Money plays an important role in society and reduces transaction costs, but its value and rationale are very fragile. In the future, money will evolve into different forms as civilization and technology advance, and people will still chase after it. However, making money the purpose of life is likely to lead to unhappiness, and it is necessary to recognize values that are more important than money.
Money is an actor with a very important role in the play of our lives. We do things for the sake of a few digits on our bank account. Students study late into the night when they’d rather go out and play, so they can earn more money later. It’s why office workers give up time at home with their families and stay in uncomfortable office meetings. Despite this pursuit, money is not something that comes easily. Rather, it often runs away from the people who need it most. As a result, money causes many people to live in a state of anxiety and worry, and disrupts family peace. Some people have even taken the extreme step of committing suicide because of money problems. No wonder the saying “Money is the root of all kinds of evil” is so popular.
But, as the Athenian statesman Pericles once said, money is also the stuff of possibility. It makes almost everything possible. With money, you can wear warm clothes, eat delicious food, and relax in a comfortable home. With money, you can pursue your favorite hobbies and enjoy all kinds of cultural activities. You can even fall in love with money. But is money only meaningful for pursuing personal values? No, it’s not. When a country has more money, it can provide more educational opportunities for poor children, provide healthcare for the elderly, and prevent wars and crime. In fact, many of the problems that exist in society today could be solved with enough money.
But what value does money have that allows it to do so much? It’s not easy to determine the value of money. Especially nowadays, when most monetary transactions are done electronically. When your paycheck arrives at the end of the month, you’re already busy paying off the last month’s credit card and utility bills. You might ask why you’re not still using coins and bills, but they’re still just worthless pieces of paper and metal, except that they’re money. What was it like to use gold and silver coins in the past? When you think about it, gold and silver are just shiny bits of metal, and what about the stories of people using rocks and shells as currency?
Money plays an important role in our lives, but it’s very difficult to define it in a single word. One economics textbook defines money as “any object that is widely accepted as a medium of exchange in a given country or social context”. Most other textbooks adopt a similar definition or define money indirectly by listing its functions without a clear definition.
First and foremost, money is a medium of exchange. A transaction is when people pay something in exchange for something they want (goods or services) from another party. Most transactions today are mediated by money. We pay tuition to attend school, pay for books at the bookstore, and pay for subway fare to get where we want to go. We even pay to eat and drink water. In our highly decentralized society, it’s hard to find a transaction that doesn’t involve money as a medium of exchange.
However, money is not always the medium of exchange. In barter, where people exchange goods or services, there is definitely a transaction taking place, but no money is exchanged. Money is distinguished from a medium of exchange by the fact that its value must be widely recognized by a country or society. In barter, the value that two parties place on an item can be different. For example, suppose a pear orchard owner and a tangerine orchard owner exchange one pear and one tangerine. Someone who loves pears would laugh at the pear orchard owner for trading those delicious pears for a single tangerine. Conversely, someone who loves tangerines would laugh at the tangerine orchard owner. The value of goods exchanged in barter is hard to agree on between the parties. However, we can objectively evaluate the transaction by comparing the value of each commodity in terms of money, which has a widely accepted value.
Here we see that money cannot be thought of in isolation from the society in which it is used. Gold and silver, once used as money, certainly still have value, but it’s only as metals, not as money. Turning this around, it can be argued that there are as many types of money as there are human groups that we can call societies. This is starkly illustrated by the use of in-game money in online games.
In online games, many users trade with each other to get the items they need for their characters. Most of these transactions are made using in-game money, but some expensive items are also traded for real money. The fact that in-game currency is also subject to real-world transactions shows that there is a consensus on the value of in-game currency, at least among game users. In other words, in-game currency is not entirely unworthy of being called money. The phenomenon of money in online games raises a few questions about money in the real world, which we’ll discuss below.
First of all, online games are games that many people play together in a virtual world over the internet. People playing the same game can be considered as a society, and there are births and deaths. Birth refers to the creation of a new character, and death refers to the deletion of a character or the user leaving the game. The creation and deletion of characters within a game is a constant exchange and collaboration. Online games can be a good laboratory for simulating the real world because of their high turnover rate. The first reason is the ease with which variables can be manipulated arbitrarily, and the second is that the results can be observed. The third reason is that each user does what is in the best interest of their character.
In online games, the central bank is naturally the game company. They do a lot to keep the amount of money in the game at the right level. The main way they do this is by controlling the amount of money that each user receives for defeating monsters. If the amount of money a user receives for defeating many monsters increases, the amount of money in circulation in the game society will increase, causing inflation. Therefore, game companies sell items to users to recover the amount of in-game currency to prevent the collapse of the economic system.
If the game company fails to control the amount of money in the game, the game’s economic system will collapse and users will leave en masse. For example, in the online game Ragnarok, a bug caused an anomaly for a few days that allowed players to buy and sell certain items and actually make money. As a result, those who took advantage of the bug became worth trillions of gold in the game. This created an extreme wealth gap between those who took advantage of the bug and those who didn’t, disrupting the distribution of resources, reducing the incentive to actively participate in game activities, and creating a barrier to entry for new users. Nevertheless, the game company’s refusal to recover the ill-gotten gains culminated in a decisive collapse of the game’s economic system. This is very similar to the problems caused by hyperinflation in the real world, or the problems caused by distorted resource allocation.
Online games also have a significant bearing on the origins of money. In the online game Diablo II, there was a cap on the amount of in-game money each character could have. This amount of money could be earned in about two hours of effort, making it virtually useless as a means of transaction, so users invented their own currency. Magic talismans, which were quite useful in the game and were neither easy nor difficult to obtain, became the basic unit of trade: players traded expensive items for a few magic talismans. This can be seen as bartering in that the amulets themselves have some value. It can also be viewed as the emergence of a new form of money, in that for many people in the game, the amulets took on a new value as money and became a means of transaction.
In the end, money is something that is widely recognized for its value by people, but it doesn’t have to have any intrinsic value, as long as there is some consensus on its value. We can even see that money doesn’t even need to have a physical existence. In this sense, it can be argued that monetary economies have a very weak basis for existence. As we’ve seen in hyperinflationary Zimbabwe, Venezuela, and online gaming, when trust in value breaks down, the monetary economy collapses. How did such a fragile social tool come into being and survive as a means of transaction after thousands of years?
It’s because money, despite its fragile rationale, greatly reduces transaction costs in society. As long as the members of a society recognize the value of money, all goods and services can be measured in terms of money. Money does not have to take into account the dual matching of desires as in barter. By comparing the value of all goods in terms of money, it’s easy to decide whether or not to trade. Without money, people who don’t know each other would have to take great risks to trade with each other, which makes the collaboration and division of labor that is the basis of modern capitalism very difficult.
So it could be argued that money as we know it today is an institution born out of this social evolutionary need. So what does the future hold for money as an institution? At one point, the Soviet Union had an extreme communist economy where money was seen as the root of all evil and was eliminated. Predictably, this system plunged the economy into a depression by making transactions impossible. While the most extreme experiments with money have ended in failure, there’s no telling what experiments or new systems will emerge in the future, especially with the success of the euro in the European Union, which could lead to a single global, block-based currency. Humanity has a great interest in how money should work.
If we go further into the future, we can imagine even more outlandish things. If we were to encounter aliens, what would be the medium of exchange? If we were to go into space, what would be the role of money in space? Or maybe our material civilization is so advanced that supply exceeds demand and we don’t need money anymore? Some science fiction games imagine a future where water has become extremely scarce due to environmental changes on Earth, and a “water fiat” system is implemented where water is the basis of money.
In this way, money will evolve as civilization and technology advance in ways we can’t imagine. But no matter how it evolves, the fact remains that money will be chased by many people, and it will not be easily accessible. Therefore, people who make money their purpose in life are likely to be unhappy. Those who remember that money is only a means to an end, and realize that there are more important things in life than money, will be the ones who are truly happy.
