The root of all evil or a means to an end?
Money, more specifically currency in general, has been a mainstay of modern society. Most of us cannot even begin to imagine a world without money due to the integral role it plays in our day to day lives. Even so, how did it gain this power over our world and most importantly why do we actually use money?
Money hasn’t always been in the form that we are used to. In ancient societies “commodity currency’’ (an economic term which describes a currency with inherent value such as gold and silver) was used in trade between communities as it could easily be exchanged due to its value. Metals such as gold and silver have always been universally sought after by most civilizations therefore there was no risk in using such a medium of exchange in a trade.
Paper money as we know it today and more importantly “fiat currency” (an economic term used to describe currency which does not have an inherent value such as the dollar rather a promised value by a central power such as a country’s government) in general has only recently been developed. The first recorded use coming about during the Song Dynasty of China during the 11th century, but the reasons we use this way of trade have remained the same.
Money has 3 main advantages over bartering which makes it the optimal choice in both an economic sense and a practical sense.
A medium for trading
The main upside of money over bartering is that it can be used as a universal medium of exchange. This means that when goods are traded no matter if it’s between two people or across villages, towns, and borders a universal means of exchange can be used.
Let’s present an example of a situation where the money is infinitely more useful in a trade. Let’s say a Chicken person has 4 chickens and a Pig person has one pig and they want to trade with each other as they find the others good more beneficial. A chicken person thinks that 3 chickens for a pig is a good trade whereas Pig person thinks that 4 chickens would be more ideal. With currency, they could haggle down to a price between the two desired values reaching a mutually beneficial trade. In our example, the mutually beneficient value would be 3.5 chickens for a pig which, if we want to keep the animals alive, would not work.
If the trade would go ahead anyway one of the two parties would be left dissatisfied depending on which offer is taken up. With 3 chickens for a pig Chicken person would be happier and vice versa. Currency eliminates this problem to a certain extent as it limits the inequality in an exchange between two trading entities.
A unit of account
The modern world is run by numbers. We base a lot of our decision making by analyzing the values given to us. In terms of a country and its success, most people gravitate towards using Gross Domestic Product (GDP) and GDP growth to measure the extent of the success of a country.
In a world without a certain kind of centralized value system such as money measurements like this would be impossible to make. When calculating GDP we look at the final value of a product all products a country makes and add them together. What value would we use to work this out without money?
A means to store wealth
Many of us have a savings account that we fill on a monthly basis as a safety net or just to save up for a big investment. Without money, once again, this process would look completely different and much more impractical.
In communities that still use bartering or a system that heavily relies on bartering, accidents that require a lot of resources to fix are often much more significant. Let’s use another example. Imagine a rural household that was hit by a heavy storm. Part of the house’s roof was damaged as a result of the storm. What can the family do?
In this scenario, we have assumed that the family, being in a community that relies on bartering, does not have any type of saved up funds to fix this problem. One option is to just leave the roof as it is but I think most of us can see the downsides to this. In this instance, the family would have to trade some of their goods for supplies.
Two problems arise because of this. Finding somebody with the required supplies and that person wanting the goods that this family is willing to exchange for the supplies to fix the roof. You can see that this would be a much longer and more arduous process than being able to save some money ever so often and having that cushion in case of an emergency or just being able to trade your goods for money and then spend that money on supplies.
Although money seems to have been commonly associated with greed, in reality, it has nothing to do with that. Money is only a tool, it is up to the person to use it correctly or incorrectly. You would not blame your car for getting lost, it is up to the user to find a beneficial way to use the tool. Without this tool, modern society would not run as it does today.
The evolution of mankind has been based on cooperation and this universal medium of exchange only makes this easier. For those who seek to gain more than their fair share from society, money is only a means to an end for their goal, not their objective.