For the past few years I have been on a journey to develop a better understanding of money. It started when I came across Modern Monetary Theory (MMT) via Stephanie Kelton’s book, The Deficit Myth a few years ago, and has now lead me to begin reading Anthropologist David Graber’s book Debt: The first 5,000 years.
Money is a Unit of Account
The idea that has captured my recent attention is the notion that Money, rather than being a material item, is a unit of measure, specifically, a unit of account. The same way that an inch or a centimeter is a unit of length.
The Gold Standard and the Illusion of Tangibility
There’s a common nostalgia for the days when money was “backed by gold”. The good old days of the Gold Standard. It gave our money this sense of tangibility. This way of thinking is rooted in the Commodity Theory of Money, which claims that money has intrinsic value, often tied to something like gold or silver.
Gold, Measurement, and Value
Picture a gold bar. It has physical properties such as length, width, height, and weight, which we measure in inches, centimeters, pounds, or ounces. But it also has a more subjective property: its value to humans (we love rare shiny things). And we can measure that value in dollars, pounds, euros, yen, etc.
In this case, money isn’t the gold, it is a measurement of the value of the gold.
Money is a Claim on Resources
Now when you have money, all that means is that you have a claim to resources in the economy that are considered equal in value to the amount you hold.
For those that are computer programmers, money is like a pointer to a value, not the value itself.
You can also compare money to earning tickets at an arcade. The tickets themselves are meaningless, the arcade can print as many as they want. What matters is that those tickets can be redeemed for prizes. In other words, money only has meaning because there’s an economy behind it.
When There’s Nothing Left to Measure
If you were the last person on Earth and you had all of the money in the world, what would you actually have? Nothing. Without an economy money is useless. You can’t redeem it for goods or services. The only value it might have is that you could burn it to stay warm.
In the end, money is just a unit, and without value to measure, it’s meaningless.