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What is money?

April 14, 2010

A few months back I started thinking about money, and began to wonder where it comes from. Long story short, I found a number of articles and presentations of varying quality saying that money is made by the Fed and issued by Treasury, but that wasn’t the interesting part. In researching how debt and credit is created, I unexpectedly discovered different paradigms of what money is.

Think about it. Is money just one thing, or are there multiple lenses that it could be perceived through?

I used to have a simple and well defined view on this – throughout my life I perceived money as a means to obtain goods and services. In other words, as a mechanism of exchange. Money could be saved, spent, invested and gifted. One of the purposes of employment was to obtain as much money as feasibly possible, to later spend exchange it for things I need and want. As high school economics teachers point out, money is an evolution of the ancient barter system of shells and coconuts.

When I started investing in the stock market, I saw another paradigm – money as a commodity. I could trade, buy, sell, borrow and lend it. I would buy money on the cheap and then later sell it at a more expensive price for an arbitrage opportunity. This is simpler than it sounds: buying money is done by borrowing it – for example, I can buy $100 now for $110 dollars in six months. Selling money is lending it – if I can sell the same $100 for $120 in three month, I make a tidy profit. So, just like orange juice, concrete and copper, money is a commodity.

Over drinks with a well connected friend who had the chance to meet the board of the Fed and discuss money with them, I discovered yet another paradigm – of money as an abstract concept to measure confidence levels in an economy. How much money should there be in circulation for people to have faith in tomorrow? During the 2008 financial crisis, the Fed created over a trillion dollars of bailout funds. Was that enough to convince the public and the world that the US economy would survive? Looks like it. This was the value of confidence in the financial system, and it was largely made by entering a few numbers in a computer – there was very little additional cash made.

I often think of money as not real. That’s not entirely true – money is very real, and a large part of our lives. It is however a very interesting abstract concept with multiple dimensions, and it’s rather useful to increase the different perspectives of what it is to suit different situations. If anything, the notion of money certainly doesn’t have a single correct definition. What other paradigms are out there?

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2 Comments
  1. Jayme permalink

    pierre bourdieu would write that, more importantly than thinking about the many faces of money, is to think about the many forms of capital. for instance, money is a form of financial capital, but there are also forms that actually have a much greater impact on most people’s everyday lives, such as symbolic and cultural capital. going to a … See Moreprestigious school, for instance, is a form of cultural capital (may also represent financial capital, however). the recent greek bailout by the EU, although financial, may have more to do with greece’s enormous amount of symbolic capital than any possible financial motive (i.e. the glorious past of greece as the birthplace of western civilization, and the perceived cultural debt owed it by the EU, is a greater motivation than any possibility that the investment will reap any favorable return). i recommend bourdieu’s distinction for more on capital in society; he also offers an excellent perspective on art and cultural production that provides much food for thought:)

  2. Money is the systematic enslavement of the entire population of the planet Earth through debt and interest. Look into the Zeitgeist Movement.

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