Out of the many interesting things that have come out of the pandemic, one issue that I think is going to become increasingly relevant is how people treat the concept of money. More than a few people noticed how the Federal Reserve was able to conjure up trillions of dollars in liquidity seemingly out of thin air at a time when many were and still are agonizing over finding jobs, paying rent, and affording basic necessities. I have noticed heterodox ideas like Modern Monetary Theory, which essentially recommends governments print as much money as they need to pay for social programs, are gaining more traction especially among young people. I am not remotely qualified to discuss such theories, but I don’t think the theory itself is even what appeals to people. Far more important is the question being implied.
What is money, and why do we need it? It seems like every economic theory and discussion of policy begs the question. Pundits can talk about the national debt and the cost of various programs all day long, but it’s difficult to comprehend what any of that even means. Money is an abstraction invented by people, whereas food and labor and shelter are physical realities inextricable from human existence. If Jeff Bezos has as much money as 2.8 million years worth of the average full-time American worker’s income, does that mean he’s such a genius that his contribution is equivalent to that of millions of people? Could he buy 200 billion pounds of bananas?
The most basic conception of money is that it represents the goods and labor in an economy. Many of you have probably heard some form of the fable about how people used to barter for everything until money came along and you no longer had to trade farmer Sally your textiles for her honey so you could trade them to farmer Brown for some cows. This is in fact a myth. There is no evidence that any society has ever depended on barter without already having developed some medium for exchange first.
A sort of gift economy appears to be the most common form of exchange for most of human history, where resources were shared within smaller groups and gifts were given between “corporate groups” with the…
