What is Money?
The answer is much more complex than it first seems.
Easy-peasy. Done. Now we can all go home…..
Wait, wait, wait. I was joking!
The above is certainly a concise, accurate and all encompassing description of what ‘money’ is (yeh, I’m a bit proud of that), but there’s a hell of a lot to unpack here. You’re not getting off that easily.
Let’s start with a story…
A Story of You
You hear a loud, annoying buzzing sound waking you from that deliciously juicy yet completely imaginary burger you were munching on. Half-asleep you switch off your phone alarm for the third time and head to the bathroom to brush your teeth and take a leak. You’re late for work, so you clumsily chuck your clothes on, grab your keys and phone and rush out the door for work. You don’t have time for public transport so you whip out the Uber app while running downstairs, order a driver, and dive into the car as it pulls up outside. Once you arrive you try to subtly breeze into the office but your boss is on it today and gives you a dressing down for being late. “Time is money. So when will I get my time back so you get your money.” he says. “I’ll cover the extra time this evening boss.” you respond begrudgingly. You get to work and thankfully time flies by, even with the extra 30 minutes, so you decide to go out for a couple of drinks with your colleagues. When you get to the bar you order the first round of drinks but a cold shiver runs down your spine. You realise you left all your cash and cards at home and now have to sheepishly ask one of your colleagues to cover you. Jamie has always had a thing for you and of course jumps at the chance to be the saviour. The night goes as well as any night out can. You get drunk, eat a kebab, go home, go to sleep, ready for another day. End of story.
So at this point you're probably wondering ‘what the hell has this random story about nothing got to do with money?’. Well, it’s got everything to do with it. While I’m sure this story doesn’t match your average day exactly, I suspect it’s not exactly unfamiliar to you.
Money is the engine of society and affects your every waking minute. Yeh...it’s that BIG. The reason you even got up in the morning at a set time (even if it was a bit late) was so you could be at work. The reason you go to work is to earn money, and the reason you earn money is so you can buy stuff to live and enjoy your life. I’m well aware I'm explaining the obvious here but it’s important to start at the foundations so I can convey how much we all take money for granted. We’re immersed in its effects every day, yet we pay little attention to how it actually works.
Let’s do a little thought experiment and reset the story back to the beginning, but this time money is wiped from the face of the earth, including from people’s memories.
A World Without Money
You wake up thanks to your alarm, but you snooze it permanently until you feel like waking up (ok, I’m not going to lie, this bit certainly doesn’t sound too bad). When you get up you realise there is no point in going to work for someone else because there is no benefit to it. What is an office going to give you that you actually need? You start to get a bit hungry and there’s nothing in the fridge so you decide to venture out into the city to grab some food. You go to your local pizza place and ask Mario for the usual 12 inch Diablo. Mario says “Why should I make this Pizza for you? What do I get in return?”. Puzzled, you stare at Mario, not sure what to say. “Err…”, you look around and pat yourself down, “Err, my watch?” you say with a hopeful look on your face. “I’ve already got a watch thanks. Sorry.” Disappointed, confused, and hungry you walk back outside and start to wonder what the hell is happening. You start seeing people running from a local supermarket carrying whatever ever they can. After a while of walking around the city you realise it’s probably a good idea to get in touch with your friends in the area and see what they make of the situation. You give them a call and agree to meet at your local pub. Once there you go to buy a round of beers for your friends but realise the moment you get to the bar that you have no idea how to convince the owner to pour you all some drinks. At this point the gravity of the situation hits you and you start to panic, and so do your friends. You all run outside and towards the local supermarket to get hold of whatever food and drink you can get yours hands on, but once you get there you realise it’s already ben ransacked. Windows are smashed and people are freaking out. You have no idea what to do. End of story.
Now, of course we can never really know what would happen if money suddenly disappeared from one day to the next, but I suspect that things would fall apart considerably quicker than even the above story portrays. Without money our current society could not even remotely function.
Do You Think You Understand Money? You Don’t.
Ok, it’s time to start getting into the nuts and bolts of what money actually is, or rather, the properties that make money...well…money. You might think of money as the physical cash in your pocket. Those funny rectangular pieces of paper and round coins with numbers and images of dead people on them. But this is just one small part of a money system. It’s quite likely that your idea of how money works goes something like this:
“Hello good sir. I’d like to purchase an ounce of your finest penny sweets!” (Yeh, I don’t know why we’re in 1800s England here but just roll with it ok.). “Of course young man. That will be a threepence.”. The young, British, 1800s version of you now pulls out some coins from your pocket and hands over a sixpence. The shop owner then puts the sixpence into the till and gives you a threepence coin as change. “Thanks for the business young chap. Come again soon!”
Apart from the experience of being a young boy in the 1800s, this is likely to be a familiar experience to you. One, in fact you’ve likely gone through hundreds, if not thousands of times throughout your life. Replace the coins with sticking a plastic card into a machine and it covers almost every purchase you’ve made until internet shopping arrived. Money is so SO much more than this simple interaction though. Money requires a large set of properties to even work at all.
Money has a set of fundamental properties, all of which are required for it to be useful. Think of it like a pancake. If you remove any of the main ingredients for a pancake (egg, flour, and milk), you no longer have a pancake. You’ve certainly got something, but I doubt floury milk is the breakfast of champions. Money is much the same. You need all the key ingredients for money to function properly and be useful. These magical properties are: immutability, fungibility, durability, divisibility, transportability, and stability (that’s a lot of ilities!). You can think of these properties as the subatomic particles of money.
We’ll cover these properties in more detail in future articles but it’s at this point that it’s worth circling back to our definition of money:
So how do we go from ‘subatomic particles’ to the ‘atoms’ of money that make up the definition above? The first key concepts we need to unpack are ‘socially constructed’ and ‘value’. These are interrelated and form the ethereal foundation of money.
In the next article in this series we will be exploring how the nature of value and relationships between people are the fertile ground from which money grows.
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NEXT ARTICLE IN THE SERIES: What is Value?
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SUMMARY OF ALL ‘What is Money?’ ARTICLES: The Definitive Guide To ‘Money’