Are money and wealth two different things? When writing on money and wealth – and the relation thereof – we sooner or later may ask the following question:  are money and wealth two different things? Most of us identify wealth with money.

When we say that someone is wealthy, we are talking about his net worth, and that means, dollars, rubles, pesos, rials, or any other currency. Whenever we think about economic security we are ultimately thinking about the goods, services and quality of life that we want or need; our thoughts about same,however, are usually translated into plain old money.

O’Reilly publishing is one of the best. It is devoted to excellence, as is shown by the quality of its many computer books. As soon as I saw that Hackers and Painters by Paul Graham was an O’Reilly offering, I decided that it was well worth looking at. Having read a bit of the book at Paulgraham.com, I was not disappointed and would gladly recommend it on the basis of these few passages alone. I will write a longer review as soon as I read the entire work.

Are money and wealth two different things?

In the passage reprinted here the author analyzes money and wealth and shows how they differ. His identification of the former as a means to an end – a means of exchange and a means of moving wealth around – is compelling food for thought, as is his identification of wealth and not money as being the essential thing.

“…This essay is about how to make money by creating wealth and getting paid for it. There are plenty of other ways to get money, including chance, speculation, marriage, inheritance, theft, extortion, fraud, monopoly, graft, lobbying, counterfeiting, and prospecting. Most of the greatest fortunes have probably involved several of these.

The advantage of creating wealth, as a way to get rich, is not just that it’s more legitimate (many of the other methods are now illegal) but that it’s more straightforward. You just have to do something people want.

Money Is Not Wealth

If you want to create wealth, it will help to understand what it is. Wealth is not the same thing as money. [3] Wealth is as old as human history. Far older, in fact; ants have wealth. Money is a comparatively recent invention.

Wealth is the fundamental thing. Wealth is stuff we want: food, clothes, houses, cars, gadgets, travel to interesting places, and so on. You can have wealth without having money. If you had a magic machine that could on command make you a car or cook you dinner or do your laundry, or do anything else you wanted, you wouldn’t need money. Whereas if you were in the middle of Antarctica, where there is nothing to buy, it wouldn’t matter how much money you had.

Wealth is what you want, not money. But if wealth is the important thing, why does everyone talk about making money? It is a kind of shorthand: money is a way of moving wealth, and in practice they are usually interchangeable. But they are not the same thing, and unless you plan to get rich by counterfeiting, talking about making money can make it harder to understand how to make money.

Money is a side effect of specialization. In a specialized society, most of the things you need, you can’t make for yourself. If you want a potato or a pencil or a place to live, you have to get it from someone else.

How do you get the person who grows the potatoes to give you some? By giving him something he wants in return. But you can’t get very far by trading things directly with the people who need them. If you make violins, and none of the local farmers wants one, how will you eat?

The solution societies find, as they get more specialized, is to make the trade into a two-step process. Instead of trading violins directly for potatoes, you trade violins for, say, silver, which you can then trade again for anything else you need. The intermediate stuff– the medium of exchange— can be anything that’s rare and portable. Historically metals have been the most common, but recently we’ve been using a medium of exchange, called the dollar, that doesn’t physically exist. It works as a medium of exchange, however, because its rarity is guaranteed by the U.S. Government.

The advantage of a medium of exchange is that it makes trade work. The disadvantage is that it tends to obscure what trade really means. People think that what a business does is make money. But money is just the intermediate stage– just a shorthand– for whatever people want. What most businesses really do is make wealth. They do something people want.”