Why money is an illusion

Money is a human construction, when we were a neolithic non-cultured species, money was a concept yet to be conceived. Perhaps it was a random intuition that briefly and dimly flickered in the consciousness of people more concerned about what was in front of them than what could be, for better or for worse, a 'reality'.

Image source: Anna Cervova

Illusions are thought to be deceptive, misleading or misrepresentational of reality. Money is believed to be an essential necessity, and indeed, it is in the world we have created for ourselves, but it is not per se a requirement for living which is what contributes to its illusory qualities. Rather it is an a priori deduction which is a conceptual abstraction that can be actualized through a printing press, and not a definitive empirical requirement for life.

In more concrete terms, look at the value of the dollar. It's not directly based on  or 'backed' by any physical collateral such as federal real estate, presious metals etc. The dollar's value is based on perceptions of its value, belief in its worth and what it represents. Currency trader's decisions aren't always if ever based on evaluation of the dollar's actual wotrh under controlled experimental research conditions for accuracy. In other words, it's based on perceptions, beliefs, indicating financial metrics, and changes in market conditions. 

It's kind of like faith! maybe that's why it says 'In God We Trust" on the back of a dollar bill.

What money is

Money includes more than just the paper and coin currency exchanged between merchants and their clients. Money has existed for 1000's of years as a convenient replacement to barter. In the course of history, money evolved and took many forms as it does today. For example, in some countries, compacted bricks of tea leaves are used as currency and exchanged for other products.

Since the tea is a commodity that has value in overseas markets, the compacted bricks of tea have intrinsic value therefore it is used as money. In fact, anything that has intrinsic value whether it be via confidence in the "currency" i.e. medium of exchange or real value in terms of demand within an economy.

The different forms of money

As noted above money comes in different forms, even tea leaves, and thus any medium of exchange that is used to represent value can be thought of as money. In many societies and economic systems, money has taken on several key distinctions including its shape, capacity, production, role in an economy and the way it is given value. A few such different forms of money are the following:

• Electronic money
• Plastic money
• Paper money
• Metal money
• Credit money
• Collateralized money

Each of the above forms of money serve different purposes have differing physical or non-physical features and are exchanged differently. Before the advent of digital technology, telephone wires, and computer information technology, paper money and metal money were by far the largest source of money in the world. More recently however, electronic money in the form of digital account balances and electronic credit are exchanged using financial clearinghouses, wire transfers, and credit recording equipment.

Factors that affect the value of money

Money is valued and given worth through a number of economic mechanisms. Historically, money was "backed" by gold or other precious metals, but in more recent times, the gold standard has been reduced or done away with completely. When money isn't backed by gold, it is valued by market forces such as economic performance, money supply, and more indirect forms of collateral such as a country's financial capacity, political stability and natural resources.

Other financial and economic factors that can influence the value of money are leveraging, interest rates, and inflation. Generally, money's value is an indicator of economic events within a matrix of influencing factors such as those mentioned in the last sentence. Inflation is often thought of as the rise in the cost of goods and services over time. Additionally, as money supply increases, the demand for it goes down, potentially causing the cost of services to rise.

Thus, over time, as things cost more, the ability of currency to pay for things declines, and therefore so does its value in terms of purchasing power. Furthermore, low interest rates charged by national banks can spur lending and increase money supply which generates more wealth. However, this increase in wealth can cause the cost of things to rise thereby lowering the value of the money.

In culmination, money is a multi-faceted medium of exchange that takes on many forms, is valued by different economic forces and is used in various ways. Money has evolved as a matter of convenience, efficiency and economic management. With the advent and spread of technology in the 20th and 21st centuries, money has taken on new roles, sophistication, application and valuations.

Indeed, money may continue to evolve into ever different forms and uses. Furthermore, if history is any indicator, money will continue to exist as culturally relevant invention that facilitates the expression of human life, production, consumption and economy for many years into the future.

How to define money

Money is a medium of exchange that reflects value either via limited supply and/or economic proxy. How to define money is also asking what method is used to define money. A common conception of what money is, is cash money, however money can be defined purely in terms of numerical value which itself differs within foreign exchange. Money can also be defined in terms of where it comes from, for example Investopedia defines hard money as currency backed by precious metal as well as repeated government funding.

Ancient Chinese 'Spade' or 'Pu' Money

Image license GFDL Attribution: Roger McLassus

Alternatively, money can be defined by how it is used; for example, is it used with physical or digital exchange. How to define money also involves answering different questions about what money is such as what is it made of? Gold and silver were once used as money, but are now mostly used for commemorative and collectible coins when in currency form. Thus the questions asked in defining money also offer a way how to define money i.e. the act of questioning rather than inferring meaning   Some methods for defining money are listed below.

• Inquiry in to the how, why, what and where of money
• Analysis of the answers to the inquiry of what money is
• With counter-hypothesis to reveal vague aspects of money
• Historically, scientifically, sociologically, economically and artistically

Without a method, or means by which to discover how to define money, answering how to define money may be left unanswered or simply defaulted to a basic answer such as 'Money is any object, resource or actualized concept that reinforces the idea all things have worth'.

Thus, assuming thought is a valid way to discover how to define money, thinking what it would be like without money is one way to define money. Moreover, in such instance worth would not be defined in terms of a representational currency and that would have potentially dramatic affects on civilization, society and economics.

Money facilitates economics

Money is the facilitator of economic growth, demographic expansion, and the infrastructure now required to keep so many humans living a life in modern day society. Thus, money is more than just a medium of exchange and valuation metric as defined by the online Merriam Webster Dictionary.

To define money for what it is involves understanding what money does by inquiry and extrapolation of what money is thought to be. Money is a dynamic intermediary facilitator of trade, commerce, lifestyle, standard of living, services, and exchange. Money is also a concept from which other concepts can be derived. For example, financial derivatives are a conceptual abstraction derived in part by and with the metric of monetary value.

Money also partly defines our identities as humans because we use it frequently, and our lives are somewhat dependent on what money makes possible. This is where the phrase “Money is power” is referring to, however money itself is not power but rather a tool of power or power tool! In other words, when defining money as power one means the use of the money holds influence over the actions and possibly even beliefs of others via a greater more important need to survive which to a large extent is only made possible via money. Thus money can be said to be one or more of the following:

• Global facilitator of exchange
• Influential and/or important part of society
• Basis of commerce
• Representational of human belief
• Quantitative metric
• Physical object and/or digital record
• A conceptual abstraction

Money is not an emotion

Money is not that which it represents, meaning when thinking about how to define money, one may equate money with quality of life when all it really does is facilitate standard of living. Moreover, money is not wealth but the measure of wealth; not economic status, but a measure of economic status etc.

Money is also not a feeling or emotion, but rather a means to some feelings or emotions. Nor, in the minds of many but perhaps not all, is money a god or deity which is to be worshiped. Money may indeed be worshiped on or off the record by some, but the worship of money does not mean money itself is a god or deity. Moreover, gods and deities regardless of their true existence, are most commonly personas and not objects.

Another thing that money is not is essential for life from an existential point of view. Moreover, money is a human social construct that has become almost essential for life, but only because humans have made it so. Thus, what is done, can also be undone, therefore money is not necessarily essential per se.

Lastly, money is not defined as any one object or thing. Since money can be coins, bills, an electronic balance, a goat or even a particular action, then money is not any one of these things per se and in its entirety. Money may indeed be a coin, but money just because some money is a coin doesn’t preclude it from being something else.

• Wealth or status
• That which money represents
• Gods or deities
• Emotions or feelings
• Essential for life
• A single object type of exchange

Summary

How to define money is a matter of context and context is the situation in which money is defined. For example, a simple exchange using a dollar bill in and of itself, and not taking into account the role of money in society but simply the use of money will only explain what money is used for, and some of the means by which money is used i.e. paper currency. To define money in a larger context requires the inquirer to place money in different contexts so as to define money more completely as money is more complex than it may seem.

Money as a tool is defined and used in a variety of ways via derivative metrics, multiple forms of money and within differing institutions with different functions and goals ex: non-profit vs profit financial institutions. What money is not is most clearly what it represents as money is at best a reflection of life and all it has to offer and not life itself.