By Franklin Sanders
At first it may sound loony, but money and wealth are not identical. Wealth is owning productive assets: fruit trees that produce fruit. Money is simply the fruit, and it may rot on you.
Before coinage was invented, people easily understood wealth as goats, sheep, cattle, orchards, vineyards, all those productive assets that produce something useful (a “stream of revenue” in modern terms). About the seventh century B.C. in Asia Minor, the Lydians invented coinage. Until then almost every economic transaction had to be carried out by barter. If you had goats and you wanted wine, you had to agree with a winemaker how many goats were worth a jug of wine and swap. When they did use silver or gold, they used little odd weight ingots. For every transaction they had to be weighed and their fineness proved.
The Lydians suddenly had an idea that had not occurred to anyone else before. Why don’t we make gold and silver ingots as little beans or discs and stamp the weight and fineness on them? Let the state certify that this bean of gold or silver has good weight and fineness. Coinage was born.
Coinage created a technological and economic revolution, and the nearby Greeks were the technology geeks of their day. Whatever came along new, they readily adopted. Very quickly they understood what coined money could do and how they could use it. Unhappily, they didn’t ponder how profoundly it could change their society.
Greece: Money crowds out wealth
Think about it. Anyone concentrating on wealth must be a producer, but a person concentrating on money and money profits must be a speculator. Maybe he’s a middleman, but still he’s a speculator. Even those who only lend money are gambling temporary use of their money against the borrower’s collateral and the risk they won’t be paid back. That introduces a mentality utterly different to the producer’s, altering society and economy down to the deepest roots. Within a very short time, about 200 years, the Greeks had discovered that money could be used as a tool to enslave people and an economy.
Greek farmers borrowed money. The invention of coinage made this borrowing-lending business much faster and easier, and at very high interest rates. Not only did they pledge their land as collateral, but also their wives and children and even themselves. If they defaulted on the debt, they must hand over their wives and children who were sold into slavery. The farmers, the backbone productive members of Athenian society, were threatened with slavery – literal slavery, not metaphorical.
They were becoming the slaves of those few moneylenders who had quickly amassed most of the money in Athens.
In the midst of this turmoil election time arrived, and a man named Solon ran for the highest office. The bankers thought he was on their side while the debtors thought he was on theirs.
Once elected in 594 B.C., he instituted a law called “the shaking off of burdens.” He decreed, “No more. You can’t pledge your wife and children for debts, you can’t pledge yourself. You can’t pledge land.” He just wiped out the debt, and freed those who had been enslaved. It was a jubilee – all debts were forgiven. (Economywide jubilees are quite common in ancient history, from Sumer forward. Coinage is not necessary to tie up a society in debt bondage; debt-in-kind or any sort of credit can easily do the same.)
As in Greece, so in America
I tell this story not merely to titillate historians, but because the very same thing has happened to America. When a society concentrates on money profits alone rather than wealth and wealth production, everything changes.
Production and speculation produce different economies and different heroes. Simply compare the producer’s mentality — and time horizon — to the speculator’s or gambler’s. Producers and production have declined and are held in contempt, while gamblers and speculators have increased and are lionized and envied.
Most Americans miss the distinction. They have been taught and led to think that the only goal is to make money profit, not to build wealth: what’s the bottom line?
How do production and speculation differ in outcome? It is the difference between widespread, stable, and permanent prosperity on one hand and instability and concentration of economic power on the other.
Much of the money profit comes from federal government credit. This is something that my friend Catherine Fitts talks about quite a bit, the assumption that the federal credit will always be there. That genuinely is a speculator’s gamble because the federal credit is already bankrupt. There isn’t any federal credit. It’s a confidence game that holds together only as long as people have confidence in it.
When we recognize that system’s vulnerability and fragility, we also recognize that system is a parasite. It is the tapeworm. If we don’t want to be a member of the tapeworm, if we want to be a contributing member of a productive society, then we have to alter our goals and how we use our money.
Building wealth: service first
What are the key principles of building wealth? What do I do? How do I do it? The first principle is service.
That’s not sanctimonious cant, it is the most practical answer. How do you convince people to give you their money? You serve them in some way. You give them something that they really need. “Ahh,” you might counter, “the cocaine dealer serves his customers, too.” Right, but he’s serving them something that destroys their lives, quite another matter. You must grasp this fundamental principle: if you serve other people, then you will build wealth.
The producer is a servant, the speculator a parasite. (I won’t get into the argument about the economic value contribution of speculators. Yes, at the margin in small numbers they do contribute to the economy, just as buzzards contribute to the ecosystem, but they are not the point of the system.) Most people look for their security in a pile of money, for instance, bank deposits or an expected pension or 401(k) or IRA. But a pile of money, even though it seems to be the most solid asset, can disappear overnight.
Especially pensions. What about all those people who worked for Enron? They had huge retirement accounts chock-a-block with Enron stock. One day it was worth hundreds of thousands of dollars, and the next day it was worth nothing. The money, the stock, simply vanished overnight.
Invest in yourself
Yet those Enron workers who were actually productive people, who knew how to jump into a situation and organize the human beings there to serve other people, who knew how to serve other people themselves — all of those people could go out the next day and find some kind of work and continue to make a living.
What’s the point? The capital you have in yourself is the greatest capital that you own. That’s your greatest security, and the weightiest and most abiding wealth you own.
From the October 2012 Moneychanger. Used by permission. Franklin Sanders is publisher of The Moneychanger, a privately circulated monthly newsletter that focus on gold and silver and the application of Christianity to economics, culture and family life. We have subscribed to this newsletter for more than 20 years, and consider it a must read. Franklin is an active trader in gold and silver (he’ll swap your green Federal Reserve rectangles and give you real money in return). He trades with savers and investors outside Tennessee. Subscribe to his daily price report and market commentary on the website.