Posted by Chris at September 8th, 2007

What is money, really?  Is it a Store Of Value?  Or is it really a Symbol Of Value?  Let’s explore these ideas for a bit.

Way, way back at the beginning of things you had the Hunter.  He was the guy who left the cave, went out and killed something, dragged it home, and ate it.  Eventually, along the way, he learned that certain kinds of leaves, roots and berries were nice to have also, so he collected them and brought them home as well.  Pretty simple life.  No need to interact with others unless you wanted to kill something really big.

At some point, some other person, probably the Hunter’s wife, decided it would be a lot easier if we could get these leaves, roots, and berries to grow closer to the cave.  I expect she probably experimented for a bit and finally figured out how to plant these things and what they needed to grow and so on and so forth.  It was probably at this stage she sat Mr. Hunter down on a big rock and explained to him how nice it would be if we could get the animals to hang around closer to home also.  After some trial and error, Mr. Hunter suddenly found himself turned into Mr. Farmer.

So now we have agriculture.  The thing is, you need a lot more stuff to do agriculture than you did to just go hunting.  All Mr. Hunter really needed was a nice sharp piece of rock on the end of a stick and maybe some kind of ropes or vines to help with all that dragging.  Now Mrs. Farmer has come along and invented all this agriculture stuff, and suddenly we need bigger sharp rocks to help break up the soil, some kind of bucket or something to move water around, and probably a whole lot of other stuff.  Some Farmers probably figured out better ways to make tools than others.  Also, some Farmers probably liked certain kinds of animals, leaves, roots, and berries, while different Farmers liked different kinds.  I expect some sort of loose bartering system eventually formed out of all this.  “I’ll trade you a pig and five pounds of turnip greens for those fish and a few of your REALLY sharp rocks,” or something along those lines.

Now you’ve evolved the thing into an Agricultural Economy.  The trouble with a barter system is that you have to have a Juxtaposition of Need as well as an Agreement of Equity before you can make a trade.  In plain english the other guy needs to want what you’ve got, and you need to want what he’s got.  Then you both have to haggle around to agree to what everything is worth to arrive at a “fair” trade.  Lots of “ifs” in that system.  Suppose you really need those sharp rocks but the other guy already has all  the pigs he needs?  Eventually, at some point, someone came up with the idea of MONEY.

Now money started out as just plain sticks of iron or something.  It was quite a bit later that money started being made out of “valuable” stuff like gold or silver.  It was only then that the idea of money as a Store Of Value could have come into being.  Well, maybe not, since in the early stages of iron age technology I expect iron was probably pretty valuable itself.  Still, people got to thinking that the money was valuable for what it really was made of, which is a simple way of defining “store of value”.

Later on, someone came up with the idea of governments.  And these governments, then as now, love to mess around with the money supply.  They would have set up specific rules regarding the value of coins and stuff like that.  People would have gone along with all this because look!  Now we’ve got a big brother (the king) with a bunch of friends (the army) who will protect us and stop bad people from hurting us or cheating us and taking our stuff!  From that thought process evolves the idea of money as a Symbol Of Value.

What I mean when I say Symbol Of Value is simply that money’s value comes from the social agreement that says it’s worth what is printed or stamped on the face of it.  It’s pure symbolism.  Don’t believe me?  Let’s take a look at today’s Mr. Worker and how things work for him.

Mr. Worker goes to his job and works all week long at whatever job it is he’s got.  Payday rolls around and Mr. Boss presents Mr. Worker with a PAYCHECK.  This is a fancy piece of paper that Mr. Boss has made up and signed that has some numbers printed on it that represent how much money Mr. Boss is paying Mr. Worker for the week of work.  Mr. Worker takes this Paycheck to his Bank, where he deposits it into his Account.  Now, Mr. Worker can go home, log into the internet website of his Bank and see that he has $11,325.38.  Now, what Mr. Worker really, tangibly has is a dollar sign, a couple of 1’s, a couple of 3’s, a 2, a 5 and an 8 with a funny dot in there somewhere, all of which is electronically stored someplace in one of the Bank’s big computer systems.  Now, if that’s not pure symbolism, it’ll do until the real thing comes along!

I believe it’s a crucial step along the journey of money that we understand exactly what money is, because the money in and of itself has no value whatsoever!  The only value of money lies in what it represents symbolically.  Or put another way, it’s value lies in what it can do for us.  That means the journey isn’t about the money, it’s about the journey.  Money is just the fuel that makes the vehicle go.

…enjoy the ride…