For the background to this post, please read this companion piece.
Imagine you are alone on a desert island.
You have nothing.
You have a choice.
You can spend the day making money.
You could carve shells into coins. Print banknotes on leaves. Even declare yourself Governor of the Island Bank.
By sunset, you could be a billionaire.
Would you be any better off?
Of course not.
There is nobody to trade with.
No markets.
No banks.
No shops.
Your money would have no purpose.
Or you could spend the day differently.
You could find fresh water.
Build a shelter.
Catch fish.
Light a fire.
Learn which plants are safe to eat.
And, eventually, build a boat.
You would finish the day with no money at all.
But you would have something infinitely more valuable.
You would have transformed the world around you to improve your well-being.
That is the real economy.
Money is not.
In this economy, what matters is energy.
Nobody can say with complete confidence what energy is. Physicists can describe it, measure it and predict how it behaves. But defining it is surprisingly difficult.
Perhaps the simplest answer is this.
Energy is the potential for change.
But energy, by itself, achieves nothing.
It has to be captured.
Stored.
Then crystallised into action, whether by finding the fresh water or building the boat.
A battery is not the point.
The light it powers is.
A reservoir is not the point.
The electricity it generates is.
Energy matters because of the changes it makes possible.
I wonder whether money is much the same.
Money also represents the potential for change, but it, too, has to be captured.
We create it. We save it. We lend it. We borrow it. We tax it. We invest it.
But none of those things is the purpose.
Money, like energy, only matters when it is crystallised into action.
When it helps deliver a home.
A school.
A meal.
A hospital.
A person made well.
A railway.
A work of art.
A cathedral.
A business.
A restored woodland.
In other words, money matters because of the changes it makes possible.
So why do we spend so much time celebrating the accumulation of money instead of the transformation it can create?
The person on the desert island knows the answer instinctively.
They do not survive by making money.
They survive by creating value.
They combine knowledge, imagination, labour, natural resources, and a plan to meet their needs and well-being.
Money cannot do any of that.
It can only help organise those activities when other people are present.
That is why the greatest mistake an economy can make is to confuse money with value.
Money is a means.
Value is created when we transform the world in ways that allow people and nature to flourish.
If we forget that, we begin to optimise the wrong thing.
We protect money instead of protecting the conditions that allow people to live well.
We celebrate wealth while neglecting health.
We defend financial assets while allowing homes, communities and ecosystems to decay.
We maximise the store of potential while failing to realise it.
The result is a strange paradox.
We become richer in money, but poorer in everything that money was supposed to make possible.
The purpose of an economy is not to accumulate the potential for change.
It is to turn that potential into the reality of well-being.
It seems we do not understand this.
More potential is in itself worthless.
What matters is the realisation of all available potential.
Unless economics achieves that goal, it fails.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
[…] This was a theme I already wanted to work on, and Jacqueline then riffed on that conversation, which she had overheard, to relate the issue around money to energy. Sher and I then debated that issue in ways that I, at least, found fascinating, and the result of these conversations, and my desire to explore economics from a different angle, is the experimental piece of writing on potential that I am posting this morning. […]
At some point we elevated the proxy of value above the value itself. This was because it was flexible, being able to represent the value you need rather than maybe being one you did not. It was relatively portable. I was convenient. But what it was not was important without the things underneath.
Energy is one of the needs, and ultimately most problems are energy problems – with enough cheap or free energy starvation and drought can be avoided, and homes and things made, and all the essentials provided.
Just as we have a money distribution problem, we have an energy distribution problem. It is not shared evenly, nor always available in the place it is needed. Like money there is in principle (now at least with renewables) the potential to create and distribute as much energy as needed.
Money might be best used to ensure sufficient energy distribution to all.
Wholly agree with the concept Richard and the premise David. Without wishing to be pedantic, it is actually more about exergy (not energy). Exergy being a fundamental concept in thermodynamics and engineering used to describe (in a somewhat simplified way) the ‘useful work potential’ or quality of energy…which is at the heart of what you have proposed, i.e., be able to feed or water yourself rather than printing money. Politicians seemed to have lost – if they ever had it – focus on sensible, practical and beneficial activities in the interests of society. Or, as Rutger Bregman put it (not an exact quote), get rid of the BS jobs such as management consultants, corporate lawyers, etc., as they don’t actually produce useful work in the interests of society.
Hydrogen – without going into details on it – is an example of politicians not understanding useful work potential or quality of energy and being led up the garden path by vested interests who depend, essentially, on government ignorance. To be clear, properly used, hydrogen is a hugely useful chemical. For some of the uses being pushed by politicians, it is not as most of its useful work potential is used up during processing or liquefaction.
You are right, of course. We over simplified. But using exergy adds enormously to the story, and as the pain relief is working right now, that’s something to do. Thank you. Appreciated.
Exegy seems a good definition to more accurately describe what I mean, and there’s scope to suggest that a lot of what is discussed here about productive wealth, contributions to GDP, impact of austerity, etc. could be covered under a term like Fiscal Exegy.
I’m happy to see Richard outlined exegy to add to the glossary on here.
For a more general audience, however, I’d be cautious about introducing an unfamiliar word. If the implicit interpretation is clear, a less precise but more familiar word may me more effective.
You post out me in mind of that sadly neglected concept the velocity of money – the measure of how many times a unit of currency is used to purchase goods and services within a specific period of time.
I looked up how it has changed since I first studies economics and discovered that since 1980, the velocity of the UK pound has dropped dramatically, from a ratio high of 2.65 to a post covid low of 0.90 in 2022, up to 1.1 2025.
Put another way, while there’s more money than ever before (so much debt), it’s not moving through the economy as it once did. In 1980, every pound created by the banks would generate £2.65 in GDP. Today, that same pound generates only £0.90. Money isn’t flowing.
I have a post I must finsh on this subect – thank you for reminding me.
And, in a similar vein, money is not a perfect store of potential. Overtime the potential of money leaks away; if you keep a big store of money, and you do nothing with it, over time you can do less. So we’re hording money rather than using it to create value, and in the end there is less value.
Another related aspect of your imaginary island is that all the resources are accessible to the castaway. Accumulation of money even in this benighted system would not matter if access to resources was freely available. The reason money matters is that both it and the resources it can buy are privatised. The reason they are held back is of course a matter of power.
Much to agree with
T. A. R. A for the stylistic and analytical power of simplicity in this article!
Might the attached AI piece on the advantages of Socio-economics over Economics be of interest/use?
https://www.google.com/search?q=advantages+of+socio-economics+compared+to+economics&oq=advantages+of+socio-economics+compared+to+economics&gs_lcrp=EgZjaHJvbWUyBggAEEUYOTIHCAEQIRigATIHCAIQIRigATIHCAMQIRigAdIBCjM5NjUzajBqMTWoAgiwAgHxBZuddHtwypD1&sourceid=chrome&ie=UTF-8
Noted, thanks
Daniel Defoe wrote Robinson Crusoe in 1719. In the book, when he has been there some years, a Spanish ship is driven ashore. There are no survivors. In the Captain’s cabin he finds a bag of gold coins. He throws it down in anger. There is nothing to buy. He cries out, ‘I would have given all of it for six pairs of good English shoes and stockings.’
I have used this a number of times, to friends, to show money is not wealth. Goods and services are wealth.
He did have to make economic choices. He can catch a fish a day with a spear but with a net several fish. However, he can’t fish and make a net. So he has to give up fishing for a few days to be able to fish better later.
Basic economics before Adam Smith.
Hope you are getting better, Richard.
Thanks
Not so good today
Very well put.
I don’t think the people who makes the rules that protect the money are making any mistake. They’re protecting the monied class and their claims on the real stuff.
Looking back at Christine Desan’s ‘Making Money: Coin, Currency, and the Making of Capitalism'(2015). The term ‘making money’ is one of the most misleading terms I can think of (not because of Desan BTW) , but because capitalism talks of ‘making money’ all of the time when in fact all it is doing is moving around money that has been made by a sovereign authority.
This was the genius behind the concept of state central banking and the creation of promissory notes (not just relying on coinage) that accelerated the velocity of money and arguably helped a small country like ours dominate much of the world for some time.
What we learn from Britain’s imperial history, and it’s own domestic development – is how useful it was to circulate money widely and through both state/public and private means to create an economy that can also create wealth, stability, security etc., for the greatest number of people.
Contrast that with today’s Neo-liberal view, where we seem to have made an economy to circulate money through increasingly private means (markets) and even make it privately (private bank loans) with state money making being used to support that, whilst we see retrenchment in wider public support.
Effectively then, the circulation of money under Neo-liberalism is being narrowed down to a worthy few at the expense of others, and other areas of the economy will atrophy/swallowed up by becoming privately owned. If Desan charts the birth of a nation, Neo-liberalism charts its death. Those tensions between public and private have always been there, but Neo-liberalism’s bias, along with the fundamental weaknesses of British democracy in favour of wealth accumulators being able to buy into the management of the circulation of the nations money must cease.
I have an article coming on this.
It seems to me that money is being used in several different ways requiring different properties, and perhaps it would be better to separate out into different things.
So, obviously we use money in daily transactions, to swap our bits of paper/electronic numbers for food, services, goods, etc.
We also use money to build the future – money towards making a bridge, taking a few years before we can then use the bridge.
We save money for rainy day – short term liquidity for just in case.
We also use money to save long term – pension funds, where we start 40+ years before we expect to make use of the money saved.
We use money to describe the value of something. The TV in the shop at £399.
We use money to gamble on the stock market. e.g. SPCX, $153.23 at close of 26th June 2026.
We use money to value our time. You might accept a salary paying £20/hr.
Because all of these uses are in Sterling/Dollars/whatever, we effectively equate them all. So the £399 in passive income from an interest bearing account is the same quantitive value as a TV sold for £399, or a 20 hour working week at £20/hr.
Doesn’t it feel like there should be a difference though?
I am struggling to find the point you are making. Sorry.
That is a parable people who think they don’t know about economics can understand. Money can look like status, or a safety-blanket, or the root of all evil, but we then miss its potential, or misuse it, and miss what society could be like if we used it better.
Thanks
I like this lateral thinking!
8 years ago I retired, and and the numbers on various bank statements changed.
I decided to exchange some of the numbers for solar panels and a domestic battery.
As a result, 8 years later, I have a relative independence from electricity prices, and power cuts due to grid instability.
I also turned some of the numbers into high levels of loft insulation and 1100 litres of rain water storage, which is much more use to me than numbers, which are now moving around on other people’s bank statements. I’d rather have cheap reliable electricity, water for my garden, and a warmer house in winter than numbers on my bank statements.
Even so, the smaller numbers on the savings statements meant that the numbers on the current (the “keep the numbers moving”) account increased a little – a 5% annual ROI.
I’m very fortunate to be able to turn those boring numbers into energy, water and warmth.
Yet the government, who don’t just have the power to MOVE numbers, but to CREATE them, refuse to do so. They say they can’t. They have invented completely fake arguments to justify their destructive stupidity.
So – my neighbours suffer from energy, food, housing and health poverty, my planet suffers climate catastrophe, drought and the horrible results of deliberately created geopolitical instability.
All to make sure that the numbers in a very few rich people’s bank statements keep rising, while the majority of us are deprived of energy, water, food, accommodation, health and social care.
I can’t see what we get out of this. Especially when those responsible for it KNOW it is destructive and stupid – even those on the ideological left, who SAY they want to change it.
They have to go.
Thank you.
THank you Robert J. My letter to paper yesterday, not 100% but best I could do:
‘They have to cut current spending – that would help cut the cost of servicing the national debt’ says Hamish McRae (Choice of Chancellor, Opinion, Fri 26 June). Really? The Bank of England creates the currency our government spends, it also, as the only bank in the UK that cannot go bust, holds large deposits from pension funds, insurance companies, and overnight deposits from many businesses. These are liabilities, just as my savings are a liability on the books of my bank. And we call it the National Debt.
Since 2008, Central Bank Reserve Accounts have been fattened in order to guarantee the ability of Commercial banks to make settlements to each other – and our government pays interest on this money that was given to the banks to bail them out in 2008. Forty-five years of neoliberal economics and fifteen years of austerity, have amply demonstrated that reducing government spending starves public services, is ruining our NHS, weakens our economy and increases inequality.
I want a chancellor who understands this and is not afraid to spend to improve our lives and environment, constrained by real resources, not by the myths that taxation and borrowing fund government spending.
Thank you
Sorry to hear it is not a good day for you Richard but I hope the treatment is going in the right direction towards success.
I just wanted to say also that as I was concerned in the past about using the word potential about individuals and the economic system I think that your latest blog really nails it especially the concluding lines which for me summarize the need for urgent change focused on those who currently do not benefit from the current system The same could be said for the pursuit of growth which does not increase well being. I wonder if ” achieving the reality of well-being” could also act as an additional descriptor for the politics of care?
The purpose of an economy is not to accumulate the potential for change.
It is to turn that potential into the reality of well-being.
It seems we do not understand this.
More potential is in itself worthless.
What matters is the realisation of all available potential.
Unless economics achieves that goal, it fails.
See a post this morning
Thanks for this post.
It reads as a poem, which I mean as a compliment.
In Shelley’s famous phrase
“Poets are the unacknowledged legislators of the world”
I hope you get well soon, but perhaps this illness is helping you express your ideas in a more fundamental, connected way.
Thanks. This is developing.
FYI Steve Keen quote :
“Labour without energy is a corpse; capital without energy is a sculpture”
https://www.rebuildingmacroeconomics.ac.uk/post/labour-without-energy-is-a-corpse-capital-without-energy-is-a-sculpture
My mate is working on the same lines. I am not sure if we have discussed this. Maybe.
I must get to him, soon.
I like to think of money as the oil that lubricates the economy. The job of the government is to inject just the right amount of lubrication in to make sure that all the available wheels and levers can work effectively but not just pour in so much that it leaks out everywhere and makes a mess. While reading your piece and thinking about this I’ve just realised the metaphor can be pushed a little further by pointing out that if this oil is allowed to be taken out of the machine, to simply be hoarded in a jam-jar and looked at for it’s own sake it both loses it’s purpose and stops being of any use to the machine, some parts of which will grind to a halt unnecessarily.
Don’t forget to take your medication today, you can probably tell I’ve had plenty of mine!
I like that.
Medicines not beating pain today
This reminds me somewhat of a quote from Taoism (freely translated from a german translation):
We use spokes to form a wheel,
but it’s the hole in the middle that moves the cart.
We shape clay into a pot,
but it’s the inner void that contains what we put in it.
We carpenter a house with wood,
but it’s the interior that makes it habitable.
We work with the existing,
but the non-existing is what provides the use.
🙂
Richard, I’m tempted to say this is one of your best posts except that might be taken the wrong way
This seems to be crying out to be a made into a book aimed at top end of Primary (Key Stage 2). If well illustrated, it would deserve to be a classic, one to inoculate against the risk of any budding future little Thatchers.
Many thanks, and you’re obviously feeling somewhat better if you can produce this.
I am doing more on it now
The start of your blog reminded me of the 1957 film “The Admirable Crichton” (based on a much older play) about a wealthy earl’s family that gets shipwrecked on a remote island. Before, the earl was the boss. Now, on the island, Crichton the butler rapidly becomes the governor, because he is the only one who knows how to keep them alive using the available resources. That story had a profound effect on me as a young person at the time. We are all, on this planet orbiting the sun, living on a remote island.
🙂
A major driver of money accumulation is fear. Fear of the unexpected, of failing health, of the need for care, of losing status, of our children not being able to cope, and so on. We need to live in a world that is free from fear.
Agreed
As someone with no children and a wife who needs my support to live a near-normal life I understand this fear. This is why we have savings in the bank rather than a wild, party-animal life style. I can’t accurately compare the efficacy of Australia’s Medicare system with the UK NHS at present, though from our own experience it is excellent in a full-on emergency but virtually non-existent even for some ‘urgent’ treatment requirements, especially here in Tasmania.
But are there not ways to ‘hoard’ money that are helpful? I’d be very willing to invest our hoard in government retail bonds where the money is ringfenced for health, education and infrastructure spending within the state and the interest is paid to local residents who will then spend it (or re-invest it) locally and pay tax on it as income.
Your wish is my desire
Richard, I’m sorry you are unwell. I once had a kidney stone, and I was unable to do anything except run around the landing bent double, shouting. I thought that if I stopped moving, the agony would overwhelm me. Do not, repeat not, be coy about demanding morphine. Don’t wait to be asked. And if possible, get something prescribed that isn’t just oramorph. Nowhere near strong enough. I hope the treatment blasts the stone into tiny pieces.
I was thinking about the circulation of money. If an economy is like a living system, or a body, which it sort of is, then what keeps it going is the flow of blood (money) around that system. When that blood is slowly drained (extracted by billionaires) the system ends up with less. The billionaires have a blood bank, but the body weakens. At the same time, the viability of the blood in those banks becomes less. The billionaires want newer blood, so they take a little more from the body. What do they do when the body dies for lack of blood? Perhaps they could be persuaded that injecting more back into the body is good news for everyone?
I’ve got 8 pints of blood, but if it’s not circulating and being reoxygenated, I’ll die. I’ll still have my 8 pints, but…….
Thanks re the kidney stone. It is grim when it’s bad, as you know. I got pain control back yesterday afternoon.
Re money circulation, there is an article coming on this.
So sorry to hear your painful predicament. I hope your medication includes paracetamol. This weak painkiller has the extra function of relaxing the urethra/ureter. My stone was very small but very painful and paracetamol on its own relieved the pain and allowed me to pass the stone. Sorry if this is grandma teaching you how to suck eggs!
A brilliant article. Its simplicity is so powerful. Economists like to make things complicated and this issue isn’t. Thank you. And best wishes for a speedy recovery.
Towards the end of Ww2 my father was in Brussels.
While there was Military Scrip in practice most transactions were done with cigarettes.
He met someone who had been a NAFFI driver and who one day thought rather than pilfering a carton or two a day why not just take the entire truckload which he did.
He was now living the high life, flat, girlfriend etc but the one thing he desperately wanted was something nobody would sell him, a leave pass so he could get back to the UK
So at the same time that he had everything he had nothing.
My thoughts are with not just you Richard, but those suffering in Venezuela – Trump went on there for the oil but where is he now with $$$$ when they are in need? I am sure that this is off subject but needs to be noted. The US government and Trump have the money but —-
Always, the ‘but’.
[…] post follows naturally from a previous one on potential. It may be useful to read that post […]
Hello Richard – best wishes to you for a swift recovery.
I very much like your thinking here. Just one tiny point though. You said early on “In this economy, what matters is energy.” I immediately thought “and resources”. I know you know this! But as well as getting people to think about the purpose of money, might we perhaps also cue up thinking about the grossly unfair distribution of resources that currently exists
Hi Richard,
From personal experience I know how horrifically painful kidney stones are, mine were thankfully small enough to pass. May yours depart soon.
Annoyingly the doctor said they come back in 50% of patients, so I’ve drunk lots more water than I did and been mindful of any back twinges ever since.
For your amusement I wanted to show that your post on value comes at the same time as the birth of a new meme filling my feed.
https://bsky.app/profile/edzitron.com/post/3mp3ij3fv3k2j
It was lifted from a shareholder presentation by Softbank, and appears to be from an at least partially AI generated slide deck that is self-aggrandising the CEO Masayoshi Son but becomes “accidentally Marxist”, by talking about the goose that laid golden eggs being under valued compared to the eggs it produces.
🙂
[…] Potential […]
[…] Potential […]
[…] Potential […]