endless acres of prairie. Now Rancher Smith likes beef as much as the next guy but even we can see there is no way Rancher Smith is going to be able to eat all that beef!

Down the road a piece, over the last hill just to the west of the river Farmer Jones is driving his tractor dragging his tiller behind across endless acres of prairie planting wheat, barley and soy beans. Farmer Jones is particularly happy atop his huge tractor since the Farmer’s Almanac has predicted this to be a banner year for weather and Farmer Jones expects a bumper crop from all his plantings.

Sure enough the weather holds all spring and summer and as fall approaches Rancher Smith is thrilled at the weight gain of his herd while Farmer Jones is tickled pink at the height of his wheat, barley and soy. Farmer Jones begins his harvest and sure enough is reaping a bumper crop as the weather holds and there is no late rain.

The no rain thing quickly becomes a problem for Rancher Smith’s cattle as the prairie grass rapidly turns brown, dries up and dies. He has a big problem; until one day he is in town, at the barber shop. Rancher Smith is stilling in Mel’s chair getting a trim while Farmer Jones is sitting in Sam’s chair getting a shave. Farmer Jones hears Rancher Smith telling Mel about the grass.

At a pause in the conversation Farmer Jones says to Rancher Smith, “Tell you what I’ll do,” he says. “I’ll give you twenty bushels of grain for each head of cattle you give me.”

Rancer Smith gives that a few moments thought and replies, “That’s mighty generous, but I’d have to have at least thirty bushels of grain for each head.”

“I’ll give you twenty five.”

“Done.”

“Thanks for the shave Sam, what’ll I owe you,” Farmer Jones asks as he gets out of Sam’s chair.

“How about a head of that cattle you are gonna get for your twenty five bushels of grain?”

Farmer Jones considers that for a moment. “Seems a bit steep for a good shave, Sam, though you do give a good shave I’ll admit.

“Tell you what I’ll do Sam,” he says, “I’ll give you the head of cattle, and twenty five bushels of grain and you take care of my shave and trim for the rest of this year.”

“Done!” Sam exclaims happily. Now his family will have bread and meat all winter.

“Ah, excuse me Jones,” came a voice from the third chair in the barber shop that morning. “When can I get the hundred bushels of grain you promised to give me for the seed stock I gave you in the winter for the spring planting?” The banker looked around Rancher Smith to see Farmer Jones in the third chair.

“I have that all sacked up for you in the barn right now,” Farmer Jones called across the shop. “You coming by to get it or you want me to drop it off?”

“Be mighty handy if you drop it off so I don’t have to lug it to my place. But, tell you what, I’ll come by and get it if you would trade me fifty bushels of the grain for one head of the cattle Farmer Smith here is trading to you.”

“Done.”

And so went the dealing that morning in the barber shop.

What were they all doing? Rancher Smith was getting feed for his cattle. Farmer Jones was getting cattle for his feed. Sam was getting cattle and grain for his services. The banker was getting cattle and grain for his lending. But what were they really doing?

They were exchanging value. However, before the value could be exchanged, it had to be created. Without someone first creating the value there is nothing to exchange.

Rancher Smith created value raising his cattle. In the beginning he watched for the cow to come into season. He kept the bull separated until he was sure the cow was ready. He knew when that was because he is a rancher and had learned it from his family. When the cow was ready, he put the bull with her. The mating created a calf, new value for Rancher Smith.

Over the spring and summer Rancher Smith moved the new calves from field to field with the herd and they rapidly grew happily munching on the prairie grass, all the while creating more and more pounds of calves. When it came time to trade some of those cattle for grain to feed the rest, Rancher Smith had created the cattle he was then able to trade to Farmer Jones. He had created value. He had also created more value than he required for himself.

Farmer Jones on down the road near the river planted crops. Before he planted however, he required something to plant. He required seed. Having no seed, he went to the banker who provided the seed in the form of a loan. Farmer Jones would grow the banker’s seed and they would share in the harvest. As Farmer Jones’ crop grew in the good summer weather he created value. He created more value than he required for himself, even after he gave the banker his part of the crop in return for the loan of the seed.

The banker provided the seed. Without it Farmer Jones could not have planted his spring crop. Yet, without Farmer Jones borrowing the banker’s seed, the banker would have had no additional grain at the end of summer; he would have only had the unplanted seed. The banker created value in his willingness to risk his seed in hopes of a return of grain at a later date.

All the while Mel and Sam spent each day in their barber shop cutting, trimming and shaving. With each cut, trim and shave the customer gave them something in return. Mel and Sam created value by providing services to their customers.

All of this seems a bit complicated. After all driving a herd of cattle from Rancher Smith’s place over to Farmer Jones’ place is a chore. Then when they are there Farmer Jones needs a place to keep them and he has to feed them and make sure they stay healthy and… Wait a minute Farmer Jones raises grain. What does he know about cattle? That’s Rancher Smith’s job. And, what is Sam going to do with a live cow anyhow? He’s a barber sure, but is he a butcher?

This is where money comes in.

Rancher Smith begins to realize with the continuing days of no rain that the grass is drying up and he is going to need to feed his herd. Because he is a good rancher and an astute businessman, over the years he has saved up some money from the value he has created in the past.

Farmer Jones sells his bumper crop of grains to the Coop that stores it in the grain elevator in town until a buyer makes a deal and hauls it off. Farmer Jones take money home which he can they use to pay Sam for his shave, and pay the banker for the use of money he loans to by the seed for his planting.

Money is a vehicle for the storage of value. Value is created when you provide, produce or deliver a product or service. You are entitled to money when you create value.

From value evolves wealth.

Over the years Rancher Smith has consistently raised big herds of healthy cattle for which he has been paid high prices. His cattle are known far and wide as the best beef and demand for his top quality beef is strong. Though he has consistently invested in his ranch, buying equipment, new land and veterinarian services the value he creates each year (the money he earns from selling his cattle) exceeds the cost of his ranch and family. Over time he has created wealth. Some years when things aren’t so good Rancher Smith dips into his wealth to keep the ranch running; some years he replenishes his wealth with the return from a particularly good herd.

Farmer Jones had a good crop this year, a bumper crop of which he is rightly proud. But, this crop follows three years of poor crops which he had sold for barely the cost to produce them. This year Farmer Jones had to go to the banker and borrow the money to buy the seed to plant the crop. Had he not borrowed the money he would not have had the bumper crop and missed the opportunity to erase the losses of the three poor years. However, in borrowing the money for his spring planting, he promised to pay the banker interest for the use of his money, further reducing the actual wealth created from his bumper crop.

Sam and Mel opened the barber shop each day and created value through the sale of their services. Each time they cut, trimmed or shaved a customer they were paid for their services and created value. Operating the shop consumed some of the money they earned and what was left became their wealth.

Wealth is left after the expenses of creating value have been paid.