So What Is Money?

The question at first seems ridiculous.  How could I bother you with such a question?  You probably use money every day, to buy stuff, pay bills, hire help, bribe your kids, I mean come on of course you know what money is right?  Yet can you really answer the question, I am here to tell you the dictionary doesn’t even really get it right.  So I figure most people are wrong as well, money in the dictionary is defined as follows…

“money – something generally accepted as a medium of exchange, a measure of value, or a means of payment: as a : officially coined or stamped metal currency”

Now that sounds right doesn’t it?  Problem is it ignores the question by defining money as to how it is used vs. what it really is.  This would be like asking what is air and answering with “that which we breathe, the stuff that moves when the wind blows, that which provides lift to aircraft, everything in the apparently empty space of our atmosphere”.  None of this is wrong, air is all of those things but when someone asks “what is ______” the heart of such a question is what is it composed of.  So what is air gets answered as…

A colorless, odorless, tasteless, gaseous mixture, mainly nitrogen (approximately 78 percent) and oxygen (approximately 21 percent) with lesser amounts of argon, carbon dioxide, hydrogen, neon, helium, and other gases.

With that answer we actually know what air is, what makes it, well, air in the first place, what it is composed of.  This may seem like a technicality but if you want to understand what money actually is, it is important.  See money isn’t dollars, gold, beads, sea shell, ammunition cartridges, cigarettes, buttons, silver, copper, paper, etc.  All of those things have been used as money, as a generally accepted as a medium of exchange but they are not money, they are for a time, currency.

So what is money, money is by my definition “an agreement between members of an economy”.  You see it is the agreement of members of any economy from a tiny swap meet to an entire nation to accept a currency that makes it money. The collective agreement itself  is really the money, not the objects or computer credits exchanged.

Take away the agreement and the object is well, mostly worthless unless it becomes a collectible of sorts.    No matter what anyone tells you it is only the agreement that is money, not the object.

This is true even of the holly grail of all things monetary, gold…

  • You can’t eat gold, it is a toxin and will kill you
  • You can’t use it for many industrial applications it is too soft and/or too scarce
  • It makes nice jewelry but so do copper, steel, silver and many other metals that far more durable

Why is gold valuable?  Because we agree it to be so as a people.  Gold is one of the most stable forms of currency we have, why, because just about everyone agrees that it has value.  See the more people who agree on a currency the more stable it becomes.  Yet the agreement is the only thing that makes it worth anything.

There is more to this, to really understand what is going on here we have to answer the next logical question, “why do we need money”.  The answer may also seem obvious, but it is as complex on some levels as the question we just answered.  Tomorrow we will tackle why we need money for now all I will is it has a lot more to do with energy than matter.

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