Money Mindset: Understanding Money

money exchanging hands

Money. It’s a hot topic that weighs on many people’s minds. Maybe you get stressed anytime you even start thinking about money. To help you shift to a more useful frame of mind, check out our articles on Money Mindset.

Money is a means of understanding human value; the goal behind it is to make life easier. Using money adds value to the world. Learning that fact can help you contribute to the economy while also developing a more comfortable relationship with your finances.

The Development of Monetary Systems

There’s a common misconception about money. (Well, really, there are a lot of misconceptions about money, but let’s just focus on this one at the moment.)

People tend to think that the idea of money comes from the bartering system. They think that people invented money as a way to simplify the practice of bartering.

Although a popular belief, that’s not the true history of money.


For one thing, the barter system as we tend to picture it never really existed. Something like “I’ll trade you a cow for a house” wasn’t actually how things were done.

The math doesn’t really work on that. How many cows is a house worth? What if you don’t have enough cows to be worth a house? And what if someone doesn’t want to go into the business of keeping cows?

bartering, perplexed-looking person with a thought bubble with cows and a house inside the thought bubble

You can see how this wouldn’t be a particularly effective system. Yes, money has to do with value exchange, but not in this exact way.

Exchanging Value

Money was always created out of debt. It usually was associated with standing armies. There needed to be ways to exchange value with people whom you didn’t know or didn’t trust.

Lending to someone you don’t know is a lot different than lending to someone whom you do know.

For instance, imagine that you live back in pre-money times and your neighbor is hungry. That’s someone you know. So when your neighbor is hungry, you feed him. Later on, when you are hungry, your neighbor will feed you. This is an example of a debt-based system in which people are regularly lending things to one another.

Money was created as a way to abstract this practice. China had a standing army early on. The army needed to be fed, so there needed to be a way to make that happen.

Picture yourself back in the pre-money period. While you might gladly lend food to your hungry neighbor, it would feel a lot different to lend to a heavily armed soldier who was traveling through your village.

There needed to be a different approach to exchanging value. People had no promise that a traveling soldier would one day repay their generosity. Money offered a way to effectively exchange value.

Money in the US

As we get to know money — and allow that knowledge to shape our relationship with money — it’s useful to learn more about money in our current context. The idea that money comes from debt still holds true today.

In the United States, we are in charge of our currency. So the way it works is that the government goes to the Federal Reserve and says, “Hey, we need currency! We’ll trade you money for bonds.”

Those bonds get swapped, and the money gets implanted in the central banks. Those banks, then, turn around and loan out money. That’s how money gets into circulation.

We use what’s called a fractional-reserve system. It means that, at any given time, there’s nine times more debt in existence than there is currency being created. That alone creates a “scarcity” of money.

Plus, money is loaned out at interest. Imagine that you’re borrowing the first $100 ever in existence, and there’s a 3% interest on it. Where does that $3 come from since there’s only $100 in existence? It comes from loans being extended to other people.

So what you have is this ever-expanding debt. That is the basis of our currency.

How We Think About Money

This may seem like boring economics stuff that has no real relevance to your actual life. I get that, but I’d like to challenge you to view it from a different angle. The better we understand money and how it actually works, the more useful our mindset toward money can become.

I think that this conversation, right here, is the most helpful place for our talk about money mindset to begin.

Musical Chairs

By understanding the Federal Reserve and the fractional-reserve system, what happens in a depression or a recession starts to make more sense. Everyone goes to the bank and tries to pull out their money in one way or another. And there’s just not enough money there.

You’ve played musical chairs, right? There are only so many chairs. The same thing happens with currency. There’s only so much cash. Just as in the game, when the music gets called, there’s a scramble for resources. And when the resource everyone’s grabbing is cash, that can lead to an economic slowdown.

Money in Flow

Maybe that sounds a bit negative to you. I’ll be honest, when I first learned that money was created out of debt, I was like, “Oh, man, it’s doomed. And we’re doomed because of it.”

We’re not necessarily doomed, though. As long as money stays in flow, that never happens.

(Side note: That idea of moving or flowing is built right into the word “currency.” It comes from the Latin word currere, which means “to run.”)

Money doesn’t get used up in the spending of it. As we exchange money from one person to another, it never gets used up. That means that the more we spend, the more value we create.

So think of it this way: Through currency, we can lap our debt — outrun it, pass it — and create value in our currency that’s greater than the debt. The key is to keep it moving.

Abundance vs Scarcity

In very real ways, when you’re afraid of something and spend a lot of thought on it, the more you create that thing in your reality.

So if you’re believing that there isn’t enough money to go around, then you’ll be more inclined to safeguard what is yours. Then, in a real way, you will create scarcity.

It’s not just scarcity for yourself and your restrictions on how you spend money but also scarcity for other people. When fear and worries lead you to limit your spending, you take money out of play when it could be flowing and exchanging hands.

Bare Toilet Paper Shelves

You can look back to 2020 for a concrete example of this. In the early days of the covid pandemic, toilet paper became a hot commodity. You could barely find it on store shelves.

toilet paper shortage during the pandemic

It was never that there was an actual shortage of toilet paper in the world. Manufacturers didn’t quit producing it.

What happened was that, for whatever reason, people believed that toilet paper would be scarce in the world. In response to that belief, they hoarded it.

As a result, there wasn’t enough toilet paper in circulation. When shoppers went to the stores, the shelves were empty. That led to an overvaluing of toilet paper. There were people who needed the product, but they didn’t have it because other people were hoarding it.

The shortage was literally created from the belief that there wasn’t enough toilet paper to go around.

This same thing happens with the economy. When people believe that we’re going into a recession, they pull all their cash out of the banks so that they’ll have hard assets in hand. That activity creates a recession.

Belief in Abundance

It’s not a pleasant thought to believe there isn’t enough money to go around. At least for most people, I don’t think that leads to a very joyful experience in life.

But when you believe that there is enough money to go around and trust that it’s true, then that changes things. Not only does it adjust your outlook, but it also contributes to a reality in which there really is enough to go around.

Sometimes our beliefs about this might get challenged. For instance, you may believe wholeheartedly that there’s enough toilet paper in the world, but when you go to the store and the shelves are bare, you could end up feeling stressed.

The thing I think is useful here is to remember that somebody has that toilet paper. It’s not gone from existence; it’s just not in the place where you’d ordinarily find it. Someone has it, and if you can convince them, somehow, to part with it, then you’ll have toilet paper for wiping.

The same goes for money. It’s out there somewhere — maybe just not where we expect to find it.

But if you can find someone who’s willing to do a value exchange, then you can have money. When enough people have money and are willing to do value exchanges, then the economy gets back on track.

Perhaps you aren’t in a place to shift the entire economy. But you can do your part in your little microcosm. You can show up and negotiate for value exchange, and that will have a trickle-up effect on the economy.

Your first money mindset lesson to take away is that currency is an infinite cycle. When you can get money changing hands, it grows the economy.
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