L’argent est votre dieu
Humans have used money for tens of thousands of years. We have transitioned from shells and stones to man-made clay tablets and metal coins. Today we use paper bills and, recently, we even created digital currencies.
So, what is money? And what makes something a currency?
First, all money in and of itself is worthless. Money is not an end. Money is always a means to an end.
Money is also relative to a time and place in history. If there is a power outage in the United States today and you’re trying to buy food, having a 3rd century gold coin in your pocket is worthless.
Further, more attention should be paid to the specific purpose of money. When two people decide to use an item as money they are not thinking in some abstract economic sense. They are not thinking that they are creating a financial system or institution.
At its core, two people who want to trade really need a common language. That’s how I view money — as a language. Because we cannot directly share what is in our heads with other people, we rely on a series of imprecise tools to express ourselves.
One such tool is language, the intermediary for communicating. It’s why we use phrases like “spoken language” and “body language”. Body language is of particular relevance because the human body itself conveys meaning.
Interpreting a smile or scowl requires a series of assumptions. First, we understand that a body can convey meaning. Second, we create a connection between our bodies and the person we are observing (e.g., when we look like that, we feel a certain way). Third, people understand their body language creates a reaction in other people. And so on.
We rely on this predictability to get through life.
When I say to another person who speaks my language that I’m doing well, they generally know what’s going on. I don’t need to share every detail of my childhood or every thought I have in that exact moment.
By and large, you understand what “well” means and how it relates to words like “great”, “good”, “okay”, and “terrible”. You also understand that I am referring to my state of mind and not a hole in the ground that is used to fetch water.
Money provides a similar benefit as the intermediary for transactions. When I spend $5, it’s understood that I possess at least $5. I also know that I’m giving up this particular $5 bill. And it’s known, to me and others, that I could have spent that money somewhere else, on something else.
Tomorrow, when I come across a new person, we can use the same phrase (e.g., “well”) to communicate and reach a mutual understanding. The same is true when I pay for another item or receive my next paycheck.
As Naval Ravikant says, “Money is information.”
To dismiss fiat currency (“because it’s just paper”) or Bitcoin (“because it’s not backed by the full faith and credit of a government”) is to ignore the whole point: We should not conflate atoms or bits with their value to us.
Money is a social construct — but admitting that does not diminish its importance. When we buy a Shakespeare novel, we are paying for the narrative. We do not discredit Shakespeare as an author because his words are written on something as fragile as paper.
Similarly, we do not concern ourselves with how many lines of code Salesforce is comprised of. In truth, we are not paying for the program; rather, we pay for the benefit that the program provides to our organization.
This is also how to think of money. Not as an object worth collecting, but as a tool to get us to where we want to be.