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.
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.
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