Of Mind and Money

Ever since I found myself unwittingly heading a microfinance institution I have had money on my mind. Not so much how to make more of it, but what it means. It’s such a critical component of so many human interactions, so caught up in so many aspects of our psyche and so baffling in its complexity. It can make and break bonds in human systems, foster marriages, alliances and enterprise, or bring them down. Or it can vanish in slow trickles, dissipating into a vast ocean, leaving behind a pile of random stuff as a reminder that it passed through.

But what is money? Money the way it was first conceived several thousands of years ago is easy to understand. It was a mechanism for simplifying exchange, making it easy for two people who did not have a fair trade of goods (I have something you want but you have nothing I want to give me in return) or had a mismatched timing of goods (my wheat has harvested now but you won’t have your strawberries until the winter) to transact by way of some third product that was not easily destroyed and had widespread utility. This kind of ‘commodity’ money – like salt for instance - had intrinsic value, it was something everyone needed. As it morphed to metal for the convenience of portability, it still mirrored its melt value or its utility as a standalone product. It did not matter if you ‘counterfeited’ it because it was worth simply its utility and the effort of mining it. But metal is still heavy and inconvenient to port so then there came notes, pieces of paper that represented some amount of metal, typically gold, that was held somewhere safe. Not too different, but with a faith in the issuing party that you could exchange the piece of paper for metal – a material of real value and utility.

The Value of Money

Yesterday my mother called me to say that she is taking my six year old son to see a coin collector since he has been pestering her with questions about money. Motivated by his interest in buying yet another Ben 10 toy that I won’t get for him (jet ray, shake ray, I don’t get it...), he has become a little obsessed with finding ways to get money. Who invented it? Can he invent his own money, he wants to know. Would people take his invented money? Who makes the money? Can’t he just print some out on our printer? Who decides what its worth?

So back to the coin collector. My first reaction was that it seems a little silly and boring. What’s he going to show him, some bunch of coins from around the world? So what? But then I took a look at some of the coins and turns out it’s a very fascinating lesson in the history of money that sparked some interesting breakfast conversation today. The coins are all from ancient civilizations around the world and hark back to the first invention of money. Here are some of them:



They’re not perfect in shape and are pretty crude. You could so easily counterfeit these, was my first reaction. But that’s OK, my husband said, these coins have intrinsic value. They’re worth the metal they’re made from – x grams of brass or silver for instance. So if you wanted to counterfeit them, you would have to spend the equivalent value of energy and time to mine the metal and that has worth exactly equal to its value.

Our typical text book definition of money is as a store of value. In the last few years I have been thinking of money as being a proxy for potential energy that we accumulate on some level – since it provides the power to do work and reconfigure things. So that money should have intrinsic value (like metal) makes sense to me. You could actually calculate its value in units of energy, say joules. Today we have decoupled currency from any ‘actual value’ and created fiat money. Which means money is no longer linked to something with intrinsic value like gold bars. Given this, its ‘value’ can get progressively more distorted. With this disconnect it takes on a different life and dynamics that I’m still trying to get my head around.

So to my son, I have to say, ‘I have some notional answers to your questions and this is how I’m thinking about it, but in all honesty, sweetheart, I’m almost as baffled as you are. Why don’t you go ask Dad.’

'And, hey, I already told you that we are not going to buy another Ben 10 toy right now'.