My main conviction about money is that it is a way of expanding the effectiveness of labor. I mean that it ought to be seen this way. I don't mind governments compensating workers for restricting their labors during the coronavirus shutdowns. But I do fear that both in spirit and in consequence the government's bailout of workers and their employers will make the connection between money and labor even more inscrutable.
I've written the below in an effort to think through how I might go about teaching my kids what money is and how it is connected to labor. Even if it doesn't quite capture how things really work out there in the Real World, I still think it is sound from a practical point of view. After all, even if we come through all this with a Basic Income for all earning under $75k, this won't be sufficient for most people's needs or wants and so the incentive to work to earn more will still be there for most of us.
Specialized labor requires a community because no one is equipped with the time or powers to produce everything wanted or needed in life at a very high level of sophistication. Civilized life requires specialization but, as specialization requires devoting a huge proportion of one's labor to just a few things, no specialist on one's own is equipped to provide oneself with all the benefits of civilized life. Call this the problem of Mostly Incompetent Specialists.
Bartering, obviously, is one solution to the M.I.S. problem. I get really good at making shoes. I spend so much time making good shoes I don't have enough time to learn how to bake bread or make clothes. So I give you shoes and you give me bread or clothes.
Now, if we were all saints, what would happen in such a trade is this: this pair of shoes I make for you I make both for you and for myself. To me, these shoes are BOTH a way to meet my needs for bread and clothes, AND a way to meet your need for shoes. The labor which went into making those shoes is naturally ordered to those shoes, and in laboring so as to meet your need for shoes I am participating in that natural ordering. Therefore there is no violence in my simultaneous laboring on my own behalf, for things--bread and clothes--to which shoe-making is not naturally ordered. By the magic of human community, my shoe-making labor has been expanded: that very labor can produce both shoes and bread and clothes!
Bartering is inefficient. So one way to look at money is that it's an even greater magic: in a money economy my shoe-making labor can now produce SO MANY THINGS!
For this or that material object really to be money, there has to be a lot of confidence in the system of money, and confidence across a population diverse enough in the sorts of labor undertaken within it, for some coin or piece of paper really to expand one's labor from one thing like shoe-making to SO MANY THINGS. If confidence is low than I might not take money for my shoes, knowing I might not be able to use it to go get the bread I need--say, if the baker himself lacks confidence that money for bread really will expand the effectiveness of his labor. If the labor undertaken across the population in which I'd use my money is not diverse enough, then there won't be a point in having money. If all we do is make shoes and bake bread, then bread is the only thing other than shoes my shoe-making would have the magical power to produce. There is no point for money in such a community.
Grant high confidence and diversity of types of labor, and money is like a miracle. Almost literally water-into-wine level stuff. No wonder people so often succumb to the temptation to WORSHIP the STATE or MAMMON.
A rather different but not totally incompatible take on money hearkens back to ye olde golde standard. The idea here is that there is some commodity--gold, silver, salt, or (as in the old cartoon called "Ah! Real Monsters") toenail clippings--some commodity over which enough people are just so ga-ga that they will give the fruits of their labor for it. Shiny gold! Here, take my shoes.
There's something attractive about this picture of money, something which defies an overly materialistic reading of human behavior. Maybe there are things we just find so beautiful, so pretty, that we just want to possess and behold them, despite the fact they don't feed, clothe, shelter, or heal us.
But I doubt this sort of picture has every actually obtained across a large population for very long. For once word gets out that gold is just so hot right now, then the philistines with no eye for beauty will participate cynically in the gold-acquiring economy, for non-golden ends. In these circumstances the gold would still matter, but not precisely insofar as it is gold.
I make no claims to any scientific insights about money, if there are any, but as a reader of human nature I don't think there is any commodity, which enough people desire strongly enough, which can function as a kind of non-conventional currency. Even when a currency is backed by gold or whatever, the power of the dollar is NOT that it represents a quantity of gold but that (perhaps in some sense because it represents a quantity of gold) it represents the power to do SO MANY THINGS.
