Ben's Talk3G Blog

We're all familiar with the eternal dilemma of whether or not to buy the latest and greatest gadget that has just hit the streets. Money spent on gadgetry, you see, is very hard to recover - you're not making a monitory investment when you buy an iPhone, you're buying it because you need/want it completely aware that it will have no real value within a few years.

Spending money in this way is less of a dilemma and more of a way of life for Talk3G regulars. Hence why the Chinese economy is still growing.

When it comes to trying to be financially secure, the path between money and stuff is exponentially muddier. Money, you see, declines in value if left to it's own devices because of inflation. Sure, you can 'safely' deposit money with a bank and receive a nominal rate of interest that will, at best, remove inflation from the equation but with UK interest rates at a historic low there's little chance of that right now. In fact, as I've discussed previously, hyperinflation with zero interest rates is looking like a real possibility.

Stuff is hardly much better. If your stuff was a chunk of Bradford & Bingley (shares) then last year you got totally hosed. Most usable stuff, such as cars, depreciates rapidly anyway, and the stuff that doesn't over the long term, such as property, is volatile and difficult to convert back into cash in a hurry.

At least desirable property, and land, does have the benefit of being in relatively limited supply - unlike some commodities where the limitation of supply has to be enforced by criminal cartels in order to create artificial value. I wouldn't put it past science and technology making a serious mark on most commodities in the coming decades - I mean look at oil, if we finally make that leap to electric vehicles then the profit forecasts at Shell and BP look a bit more wonky.

For most people, I think, a good deal of financial security comes through owning some or all of their own house. I'd certainly rate owning a large chunk of my house over having a large amount of cash.

But that's all about a person's situation. If you're trying to buy your first property then money beats cash because you'll need it to put down a deposit and buy some furniture. But then, once you've got your property, the 'stuff' becomes more important as you concentrate on owning it outright. Once that is achieved, increasing reserve money/savings becomes important and, finally, stuff starts to win out again as expendable cash can be invested in riskier prospects in the hope of returning more money in the future.

So money wins. Or is it stuff? Typically it's neither, they both go hand in hand throughout most peoples lives. But ultimately, of course, it's stuff that wins - and really there was never any competition.

You see, money/cash such as Sterling is a 'fiat currency'. It has no intrinsic value. The system relies on the control of central authorities, such as the Bank of England and the government, to control the amount of money in circulation and to enforce laws that make it legally equivalent to the perceived value of a good or service. If you want to go the whole hog, money is actually debt. All that money is to you and me is a temporary mechanism for transferring value. If your employer gives you a bonus and you want to buy a car with it, instead of your employer giving you the car they give you the value in cash and you give the value in cash to the car dealer.

We'd all do well to remember that money has no value. It's what you do with it that counts.