People, and embarrassingly economists, often conflate money with economic value. They are two different concepts, and should be treated as such when analyzing economic problems. The relationship between money and value is very similar to the relationship between law and morality.

Money is to value as law is to morality. The analogy runs deep. As the law is a loose representation of human morality, money is a loose representation of economic value generation. Whereas much of our law finds its roots in morality, a new law can only scarcely influence our morals. Similarly, money almost always follows value. The surest way to get rich is and has always been to create value. Yet the reverse is rarely true. Value does not always follow naked money, though surely enough money begets some value.  Not all morals are codified into laws, and neither is all value monetized. The remedies at law are not always in proportion to moral values, just as compensation is not always in proportion with economic value created.

It’s strange then, given the depth of this analogy, and the prevalence of money in society, that money and value should be confused much more often than law and morality. That is not to say that morals and law and rarely confused; they often are. However, practitioners, academics, and laypersons all recognize the difference. This is not so for money and value. Particularly, governments will often confuse money for value and ask the wrong questions. Rather than asking “how do we create the most value” governments ask “how do we get and spend money.” Voters accept this, for hardly anyone really understands the mystery that is money beyond its basic function. It is even more bewildering that even economists often confuse the two.

Economics in One Lesson, written by Henry Hazlitt in 1946, has received endless praise by politicians and economists alike for its clear reasoning. Hazlitt spends a good deal of time criticizing other “bad” economists for making the mistake of forgetting that there is opportunity cost to spending money. Bad economists, he says, forget that when society spends $250 to fix a broken window, that is$250 it could have spent on something else. The economists he refers to have touted war and other arbitrary destruction of value as an economic boon, since we must spend money to fix what has been destroyed, and fixing increases production. They forgot that fixing is happening instead of other value-creating activities. These “bad” economists are conflating value and money. It is particularly embarrassing then, when Hazlitt immediately follows his criticism by committing a similar error himself. Regarding a bridge construction project initiated through government spending, Hazlitt writes that “for every public job created by the bridge project a private job has been destroyed somewhere else.” This is false - it is not at all clear what portion of the taxes used by the government on the bridge project would have been spent to initiate value creation in that same period if those taxes had never been taxed.

Hazlitt and those “bad” economists he criticizes would all have been better off if they looked at the role of government differently - not as a controller of money, but as a controller of value. Recognizing the distinction between money and value is a powerful step forward in the quest for an optimal economic strategy.