Last week I wrote about fiat money, and its fantastical symbolic value based purely on a collective faith in our ability to create value – a faith in the human mind. Without any intrinsic value, money can only realize value by interacting with the human mind. So how can we think about this in a more formal way?
To me money is a kind of meta-energy. In physics, energy is defined as the capacity to do work or effect a change – a change in position or form. This is a fairly simple analogy since money can be used to build, distribute and reshape our environment in so many ways. When we lend or invest money, it is largely for this potential. The key word here though is ‘potential’.
The potential energy of a system is typically defined in terms of the relative position of its components – the structural arrangement of a mass or object within a force field. Take for instance the potential energy of a ball that is held at the top of a very steep hill. Its potential energy is not simply its mass but is the product of its mass, the force of the gravitational field and its height or distance from the surface (m x g x h). Place the same ball on the same hill on the moon and its potential energy is immediately less. Out there in space, out of the influence of the gravitational fields, the ball has virtually no potential energy at all.
Money, it occurs to me, is not that different.
The potential energy held in money is not simply its denomination (which would be analogous to mass) but a product of its mass and parameters governing the strength or innovation of the mind to which it is associated (let’s call it mind field, analogous to the gravitational field). Money out of the influence of mind or in a weak mind field similarly lacks potential energy.
And then of course, converting potential energy to kinetic energy is no simple task in the real world, particularly in systems with multiple interacting forces. At the top of the hill the potential energy of the ball is greatest. When we place the ball there we imagine it can race down with great speed, accelerating according to Newton’s laws of motion. It will roll perfectly to rest at its destination realizing every bit of its potential energy as kinetic energy. Remember that kinetic energy is about motion, about the doing of things and the conversion of possibility into reality. It is a function of velocity. With these idealistic hopes we remove the force preventing the ball from rolling and set it in motion. It rolls down chafing against the rough side of the hill (we forgot all about factoring in the friction into our calculation) and much of the potential energy dissipates as heat rather than driving the ball to greater speeds.
And abruptly we may find it stuck on a rock (no one told us that there were rocks in the way!), still holding some potential energy but blocked by a counter force that will forever prevent it from being realized. Not so different from our own entrepreneurial struggles. Like a mass that holds no weight in the absence of gravity the declared denomination of the money we take as entrepreneurs holds no weight in the absence of the innovation of our mind. And its potential energy can only be realized as progress by a favourable interaction with the structural arrangement of the intervening space, the ecosystem in which we attempt to play out our ideas.
So just like the mass of the ball is only one element in the equation of its potential, money is only one element in the equation of progress, an equation that is the product of money and mind and not simply the sum.