The Jobs of Money: More Than Just Cash in Your Pocket

We all use money every day. It’s how we buy food, save for homes, or pay for a bus ride. But have you ever stopped to think about what money really is and what it does? I didn’t. Growing up, money was simply a part of life, like air or water – present, though often in small quantities – but rarely thought about. Even after studying finance and working with investments, the true nature of money remained a mystery to me. It wasn’t until the chaos of the 2008 financial crisis that the question really hit: what is money?

JP Morgan once said, “Gold is money. Everything else is credit.” That simple statement held a deep truth. To understand it, we need to look at money’s three core jobs.

Job #1: Making Trades Easy

Imagine trying to trade your brand-new car for a year’s worth of groceries. It’s complicated, right? Without money, people have to rely on bartering goods and services. Money solves this problem. It acts as a “middleman” in trades. Instead of swapping items directly, you use money, which everyone agrees has value. This makes buying and selling things much faster and easier. Think of it like this: money is the oil that keeps the gears of our economy running smoothly.

This is the top currency layer of money. What we typically think of as money.

Job #2: Saving for Later

Let’s say you work hard and earn more than you need right now. You might want to save some for a rainy day or a big purchase down the road. Money allows you to store that value. But here’s the catch: money needs to keep its value over time. If you save money today, it should be able to buy roughly the same amount of stuff in the future.

This is where things get tricky. Sometimes, the value of money goes down, a problem called inflation. Imagine a house costing $300,000 today, but $1,000,000 in ten years. That’s inflation eating away at your savings. This happens when there’s too much money floating around. It makes it harder to save for the future, especially for big things like houses.

This is the portion of money JP Morgan was referring to in his gold quote.

Job #3: Measuring Worth

Money also helps us compare the value of different things. It acts like a measuring stick. If a video game costs $60 and a book costs $15, you know the game is four times more expensive. This helps us make smart choices about how we spend our money.

But sometimes, the measuring stick gets bent. When powerful people or governments manipulate money, they can distort prices. This is like trying to measure a room with a rubber ruler. It makes it hard to know the true value of things. For example, if the government prints a lot of money, the price of eggs might skyrocket, even though the actual cost of producing eggs hasn’t changed much.

Money Changes Over Time

Throughout history, money systems have changed. Every 30-50 years, the old system breaks down, and a new one takes its place. This happens because those in power tend to abuse the system, leading to too much debt and unfairness.

Right now, many believe we’re in the middle of such a change. The current system, based on the U.S. dollar as the currency and oil properties as the savings of the value layer, is showing signs of strain. In finance, we call it the Petrodollar System. That’s why you hear a lot about Bitcoin and other digital currencies. People are looking for a new foundation for money that’s harder to manipulate. The new generation of internet entrepreneurs and investors sees Bitcoin as the foundational savings layer, and other cryptocurrencies, integrated with the dollar, as the other layers of money that allow for easy trading. Over the last couple of years, the old financial guard has awakened in different stages and jumped on board, pulling politicians around the world along with them from both sides of the aisle.

Understanding money’s three jobs is crucial. It helps us see how the economy works and why things like inflation and financial crises happen. By understanding these basics, we can make better decisions about our own money and participate in shaping the future of our financial world.”

More from the Money101 Series:

Part 1: A History of Money: From Goldsmiths to Bitcoin

Phillip Washington, Jr. is a registered investment advisor. The information presented is for educational purposes only and is not intended as an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. It is essential to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future results.