A few months ago, I watched an episode of “60 Days of Lockup” featuring a character who runs a shop business while in prison. His business model is relatively simple: he lends you a soup, and in return, you owe him two soups on the next shop day. At first, this arrangement seemed ridiculous to me, and I couldn’t understand why anyone would agree to such a deal. However, upon further reflection, I realized that we often make similar agreements without even realizing it.
Money is valuable because it allows us to measure the value of all goods and services. However, we sometimes lose sight of its true purpose and view it as an end in itself. When we make purchases, we rarely consider the actual profit being generated because we pay in dollars, not in future exchanges. For example, if an iPhone costs $200 to produce, but we purchase it for $1000, we are essentially exchanging five iPhones for one. Admittedly, this may not be the best example since most individuals cannot purchase an iPhone for the same price that Apple pays. However, if we compare the cost of an existing iPhone with a resale value of $500, the exchange of two existing models for one new model, which often isn’t significantly different, may not feel as comfortable.
This concept applies to almost everything. Let’s say your landlord owns a four-unit apartment building with a monthly mortgage and expenses totaling $4000. If he charges each tenant $2000 per month in rent, each tenant effectively gives him two months’ rent in exchange for one. From this perspective, we are engaging in similar financial arrangements as desperate inmates. The key difference is that we don’t always recognize the extent to which we may be exploited because we transact in dollars.
“60 Days of Lockup” made me see that we often enter into agreements akin to the one observed in prison. By examining the nature of our financial transactions and viewing transactions as an exchange of other possible goods and services for specific goods and services, we may gain a better understanding of what we’re giving up in each transaction in comparison to what we’re gaining.