What is Money?

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

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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.