The Role of Money in Society

More oft than not, we see people complain about money, and how it is "the root of all evil". Claims are made that it was designed to enslave and that it can not benefit mankind. Frankly, that's just poppycock. Money is not inherently evil, nor is it inherently good. This article will tackle the use of money, and what role it plays in society.

Before we can tackle the role of money, we must first understand it's history. Money, in some form, has been part of human history for at least the last 3,000 years. Before the existence of money, the barter system was used. Prehistoric currency took the form of easily traded goods like animal skins, salt, and weapons. These traded goods served as the medium of exchange even though the unit values were still negotiable.

Over time, these goods were replaced with the world's first currencies. The first well-known example of this was the Asian cutlery trade. Sometime around 1,100 B.C., the Chinese moved from using actual tools and weapons as a medium of exchange to using miniature replicas of the same tools cast in bronze. Nobody wants to reach into their pocket and impale their hand on a sharp arrow so, over time, these tiny daggers, spades and hoes were abandoned for the less prickly shape of a circle, which became some of the first coins. Although China was the first country to use recognisable coins, the first minted coins were created not too far away in Lydia (now western Turkey).

In 600 B.C., Lydia's King Alyattes minted the first official currency. The coins were made from electrum, a mixture of silver and gold that occurs naturally, and stamped with pictures that acted as denominations. In the streets of Sardis, circa 600 B.C., a clay jar might cost you two owls and a snake. Lydia's currency helped the country increase both its internal and external trade, making it one of the richest empires in Asia Minor. It is interesting that when someone says, "as rich as Croesus", they are referring to the last Lydian king who minted the first gold coin.

Just when it looked like Lydia was taking the lead in currency developments, in 600 B.C., the Chinese moved from coins to paper money. By the time Marco Polo visited in 1,200 A.D., the emperor had a good handle on both money supply and various denominations. In the place of where the American bills say, "In God We Trust," the Chinese inscription warned, "All counterfeiters will be decapitated."

Europeans were still using coins all the way up to 1,600, helped along by acquisitions of precious metals from colonies to keep minting more and more cash. Eventually, the banks started using bank notes for depositors and borrowers to carry around instead of coins. These notes could be taken to the bank at any time and exchanged for their face values in silver or gold coins. This paper money could be used to buy goods and operated much like currency today, but it was issued by banks and private institutions, not the government, which is now responsible for issuing currency in most countries.

The first paper currency issued by European governments was actually issued by colonial governments in North America. Because shipments between Europe and the colonies took so long, the colonists often ran out of cash as operations expanded. Instead of going back to a barter system, the colonial governments used IOUs that traded as a currency. The first instance was in Canada, then a French colony. In 1685, soldiers were issued playing cards denominated and signed by the governor to use as cash instead of coins from France.

The shift to paper money in Europe increased the amount of international trade that could occur. Banks and the ruling classes started buying currencies from other nations and created the first currency market. The stability of a particular monarchy or government affected the value of the country's currency and the ability for that country to trade on an increasingly international market. The competition between countries often led to currency wars, where competing countries would try to affect the value of the competitor's currency by driving it up and making the enemy's goods too expensive, by driving it down and reducing the enemy's buying power (and ability to pay for a war), or by eliminating the currency completely.

Fast forward a few hundred years, and we hit yet another advance in currency. The 21st century gave rise to two disruptive forms of currency: Mobile payments and virtual currency. A mobile payment is money rendered for a product or service through a portable electronic device such as a cell phone, smartphone or PDA. Mobile payment technology can also be used to send money to friends or family members. Increasingly, services like Apple Pay and Samsung Pay are vying for retailers to accept their platforms for point-of-sale payments.

Bitcoin, invented in 2009 by the pseudonymous Satoshi Nakamoto, became the gold standard--so to speak--for virtual currencies. Virtual currencies have no physical coinage. The appeal of virtual currency is it offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralised authority, unlike government issued currencies.

Money, in and of itself, is nothing. It can be a shell, a metal coin, or a piece of paper with a historic image on it, but the value that people place on it has nothing to do with the physical value of the money. Money derives its value by being a medium of exchange, a unit of measurement and a storehouse for wealth. Money allows people to trade goods and services indirectly, understand the price of goods (prices written in dollar and cents correspond with an amount in your wallet) and gives us a way to save for larger purchases in the future.

Now that we understand the history of money, let's tackle one of the many arguments seen often pushed by those against the concept of money. "Why not barter?" To tackle that, let us first define barter. Bartering is a direct trade of goods and services - I'll give you a stone axe if you help me kill a mammoth - but such arrangements take time. You have to find someone who thinks an axe is a fair trade for having to face the 12-foot tusks on a beast that doesn't take kindly to being hunted. If that didn't work, you would have to alter the deal until someone agreed to the terms.

Now onto the major issues of the barter system. The five main difficulties found in barter system are as follows: Double Coincidence of Wants, Lack of a Standard Unit of Account, Impossibility of Subdivision of Goods, Lack of Information, and Production of Large and Very Costly Goods not Feasible.

Money was not used in the early history of man. Exchanges were few since each family was self- sufficient. Whatever exchanges there were, they took the form of barter, that is, exchange of goods for the other goods. Various difficulties were faced by the people in the barter economy.

There was no acceptable means of payment for the direct purchase of goods and services in the barter economy. In other words, in a purely barter system, there was no generally acceptable medium of exchange in the form of a particular good or asset which could be used to buy goods and services and do other types of transactions.

Owning to lack of generally acceptable medium of exchange, a difficult problem of double coincidence of wants was faced by the persons who wanted to sell and buy goods. For exchange of goods persons desiring to exchange goods must specifically want those goods what others offers in exchange. Thus, an individual who wants to have a good he must locate another person who offers to give up the good wanted by him and who is willing to accept in ex­change the good offered by him.

Thus, under barter system only when wants for buying and selling goods of different persons coincided the exchange of goods was possible. A good deal of time was spent by a person in searching for a man with whom wants coincided. Halm rightly says, “It is next to impossible that all wishes of bartering individuals should coincide as to the kind, quality and quantity and value of things which are mutually desired, especially in a modern economy in which on a single day millions of persons may exchange millions of goods and services.”

A barter economy lacked not only a common medium of exchange but also a standard unit of account in which prices could be measured and quoted. In the absence of a common unit of account, the number of exchange ratios (that is, prices of goods ex­pressed in terms of each other) between goods would be very large. For example, two cows for one horse, one cow for two quintals of wheat, one pen for three pencils and so on. Thus, lack of a standard unit of account with which to measure values of different goods and services made exchange or trade difficult.

Another problem faced under the barter system for exchange of goods was impossibility of subdivision of goods without loss of their value. For instance, if a person has a cow and wants to have 5 kg of wheat, obviously, it is too costly to give one cow for 5 kg of wheat he requires.

Then, to do this transaction cow has to be divided. But cow cannot be divided or cut into pieces because cow will lose much of its value if it is divided. Thus, impossibility of division of goods for the purpose of exchange posed a great difficulty and obstructed the growth of trade.

Another problem found in the barter system was that in it traders re­quired a good deal of information for exchange of goods. For example, if Amit wants to have a saw in exchange of a wooden table which he has made.

Not only should Amit be able to assess the value of saw but the maker of a saw should also be able to determine the value of the wooden table which Amit wishes to exchange. All this required a lot of information about goods for which people must spend a good deal of time and resources to obtain such information.

If there exists a medium of exchange, it will solve half the problem. However, Amit will still have to determine the value of the table in terms of the medium of exchange. Thus, if there exists a medium of exchange, with well-known characteristics, it will reduce the information costs of trading. Without the medium of exchange information cost will indeed be very large.

Another problem of barter economy relates to the production of large, costly goods. Suppose an individual who has technical skill and equipment to manufacture a car will not have much incentive to manufacture it in the barter economy.

This is because he can exchange a car with a person who has enough goods having a value equal to a car so that their exchange with a car can take place. The car maker must obtain food, clothing and several other commodities of day-to-day consumption in exchange for a car. It will be very difficult, almost impossible to find a prospective buyer who has enough of these goods and services to give in return for a car.

It is evident from above that barter system could work in a primitive economy where life was simple and man was self-sufficient. As man made some economic progress, division of labour or specialisation and large-scale production came to exist, barter system could not fulfill the increasing needs for exchange of goods.

Due to the difficulties of exchange barter economy would have no large-scale production, no advantage of the use of capital-intensive specialised machinery and no easy and cheap means in which wealth could be stored.

The range of goods produced must be much smaller than those produced in the modern developed economies. To meet the needs for a common unit of account and also as a generally accepted medium of exchange and thereby to overcome the difficulties faced under the barter system, money was invented.

Simply put, bartering had a heap of issues, all of which money curcumvents.

Now the next argument is one of my favourites. "Money has no role in society but to enslave." Let's take a moment of silence for the level of ignorance one must have for the level of narrow-mindedness necessary for one to think this...

Now back to the article. Money dictates the flow of human living in the modern world. Without money, life is often difficult and painful, and even more for a man.“Wealth consists not in having great possessions but in having few wants” is one of my favourite quotes. Having few wants is probably the best insurance against greediness, because it’s human nature to keep wanting more, and the more you have, the more you want.

It’s a simple psychological process: you have the basics (shelter, food, clothes) and are fairly happy, although you do worry about dealing with emergency situations; you become wealthier, and you enjoy the extra luxuries very much for a few months, but then it becomes your new “normal.” Now, surrounded by wealthier people, you look around, and you feel unhappy. They have more than you. You want more. But when you get more, you’re unhappy again.

It’s a never-ending cycle and this is what explains why so many ultra-wealthy celebrities keep doing commercials. They have so much, but they always want more. They never get to a point where, if offered a million dollars for doing a commercial, they simply say, “You know what? No, thank you. I have enough.”

Another quote that I like: “Money on its own is neither good nor bad. It is a means to an end.” Again, this is not to say that money is not important. It is to say that money is not “dirty,” but money is also not everything. Money is a tool that enables you to protect yourself, to build yourself and your family a better life, and to give back to your community.

Money is important because having money means that you will not be destitute. It means that you are not dependent on being employed, living paycheck to paycheck and having to put up with abuse by your boss because you badly need your job.

Money is important because it enables you to have more control over your life, more freedom to carve out your own path and less constraints on your choices. How many of us are stuck in a career or in a job we hate, but cannot afford to lose, because losing our job would mean losing our house and our health insurance? My friend, a brilliant young woman with a bright future and scholarships to the best universities, back in the sixties, had to give up her dreams, forget about college and start working as a clerk because her parents were so poor and needed her to support them. It’s a sad story of an unrealized potential, and the only reason she did not realize her potential was that her parents were poor.

Money is important because it means being able to give your children the best – the best education, the best health care, the best start in life. Of course, when it comes to kids, money can also greatly spoil them, so it’s up to wealthy parents to find a way to give their kids the best, while still teaching them the value of money and not giving them so much excess that their view on life is forever skewed.

Money is important because it means less financial worries. Sure, the wealthy worry too – they worry about losing their fortune, for example. But this is not the same as worrying about being able to put food on the table.

Money is important because it enables you to give back to your community, to pick the charities and causes you believe in and support them.

Money is important because having money means that life is not a constant effort at keeping your head above the water. Having money enables you to live life to the fullest, enjoy adventures and textures and tastes, make the most of the ~80 years you’ve got. This paragraph, more than any of the above paragraphs, is about luxuries – money buys you a more comfortable lifestyle – but is that such a bad thing? Humans are hardwired to seek warmth, safety and comfort, and having money is a great way to get those.

Money is nothing more than a tool that has simplified the economic process. Money in it's physical meaning, is a collection of inadimate objects, incapable of making decisions or interpreting morality. While it can be used for both good and bad purposes, it itself is incapable of being good or bad, nor are users of money inherently good or bad. Money is not a tool used to enslave people, but an advancement designed to simplify trade, as barter is highly impractical. Money guides society, as humans naturally seek to better their lives, and because money is the primary tool used in trade, it is tied to our acquirement of more and better.