It may seem odd that I’m starting a series of essays on the balance between government and market forces with a definition of money. Really, I want to focus on what money means in a broader sense than a “definition”, but still: We all know what money is, right? What it’s for, what it looks like, how you earn it, how you spend it… all this is stuff we were fairly solid on by the time we were teens.
Nevertheless, there are three reasons for me to write about it here: First, I like to devote time explicitly to setting up foundational concepts before I get into the more technical and controversial posts in a series. (This is part of the reason I spend a substantial fraction of my posts on mathematical concepts.) I’m trying to assure myself and my readers that I’m looking at each topic from multiple angles, that I’m using terms in a reasonable manner, and that I’m honestly showing my research - not merely cherry-picking and echoing articles written by others. Reading and using a broad base of references is part of my strategy for acknowledging & fighting my own biases.
Second, since money is commonly printed by governments, and since governments commonly regulate the money supply via central banks, spending, and taxation, “money” as a concept is core to government functions. It is also obviously a key component in modern markets.
Finally, we focus so much on the uses of money, and on who has how much of it, we miss that there are things money can’t (or doesn’t) buy. To the extent that a government is concerned about the welfare of its citizens, it should be concerned about the value of various forms of labor and needs - whether or not they are involved in monetary transactions. Businesses will also be concerned about such non-monetary transactions, either as transaction they can monetize, or with which they can supplement their employees’ monetary income, or as competition for their own goods & services.
So, with the preliminaries out of the way: Money is a commonly-recognized medium for assessing the value of goods and services. It is used as a common unit for pricing various goods and services. It serves to store value, so that goods may be bought and labor sold separately from each other, and so that bartering is transformed into more flexible transactions. Common forms are printed notes, minted coins, electronic transactions, promissory notes, cryptocurrencies, and the most fungible barter goods.
Note that money derives its value not from inherent properties of the coinage but from social and legal associations. Travel a thousand years into the future (or past) and to a remote location in central Asia, and you’ll find a $1 bill and a $100 bill are worth roughly the same amount - nothing. Instead, the value of money is based on people’s confidence that it will be useful in future trades to get them what they need.
Correspondingly, the monetary system faces difficulties when the means of assessing value are not aligned with the means of awarding money. This can happen when labor goes unrewarded, when people are paid without producing value, or when different people get paid different amounts for essentially the same work.
This post is part of a series on governing the economy. The next post is “What is government?”