What is Money really?

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Money is … a fairy tale. One that comes true, if we all believe in it.

What is Money?

This man weighs his wealth in tons! All right, that’s because on his island everyone believes in money made of stone. Stone money may not be practical but it also doesn’t get lost. And if it does vanish, as it did when a canoe sank while transporting some stony currency, “Well,” the islanders said, “we know where it is so it still counts as money for the owner.”

Honestly, what are those little printed-paper rectangles we carry around? Are they really so very different from the islander’s sunken stones? Valuable because everyone else believes in them? A stone on the ocean’s floor or a Bitcoin in the virtual cloud — Fairy tales built on trust.

We believe in money because we never have enough of it. Let’s face it: enough money for everybody means no money! If money isn’t tight, it’s quickly worthless. Many episodes throughout history confirm this. Too much money in circulation and it soon equals … zip!

Conversely, anything that is scarce can be used as money. At the end of the day, money is whatever’s accepted as money. Throughout history many things have been classified as money: feathers, salt, tobacco, tea, cows and even slaves.

For trade to function between different societies, the item serving as money needs to be portable and broadly accepted as a store of wealth. Cowrie shells once fit that description almost globally. They are still regarded as money in a few countries in Asia today. In Bamako, in Mali, there’s even a monument to them called the Cowrie Eifel Tower.

Later, the precious metals – gold and silver – triumphed as global money, not least because they could be made to precise weights. And for kings and emperors, coins also offered prime advertising space for a portrait or a triumph.

But money can also be stateless. In emergencies, people have used candy, cigarettes or even playing cards as coins. It seems we just can’t do without the stuff. Money is simply so practical. Without it, we can’t do business.

And that would mean there would be no division of labor, no trades.

So, what we are today as a society is, to large extent, thanks to money, the fairy tale that only comes true when we all believe in it.