Any discussion of the economy and business requires an understanding of money. What is money?

Money exists in the physical world, yet it is not really physical in itself. I’ve always thought it humorous that banks are so often built of such heavy stone, with sophisticated security, when all that is inside are little pieces of paper, some coins, and these days, computers.

Money only exists only for humans. We created it for ourselves. Dogs and cats don’t use it, just us. Even gold, when used as money, is just a human invention.

I’m not saying money isn’t valuable – it’s just that money’s value doesn’t come from it’s physical aspect. It is valuable because humans agree that it is valuable. In short, money is an agreement, a contract, a conversation in society.

The more people agree that money is an agreement, the more money is valued by people. Money is valuable because people say so. Because money is valuable because people say so, as people’s values change, as people change what they say is valuable, so changes the nature and purpose of money.

This entry was posted on Thursday, March 13th, 2008 at 5:56 pm and is filed under ABC's for..., Entrepreneurs, Investors. You can follow any comments to this entry through the RSS 2.0 feed. You can leave a comment, or trackback from your own site.