Money Is An Intermediary
Money Is An Intermediary
We often have a problem with words in the English language. This is no more apparent than when we in the financial independence community talk about retirement. We sing the praises of early retirement but usually do a horrible job defining what that term really means As I have lamented in the past, we kid ourselves with the concept of safe withdrawal rates. Most of us will continue to do work long after we have abandoned the W2 asset class. So what is work? What is employment? These questions are rarely discussed in our community because it is assumed that the meaning of these concepts is the same for different people. I think a bit more clarity is needed.
Work consists of activities we do to create goods and services.
Employment is the act of creating goods and services for another person or business often in exchange for money.
And money is an intermediary.
Work
The nature of work is simple but yet misunderstood. Work is something that we will do all our lives. It never stops. Not even in retirement. At it’s most basic, work is an activity we do to create goods and services. This is true regardless of whether we are doing this work for ourselves or for others. When we are doing it for others, we call it employment. If I wash dishes at a restaurant every weeknight on a regular basis, I have provided a service to the restaurant owner. That owner can pay for this service by either feeding me or providing some other essential good or service in return. Or he can pay me for this service with money. Money is an intermediary.
At home, after eating dinner, I also wash dishes. This is a form of work. In this case, however, I am providing a service for myself. In exchange for doing that work, I get clean dishes as well as forego the necessity of employing someone else to do the activity for me.
Instead of doing it myself, I could ask my wife to do the dishes and agree in exchange to give her a back rub. This may be an even exchange of services without the necessity of money as an intermediary. Or I could pay my son a small sum for doing the dishes.
In all these situations, work is being done.
Employment
Employment is the act of providing goods or services for someone else in exchange for (hopefully) an equivalent amount of goods and services. Taking our example from before, I can exchange my dishwashing to the restaurant owner for dinner or I can ask for money. Money is the intermediary. It is the holder of goods and services till I can exchange them for other goods and services.
Money Is An Intermediary
Money has no value unto itself. It is an intermediary. A holder of goods and services. It is potential energy. When I save up money, I am collecting an I O U that can be spent almost universally. After collecting my paycheck as a dishwasher, I can run over to the local grocery store and exchange my IOU for a gallon of ice cream. I have now transformed my work of doing dishes, into an IOU from my employer in the form of money (an intermediary), which can be exchanged for a good (ice cream) from the owner of the grocery store.
So What Is Retirement?
In my humble opinion, following this reasoning, we can finally come to a reasonable definition of retirement. Retirement is when you have saved up enough of these IOUs in the form of money ( remember money is an intermediary) such that you never have to be employed again. If you are interested in early retirement, you can get there by a few different pathways. You can front load work by providing lots of goods and services early in your career and hold all this potential energy in the form of money as an intermediary. And, or, you can consume markedly fewer goods and services by being frugal. Most of us do a mix of both.
At some point, you will have enough money saved up to cover all your future needs for goods and services minus those you are willing to provide for yourself. This is retirement whether you continue to make money or not.
No matter what, you are still going to work. You are going to do dishes and clean your car. You are going to vacuum the cat hair out of your carpet.
If you are fatFIRE, you may expend some of your intermediary to have others do that for you.
But you won’t escape it altogether.
Money was invented as a convenient way of exchanging services for goods. Back in the old days of direct bartering you would have to make several intermediate steps to potentially get the end product you wanted. It is still not an ideal medium as it is only backed by the issuer of the currency. Think of countries where hyperinflation occurred. In those instances where governments just printed more money the existing money holders got short changed as their former services got devalued. Can it happen in the US? Likely not but still has a slim chance. In one instant all those IOUs you have been stockpiling may not be worth the paper it is printed on
Definitely a good point. Sometimes the intermediary becomes devalued.
I liked the way you put it – “When I save up money, I am collecting an I O U that can be spent almost universally”. I am probably going to quote this somewhere, sometime. Now off to bookmark the article so that I can give you the credit.
Thanks BusyMom. Quote away.
So true. Money is just a store of value. As an engineer the corollary is potential energy.
Not only potential energy but kinetic energy. The definition of work is it’s the first derivative of the energy function. So a delta in kinetic energy, is directly related to work added or subtracted with respect to time. It is in my opinion why you can’t fall off the time money continuum. Time does not equal money directly but proportionately. This is how the economy works. You get up, go add value by your work (and hence your time) to the organization you work for. For that you get paid something less than what your time was worth. The organization pays you something plus it keeps a part for what you cost (taxes benefits) and the company is left with a profit after expenses. If you buy a stock with some of that pay (the result of your work) you now own a piece of the profit. Every day someone gets up and works for you and adds value to your coffers. Owning shares therefore puts you in a different class. You no longer work for money, you own the money machine which generates money, real spendable money from someone else’s work. As a shareholder you take on the risk, same as any business owner of mismanagement, volatility and failure, but as long as you hold shares and stay in business you own the money making machine. You mitigate your risk by owning a lot of companies aka a mutual fund or at least 20 individual issues. The more shares you add regardless of the market valuation over time the richer you become. The reason? Your neighbor likes to eat and he hates the risk of being a business owner so he freely get’s up every day and does work for which he gets paid a sub par amount to fund your money machine. Yea capitalism. Yea owning private enterprise USA. Yea retirement.
Retirement is basically owning enough shares (or share derivatives like bonds) that the money machine pays for your needs and responsibilities (thin fire). If you add luxury then the money machine pays enough for fat fire. This is why it seems work is unrelated to time, but in actuality you have substituted your neighbors work which he is happy to donate, to satisfy your own responsibility. Anything you do or program you vote for that endangers the money machine is an act directly against your own self interest. Homey likes him some self interest. This is not greed. It’s a legitimate social contract.
I like when my neighbors (and investments) work for me. I think the potential energy/kinetic energy metaphor is fitting.
Some very good points there Doc G – money is so ingrained in our capitalist mindsets, we often forget to question what it truly represents. I’m in the camp that money is a tool and some money is needed to be comfortable in the worlds we live in.
Definitely a tool and nothing more.