Where did the money go?

With the current stock market losses can you explain where the loss in value goes?


Great question, Brad, 

May we try to put it into concrete terms?   Suppose you owned a stock in the Weem, Acheit & Sellate Widget Company for which you had paid $10.  Now you want to sell it but you can only get $6 for it.  You’re asking, where is the other $4?  The buyer who purchased your share for $6 doesn’t have your $4.  The broker you might have used to facilitate the transaction doesn’t have it and W.A. & S. Widget Company doesn’t have it.  So where did it go?  That’s what you’re asking, right?

This question reminds us of a helpful old riddle. Three men had lunch together and the total bill came to $25.  Each man handed the waiter a $10 bill. On his way back to the table with five $1 bills in change, the waiter had an idea. $5 change is hard to divide among the three diners, so the waiter pocketed $2 and gave each man $1.

With each man having handed over a $10 and got back $1 in change, each man ended up paying $9. Multiply by 3 as there were 3 men, so that comes to $27. Now remember the $2 in the waiter’s pocket and $27 + $2 = $29.  Where is the missing $1?  Did we start with $30, not $29?  Who has the missing $1?

The answer to this restaurant riddle is that there is nothing missing. Each man paid $9 for a total of $27, of which $25 paid for their meal and $2 was placed in his pocket by the waiter. The correct equation is $27 – $2 = $25.  You see, the presumption that what they paid PLUS the waiter’s $2 should equal $30 is flawed.

We really do hope you’ve read our book Thou Shall Prosper: Ten Commandments for Making Money.  It has helped to transform the financial lives of so many readers.  You might remember how the 8th chapter, Know Your Money, begins:  Your money is a quantifiable analog for your life force–the aggregate of your time, skills, experience, persistence, and relationships. This is quite different from the dry definition that the professor gave you on day one of Econ 101 at your local kindergarten: Money is a medium of exchange.

The important thing to wrap your mind around is that money is spiritual not physical.  What do we mean by this? Things whose dimensions and characteristics can be measured in a laboratory are physical. This includes cucumbers, saxophones, thermometers, and bottles. On the other hand, honesty, perseverance, music, and reputation are spiritual.  So is money.  The weight of a $100 bill is the same as the weight of a $5 bill.  A $0.25 coin, a quarter, weighs more than the paper money but is worth less.  It is worth less by human agreement.

If everyone on earth vanished, physical objects will still remain.  However, spiritual things only exist in the context of human beings.  A visitor from another planet wouldn’t take long to discover the use of a cucumber or a saxophone. But if that same intelligent space tourist came to planet Earth and found a few metallic discs or some strips of colored paper with numbers on them, there is no way it would mean anything to him at all.  No amount of tampering with them would reveal their meaning.

If a physical object loses half of itself, we know someone took it. For example, if you have an apple and when you go to eat it, half is missing, then you know that someone came and ate half your apple and you’d find it in his stomach.  However, if someone’s reputation is diminished, it hasn’t gone anywhere.  Nobody took it.  It’s just gone.

That is the first part of the answer to your question. The second part is best explored by examining the opposite of your question.  Imagine you start up a company making lawnmowers.  You raise capital by selling 100 shares at $10 each and you issue yourself as founder, 100 shares also. You now have $1,000 to start making lawnmowers.  We bought one of those shares for $10 at your initial public offering. 

Unexpectedly, the Surgeon General of the United States announced that sitting on the grass for an hour a day produces immunity to several diseases and regrows hair on bald heads. Suddenly everyone is tearing up driveways, rock gardens and parking lots and planting grass. Lots of it. The market realizes that there is going to be a massive demand for lawnmowers. People realize that lawnmower manufacturers like you are going to have more orders than they ever dreamed of and profits are going to skyrocket.  Everyone wants a share of your company.

Not surprisingly, I get many offers for my one share in your company.  But because so many people are trying to obtain a share, they offer us far more than the $10 we paid. In fact, we sold our share for $30; we made a profit of $20. Many of the 99 other shareholders also sell at $30, while some hold out anticipating still higher prices.

You are busily turning out lawnmowers from morning to night but that evening you come home and catch your breath.  That’s when you realize that you own 100 shares in the company.  Those shares are now worth about $3,000.  That’s right, the market in its current state would be delighted to buy your block of founders stock and place in your hand $3,000 if you so choose.  Our question for you is who lost the money you now have?  The answer is nobody.  A crowd of individual investors started feeling super confident about the prospects of your company. They saw the potential of future profits and they wanted in. They priced the value of the share owned by Mrs. Lapin and me at about $30. They would happily offer to buy our share as well as your 100 shares which are worth more money than they were last week. You are richer than you were but nobody is any poorer.

Similarly, when the value of a share you own declines from, say, the $10 you paid all the way down to $6, nobody has the missing $4.  It’s just that a large number of individual human beings feel that because of poor performance on the part of the company that had issued the share, their desire for that share had declined and they would now pay only $6.

This dynamic could also have happened had you kept your $10 in cash and not purchased the share. For instance, the number of people in the world who want to own U.S. dollars could decline and the actual value of your $10 might drop to $8. (We are not considering inflation in this discussion, only currency exchange fluctuations.)

Thus, you can see that just like reputation or music, money is also not tangible.  It’s existence, and even its value, depend on the beliefs and interactions of large numbers of other people. If they all, in aggregate, decide that the house for which you paid $100,000 last year is now worth only $90,000, your net worth is down by $10,000 but there is nobody in the world who is saying to himself, “Oh great! Brad’s bad luck is my good luck. Because his house lost $10,000 of value, mine just went up by $10,000”. Your lost $10,000 of value never went anywhere in particular. It just vanished.  Just as with a sadly dissolving marriage, one might ask, “Where did all the love I saw on their honeymoon go?”  Love is also a spiritual phenomenon.  That means it can vanish. It doesn’t mean that the married couple next door suddenly have more love.  Just like the restaurant riddle, the presumption that the missing value of the share must be somewhere is flawed.

With earnest hopes that you will be more afflicted by unexplained gains than losses,


Rabbi Daniel & Susan Lapin

18 thoughts on “Where did the money go?”

  1. It has always been a pleasure reading your thought on many issues including that of money.

    Money is indeed spiritual. Only spiritual things have the capacity to influence the actions and behaviors of men like money does.

    Just the way a man’s behavior can change over night for the love shown by a beautiful damsel so also the behavior of people can change because of money. Until the spiritual dimension of money is completely understood the pursuit of it will end in futility.

    God bless you My Rabbi.

    1. Rabbi Daniel Lapin

      Dear Osas Daniel-
      You captured one of the chapters in our book Thou Shall Prosper-The Ten Commandments for Making Money. We explained exactly how and why failure to comprehend the spiritual nature of money condemns one to economic stagnation. You put it very eloquently by saying its pursuit will end in futility. So correct!

  2. Rabbi,
    Are the hairs on one’s head spiritual or physical? If the hairs on our head continue to grow and remain intact, I would consider them physical. But if the hairs vanish little by little, do they disappear into the spiritual realm to be given back to us when we go to Heaven? I have also heard that life is in our blood. And if the hairs on our head are not getting adequate blood supply, they lose life and die….then vanish. This is a sad situation for any human. Does a loss of hair mean a loss of strength as well? Remember Samson! A have prayed that God would allow me to keep my strength (my hair). God answered, “Use Rogaine!”

    1. Rabbi Daniel Lapin

      Dear George John,
      To respond seriously to your lighthearted and welcome letter, hair tends to grow on the most physical parts of humans. We have hair on the back of our hands (used for punching or hitting) and never on our palms used for acquisition and creativity. Other hair locations reinforce this understanding. If there is any part of the body that should lose hair as we age and become wiser, it is the head. And, not unexpectedly, we tend to lose hair from the front of the head more than from the back. Makes sense of course. So forget wasting money on Rogaine; wear your shininess with pride.

  3. Rabbi Lapin,
    My Crazy Idea
    Please allow my thought. I am pressing perhaps.
    Would it be better if we did like the parable-like story of Stone Soup? This you’ll recall in a famine, a man boiled rocks, and another thought it stupid. And brought something to cook in it. Yet again, another saw this, and contributed. It prompted many. So then, the many who helped got some. This is not communist, but generosity, and makes thought too, of the Yovel year, and gleanings concept. And recall is made of Ruth being aided by Boaz.
    Thank you,
    Al Hoffman

  4. Teresa Sterling

    Dear Rabbi and Susan, I wish I knew how the stock market works, Maybe some day I will. My biggest problem is my marriage, which I understand is spiritual. When your spouse tells you thank you instead of saying that was great and I love you.
    , It really hurts. In the process of separation/divorce soon. I worry about the effect on my children, but he cannot seem to see that. I married a dysfunctional man, yet, thanks be to God I have two wonderful children. Please pray for me as this has been difficult for 20 years. I pray for you and Susan on a regular basis. He never learned how to love a woman.

  5. Barbers and hair stylists are richer, in your example, because there is more hair growth. ;^)

    1. Rabbi Daniel Lapin

      Ha ha, Pete,
      Not “more” hair growth but normally anticipated hair growth. If this wasn’t so, more people would become barbers and supply and demand would balance as it always does when people are free of government economic tyranny.

  6. The $4 though vanished, like love, is still missed. Thank you, Rabbi, for a better understanding. Spiritual hope and devotional perseverance.

    1. Rabbi Daniel Lapin

      Thank you Nancy–
      Yes, all spiritual phenomena, whether on the positive side or the negative side, are real and can bring joy and pain.

  7. I would just like to add that in your last example about the house whose value goes down from $100,000 to $90,000, the owner of the house doesn’t actually lose $10,000 unless he sells the house. If he doesn’t sell the house it’s nothing more than a number. A year later the owner might discover that now he has a house that has GAINED $10,000 in value over what he paid for it, so that it is now worth $110,000. But he doesn’t get that $10,000 unless he sells the house. (I’m not including other matters like the advantages or disadvantages of your overall worth being higher or lower, just as you mentioned inflation is not taken into account.) I think Warren Buffet said something like, “If you don’t sell it’s not real money.” I always repeat that to myself if I am tempted to worry about the value of my investments going down for a while. If they are good investments they will go up again. Patience is a virtue.

    1. Rabbi Daniel Lapin

      Yes, Mark,
      That is why I brought in the example of currency fluctuation. Even if one does sell one’s asset, that doesn’t solve the problem because one has to store one’s accumulated value somehow and we have to realize that there is no ultimate way of storing it that will preserve it independent of the vagaries of God’s other children. Everything we do impacts not only our own value but that of our neighbors too.

  8. Thanks Rabbi for this answer, I often thought the money simply moved to another bank account since it didn’t evaporate. The example of the “honeymoon love vanishing” made me understand it better. And yes money is indeed spiritual!

    1. Rabbi Daniel Lapin

      Dear Achi–
      I am happy this helped your understanding of how the world REALLY works.

      1. Dear Rabbi
        If money is spiritual and you suddenly find money flowing in from everywhere maybe you even stumble over a wad of cash on a evening stroll, and win on a scratch off and you suddenly find yourself with several thousands of dollars just out of the blue. What does this mean spiritually? I got to be honest with you this happens to me on occasion and it’s strange, strangely wonderful, but strange nonetheless, I should add here I always feel compelled to help others with some of this money if I am asked or see a need that coincides with these mini windfalls. Please comment because I have been anxious to ask a Rabbi for their thoughts on this matter. Jessie

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