@Untitled | February 11, 2023 | 8 min read

The simplest definition of money is “the most marketable good” within a certain scope [1]. ‘Marketable’, in this context, means that it is unrivaled as a counterparty for all other goods and more people will be willing to receive it in an exchange than anything else. More specific definitions might focus on money’s utility as a store of value, medium of exchange or unit of account, but these qualities are second-order and conditional upon the superior liquidity that characterizes whatever society decides to use as money.

Defining money as an emergent phenomenon is a de facto, teleological approach that rejects a de jure, prescriptive understanding of what money perhaps ought to be. For example, the French government imposed the CFA Franc on former French colonies after the Second World War but, due to its relentless devaluation, the US Dollar is now much more generally accepted in those countries despite not being official legal tender.

Much of the confusion surrounding money comes from thinking that it is a real resource along with cows or tractors, whereas, in fact, money is merely a claim on real resources in the same way as a theatre ticket is a claim on a velvet seat. Following this analogy, it is intuitive to understand that printing money does not increase real resources any more than printing theatre tickets increases the number of seats.

In an ideal world, parents would be able to reserve future resources for their children by saving money to pay for university or a first car. Unfortunately, the current system allows banks to print more ‘tickets’ with every new loan they issue. Those with a high credit rating can increase their claims on real resources by taking out loans far more easily than those with low credit ratings. This enables the already wealthy to buy productive resources like land without deferring consumption or expending any of their existing resources. This results in an unnatural scarcity that manifests as inflation, pushing up the prices of theatre seats, food, housing and everything in between for everyone else.

[1] Ludwig von Mises, ‘Human Action: A Treatise on Economics’, Yale University Press, 1949, p. 401, following Carl Menger.