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What is money ?

  1. May 22, 2015 #1
    You exchange it for what other people believe the money's worth. I gave you the simplest example. 1 bitcoin=1 pizza , 1 bitcoin =1000 pizzas or dollars or whatever . :wink:
  2. jcsd
  3. May 22, 2015 #2

    Money is a system of representation. From all accounts it is the oldest system of representation. If I'm not mistaken the earliest known records of any writing at all turned out to be an account of who owed who what.

    And it makes sense. One can imagine some cavemen in a squabble over who owed who what amount of some bison and as a solution they make some marks on something to represent that, and shake their hairy hands.

    Indeed mathematics is born in the same moment. One scratch means one. Two scratches means two. And so on. But after scratching too many scratches in some piece of wood they realise it would be a lot easier to make some shorthand for the larger numbers.

    I, II, III, IIII, IIIII, ... hmmm.

    I, II, III, IV, V ...

    Last edited: May 22, 2015
  4. May 22, 2015 #3


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    Bitcoin is a very bad example of money because one of the key features money must have is a stable value.
  5. May 22, 2015 #4


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    Money is faith in the good credit of the issue authority.
  6. May 22, 2015 #5
    Well I guess we'll have to agree to disagree cause I think its the best example. It is a real world example , and it was taken to the extreme.
  7. May 22, 2015 #6
    Requoting what I said in the previous thread, just to clarify my position:

    What money means is in what it represents: be it the work for which one is paid, or a commodity one might otherwise purchase with such pay, or as a company: the workers and shareholders one might pay with such. Or any other use to which money is put.

    Money facilitates a flexible system of exchange. For example, in exchange for work I get paid X. But X in itself is not why I am working. It will be in what I can subsequently exchange for X - be it some house I need to live in, or food on the table, or some commodity I feel I must possess

    X acts as substitute for what is otherwise really being exchanged. It is why X can be embodied in paper, metal, plastic, or whatever else one might like to use as a material. Indeed one can use sound waves and an understanding in peoples heads: "Hey George I owe you a slab of beer".

    And bitcoin is money. Absolutely.

    It is not a question of belief, but an understanding or agreement that is negotiated or contested in a system of exchange where the idea is that instead of doing direct exchanges (barter system) one can do a deferred exchange. You might want to acquire a yacht but I don't have a yacht that I can exchange for the aeroplane that I want from you. However I can give you a note (money) which you can take to a yacht salesman in exchange for which he can give you the yacht. You get your yacht. I get my aeroplane. And on it goes.

    Last edited: May 22, 2015
  8. May 22, 2015 #7
    X is value. Money is value. Value is a belief. Again you say money facilitates a flexible system of exchange. At a first glance, yes, but value is a belief and herein lies the trick of the banking world .

    You will say so what if its a belief ? Herein is the trick, quite simple: I will print 2 trillion nollars. I release 1 trillion in the market,1 trillion for me, they are worth nothing. I will trick people , one by one if necessary, in believing they are worth something and I hope they will end up being worth more. After a while you can buy a wooden stick or an icecream or whatever with 1 nollar. I am now the richest man in the world.
  9. May 22, 2015 #8


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    I'd very much recommend Debt: The First 5,000 years by David Graeber for a fascinating look at how money has changed throughout history and the purpose it serves (I particularly like the early chapters dealing with the known-to-be-wrong but pervasive myth that tribal societies ran on barter until the invention of money).

    Regarding bitcoin: it's a very different type of currency compared to Dollars, Euros, Pounds etcetera. The value of a bitcoin is determined by its market value: i.e how much someone is willing to pay for it on a market. That's determined by consumers having faith in it and that is a big criticism of bitcoin because it's essentially a commodity used as currency. Conventional money is fiat money meaning that it's backed by the government who issue it, that backing means that they will enforce laws regarding it's use and in many cases regulate the circulation. Fiat money is generally considered to be more desirable than other forms because you don't have to have faith in the money, just the government. For many countries that have had healthy, productive economies for centuries or even millennia it's pretty reasonable to have faith in that. Nations tend to last a very long time and good ones are quite stable, it's much easier to put faith in that than in a market of random consumers (though some disagree).
  10. May 22, 2015 #9
    Money is a value. But a value is not a belief. It is simply a number. Nothing more and nothing less. It's not a trick. If I put a price tag of $5 on something all I'm doing is proposing that the thing so priced is exchangable for anything else assigned that same value. In practice it will be the marketplace which ultimately determines the correct value (the number) to assign the thing. For example, if I find nobody is buying my thing for $5 I might need to reduce the value to a lower value (a lower number). The thing itself is still the same thing (just as useful or useless as it ever was). But it is the relationship between it and everything else being traded that is being negotiated. If I find something sells for $4 (and no more) then that is quite literally the value that I should have assigned the thing in the first place. Or I might find if an item is popular I could get away with raising the price. If customers are happy paying more, then it's literally worth more.

    I don't know how I could assign something a nollar value - not after what you just told me about nollars (that its some sort of trick).

    But of course, that's not to say that dollars or nollars can't be manipulated towards dubious ends. The bank cartel story in the news of late is an example of how money can be manipulated. Its a problem with any system of representation - it can be manipulated. That's why we have governments and laws - as useless as they often seem to be.

    I take the point about bitcoin. Yes, it's not quite the same thing as a government backed money system.

    Last edited: May 22, 2015
  11. May 22, 2015 #10
    Well I hope you do realise that you started with money is a promissory note, money is a model, money is what you can exchange it with, money is a representation, and now you've ended up with money is a number. And you yourself changed that number from 5 to 4 just like that. In math that would be 4=5 . Economics is mostly about human minds, psychology, the laws in it are a result of human behaviour, they arent natural laws, it isnt physics, math is just a tool. :-p

    My 2 cents :smile:
  12. May 22, 2015 #11
    I'm not sure where the inconsistency is.

    Numbers are used to represent things. For example, if I have 3 apples (as distinct from 5 apples or any other number of apples) I can represent that distinction by using the number 3. The number 3, in itself, is a representation (in my head, or written on paper, or in a computer spreadsheet) that represents the number of apples I have. It is called a "value" to distinguish it from any algebraic notation (such as "a") that I might otherwise use to represent the number of apples I have. Had I used algebra, such as "a", I could then say (looking at my apples) that "the value of a is 3".

    If I change the number of apples I have from 3 to 4, I could then say the value of a is 4.

    The representation (a=4) refers back to that which is being represented: the number of apples I have.

    I didn't say that money was a promissory note - but I am agreeing with that proposition - a proposition you yourself first put forward - not me. And indeed paper money was originally understood as just such a thing - the idea being that you would take the note to the bank and exchange it for "real" money. As if the bank note itself wasn't real money - but such misses entirely the bigger picture, and why bank notes are just as much real money, as any coinage for which you might otherwise exchange it. Be it coins, bank notes, plastic cards, bitcoin - it's all more or less the same thing (ignoring the legal system which would make more subtle distinctions). It is a system of representation, for regulating the exchange of otherwise more important things in life (or just complete rubbish for that matter).

    Money is like the beads on an abacus. Counting stones for those who might not be able to do arithmetic, and trading stones in lieu of what is otherwise being traded.

    Money, like numbers, are next to meaningless in themselves. It is in what money or numbers represent, that the power of money or numbers lie.

    I was never arguing that economics was physics. But I was arguing that like physics, economics models a certain type of reality - not the reality that physics finds endlessly fascinating (materials), but a reality nevertheless: what people do in order to live. And one of the principle things they do is exchange things. And one of the principle means by which they facilitate such exchanges is through a rudimentary model of such called money.

    The idea that economics is primarily about human minds is incorrect. If I'm starving it's not just some belief I have. It is a reality. If I use my mind to alleviate such hunger it's not simply out of some self-help book I'm reading that I should do that, but more the raw nature of the universe that is inspiring such, putting into play all sorts of chemical signals to say: stop sitting there in your own fantasy world and do something.

    To treat this as an illusion is just silly. Try telling the starving that their situation is just in their head.

    If the mind comes into play it's because the mind is quite clever. Money is an expression of such cleverness, albeit a very ancient and rudimentary form of such. But it's not a trick. And its something that groups of people or a society develops - not just some genius or despot dreaming it up. It emerges as a solution to problems in an activity that many are engaged in - rather than just one person and their particular activity. Its a way of dealing with certain problems in any exchange. Problems in common to the parties in the exchange. Rules are established. The exchange is important - not that which is used to represent the exchange. And it's out of notions of fairness (funnily enough) that representations of such emerges. To call it a trick is in some ways to assert it be a trick. To risk the very thing one might not actually want it to be.

    One might very well end up believing one is a filthy rich, gloating over a trillion nollars sitting under one's mattress, in a pitiful conceit that is breathtaking.

    Last edited: May 22, 2015
  13. May 22, 2015 #12
  14. May 23, 2015 #13


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    Money isn't an imaginary thing. It's not necessarily based on an inherent value anymore. Even using gold standard is pretty meaningless. Gold has no real utility in the grand scheme of things aside from being pretty and being useful for some various technology applications. This doesn't make money imaginary though. It represents a defined value that can be used to purchase goods.

    It can be useful to think of it in terms of a system. Your bank account receives an input proportional to an amount of work that you have done. This in turn provides you with an amount of credit (the output) that can be used to purchase things. The fact that we can and do use this credit is fact enough that it's a real thing. We used to exchange chickens and linen for cows and wheat. Now instead of exchanging these things directly, we use a standardized system of monetary exchange and we do it indirectly.
  15. May 23, 2015 #14
    The fact that (some) people can and do use God is fact enough that it's a real thing.
  16. May 23, 2015 #15


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    As a metaphor and a personally real concept, yes. Whether or not God/god/gods exist as part of a physical reality is beside the point. For many, God/god/gods are very real because they personally believe it to be true. They use appeals to such a God/god/gods in their daily lives and use the teachings of such a God/god/gods in their daily lives. Whether or not a God/god/gods is/are a literal physical thing that one can pick up and hold is rather beside the point. I don't personally believe in such things, but many people do. For these people, it is real regardless of the outside perspective on it. From the outside perspective, not so much. Much like an American dollar means very little to a squirrel, aside from possibly using it as material to build a nest or something like that.
  17. May 23, 2015 #16
    While I was referring to a completely different subject, this was precisely my point. The "value" of money, art, music and/or God/god/gods is a subjective thing. It is "real" in the sense that it has an effect on people's lives. All of these are "real" in the sense that history is changed as a result of their existence. But all of these things are subjective. The "ontological" reality of these things is objective. It's the physical material of which the money of choice is composed that is ontologically real. And in that respect, the only difference between gold and iron is the physical variation in their atomic structures. Music is just sound. Art is just whatever it's made of. God is just... well, I'm not sure about that. My point is that the "value" of money is not "ontologically" real, but rather, is created by societal convention.
  18. May 23, 2015 #17
    The value is not subjective. The value does not have it's origin within the mind. The value is negotiated and contested in a socio-political space where subjectivity will certainly play a role but will have no unique control over the result. In the same way that while X might subjectively believe Y should be president, and votes accordingly, Z ends up as the president. But even if Y ended up as the president we would be wrong to attribute this outcome specifically to the subjectivity of X.

    A value is a representation of something real. In the case of an election, the result of the election is a representation of the "will of the people". The will of the people is the reality. The election result (a value, a number in a poll) is a representation of this reality. Or a misrepresentation for that matter. But either way the representation is not, in itself, the reality it otherwise represents (or misrepresents).

    Now certainly a representation, in itself, is also real. A coin is as real as that which it otherwise represents. A president is as real as the will that she or he represents. But the power of the president (or indeed lack thereof) is not in the physical material of which the president is composed, but in what the president represents: the people.

    To focus on the material of a coin as real (as interesting as that might be), is to potentially miss that much bigger reality in which the coin (also) acts as a representation.

    And more importantly, if a coin in itself is real, (as we can agree) it does not in any way follow that what the coin represents must be otherwise. One does not exclude the other.

    Last edited: May 23, 2015
  19. May 23, 2015 #18
    Just out of curiosity, could you please give some examples of subjectivity ?
  20. May 23, 2015 #19

    Stephen Tashi

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    An important property of the particular type of money that is the currency of a country is that it is "legal tender". Within the country, it isn't legal to refuse to accept the currency as payment of a debt. By contrast, a citizen could refuse to take payment in form of a check, land, or pizzas etc.
  21. May 24, 2015 #20
    It seems to me that the fact that the "value" is "negotiated" is a clear indication that it is subjective.

    And, ultimately, the price of any commodity will rise or fall depending on the seller's and buyer's subjective opinion as to what the value of that commodity is. If someone is selling Einstein's bicycle at an auction, and I buy it for ten million dollars, you could certainly say that its value is set at ten million dollars by definition, because I just paid that for it. However, when I subsequently get put in the looney bin by my family for doing so, and they try to recapture that expense by selling the bicycle at auction again, I doubt that they will reclaim that value... because it's previous ten million dollar value was set by my subjective opinion as to what it was.
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