Valentine's Day - An Annual Celebration of Liquidity
On February 14, 270 (A.D.) the Belgian goddess Godiva and the American god Hallmark had a child, whom they named “St. Valentine.” The Roman Emperor Claudius II celebrated the birth by choosing February 14th as the day on which he would annually bestow upon his various paramours "greeting tablets" (in later centuries to be replaced by greeting cards), thus starting a tradition to be thereafter known as “Valentine’s Day”.
OK, so my revisionist version of history may be suspect (Wikipedia rejected it). There are a few more widely-accepted theories, mostly centering around one or more Christian martyr(s) during the Roman Empire. However, while the origin of Valentine’s Day may not be totally clear, its current significance is — that’s right, Valentine’s Day in modern times is the annual celebration of liquidity.
Huh?! Don’t I mean “the annual celebration of love”? Well, yeah, that too (especially if my wife is reading this)… but hear me out…
What is liquidity?
Let’s say you’re an F-15 (the fighter jet, not the bingo square). You’re designed to fly at over 1,000 MPH, and cost over $20M. Now imagine someone forgot to refuel you before you fly over the Pacific… and suddenly your engines stall. That’s not good, right? You’re a powerful, expensive machine that’s falling from the sky because you ran out of fuel.
OK, now think what it’s like to be a small but rapidly growing chocolate or greeting card company. You have a hot product, lots of buzz, growing sales, … but you just invested in some new equipment, your cash balance is a little low, you have payroll coming up… and one of your main customers just called to tell you that, sorry, they still can’t pay you yet, because…. well, it doesn’t matter why they can’t pay you. What’s important is that you’re out of cash.
For companies, cash is fuel. It allows you to buy things, pay people, even pay interest on the loans you took out to get you that cash. “Liquidity" is the availability of cash! Sometimes, cash is available because you already have it. But often, when you’re falling from the sky, or when you want to fly higher than your available fuel allows, you need some help. That’s where borrowing comes in.
"Neither a borrower nor a lender be”
This was nice advice that Polonius gave to his son Laertes in “Hamlet,” and it may have been helpful in 15th Century Denmark, but if Laertes followed his father’s counsel today, he wouldn’t be able to use a credit card, or buy a house, and would have had a very hard time launching and growing a business. Some economic models try to position borrowing and lending as shifting time preferences for consumption. (That is, borrowers would rather consume now than later, and borrowers would rather consume later than now.)
However, while this may apply in some cases of individuals spending beyond their means, the more appropriate lens through which to view borrowing is not one of consumption, but rather one of liquidity. It’s the ability to access cash in the present that won’t be otherwise accessible until the future. Borrowers purchase this liquidity by paying interest to lenders (who themselves often borrow the funds they lend, only at a lesser rate — a topic better left to a future conversation on money and banking).
What does that have to do with Valentines Day?
On Valentine’s Day, we buy cards, candy and chocolate in the shape of hearts. And even though that double-domed, pointy-bottom heart shape is a highly stylized image of a human heart, when we see it, we think of that the powerful, extremely valuable blood-pumping mechanism in our chests. The blood pumped by the heart carries oxygen and nutrients throughout the body — providing the fuel to keep the body going. You could be a 6-feet, 200-pounds of solid muscle, with a genius IQ resonating in your skull, but if your blood stops flowing… you can’t operate.
Moreover, the heart symbolizes love -- the fuel that not only bonds relationships, but also keeps all of humanity going. If we run out of love, well, our powerful, valuable species can’t really function.
So, you see, in a roundabout, metaphor-stretching way, Valentine’s Day DOES celebrate liquidity: the continued flow of love that sustains the health and vitality of humankind… and the availability of cash for companies to be able to produce the chocolate and greeting cards we buy to celebrate it. Now that’s a sentiment which would have looked really nice etched on a greeting tablet!