Thursday, February 18, 2010

What money isn't good for

What money isn't good for

Money does two things well: It allows us to exchange goods efficiently, and to compare the price of goods at one point in time. However it is used for other things that it does less well, particularly in times of economic turbulence. Specifically:

You can't move wealth into the future through money.

As a corollary, you can't effectively compare prices across time. This universal assumption of money as a store of wealth and as a way of talking about future prices is one of the "thinking" things that gets us into trouble.
[Of course we all do move wealth into the future through money. When you put $1000 in a suitcase under the bed then you reduce the money supply which makes everybody else's dollars worth more. When you take it out of the suitcase to spend it later then you get your wealth back by making everybody elses dollars worth less. This process works fine on short time frames relative to the economic volatility.]

To take the EROEI idea to its logical conclusion, perhaps the trick is to create an imaginary effective-energy "currency" for talking about future costs.