Uncharitable to say the least, and Ray Dalio, he of the $160-billion hedge fund Bridgewater Associates, is less charitable than most when assessing money’s barrenness and sterility, asserting in flippant verse that “cash is trash” during a recent CNBC interview. (To be charitable to Dalio, I’m unsure if his invective is directed less at money as historically conjured or more at money as a modern fiat currency of the state.)
Odd, should you give it a thought. Money is universally coveted and yet notably derided by those whose job is to covet it, manage it, and compound it. The analyst's ubiquitous calculation of enterprise value hardly hides the contempt for the chief medium of exchange: Your company is worth the market cap of its equity and debt minus its cash and equivalents. In Wall Street ethos, money adds not subtracts to value.
Why does money arouse a binary manic-depressive response? More important, why the depressive response?
Productivity, or lack thereof, is the perceived shortcoming. Money fails to multiply itself compared to other capital, so conventional thinking perceives. Another assembly line enables you to produce more automobiles. The proceeds (assuming profitable sales) enable you to build another assembly line to sell more cars and generate more profits. Other capital can induce a perpetual motion that money is unable to match.
I beg to differ.
Money offers a prospective yield. The amount we hold is chosen for reasons we hold other assets. If money’s prospective yield falls below that of other assets, we part with it. If above, we pay to acquire more of it to the point marginal prospective yield equals the interest rate. Demand for money is a demand for productive assets.
Like other assets, money held is determined by the marginal utility of its services. Money in hand or at the bank differs only in degree compared to other assets. The primary difference is that, in the case of money, it is easier to rectify a mistaken judgment that leads to a surplus (but less easy to rectify a judgment that leads to a deficiency).
Various writers perceive the usefulness of money, but they failed to acknowledge that "usefulness" is a synonym for productivity or yield. The prospective yield can be categorized as such:
1. Pecuniary yield – money in the till that offers prospective pecuniary yields similar to buildings, materials, or labor. The yield is derived in the form of technical monetary services that permit the most economic acquisition of other factors of production or goods.
2. Speculative yield – money held to exploit opportunity. The yield is derived in the form of the greater command over non-monetary assets, which money is expected to have at some later period.
3. Contingency yield – money as an economic support. Money, in this instance, serves the same purpose as a climber’s rope. Can it be said that the rope on which the climber is belayed is of service to him only when he looses his grip? Without the security the rope provides, the climber will forgo the climb. Without the security of money on hand, a company will forgo business activity.
With that said, money, therefore, is working when it is ensconced in our pockets or in our bank account. You can argue that it assumes a pseudo-idleness, but this is no different from other idle assets:: a concert pianist's unplayed piano or a fireman’s stationary fire engine, for example.
To be sure, a businessman’s stock of anything can be wastefully large, whether property, plant, or equipment. The same holds true for money. If a businessman finds that the whole of his money balance is unnecessary, if he fails to employ the redundant sum, or to lend it to someone who can, the surplus will remain "barren," just like any underutilized or redundant asset .
The calculation to arrive at enterprise value is specious. If a company’s cash account were reduced to zero (mystically adding to enterprise value as it is reduced), the company would be unable to operate the daily business, much less exploit any entrepreneurial opportunities that arise. It would crumble when confronted with the slightest adversity. A company without money is as barren as the misconception that money is barren.