The most common misconception about Money is that it is a store of value. Money is not a store-of-value. Money is a social tool. Try to make a mental experiment. Take an isolated island – will you find Money there? Probably not. Take an isolated island with one person – are you likely to find Money there? Probably not. Why?
If Money is a store-of-value then one person can use it to store value. He will work hard, accumulate things that he needs (i.e. wealth) and then will store them in Money. But it doesn’t make sense, isn’t it? Why? Because Money is not a store-of-value! Money is a social tool.
Take an isolated island with two people, do you think that you are likely to find Money there? Probably not. BUT, you may find Money there. Why? Because Money will help these two people to remember who entitled for what. They both work hard to create things that they need (i.e. wealth), but one worked harder and is entitled for more. But for how much more? How do you measure it? Not easy, but Money can help.
Take an isolated island with thousands of people. Are you likely to find Money there? Probably yes. In fact in 1903 an American anthropologist visiting the remote island Yap was amazed to see huge stone disks that served as Money, the Rai stones!
So on deserted island we don’t have Money. On an island with one person we don’t have Money. On an island with two people or an an island with thousands of people we do have Money. Conclusion, Money is a social tool.
But tool for what?
Money is one of the most misunderstood things is the world. We all use it. We all want it. But we don’t know what it is. (What we actually want is not Money. What we want is Currency, this thing that represents purchasing power in the real world).
Money is a social tool to facilitate commerce in large scale.
Money touches many other aspects of the economy, like denominating the value of things, or the value of financial assets. But it is not a store-of-value. Saying that money is a store-of-value is like saying that Language is the store of wisdom. It’s not. It’s just a tool for communication. It’s a social tool. Language and Money are social tools. Got it?
English and Chinese are Languages the same way Dollar and Renminbi are Money. A spoken Language and the Sign Language are a Languages the same way Commodity Money (i.e. feathers or gold) and Fiat Money (i.e. Dollar) are Money. But this is for another post.
Eleven Thirty PM 