Cash Delusions: What Do Folks Get Mistaken About Cash?
David Nadig, “Rabbithole”
March 7, 2025
I had enjoyable chatting with Dave Nadig about philosophy, habits, and investing (video after the soar). His new podcast is named “Rabbithole” as a result of Dave doesn’t do broad and shallow; fairly, he picks a slim subject and goes deep down the rabbithole for half-hour — which is just a few questions. Right here is the full-length Q&A dialogue. Get pleasure from.
Query: “Barry, your ebook How To not Make investments dissects quite a few monetary misconceptions. However let’s put aside markets and investing methods solely. What’s essentially the most elementary factor folks get mistaken about cash itself—in regards to the precise {dollars} we earn and maintain?”
Reply: It’s that Cash is a device – it’s a means to an finish; it’s NOT an finish objective itself. And since I discussed NOT, let me provide you with three extra issues Cash is NOT:
-It’s NOT a retailer of worth (it’s a medium of alternate);
-It’s NOT the trail to happiness, at the least not how most individuals think about;
-It frees you up from NOT doing issues or spending time on what you don’t wish to do; it means that you can focus your time and vitality on what you wish to…
Query: “You point out ‘denominator blindness’ in your ebook. How does this similar blindness have an effect on our understanding of what a greenback really represents in our each day lives?”
Reply: The core of Danny Kahneman’s “Pondering Quick & Sluggish” is the variations between your quick, instinctual reactions and your extra considerate, deliberate thoughts. His good insights coloured numerous themes in my ebook, and Denominator Blindness is an ideal instance. Until you’ve gotten CONTEXT, FRAMING and NUANCE, you lose sight of what issues really imply…
Q: “In your part ‘{Dollars} Are For Spending and Investing, Not Saving,’ you problem typical knowledge. Are you able to elaborate on how folks misunderstand the very function of foreign money?”
A: Cash is NOT a retailer of worth – to be helpful, a greenback should preserve its worth lengthy sufficient for me to pay my lease or mortgage, purchase meals and vitality, fund my leisure and journey, pay my taxes, and get invested. It does that splendidly.
Q: “Your ebook discusses emotional decision-making extensively. What emotional relationship do folks kind with bodily cash that creates issues, separate from funding selections?”
A: It depends upon your particular historical past with Cash, be it traumatic or complacent. In my circle of relatives, myself and my two siblings every had a really completely different relationship with cash. I grew up decrease revenue. My sister grew up slightly extra snug, center revenue and the youngest, my brother, was solidly upper-middle class.
I hate budgeting — its a waste of emoptional bandwidth — so I found out I wanted to make sufficient cash so I by no means needed to steadiness my checkbook; my sister grew up with extra household revenue, after we have been within the “maintaining with Jones” part, and my brother, who’s essentially the most involved with working up the numbers, not utilizing cash as a device, grew up essentially the most financially safe. Our experiences mashed up with three completely different personalities and three completely different outlooks on cash.
Q: “You write in regards to the ‘phantasm of explanatory depth‘ – if I requested most individuals to elucidate what cash really is and the way it features, what elementary gaps would you count on of their understanding?”
A: It’s true for many issues – how are pencils made? How does a handbook transmission work? Cash is simply one other merchandise we THINK we perceive, however we actually don’t.
Q: “The narrative that ‘the greenback has misplaced 96% of its buying energy‘ seems in your ebook as a deceptive declare. Why do these sorts of misunderstandings about cash’s worth over time persist?”
A: Two causes: The place to begin is a straightforward missed query: Why would you maintain a pile of {dollars} for a century? In the event you had 10,000 {dollars} at the moment and also you needed to offer it to your great-great-grandkids in 100 years, would you retain it in money? Simply asking that query reveals how transparently misleading this declare is. In the event you make investments $10k at the moment, in a century, it’s price (brace your self) ~$320 million. Nobody believes that, however once I stroll folks by a web-based returns calculator, their heads explode!
However the second half is the contextualizing facet of the equation: You don’t spend 1925 {dollars} at the moment; you spend 2025 {dollars}. So if you wish to focus on buying energy, the helpful, considerate query is: How a lot has the typical wage elevated over that very same time frame? It’s one other model of “Denominator Blindness.”
Q: “How does our relationship with cash change throughout completely different life phases? Do our misconceptions about what cash represents evolve as we age?”
A: The usual reply is Accumulation, Upkeep Distribution, however let’s dig deeper. Who we’re financially could be very completely different than who we grow to be in center age or after retirement. We hopefully study classes about cash, which we apply to ourselves, members of the family, pals, and in case you write a ebook, your readers.
The strangest factor I got here to appreciate was that the market crashes and bear markets that ought to have mattered the least to me have been most terrifying. Those that ought to have mattered essentially the most I used to be blasé about. Through the 2000 crash, I had no 401k, and my spouse’s 403B was tiny. The GFC I had a extra money in danger; Covid was absolutely invested, with a 401k, portfolio and naturally, the agency.
As we develop and mature, you form of study that every part is cycle, you understand how the film ends. We study the Solomonic knowledge of “This too shall go.”
Q: “All through your profession observing folks’s monetary behaviors, has there been a shift in how the typical particular person understands what cash is versus what it does?”
A: Across the edges, there’s some enchancment. It appears it’s nonetheless early days within the widespread understanding of how and why folks behave the way in which they do round cash and threat. It’s nicely understood academically, nevertheless it’s nonetheless seeping out into the true apply of wealth administration.
Q: “In the event you might right only one widespread misunderstanding about cash itself – not funding technique – what would make the most important distinction in folks’s monetary wellbeing?”
A: Optionality. Cash provides you selections, freedom, and maybe most essential of all, company. We radically underestimate how essential that’s.
Q: “All through historical past, cash has been outlined as every part from a ‘retailer of worth’ to a ‘social settlement.’ In your commentary, which philosophical idea of cash do most individuals misunderstand at the moment?”
A: Fiat foreign money is a collective delusion, albeit a strong one. The nation that produces the Greenback has an enormous legislation enforcement mechanism and a standing military. That’s not nothing…
My favourite instance if the collective delusion is the Rai stones on the island of Yap, a part of Micronesia. Huge spherical stones are their foreign money. They have been too large and heavy to bodily transfer throughout transactions, so the Yapese simply transferred possession rights. One fell off a ship and sank. Didn’t damage the possession – they may nonetheless use it as a medium of alternate!
Q: “From commodity cash like gold to fiat foreign money to digital transactions – how has the evolution of cash’s kind modified or bolstered our elementary misconceptions about what it’s?”
A: All types of cash include a story! A great narrative is an interesting story however not essentially a truthful one. Therein lies the chance of believing one thing that’s not true. The much less linked to actuality you might be, the upper the likelihood of constructing an costly mistake.
Q: “Aristotle distinguished between ‘pure wealth’ and ‘synthetic wealth,’ with cash falling into the latter class. Do you suppose folks at the moment confuse cash itself with precise wealth in ways in which result in poor selections?”
A: You’re making me attain again to school philosophy? OK, when Aristotle referred to “Pure wealth” he meant the sources that serve human wants and what was required for “Eudaimonia” or an excellent life: Meals, drink, clothes, dwellings, ethics, philosophical debate – he was, in spite of everything, Socrate’s scholar – its akin to Maslow’s hierarchy of wants.
Synthetic wealth is the pursuit of wealth as an finish unto itself. I exploit the phrase “Purposeless Capital,” and it applies right here. It’s past materialism, its extra. It was later tailored within the New Testomony as “For the love of cash is the foundation of all evil.” (The oft used misquote is “cash is the foundation of all evil”). That ought to provide you with an concept how influential Aristotle was.
Q: “The economist Georg Simmel wrote about cash as an ‘absolute means’ that turns into an ‘absolute finish.’ How do you see this transformation enjoying out in how folks relate to the {dollars} they possess?”
A: This goes again to what I mentioned earlier, that cash is a medium of alternate. It ought to facilitate commerce. It shouldn’t be the top objective.
Q: “John Maynard Keynes talked about ‘cash phantasm’ – our tendency to suppose in nominal fairly than actual phrases. How does this cognitive bias form our relationship with money at the moment?”
A: We are inclined to suppose in nominal fairly than Inflation-adjusted phrases. I’ve seen this personally in main purchases like houses or autos. Our perceptions lag; our body of reference is the previous few years. We get anchored to our prior experiences. Sort of jogs my memory of the Paul Graham quote: “When specialists are mistaken, it’s as a result of they’re specialists on an earlier model of the world.” Even non-experts suppose and behave that method…
Q: “Some philosophers view cash as a ‘declare on human labor.’ Do you suppose most individuals perceive what their {dollars} really characterize by way of social relationships and obligations?”
A: Again to the medium of alternate dialogue: At the start, you alternate your time & experience for cash. Secondly, you “work” (that aforementioned alternate) and hopefully derive a sense of satisfaction that what you might be doing is worth it and good. The place you transcend that’s as much as you…
Q: “Marx critiqued cash as having a ‘fetish character’ the place we attribute powers to it past its practical function. The place do you see this enjoying out most dramatically in trendy attitudes towards cash?”
A: Clearly, the concept cash buys happiness. My expertise has proven that it buys the elimination of stress and woes that the shortage of cash creates. But it surely will get extra sophisticated from there. Cash buys some happiness as much as $75-90k (relying on which analysis you take a look at), then tails off at ~$400k, however particular life experiences — like divorce — shatter the info outcomes into very completely different outcomes.
Q: “From the Bitcoin whitepaper to MMT, competing theories of cash have gained traction lately. Has this theoretical debate modified how common folks conceptualize the {dollars} of their pockets?”
A: I truthfully have no idea the reply to that. I can not inform you how folks conceptualize the cash of their wallets. I’ve 30,000 foot knowledge on spending and contentment and many enjoyable anecdotes, however I actually don’t know…
Q: “Traditionally, cash has been understood as each a ‘medium of alternate’ and a ‘unit of account.’ Which of those features do you suppose folks most essentially misunderstand?”
A: These are 2 sides of the identical coin. Models of account appear inevitable when you transcend barter and primary commerce.
Q: “The anthropologist David Graeber argued that cash emerged from debt fairly than barter. How may this origin story change how we must always take into consideration the character of the money we maintain?”
A: Full disclosure: I’ve his ebook “Debt: The First 5000 Years” on my shelf and I’ve been intimidated by how dense it’s. His core argument makes intuitive sense – credit score/debt predates cash by 1000s of years, so his core thesis appears to eb nicely supported by historical past.
I maintain coming again to the identical takeaway: Cash, together with threat capital, credit score, leverage, and so forth. are merely instruments. Used correctly, they will work wonders. Misuse them, and nicely, if this was Twitter, I’d say “fuck round and discover out…”
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Thanks Dave, for the very deep and considerate questions…
Coming March 18, 2025
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