The Meaning of Money

Posted: 4 years ago (2007-12-11 23:23:26 UTC ) / Updated: 2 years ago (2009-06-01 22:26:29 UTC )

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Originally posted on 2007-12-11 23:23:26

This isn't really in theme for this blog. But I've been waiting for years for somebody smart and qualified to write this article. Instead, I'll write it and perhaps they can correct me after they've read it.

I've been thinking a lot about money lately. I don't mean that I've been thinking about saving money, or making money, or money problems. I've been thinking a lot about what money is. Not what money establishes, not whether it's backed by gold or paper, not how money moves, but what money means, as opposed to things like barter.

You could say, "money is something that can be traded for goods and services." Or for a slightly different definition, "money is something that isn't valuable for its inherent uses, but to be traded for goods and services." Either is a decent definition, but that's not really what money does, only how you can recognize something as money or not-money. Either definition is incomplete. So let's think about what the alternative to money would be.

When most people say, "imagine a society without money," they then talk about barter in an otherwise fairly medieval-sounding setting. Next they give the example that a violin maker would starve because not enough farmers want to trade food for violins. This is complete bunk. A carefully hand-crafted violin would be recognized as a valuable trading good pretty quickly, and medieval farmers tend to have lords, bullies, obnoxious neighbors or somebody to pacify with bribes or gifts. That is to say, well-made goods act like money. Gold, which some people consider the obvious "real good" to back money with, is still valued because it's tradable for other goods and services, and not because it does anything interesting by itself. That is, they value it because it's money. So we need to go further back to imagine a society without money.

Let's imagine a society that's pretty subsistence-level. Luxuries like shiny metal don't really exist, and luxuries like sparkly rocks aren't worth much. If anything is to be traded, it's to be traded for its actual use -- food, clothing, weapons, containers, and perhaps the use of shelter. Even trading shelter for food or goods will be pretty informal rather than a big "vacancy" sign. Not much travel, because trade plus travel equals durable trade goods, which in turn are the same thing as money. So what we get back to is small tribal society with a few families where everybody knows everybody. That's who wouldn't have money yet.

Money solves a problem for society: the problem of who gets what. When the tribe's best hunter comes home with animal skins and more meat than he can eat, somebody is going to get the leftovers. Somebody else isn't. How do those resources get divided? Maybe the hunter directly trades for something useful -- skins for finished clothing, say, or meat for grain he can store against harder times. But more likely, what happens is that he has neighbors and a family. He remembers who has been good to him before. He offers food to the people he likes. And the people he likes are his family, and people who have done well by him before.

So instead of money, we have goodwill. Goodwill can be toward family, toward people that have done you favors, or toward people you want to impress. For instance, a good hunter who doesn't have a wife/girlfriend/mate will probably be quite happy to give extra meat to the pretty girl he's interested in. Goodwill doesn't directly replace money... The husband doesn't come home and dole out money to his family after payday, and you don't invite the neighbors over for money. You invite them over for dinner. So this goodwill is interesting, but it's not quite the same thing as money. It's not a terrible match -- there may be five-dollar loans between neighbors, a man buys things for his family, it's common to buy the pretty girl at the bar a drink. But perhaps we can do better?

Our mighty hunter also gives food to less related people, not his family or neighbors. When? We already mentioned debt, which is one reason. The other reason that comes to mind is respect.

A tribal chief may give things away purely to gain respect, like the Potlatch cultures of North American Indians. Similarly, a hunter may give things to a chief or other high-status figure to gain that chief's respect. This is related to doing favors for your neighbors and hoping they'll do favors for you in return. Even in the modern day, favors between neighbors are usually simple services like helping with yard work, borrowing household objects and babysitting. But for signs of respect to and from higher-status figures, we now use mostly money. We buy a celebrity's videos or merchandise, we contribute to political campaigns. Popular bands pay to plaster posters over every surface before their concerts. Television advertisers pay broadcasters enormous amounts for an audience's attention and a chance to win their respect.

That means that respect is worth money. It can be traded for money, as the television broadcasters do in one direction and big political donors do in the other. Is respect the same thing as money?

Not exactly. If respect were exactly the same as money, we wouldn't need money. Respect is free, impossible to steal and doesn't require regulation, printing or minting. Taxation wouldn't be easy but it could be done when respect was turned to or from valuable goods, just as barter and gifts are taxable today. So money must be useful in other ways or we'd just have a financial system of respect in varying amounts, just as our tribal predecessors did.

In practice, in a tribe, that system of respect boiled down to a chief or headman deciding how to divide up common hauls. The integrity of a tribe's financial system was the same as the integrity of its chief. If he kept careful track of who had done well by the tribe and rewarded them appropriately, the financial system was good. It rewarded the best hunters and craftsmen while making sure everybody got at least something. And if the chief had no gratitude, his toadies got everything and nobody else got much of anything.

You can think of money as "separation of financial integrity and state." Using money means that you're not relying on the goodwill of the state for your service to have value. Instead, that value, that respect, that future claim on goods, is guaranteed by a token of promise with a very specific meaning. Instead, the state hands you a pile of money and says, "here you are, now get your goods when you want them."

This assumes that vendors will honor your money, of course. Every so often there's a serious breakdown there, as in cases of hyperinflation, when vendors don't want to take money. But in that, too, money acts like respect. One cares about the respect of one's tribe or chief when that respect allows them to take care of you, repay you, and otherwise act positively. One cares far less about their respect when they're broke and have nothing to offer, or when their respect is spread so thin that the best goods are all spoken for anyway. The wikipedia link on hyperinflation shows some striking parallels with such a situation...

Here, then, is my one-line summary: money is respect. Here's my two line summary: money is respect from your community or tribe. It's the kind of respect that matters when you're divvying up something worth having.