It’s strange that even though the average Westerner spends the majority of his/her time chasing after money, so few have taken the time to consider what money is, and what money should be.
What is money?
Money itself has no inherent value, we as a society assign it value through social consensus. All the members of the “society” each have a personal value they associate with a product or service and after time this price gets averaged out.
This happens on many different scales. A small scale example would be a single seller and buyer agreeing on a price for a unique transaction without precedence – in this case the “society” is simply two people, the buyer and the seller. On a much larger scale it could be every person in the world making micro-decisions that impact the value of a good/service.
So, put another way, money is a storer of social value – you give it in exchange for receiving value from society, and receive it in exchange for providing value to society. Providing and receiving value can be simplified further by “solving problems” and “having problems solved for you”.
Two Ways of Making Money
Traditionally there are and have been 2 ways of making money: Creating value and exploiting value.
Ways to CREATE Value in Exchange for Money
Currently the most popular way to provide value in exchange for money is to exchange your time for it in the form of a salaried job. This in my opinion is the worst way of creating value, as it relies on the one commodity you can never get more of. I believe that in 50 years this will no longer be the tried and true route of creating value.
My preferred way of creating value is to innovate. You don’t necessarily have to create an entirely new industry (which is very high-risk, high-reward), but rather use technology to make a process more efficient, convenient, sustainable or cost-effective.
Take Uber for example – it takes a common problem like getting from Point A to Point B, and makes it more efficient, convenient, sustainable AND cost-effective. It is truly creating value. It innovates an industry that was in need of innovation. By doing so it creates another industry that allows anyone to exchange their time for money on their own terms. Eventually this will get innovated further in the form of self-driving cars and all those people will be out of a job, but in the end this is a good thing.
Another example would be Ebooks. Although the price should be much lower (and eventually will be as the market sorts itself out), it happily solves several problems related to publishing and distribution of the written word by making both more convenient, efficient and cost-effective.
I encourage you to think of any industry, and how you could apply technology to make it more efficient, convenient, sustainable (environmental, social , etc) or cost-effective. Then go out and do it.
Beware the time-trap
While attempting to innovate a process you must always be focusing on creating a system that will create value for others without requiring your constant input. Leverage technology to your advantage. A simple example of that would be writing articles on a blog. The articles I write here will continue to be useful to others as I sleep. They will hopefully be solving problems for others in a few years time as well. And this all costs me next to nothing – just the cost of paying for a web server and a domain name.
Ways to EXPLOIT value in exchange for money
Obviously the greatest exploitation of value would be straight up robbery, and I won’t write a section on how to effectively steal from others. I will point out however that there are smaller levels of exploitation constantly happening in the form of exploiting correcting markets.
A correcting market would be one in which the value of a good or service has not yet corrected itself. This often happens as a direct result of innovation, when a new way to solve a traditional problem dramatically reduces the cost of that product.
People naturally use precedence to determine the cost of a product (how much it cost before said innovation), and will initially find it reasonable to pay a similar amount to what they were paying before this innovative solution came about. After time, capitalism manifests itself in the form of competition coming in at lower margins, and eventually the market corrects (unless there are political blocks or monopolies but that’s another subject).
The Ebook example above is a good one, and is a great lesson in the value of being first to market. But this happens on smaller levels too. Outsourcing is a great example. The cost of living is much lower in the Philippines, and you can often get the same value for certain jobs at 1/10 the price as in the United States. You are exploiting the very slow and gradual correction of global economics to do so. My living in Mexico while predominantly earning US dollars from my various businesses is also taking advantage of this same loophole (geographic arbitrage).
I would go as far as to say that having employees work on a per hour basis is also exploiting a correcting market, but one that will take many decades to correct itself. In fact, I see this as morally more questionable then outsourcing, as outsourcing is at least helping to balance out two drastically unbalanced economies.
Eventually the entire world will realize that value should not be exchanged for time, but for now employers will continue to exploit that ignorance. This is why whenever I hire interns from nohat – I always create a compensation program designed to create residual income for their up-front effort, and encourage them to automate whatever processes they can. Those that they cannot automate they are encouraged to outsource.
Exploiting value by taking advantage of corrective markets is not necessarily evil, I have and have had many businesses that could only exist by taking advantage of correcting markets. I simply suggest that you be aware of it when you do it, as every market will eventually correct itself; the only question is how long it will take. People often sabotage themselves because subconsciously they are aware they are exploiting others – so be conscious of this as well.
Which is Better? My Experience
In my experience, every time I’ve tried to make money for the sake of making money and not creating value (getting instead of giving), I have either failed, or the success has been very short-lived. If you find yourself asking “How can I get more money?” stop yourself. Acknowledge the selfishness of the thought, and instead focus on giving – ask “How can I create value?”.
In fact, I’ve found it useful to apply this lesson to daily life as well. Instead of asking “How can I be entertained?” ask yourself how you can create value for others around you. Be like Thomas the Tank Engine and try to be a useful engine.
What would a future like this hold?
Imagine a world where everyone’s go to thought was “How can I create value?” **Queue John Lennon singing softly in the background. Seriously. Imagine a society that had used technology enough to innovate all the needs that currently require continually trading our time.
Money vs Good Will
On a final note, the other form of credit you can receive for helping others is good will. Sometimes this is immediately actionable (you let me crash at your place while traveling), but usually this is something that stocks up.
The new model of online business is “Everything for Free”, as it creates a level of good will that is often worth more than what you would charge for your product/service. The origin of this site is a good example of that. When I first wrote about how I did keyword research and found expired domains, I had no product or service to sell, I only know that I had value to add in this area, and I should add it.
I also know that if and when a time came that I would need support from readers that had extracted value from me, they would happily provide it. The first internships were great examples of that, and now they continue to help NoHatDigital evolve while teaching truly useful skills.