What is Money?

Think of this as Volume 16, Number 37 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.

On my new beat, at Seeking Alpha and
TheStreet.Com, people talk about money all the time.

Money is, in fact, the great mystery of
my working life. What is it?

Is gold money? Is a dollar money? What
makes them money?

What makes them money is that they're a
store of value people understand and accept. There's an assumption
that if the world comes crashing down tomorrow people with gold will
have money but people with paper won't.

I no longer think that's
right, because the only value gold can store is excess value, and if
there's no excess value to store it's not money.

Grain was the original money. Grain was
relatively portable, and it meant life. Grain's calories could be
turned into bread, beer, and leisure. The first vaults were grain
storehouses. Only after there was excess value in grain could people
look for other ways to represent excess value. In that case gold made
sense only because it was shiny, rare, and thus portable.

But the basis of money is that it
represents life. It can control life. It can give life or take life
away. That's how weapons, how hard metals, became money. Because they
could take life away.

In our time we have lots of ways to
measure excess value, because there is a lot of excess value to
measure. The Fed can create more “money” when money is lost
because money is just a store of value. Create too much and it
depreciates. That's the continuing threat of our time, because
immense stores of imaginary value were destroyed in the Great
Recession. Inflation remains tame because money has disappeared,
because authorities are reluctant to act against the people who have
what money there is by making more money.

But money is just an intermediary. The
real value, the real money of our time is energy.

Oil is money today just as grain was
money 4,000 years ago. Those with oil learned this early on, and
found many ways to limit the supply of oil in order to maintain its
value as money. In our time auction markets can keep the value of
this money high, and refining offers another way to maintain
scarcity. Refinery fires this summer have raised the price of gas
despite abundant supplies of oil. Another control point has been
found to keep the price of money high.

What makes renewable energy – energy
from the Sun, the wind, the tides, the waves, the Earth, from crops –
so powerful is that it challenges the money power. You create energy
without oil, and suddenly oil has to compete as a store of value.
Energy is money, and renewable energy is just as much money as energy
from oil or natural gas or coal or nuclear fission. More so, because
you may not have to transport solar power as far.

Within four years most of this country
will reach “crossover,” the point at which solar energy becomes
the cheap energy, the point where putting up solar panels and
amortizing them over time becomes less expensive than turning a
switch onto the present grid, with all its costs for burning and
transmitting power across distances.

What happens then? Money starts losing
its value. With a thumb on energy prices, with real competition in
the marketplace, it's no longer in the interests of those with oil,
gas and coal to hoard supplies. This is a tipping point, from
scarcity to abundance, but what few people have thought about is what
happens afterward?

Sure, demand for solar power production
explodes. Sure, global energy prices are capped, and they start to go
down. They head toward zero. The incremental cost of scaled solar
power decades from now will bring the net price of new energy very
close to zero. It's unimaginable now, but imagine it.

Where, then do we store value?

Here. At the source of what you're
reading. Here, at the source of what you're reading with. Here, in
your mind. And here, in your muscles.

When energy ceases to be a store of
value, labor becomes the store. The value of labor rises as its
scarcity rises. Trained minds that can make connections using the
Internet, the value of potential discovery, these will be the gold
and diamonds of the 2020s. But there will also be copper, in the form
of strong, flexible bodies to do the growing amount of grunt work an
aging society will produce.

So here is your future. Energy is free
but labor is scarce. It's just the opposite of what most people are
looking at right now, but it's inevitable. After crossover, as solar
power becomes increasingly abundant and energy loses its hold over
our economy, the value of trained minds and bodies will rise to
become the store of value.

What will that mean for political
debate? Immigration will become a completely different issue, for one
thing. Demand for reproduction will grow from elites on all sides,
and the relative value of young people will rise exponentially.
Socially, politically, economically, it's a completely different
world from the one you're now living in.

But it's coming. Sooner than you think.