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Unit 6: Why money is neither a social construct nor a shared hallucination (ESSAY)

Why money is neither a social construct nor a shared hallucination

If money was a shared hallucination, it would be possible to enlighten people and show them that they hallucinate with the effect that they stop hallucinating. Then no one would have a problem if there was no money at all. But without money as shown in this statement, there would be many problems:

In a society where people trade with each other, money fulfills three important functions and if there was no money, huge problems would appear: People would have to measure each good with each other good. That would make calculations impossible and trade as well as the creation of wealth would be limited. Nobody would have a feeling of value at all: How many apples should you trade for one liter of milk? How many iPhones are worth one car? Without a unit of account no accounting would be possible. Using a good as a tape measure for the value of all other goods brings an enormous benefit for society: it gives everyone orientation on how he or she can act the most productive way so that every member of society can use his time to create the most value.

The second function of money is that people use it as a medium of exchange. Without a medium of exchange no indirect trades would be possible. Our modern society is very advanced, what means that there are countless goods and services available on the market. Every day we buy some of them in exchange for a medium we call “money”. Most exchanges would be impossible in a pure barter economy. People would have to find trading partners who want to exchange one capital or consumer good for another capital or consumer good at the same time and at the same place and of the same value.

The third monetary function is a store of value. In reality as life is uncertain people need to save and transport value in the future in case they need it later to survive. Without money, they have to buy goods they do not want to use for their own sake but for later exchange: they buy them because they want to exchange them later at the same or a higher value. They start speculating. If there was an ultrasound money, nobody would do that as ultrasound money would be the best store of value available and every rational human would save holding ultrasound money. So ultrasound money would in theory be the good which appreciates more in value than every other good as it is scarcer, more secure, more durable, better to divide, better transportable, more fungible, groupable and censorship-resistant.

If money was a social construct, people could use everything as money as long as they believe in it. But that’s not the case: There are special properties which make a good useless for being money:

Missing durability: If we used milk as money, nobody could save for the future as all savings would go bad within a week and people would have to throw it away.

Missing scarcity: If we used leaves from maple trees as money, everybody was incentivized to collect all the leaves lying on the ground and plant maple trees all over the globe to harvest more and more maple leaves. So anybody wo stored some maple leaves would be confronted with huge inflation as the increasing amount of leaves would dilute his purchasing value.

Missing divisibility: If we used cars as money, how could we buy one bread with it? You cannot pay your bread in exchange for a slice of your car.

Missing transportability : If we used houses of our home country as money, how could we pay our meal in a foreign country? International trade would not work if people used houses as money: If a buyer from France imported goods from India, the seller would not want to be paid in parts of houses at the other end of the globe.

Missing homogeneity (fungibility) : If we used diamonds as money we had the problem that not all of them are of the same size, color and flawlessness. People would always have to investigate the diamond they receive as money to check the size of the actual piece.

Missing verifiability : Diamonds used as money would cause another problem: Before every transaction people had to check the quality of the diamonds they get in exchange for their goods under a lens in order to prevent fraud.

Missing groupability: If we used seashells as money like some tribes did in earlier times, we faced a laborious task to pay a big bill, because the counting of thousands and thousands of seashells would take hours.

Missing censorship-resistance: Especially people in authoritarian countries face another trading barrier: If they sell goods for money, they receive it on accounts which can be freezed or closed by their authoritarian government any time. So they can never be sure that the money on their accounts really belong to them.

Missing security: Money which can get lost or stolen is problematic. All physical goods which can be used from anyone without permission of the owner are in danger of getting stolen. Milk, maple leaves, cars, diamonds or gold can be taken away by a thief or get lost.

Missing trust: Trust is the last necessary characteristic to establish a good as money. The more often a good has been used as a medium of exchange in the past, the more people believe in its value and the more they expect that other persons will also exchange it for something else in the future.

Nailed it. Lots of examples of why money is money and highlights how we take these thigns for granted today. Ultra sound being the missing principle, as you stated. Nicely put together