by Lyle Lofgren
December 2006

[My thinking is influenced by books I've read, but not always in a direct manner. It's more like the cliché "food for thought," in that my beliefs are colored by, but sometimes removed from, the original source. I circulate these digested ideas, but I leave it up to you to decide if the result is protein or excrement. The footnotes aren't just references, but explain or expand on the statements in the text. Check them out if you don't follow the argument. I've tried to make it easy to negotiate back and forth.
Note that the title is not The Four Principles of Money. I make no claims for completeness; I reserve the right to add more principles later if my thinking changes. I hope you will similarly modify these assertions based on your own ruminations.]

The Seven Laws of Money:
One pivotal book in my belief system is the 1974 edition of The Seven Laws of Money, by Michael Phillips (footnote 1). This book was written by a San Francisco Bay Area activist associated with Stewart Brand's Whole Earth Catalog, which was the apex of  optimism about how we all could achieve spiritual and material wholeness on earth without harming the environment. Both the writing style and the optimism quickly became dated, and re-reading it is an exercise in nostalgia for a lost world-view. Still, the Phillips book contains some sound ideas, which I've tried to expand and modify to fit my experiences observing the role of money in the world.

The need for seven laws in The Seven Laws of Money is based on a Sufi tradition of Seven Laws of X, where X is almost anything you want to define as being governed by laws. The structure of the Sufi laws, according to Phillips, is three pairs of contradictory statements, plus a seventh statement that resolves the contradictions, although not in a logical way. A logical conclusion would leave no room for the digestion process. I've rewritten the seven laws so they make some sense to me:

1. Don't worry about money. It will come if you're doing the right thing.
2. Money has its own rules that must be followed.
3. Money is a fantasy.
4. Money can be a nightmare.
5. You can never really give money away.
6. You can never receive money as a true gift.
7. There are worlds beyond money.

Lyle's Four Principles of Money:
I'm not bound by Sufi rules, so I've incorporated these seven laws into a set of four principles:

A. Money loves Worldly Power.
B. Money is imaginary.
C. Money has strict rules.
D. Money can stunt you.

All of these principles need more explanation, of course, but I can only touch very briefly on the topics, which could easily fill a whole book if you explored all the implications.

This principle includes Phillips's laws #1 (don't fret about money), #5 and #6 (money can't be gifted) as special cases. You could reasonably argue that this is a tautology, since I haven't defined Worldly Power, and in fact the two entities are inextricably intertwined: one defines the other. The dance of Money with Power is more erotic than any tango. Power attracts money and money begets more power, in a classic example of Positive Feedback (footnote 2). My definition of Worldly Power is broader than just political power or the kinds of personal power that allow you to manipulate the behavior of others through the raw use of your energy and your will. It includes your ability to persuade and/or to instill fear. It also includes attractiveness and other personal characteristics that are hard to define (footnote 3).

Worldly Power is related to Sigmund Freud's concepts of Id, Ego, and Superego. The Id is the Inner Child, concerned only with fulfilling selfish desires. It includes the "animal" instincts such as sex and domination, and it wants to get its way, no matter what. The Superego, similar to Conscience, is the Inner Adult that incorporates the dictates of Society to limit the disruptive effects of the Id on others. The Ego, the Conscious Self, is caught between these two conflicting forces (footnote 4). Freud is discredited nowadays because so far scientists have found no specific brain locations for these entities, but I regard them as useful functional concepts, anyway. The Id is a convenient name for the selfish primal self, and it's the seat of Personal Power. The Superego may modify some of this power into actions that are beneficial for Society, but the source is still in the Id, and when Worldly Power interacts with Money, you're dealing with the raw aspects of the Id.

It's in the interactions between the Ids of individuals that Phillips's Laws 5 and 6 apply. Law 6, "you can never receive money as a true gift," makes no sense at first. We frequently get money gifts, but they're not true gifts, because there are always strings attached. The gift giver has expectations about your behavior, that you're "not going to waste it," i.e., spend it on something of which the giver disapproves (footnote 5). Even if it's an inheritance and the gift giver is dead, expectations of responsibility are still there, and if you don't follow those precepts, you're going to be miserable, although you may not realize it until later (per Principles C and D). Law 5 says you can't truly give money away. You may have the best of intentions when giving money to someone, but if they "waste" the money or spend it on self-destructive behavior, you're going to be disappointed, and that disappointment will show up as misery, both to you and the recipient. Therefore, the gift was not a true gift where the money is transferred without expectations of reciprocity on some level. Recent scandals involved the United Way, Red Cross, and some evangelical preachers. People who gave money to these causes were outraged by "excessive executive perquisites," "wasted money," or "immoral behavior." The organizations in turn had to act contrite and give penance; in other words, to demonstrate that they felt misery. The charitable gifts may have garnered tax deductions for the givers, but they were not true gifts.

The Phillips book is vague when discussing the First Law, which, following the Seven Laws concept, is contrasted with the Second, or Accountant's Law. In the book, the First Law is oriented around taking social action (such as starting a foundation to change the world) without worrying where the money is going to come from, because Right Action will attract money. My observation is that Worldly Power will attract money, and that money has no morals. If you are contemplating an endeavor which is compatible with your Worldly Power and which will increase it, the money will accrue to you. Compatibility means you must have the stomach, stamina, knowledge and behavioral traits required to obtain the money from some other person or entity, keeping in mind that it can't be a true gift, and specific actions on your part are required. If those actions are perceived by others with Worldly Power to be worthy, your Worldly Power will increase and you will accrue even more money. This is the Positive Feedback aspect of Power and Money. You will be respected, although you may not have any friends (per Principle D). If you do something to improve the world, you're a fine person, but whether or not you amass wealth doing it is a reflection of your Worldly Power, not your sanctity.

Positive Feedback works in the other direction, too. If you don't have Worldly Power, money will run away from you, which further decreases your power. You've heard some people described as having "more money than sense." I would rephrase that as the clumsier "more money than Worldly Power," and I maintain it's not a stable condition. The world is full of professionals who make a good living bringing other people's wealth and Worldly Power into balance. The previously-poor person who wins the lottery will soon be bankrupt. The heir who hasn't been groomed for inheritance will be inundated by financial advisors with goofball schemes. Some people actually respond to e-mails from Nigerian Oil Ministers.

A cash economy is a negative feedback system. As your pocket gets lighter, you tend to spend less until, when you have no more cash, you can't spend anything. The use of bank checks works similarly, if you bother to balance your checkbook and notice how high or low it is. Bank offerings of overdraft protection (at a price) reduced the negative feedback effect, which was completely eliminated by credit cards. When you buy something with a credit card, you have no feel for how that expenditure affects your wealth. No wonder credit card companies can charge both merchants and consumers. The most effective tool for debt management is to re-apply negative feedback by cutting up the credit cards, forcing you to count out currency when you buy something. It would be even better to force yourself to use only one-dollar bills.

This principle is hard to understand, so we have to examine it closely. Initially, money was a convenient substitute for barter goods. Gold is a lot more portable and durable than, say, goats. As long as buyer and seller can agree on conversion values, money is a great trade facilitator. Trade was obviously favorable for everyone, as surplus goods could move to places with shortages. There were also clear advantages for governments to manufacture standardized money to encourage a cash economy that could be easily taxed. But before the modern era, governments were weak and unstable, so they had to mint coins from precious metals of specified fineness and weight, theoretically with an intrinsic value equal to the face value of the coin.

Two problems arose with this kind of coinage. The first is obvious: actual value of a coin depends on the price of the underlying precious metal. A sudden change in gold or silver supply thus changes the prices of all goods bought with the coins. The most famous example of this effect is worldwide inflation in the 16th century caused by the sudden influx of precous metals from South America, which deflated the value of existing coins (footnote 6).

The second problem: metallurgy was already far enough advanced that it was easy to counterfeit coins using alloys. Even governments did it. Anyone who could tell the difference between a genuine gold coin and a phony one would naturally buy goods with the counterfeit and keep the real one. Gresham's law, usually stated as "bad money drives out good," was actually articulated by Sir Thomas Gresham in a 1558 letter to Queen Elizabeth as "good and bad coins cannot circulate together," but the idea is at least as old as 400 BCE, where the chorus in Aristophanes's play The Frogs says:

...(our city) has fine new gold and ancient silver,
coins untouched with alloys, gold or silver,
each well minted, tested each and ringing clear.
Yet we never use them.
Others pass, from hand to hand,
sorry brass just struck last week and branded with a wretched brand ...
(footnote 7).

Gresham's Law still applies whenever the market value of the metal in a penny exceeds the face value of the coin. The pennies disappear from circulation and go into jugs that previously held cheap wine. In general, though, governments realize the problem, and take great care that the market value of the raw material used in money is much less than face value. The easiest way is to print paper money that is backed by the "full faith and credit" of the government issuing it, i.e., by nothing tangible. Once upon a time, the government pretended that it had gold or silver to back up the bills. Even in my memory, one-dollar bills were Silver Certificates which promised to pay, on demand, one dollar's worth of silver to the bearer. The bank panics (footnote 8) of the 19th and early 20th century taught the governments to issue currency with no intrinsic value. If you want a silver certificate, you have to go to a rare currency dealer; The only $1 bills still in circulation are Federal Reserve Notes. Prices of goods or services determine the real value of this virtual money. Every bill or coin is a promissory note with no due date. In fact, since the value of money is solely based on trust in the issuing government, there's no need for actual currency. As of mid-2005, the Federal Reserve Bank reported that total US currency in circulation (M0) was $328 billion. At the same time, M3, the broadest money supply, including cash, bank accounts of all types, and short-term notes, was $9.7 trillion. Thus, currency was only 3.4% of the money supply. Further, only about 1/3 of that currency is held by US citizens. The rest of it, mostly in $100 bills, is stuffed in mattresses around the world. The US population is now 300 million, so that leaves $360 cash for every citizen. All the rest of our fabulous wealth consists of digital data in computers, capable of disappearing in an instant. Actually, I don't know who carries even $360 around with them. Right now, I only have $55 in my billfold, and that's more than usual.

Money is useful to society only if it keeps moving. In order to keep moving, money must have no intrinsic value -- in other words, it's imaginary: the stuff of dreams (Phillips's Law # 3: "money is a fantasy"). But it engenders powerful dreams, controlling most aspects of our lives. Domestic conflicts about money, when they aren't power conflicts discussed in Principle A, are disagreements about money fantasies. Much of that reflects the money fantasies of family of origin.

Phillips's Law #4, "money can be a nightmare," is the reverse side of the fantasy coin. If you don't follow Principle C rigorously, all kinds of misery await you: fear, anxiety, disgrace, bankruptcy, jail. Most crimes involve money in some way. Robbery, fraud, or embezzlement are everyday news, and the condition is not new. The Apostle Paul wrote:

But they that will be rich fall into temptation and a snare, and into many foolish and hurtful lusts, which drown men in destruction and perdition. For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows (footnote 9).

Even if you don't commit a crime, you're a setup for being swindled if you try to take shortcuts to fulfilling your wealth fantasy. A particularly potent part of the dream that becomes a nightmare is that losing money is very painful, but gaining it is not that pleasurable. We have no monetary negative feedback in the accumulation direction, the equivalent of a stomach to tell us when we've had enough. Or, as the southern proverb says,

a full purse ain't nearly as good as an empty purse is bad.

This is Phillips's  Second Law of Money or the Accountant's Law. Since I'm not limited to equal but opposing pairs of laws, I've elevated it to its own principle. As the Phillips book states, this is the area covered by all the other money advice you've ever received. Money's rules are strict and unforgiving, and they involve all the boring stuff about budgeting, cash flow, debt management, asset allocation, the time value of money, and anything else on the subject in books, newspapers, television or radio. It also includes anything you've ever learned in economics classes or from your parents, and pitched to you by your banker, broker or tax accountant. If you don't strictly follow these rules, I guarantee that you'll live a miserable life once the debts come due. Even if you follow all those rules without understanding the other principles, you still may be miserable (see Principle D). My advice is to learn these mundane rules of money and follow them.

This is not the same thing as Phillips's Law #4, "money can be a nightmare," but instead a corollary of his 7th law, "there are worlds beyond money." If your only goal is to become a billionaire, you might find a way to fulfill it, but achieving that goal requires such extreme compulsive behavior that you'll be nothing but a billionaire. Money is imaginary, and, if that's all you have, you won't really exist, either. You can only eat so much, and if you buy more clothes or furniture, you'll need to put extra effort into caring for them. You become even more anxious, because

everything you gather is just more that you can lose (footnote 10).

The miser is an extreme example of this obsessive anxiety. I know a man who spent so much energy accumulating and hoarding wealth that he never got around to spending it, either for good or evil. Needless to say, he and everyone in his family were miserable.

You could indulge in charitable giving, perhaps building a football stadium with your name on it, but per Principle A, you can't give it away without becoming entangled with the recipient. The entanglement involves a lord/liege relationship that prevents an honest connection. So the only way to truly relate to another person is in an area that doesn't involve money, in other words, in the "worlds beyond money."

Artist and musician John Cohen quoted his teacher, Yale professor Joseph Albers:

To distribute material things divides them. To distribute spiritual things multiplies them (footnote 11).

Music, for example, is a spiritual thing, and you can create and/or enjoy many types of it with little or no money. Even if it costs you something, the money transaction is not central to the process or to the pleasure you receive. There are other similar pleasures you can enjoy every day, generous actions you can take that increase your happiness and that of those you meet. All of this occurs on a plane where connection is increased rather than hindered, where the soul is glorified rather than stunted, and it doesn't take place at Wal-Mart or Target. The spiritual things you can experience are all beyond money and materialism and their mundane demands. The catch is that, in order to ever get beyond money, you have to undergo the purgatory of Principle C and its strict rules. Obsessive people get stuck there and never make it beyond. Careless people never even get that far, and for them, money is a nightmare.


1. Word Wheel/Random House 1974; original edition still available at Amazon. Phillips's books are listed at (Return to text)

2. Feedback: The term as used here has a technical meaning that is often misunderstood. Positive Feedback doesn't just mean telling someone they're doing a heckuva good job. Feedback in Control Theory refers to part of an output signal that's fed back into the input of a control system. If the feedback is negative, the fed back signal acts against the input signal, thus tending to hold the output stable. An example in the human body is the signal sent from the stomach to the brain saying it's empty, causing you to eat. Later, the stomach sends a signal to the brain saying it's getting full, so you stop eating. Because the control signal is always the opposite of the present condition, the usual result is a stomach that's optimally fed. Positive Feedback is the reverse: The part of the output signal that's fed back to the input enhances the output, causing the process to keep going in the same direction until some limit outside the control loop is reached. If your digestive system used positive feedback, your stomach would burst.
One of the characteristics of a feedback loop is that, from the outside, you can't discern the relative importance of the components. In the feeding analogy, which is more important: the signal from the stomach, the brain's response, the muscle responses, the swallowing action? All must be working together for the system to operate, and if you break the loop somewhere, the system no longer works. That's why the definitions are circular. (Return to text)

3. I read somewhere of an experiment where a researcher asked test subjects to rate the attractiveness of the photographs of a number of people. These ratings were then compared with salaries, and it was found that those who were rated "attractive" had average salaries 10% higher than those rated "medium." I don't remember if they included statistics on "ugly." (Return to text)

4. Freud summarized the internal conflict between the individual and society in his Civilization and its Discontents (1931; English translation by James Strachey, Norton, 1961). Freud's analysis dealt with broader conflicts than just money. (Return to text)

5. Despite common usage, the only time money is truly wasted is if it's out of circulation, e.g., buried in a trunk or sewn into a mattress. Try as you may, you cannot waste money by spending it -- you're merely putting it back into circulation. Wasted is a moral, not economic, concept. The money you lose at a casino pays for salaries and manufactured goods and encourages capital investment by exactly the same amount as if you'd put it in the bank where it would have immediately been lent out for purposes beyond your control. Some of the money you spend on liquor supports farmers who grow raw materials that are also used to make bread. Money spent on heroin is transferred to Afghanistan indistinguishably from money spent on, say, hand-loomed carpets. The effects of "wasting" money are certainly going to be disadvantagous for the spender, and many of the things we spend money on (even those we don't call wasteful) are detrimental to society and the environment. Still, the money moves merrily along. Even money spent by the government is never wasted, particularly welfare payments, which are immediately spent by desperate recipients with little Worldly Power, and so keep the economy strong. (Return to text)

6. Evidently demand caused by a rapidly-increasing population was also a factor. See If the population rises faster than society can supply goods to satisfy it, prices will rise. If the value of money is degraded, prices will rise even if supply doesn't change. (Return to text)

7. This translation is from the Wikipedia entry for Gresham's Law. The complete passage is interesting, because it assumes the audience is well aware of the phenomenon. The fragment quoted here goes on to become an analogy: successful Greek politicians were scoundrels, while the best people didn't even run for office. Sound familiar? (Return to text)

8. A bank panic, the opposite of inflation, is a disastrous situation caused by a shortage of money. As money gets scarce it becomes more valuable, so commodity prices plummet, ruining anyone with unsold inventory. (Return to text)

9. I Timothy 6:9-10, King James Version. One might find it odd that the Christian bible, which contains several cautions against the dangers of wealth and how rich men need the skill of needle-threading camels to enter heaven, should have inspired Capitalism. But the holy writings of any religion are a mess, and if you search hard enough, you can find approval for what you're going to do anyway. I read somewhere that Lao-Tzu's writings, which must be the purest non-materialistic advice ever given, are used by Taoists as secret instructions for magic rites to achieve worldly goals. (Return to text)

10. Mission in the Rain, a song by Robert Hunter and Jerry Garcia. (Return to text)

11. Weavers of Genius, Long Peru's Secret, by Rita Reif, New York Times, Sunday, May 26, 2002. (Return to text)