January 15, 2024
Yes, artificial intelligence (AI) will help human entrepreneurs and investors make money by providing super smart and super cheap labor with which to produce valuable products and services. AI bots are the new slaves. AI will most likely rise to rank as the top human invention of all times. Money and religion will be remain as close contenders.
In this article, some Creatix thoughts to develop intelligence (problem-solving ability) about money. Smart readers and listeners will gather that money is all economic valuation and becoming wealthy is about accumulating valuable property rights (VPR). The best way of making money is working, investing, and producing ("WIPing) until you die.
Yes, making money is all about "WIPings" to accumulate valuable property rights. If you don't believe Creatix, believe Taylor Swift who has been re-recording her albums to regain property rights over her music. She had sold the intellectual property rights to her first albums and came to regret that decision. By re-recording them, she is gaining VPR over her talent again. Interesting note for sure.
Below are some Creatix thoughts about what is money, where money comes from, how is money created nowadays, how to make money, and how AI can help entrepreneurs and investors make money in the next five years. Enjoy. Create intelligence. Let us know what you think.
Part I. What is Money? A valuation and payment technology
Money means so many different things to so many people that its hard to settle on a definition. Let's begin with the obvious, which relates neatly to AI. Like AI, money is 100% artificial. That is, money is a human invention. Money is a product of human innovation rather than a creation of non-human nature.
Money is an accounting technology (tool and method) for economic valuation, satisfaction of debts (payments), storage of value (savings) and the resultant accumulation of economic value (wealth). That is, money is a tool and method to negotiate prices for products and services, facilitate commercial exchange of voluntary services and tradable property rights, account for payments, and account for savings and the resultant accumulation of wealth.
Money concretizes the very abstract and subjective concept of economic valuation, which like money itself is also a product of human imagination. Nothing has any value outside of human imagination. Nothing has any economic value other than the value ascribed by humans. Money helps humans agree on a fictional intersubjective validation of the human abstraction of economic value.
By providing for a means for valuation, money facilitates trade (i.e. the commercial exchange of property rights), credit (loans), satisfaction of debts (payments), storage of value (savings), and accumulation of net worth (wealth).
Money is simply a convenient valuation technology (tool and method for value accounting) as primitive and simple as arithmetic counting. Money allows humans to score or account for the economic value of property in an intersubjective way. That is, economic valuation is always a subjective matter product of human imagination, but it requires not only the subjective valuation of the seller or the buyer, but their common intersubjective valuation plus in many instances the validation of many other market participants and stakeholders.
Money remains a fiction, but like gods and religion, when the fiction is accepted by many, it works as true, or at least as valid for practical purposes. In the case of money, validity is established by the government declaring a specific form of money (e.g. the dollar in the US) as the legal tender for the satisfaction and payment of all debts. In the United States, no merchant or bank is allowed to deny accepting the dollar as a valid form of payment. In addition to governments, banks play a critical role in maintaining the operational fiction of money in place to facilitate financial transactions and the trading of property rights.
Knowing that money is an artificial human invention based on the reflection of perceived economic value is the first step in beginning to free the human mind from mental traps about money. Knowing what money truly is (an instrument of valuation) can help humans focus on figuring out ways of making more money.
Money is unlimited. It is a reflection of the economic value of "stuff" and stuff is unlimited.
The human world is full of stuff. The universe is practically infinite and humanity's creative imagination is infinitely larger than reality. There are no limits to the amount of stuff that humans can imagine and create. All that "stuff" can be valued economically. Any human, even the poorest one today, can imagine and create something of tremendous economic value like a Taylor Swift song. Money is the unlimited scoring system or accounting technology (tool and method) employed by humans to score economic value or account for economic valuation. By the way, all that "stuff" that humans can create and value is referred to as property. Property is generally classified in three categories: personal (mobile), real (inmobile), and intellectual (know how).
Money is a reflection of economic value. Just like a mirror reflection or a shadow relates to an object placed under light, money is the reflection of value placed under the light of human opinion. Money is anything that can be used as a reflection of economic value. Money is whatever humans within an economy can agree and validate as an agreeable method for valuation, accounting, payment, storage of value, and representation of wealth. As stated above, throughout history money has taken various forms including commodities, coins, paper notes, and electronic digits.
History of Money as Currency
Money as a token of value or currency can be anything (commodities, coins, paper, digits on a computer) that it is widely accepted in an economy for accounting for prices, sales, loans, payments, and savings. Throughout human history and in the different regions of the planet, money has taken different forms. From sea shells, cocoa seeds, minerals, metals, paper notes, and electronic digits have all served as money.
- Commodities. Certain items with either intrinsic or extrinsic representative value, such as precious metals (gold, silver, copper), salt, shells, or other commodities, prayers, or sacrifices were accepted as a medium of exchange or at least as forms of accounting for the value of trade. Anything could serve as money provided that it would be widely accepted as form of payment and satisfaction of debts. Most likely than not, government sanctioning or enforcement by rulers was a key element of the viability of money.
- Metallic Coins. As trade expanded, humans started minting standardized metallic coins with designated representative values. The use of metal for money can be traced back to Babylon, prior to 2000 BCE. However, standardization and certification in the form of coins did not occur until the 7th century BCE. Historians generally ascribe the first use of coined money to Croesus, king of Lydia, a state in Anatolia (in modern-day Turkey), known as the Lydian Kingdom. Ancient civilizations, including the Greeks, Romans, and Chinese minted metallic coins as money. In China, gold coins were first standardized during the Qin Dynasty (221-207 BCE). From around the 4th century BCE, bronze coins produced by alloying copper with tin were also used as money throughout Europe and the Middle East, especially to facilitate trade of lesser value.
- Paper Notes. As trade kept growing and expanding, carrying large amounts of metal coins became impractical. Paper money emerged as a more convenient form of monetary currency. The first recorded use of paper money was in China in the 7th century. Gradually, paper money sanctioned by rulers and banks became a global norm. Banks also issued notes that became acceptable forms of currency for the payment of debts and the validation of savings deposits. Initially, paper money represented a claim on an actual commodity such as gold or silver stored in a trusted institution. Over time, governments transitioned to fiat paper money, which is not backed by a physical commodity. The Song Dynasty in China is credited with issuing the first known fiat currency in the 12th century when they nationalized a system of private promissory notes, or letters of credit that were backed by the central government. Fiat money became popular in the 20th century when the United States ceased backing up the dollar with gold reserves.
- Electronic digits. In the digital age, electronic payments have become prominent, and are gradually displacing physical paper money or "cash". Money is quickly evolving into an electronic system of digital debits and credits. The evolution of currency forms of money reflects the changing needs of human societies and the adaptive quest for more efficient and effective mediums of exchange. Today, money exists in various forms, including metallic coins, paper notes, and digital or electronic equivalents, each serving the purpose of facilitating economic trade in human economies.
Part II. Where Does Money Come From?
The Origins of Money: When a Gift Goes Viral.
Money is a gift gone viral. Creatix suggests that money derives from the universal human custom of gift giving and trading. Even more primitive primates such as chimpanzees engage in gifting as a proxy for trading or exchanging favors. Chimps have been found to trade gifts of fruits and nuts in return for favors, including carnal ones. Humans say that prostitution is the oldest profession, and there could be some truth to that. In any event, there is plenty of evidence that gift giving (including sacrifices to imaginary gods and supernatural forces was endemic and natural in almost all human groups, tribes, and civilizations. Naturally, due to human psychology, some gifts are more popular than others. Some gifts lend themselves to their eventual adoption as currency. Nuts, edible seeds, precious shells, rocks, minerals, and scarce commodities likely evolved into popular gifts to elicit profitable trading.
Money is as old as gift giving. The effectiveness of some gifts to motivate reciprocal favors in the form of voluntary labor or transfers of property rights (trade) likely led to the gradual development of money as currency for economic exchange.
Money is better than the alternative. Money goes hand in hand with the concept of voluntary labor and private property. Voluntary labor such having an artisan prepare a craft for you requires a gift or payment of some sort. Once private property rights are recognized and trading of those property rights is allowed, there is also a need for suitable gift giving to motivate the voluntary trade. The alternative to voluntary trade is forced one by the use of violence and war.
Money is a peacemaker.
Need is the mother of invention. The need for universally or at least commonly accepted gift that would motivate voluntary labor and trade without violence or war likely led to the development of money. Some types of gifts became universally acceptable in the community and evolved into "money" as common units of measurement of economic value. These monetary gifts proved convenient because they facilitated voluntary exchanges of labor pacts and transfers of property rights. The alternative to monetary gifts was to use force to compel labor (e.g. slavery) or compel trade (e.g. theft and rampage). Money is a peacemaker.
As soons as humans began trading labor and property rights, popular and widely accepted gifts likely evolved into the concept of money and monetary currency. Humans could then logically began to use units of money or currency to deduct the relative economic value of different offerings in the marketplace. Money evolved from gifts that became acceptable units of measure of economic value.
Money is a derivative of power. It is a derivative of political power, which usually derives from military power, or the power to kill. Money is a peacemaker because it can be used to obtain products and services voluntarily from vendors and producers without having to force them or kill them.
What about barter? Debunking the Barter Economy Myth
There was never a barter economy. In the 1700s, European scholars tried to explain the origins of money. They rationalized that ancient civilizations must had begun exchanging goods and services directly (i.e. bartering) without relying on an independent method of valuation. For example, someone would trade 100 chickens for a cow, or 10 eggs for a steak. European scholars further rationalized that the inherent limitations in ancient bartering economies such as the need for a double coincidence of wants (both parties must want what the other has) and difficulties in determining the value of different goods and services, led to the gradual transition from bartering to using money.
The barter story was cute and made some sense. However, it was an invention product of human imagination. There is no evidence whatsoever that any ancient human society ever used barter without having an independent method of valuation. There is no evidence that humans ever developed barter-based economies without having first figured out the use of a common method of accounting and valuation. Anthropologists have looked and looked, and have never found any evidence of ancient barter economies that precede the use of money.
There is no historic or anthropological evidence of money-less economies. The sheer complexity of a pure barter economy where every single trade would need to be in kind based on fractional and relative valuations per transaction suggests that a barter economy never existed. Money is as old as trade itself and most likey evolved from the human (and pre-human) customs and traditions of gift giving to promote voluntary exchanges of products and services.
Part III. How is Money Created Nowadays?
Credit: The Gift that Keeps Giving
In addition to facilitating trade, or as a corollary of that trade function, money also facilitates the establishment of credit (loans). Credit adds the time dimension to the timeless fiction of money. Credit provides money in the present in return for a promise of repayment in the future.
Using credit, banks create money out of nowhere. All it takes is for banks to account for the credit (and the newly created money) in their accounting books. For that, banks use their fantastic creation of double entry books, accounting for creation of money as a debit on one side of the book as money leaving the bank, and as a credit on the other side as an account receivable (money expected to return upon repayment).
Credit is Kueeng
Credit is the "kueeng" (gender neutral king and queen) of money creation. Credit is to money what sex is to population; a driver of exponential growth by default. Banks create new money out of nowhere not unlike human couples create babies. Banks are in business precisely to create money out of nowhere by making loans. The business of banks is to create money by making loans.
Banks make money charging interest from loans and charging fees to borrowers and customers. The expertise of banks is to generate good loans that are repaid back with interest and after years of money handling fees. Good banks are those that are good at evaluating credit to make good loans that are paid back with interest after many fees. Good banks create win-win scenarios for their clients, keeping them for many years if not a lifetime. In the meantime, the monetary supply generally keeps increasing just as population keeps growing and economies keep expanding.
Prudence and Discipline in Money Creation.
Although banks can and do create money out of nowhere by making loans, banks strive to make good credit decisions and stay in business by avoiding overlending or having borrowers defaulting on their loans. To make prudent credit (and money-creating) decisions, banks generally require adequate collateral to secure loans and generally evaluate carefully the creditworthiness or repayment capacity of potential borrowers.
Regardless of nay prudence in lending (and creating new money), the fact remains that banks are licensed (authorized by law) and in business to create money out of nowhere by making loans. Historically banks were required to keep at least 10% in reserves against loans. That is, to loan out $1 billion in total, banks had to hold at least $100M in deposited reserves. Since the COVID19 pandemic, in the US the requirement for bank reserves was reduced to 0%. Banks still strive to keep adequate reserves to score well in audits and to make sure that they can continue operations including making payments and returning deposits to clients making withdrawals or leaving the bank.
The role of banks in the money creation cycle.
Central Banks
The magic of artificial money creation by credit expansion is typically initiated by the central government banks, but that is just the tip of iceberg. In the United States, the central bank (Federal Reserve or "Fed") accounts for about 3% of money creation, and commercial banks account for 97% of money creation.
In the United States, for example, when the central bank (the Federal Reserve or "Fed") wants to increase the amount of money circulating in the economy, it conducts what are called open market operations (OMO). Typically this entails buying Treasury bonds, and depositing the funds in bank accounts. Treasury bonds are loans made to the federal government. With the Fed buying Treasuries, the government is essentially lending money to itself, but depositing the funds in banks to increase their deposit reserves. This is done because banks typically loan money out based on the amounts of deposit reserves held. The more deposited reserves, the more banks lend money and create money out of nowhere. Money creation by the Fed is just the tip of the iceberg.
Commercial Banks
When banks lend money, the money they lend did not exist before. It is created out of nowhere. The loan proceeds become a recordable entry into the bank's accounting books. For example, if a borrower wants a $50k loan to buy a car and the bank agrees to the loan, the bank magically creates $50k out of nowhere to pay for the car. The payment becomes a debit and a credit in the bank's accounting book. The bank obtains a promissory note (promise to pay) from the lender plus a security interest in the car. If the borrower defaults on the promise to pay, the bank repossess the car, sells it, and adjust the accounting books with the partial loss. If the borrower pays the loan back, the bank adjusts the book accounting also for the revenue in interest payments.
The same applies when buyers seek loans to buy a house. The bank creates the money out of nowhere, say $500k, by accounting for the debit and corresponding credit in the bank accounting book. The bank obtains a promissory note and a mortgage (enforceable lien) on the house. If the borrowers default on the mortgage, the bank forecloses the house, sells it, and adjusts the books accordingly. Depending on the market conditions, banks may even profit from defaults when the value of the foreclosed house is higher than the amount defaulted on.
The credit business and the artificial creation of money are mind blowingly fascinating. Most money nowadays is created out of nowhere based on credit and the valuation of property rights.
Part IV. What is the Key to Making Money?
Obtaining Valuable Property Rights (VPR) by Working, Investing, and Producing ("WIPing") Until You Die.
Money is all about economic valuation. Market participants and the "powers that be" set the conditions for the relative value of all the "stuff" (products and services) in the marketplace. How much money a human earns for labor, or how much a certain property is worth depends on market conditions in the particular economy. For example, in the United States working as a surgeon pays significantly more than working as a janitor whereas in Cuba surgical services and janitorial services pay the same misery. A house in Beverly Hills, Los Angeles, is more expensive than a similar property in the middle of nowhere. As economies are globalized, some prices are increasingly becoming more standard worldwide. Nonetheless, since market conditions (supply and demand) vary in different regions and different economies, including different tariffs and taxes, there are still marked differences in cost of living worldwide.
In any economy around the world, the opportunity of a human to become wealthy will depend on the underlying legal structure and market conditions. In countries where private property is prohibited, no human will become independently wealthy regardless of talent. Politicians and rulers may live like royalty, but it would be because of corruption and other illegal schemes such as international money laundering. That is a topic for another day. The point is that the ability to become wealthy depends on the circumstances of the relevant economy. Slaves and serfs back in the day around the world could have all the talent in world and be hardworking individuals, but would always be poor by default. This is because the legal system would not allow them to acquire property rights.
Obtaining valuable property rights (VPR) is essential to becoming wealthy. Without obtaining VPR, a human cannot become wealthy or grow their wealth. Think about Taylor Swift and Warren Buffett. They are wealthy because they own VPR. Taylor owns the rights to some of her music recordings (royalties), the rights to endorsement deals, the rights to be paid handsomely for concerts and other performances, the rights to the properties and investments that she has accumulated so far, so on and so forth. Taylor has even re-recorded her albums to regain VPR over them. Warren owns shares in his company and the rights to compensation for working at the company. Warren is constantly buying and selling stocks and shares trying to maximize the economic returns of his VPR.
In free economies like in the United States, humans can obtain VPR by developing economic intelligence (problem solving ability). Economic intelligence is developed by working, investing, and producing ("WIPing").
Work Invest Produce (WIP)
Other than inheriting money, marrying into money, or winning the lottery, the ways to obtain VPR are working, investing, and producing ("WIPing"). Working includes getting a job and working hard to develop intelligence to solve problems for others in return of money. Investing entails acquiring VPR that may keep appreciating (increasing in economic value) over time. You need money to invest. Therefore you need to work and save. Goal should be to invest 50% of your income. If that sounds impossible you are not earning enough or are spending too much. Invest in your education and intelligent skills to increase your income and reduce your expenses until you can live with 50% of your income and invest the rest. Investing is both an art and a science. Invest in learning about it and practice by doing as much as you can. Finally, producing is creating economic value. Rather than living to consume as the majority of humans, dedicate your life to living to produce value. When you create value, other humans will either steal it from you or buy it from you. Buyers will throw money at you to obtain valuable products and services. Keep in mind this simple profit formula V > P > C. The economic value of the prodiuct or service must be higher than its price, which must be higher than it unit cost.
Part V. How can AI Help Humans Make Money in the Next Five Years?
AI bots are the new slaves.
Slavery was inhumane. However, it was popular and prevalent worldwide in all civilizations because it was convenient for slave owners and highly profitable. Human slaves were the quintessential VPR of their times. No wonder that the most successful civilizations and empires in the history of humanity had economies based on slavery. Slaves had a cost of acquisition and sustainment, but did not require paying wages. The same or very similar construct will apply to AI bots in the next five years. Smart human investors and hard working entrepreneurs will find ways of extracting valuable labor and production from AI bots online.
Stay tuned to Creatix. When it comes to AI, the best is yet to come.
Creatix.one, AI for everyone.
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