By Keith Weiner
Money has a dual function. Please allow us to go deeper, and more philosophical than we typically do. We promise to tie this into our ongoing discussion of capital consumption. In the following, we will discuss some examples that use the dollar. We are not conceding that the dollar is money (i.e. the most marketable good, or the extinguisher of debt). We just need some simple cases to consider the medium of exchange. Today, that medium is obviously not gold but the dollar.
Money’s first function is flows. People experience this as income. If you work for an hour as a plumber, you might earn $25. If you work for an hour as a lawyer, you might earn $250. If you set up and operate a successful restaurant, you might earn $500,000 in a year. Every job, every profession, and every business earns a certain amount. The market value of everything is finite. These values are set by other market participants, who bid what they are willing to pay for what you do.
Money as Exchange Medium
The dollar is the general medium of exchange. This is how you take what your employer pays you, to buy something from a third party.
At any given moment in time, the market value of everything is fixed. You can take your wage or your profits to any other market participant, and buy whatever he produces. For example, the plumber might exchange an hour of his labor for a meal at the restaurant. Or he could exchange a day of his labor for an hour consultation with that lawyer.
We can abstract away the dollar, and see that there is a finite ratio of exchange of any good or service for any other. A plumbing repair is worth one restaurant meal, or one tenth as much as legal advice.