The life of a dollar

Lately, I've heard a lot of "zero sum" talk about the economy. One person even said that the rich people are selfishly hoarding all the money so that there isn't any left for the rest of us. I just want to clear something up: money is not a limited resource, it is a transactional resource. How much is a dollar worth?

That's a stupid question, a dollar is worth a dollar right? What about the physical paper; what is that worth? It depends on how many times it changes hands. Each time a dollar passes from one person to the next, value is created on both sides. There is a trade. The purchaser is gaining a product or service while the seller is gaining money.

There is worth on both sides of the transaction. In each transaction, a dollar retains its value while leaving value behind. The more transactions there are, the more money there is in that society. It is not a limited resource.

A small example will help illustrate this. A man has $1,000 and pays a contractor to improve his bathroom. The contractor now has money and pays a plumber and a finish carpenter to do the work, then keeps some for himself. The value of the man's home increases with the improvements on his bathroom. The plumber buys a TV. The TV store uses the money to pay employees. The carpenter pays his rent. The carpenter's landlord uses the rent money to save for his son's college tuition. The contractor pays someone to mow his lawn... and so on and so on.

Each transaction, each time money changes hands, value is created. The more transactions there are, the more value our money has. Or in other words, the more value people add to other people's lives, the wealthier we all are. If each of us strive to bring the best value (read: products and services) to everyone else, the better we all are.