Why I love money

I’ve been a professional philosopher for a while now, and one thing I have noticed is that few of my kind think much of money. In one sense this is to be expected and, perhaps, admired. Philosophy has always been associated with a concern for something larger and more meaningful than the accumulation of material wealth.

But the sense I have in mind is neither expected nor admirable. What I mean is that we seem unduly unfascinated by money. It's as if our distaste for a life lived in pursuit of money inhibits our ability to appreciate its philosophical significance: what it is, how it works, what it suggests about human nature and society. This is unfortunate because money may be the most powerful invention, the most intriguing entity, and the greatest force for human cooperation this side of God. Every philosopher should try to understand why.

Neither Plato nor Aristotle were huge admirers of money, but they thought about it enough to know that it emerged as a way of overcoming the limitations of barter. They knew the obvious limitation: In a barter economy Socrates may desire a massage from Epione, but Epione may desire no instruction in philosophy from Socrates. So, to get worked on, Socrates must fetch Alcibiades, who desires Socrates' services, and who will gladly send several jugs of wine to Epione in return.

Another impediment, perhaps more dimly appreciated, is that even if Epione were desirous, she wouldn’t know how much philosophy to charge. Purveyors in a barter economy have to consider the exchange rate between their goods and every other thing they may be willing to accept in return.

Money solves both of these problems. First, money can be used to represent the value of every other good. In a money economy, Epione doesn’t have to compute the value of a massage in units of philosophy. She just needs to state her fee. Second, everyone accepts money as payment. As Yuval Harari points out, this is because “Money is a universal medium … that enables people to convert almost everything into almost anything else.”

If money had never been created, human societies would probably have remained small and commerce between them cautious, limited and infrequent. Money economies facilitated routine transactions, hence growing levels of trust between complete strangers. It enabled societies to become vastly larger, more complex and capable of previously inconceivable levels of cooperation. In so doing, money replicates itself, causing ever more wealth to be created. All this glorious complexity occurred because money vastly simplified the computational tasks individuals needed to perform to exchange goods and services.

Granted that money does all these things, the question is how. What makes us accept money as payment in the first place?

A simple answer would be that the stuff of which money is composed has independent utility. This is the correct answer for some forms of “commodity money” used in primitive money economies. Wheat, tea, candy, cigarettes, and cacao beans have all have been used as money specifically because they have independent value to humans. The same explanation holds TIC for gold coins. As Cortés explained to Moctezuma, Spaniards suffer from a “certain disease of the heart” that only gold can cure.

But advanced economies don’t use commodity money, they use “fiat money.” To understand this, consider the scraps of paper we call dollar bills. It used to make sense to accept these as payment. They were essentially just government-issued IOU’s. Theoretically all of the currency in circulation was redeemable for gold.

Paper bills “store the value” of an existing and universally desired commodity, making it possible to exchange the commodity without having to transfer it physically. Of course, a system like this works only because those who participate in it believe the bills will be honored. (When the government bounces notes, all hell breaks loose.) So this variation on a system of commodity money both requires and fosters even greater levels of trust than before.

A system of fiat money emerges when this cord is cut; when paper, coins, and (now) bits of electronic data are no longer tethered to an existing commodity. This occurred in virtually all major economies during the 20th century. Governments still maintain reserves of gold, but it is officially just another good, not something that underwrites the value of their currency.

Almost all economists believe this was a positive development (though some politicians do not.) It seems to be basically working. But why should it? In the past, money was clearly tied to a material reality. Now it is as if money exists only insofar as we believe that it does. Again Harari:

Money is [fundamentally] a system of mutual trust, and not just any system of mutual trust: money is the most universal and most efficient system of mutual trust ever devised. 

Money, then, is one our most salient examples of an intersubjective reality, a set of entities, structures and processes whose existence and causal powers are palpable, but which would vanish into thin air in the absence of mutual trust and belief. Nations, cities, constitutions, corporations, schools, legal systems, rights, obligations, roles and privileges are all putative examples of such.

Intersubjective reality, first described by Kant, is to be distinguished from subjective reality (isolated in a single mind) and objective reality (mind independent). It is a philosophically intriguing category partly because it is difficult to decide whether its members (a) really exist in virtue of being believed to exist or (b) really do not exist, even though the mutual illusion that they do is useful in producing cooperative behavior.

The second interpretation seems clearly appropriate for some kinds of entities. Gods, for example, are imaginary entities whose value is best explained in this way. So are morals, at least to the extent that they are represented as the deliverances of gods.

But money seems distinctly different. It just seems crazy to deny the existence of something that makes the entire world go round.

G. Randolph Mayes
Department of Philosophy
Sacramento State