Is money expiration fair? Many first time readers of One Month Money have answered this question with a clear “no.” They claim that prohibiting money hoarding is fundamentally unjust, that since we earned our money through hard work we should do with it as we please — splurge, save, stick it under the mattress for forty years, whatever we want.
While I offer a number of counter arguments in the book, one approach was lost in the redrafting process, and it recently came up in a heated discussion with a former colleague. The key question is: why should money I earned forty years ago have value today? In a moneyless world, this would not occur. My goods and services of forty years ago are worth far less or worth nothing at all. My forty-year-old oranges have long since rotted away. Even durable goods like hammers and nails have rusted over four decades. It is only due to our current (and flawed) rules of money that through hoarding we can always ensure our work is worth something long into the future. We haven’t earned it, because that money no longer represents something of real value. We’ve simply exchanged it for something — a piece of paper — that’s a bit too good to be true. It doesn’t spoil, it doesn’t rot, it doesn’t rust.
Now let’s think of how someone transfers their income (the value of their work) to the future in a world without money. One way is to trade our produce for a durable commodity that we hope will maintain its value in the future. Another way is to save. I might lend 10 oranges to a friend and ask to be repaid 18 oranges forty years from now. In this transaction, my friend benefits from the value of my work in the present so I can benefit from the value of his work in the future. I sacrifice today, he sacrifices tomorrow.
The money world equivalent of this transaction requires me to lend my friend money. In forty years, he repays the loan. That money is still worth something because he is sacrificing his real income in order to pay me back. By spending his income, I am cashing in the value of his work. In this case, I truly did earn this money, because my friend benefitted from the value of my work I sacrificed forty years prior.
But when it comes to cash hoarding, something very different is happening. If I put my cash under my mattress, no one benefits from the value of my work in the present. I have not lent anyone my income. So when I decide to spend that cash in forty years’ time, what is it worth? No one is sacrificing their income so I can utilize the value of their work. And if it doesn’t represent the value of something I or someone else produced in the present, then what does it represent? It represents nothing. It is only worth something because our rules of money say it is so.
My key point is this: we need to think of money as representing the value of some underlying real production. If we conceive of money in this way, it is easier to understand why it is fair that our hoarded money should be worthless in the future. Money should represent the value of actual work, not work from half a century ago. The only way we should be able to transfer the value of our work to the future is if we trade it with someone else. They spend our work now, we spend theirs later.
And that’s all that neutral money does: it ensures that every act of saving transfers income to a borrower. The borrower will benefit in the present, and the saver will benefit in the future.