Why Money is Not Merely a Social Construct or a Shared Hallucination - Unit 6 Essay

It has become fashionable today for some to claim that money is a social construct or a shared hallucination. One of the most well known people to espouse this view is Yuval Noah Harari, author of the best-selling book Sapiens: A Brief History of Humankind. In Chapter 10, Harari claims, “Money isn’t a material reality – it is a psychological construct…But why does it succeed? People are willing to do such things when they trust the figments of their collective imagination. Trust is the raw material from which all types of money are minted.” However, this view of money is short-sighted.

To say that money is a social construct or a shared hallucination implies that all it takes for something to become money is the collective belief by those in society that it is money. For example, according to this way of thinking, if everyone decided that paper clips were money, then they would become money. Likewise, if everyone decided that snowballs were money, then they would become money. While both paper clips and snowballs may be able to function as money for a very short period of time after they are decided upon, they would quickly fail and cease being money. Simply being a social construct or a shared hallucination is not enough for something to continue being money over a long period of time. For something to stand the test of time as money, it must possess a certain set of properties. It must be durable, portable, divisible, fungible, saleable, and scarce.

Suppose that for some reason, all of humankind came to the conclusion that paper clips were money. Paper clips would immediately become saleable, because everybody would want them. They would also be portable, because they are small and light, and they would be fungible, because one paper clip is generally like any other. In addition, they would be relatively durable, because they wouldn’t self destruct under normal conditions, and they would even be somewhat divisible, because it would be possible to break them into smaller pieces. However, the Achilles’ heel of paper clips as money would be the fact that they are not scarce. This does not necessarily mean that there are too many paper clips currently in existence for them to function as money. The number doesn’t really matter. It means that paper clips are TOO EASY to produce. Once humanity decided that paper clips were money, enterprising individuals and corporations would immediately set out to make more of them. So many more, in fact, that paper clips as money would soon be completely worthless.

Now suppose that instead of paper clips, humanity collectively decided that snowballs were money. Just as with paper clips, they would immediately become saleable. Also, under certain conditions, such as a warm climate, they would be scarce. There aren’t too many snowballs in Hawaii! In addition, if a standard size was decided upon, they would be fungible, and if that size were relatively small, they would be portable. They would even be divisible, because it would be possible to deconstruct a snowball and then construct smaller snowballs with the resulting snow. However, with snowballs, the major problem is that they are not durable. In any location that experiences a turn of the seasons, they would soon melt when summer rolled around, and even in climates that are cold year-round, they could easily be destroyed, simply by stepping on them, for example. Because snowballs are not durable, people who owned them would be in constant danger of losing their wealth. Once people realized how dangerous it was to store their savings in snowballs, they would quickly lose trust in them. The shared hallucination of snowballs as money would cease to exist.

Paper clips and snowballs can be contrasted with gold, which has functioned as money for over 5,000 years. While it is true that humanity has made the collective decision to adopt gold as money, gold was not chosen at random, and the social construct of gold as money has only been able to persist because, in general, gold possesses all of the properties of good money. Gold is much more difficult to produce than paper clips, which is to say it is more scarce than paper clips. It is also much more difficult to destroy than snowballs, which is to say it is more durable than snowballs. In addition, it is saleable and fungible, as well as divisible and portable to a certain extent. Thus, gold has been chosen over paper clips and snowballs on it merits alone. To say that “Money isn’t a material reality,” as Harari does, it categorically false. Money IS a material reality, because it is the material properties of money that have led humans to adopt it as money. Gold as money is no more a social construct than automobiles as a mode of transportation is a social construct. Humanity has collectively decided that automobiles are a mode of transportation because automobiles possess those characteristics that best help us get from point A to point B. Likewise, humanity has collectively decided that gold is money because gold possesses those characteristics that best help us store and transfer our value.

The implication of this is that if something else comes along whose properties allow us to do an even better job than gold at storing and transferring our value, then this something else will eventually take the place of gold. The shared idea of gold as money will be replaced by the shared idea of this something else as money, because the something with the strongest material properties of money will always win. Many argue that this something else has already come along, and it is Bitcoin. Because Bitcoin is purely electronic and has no physical manifestation, it is especially susceptible to Harari’s “psychological construct” argument. However, just as with gold, if Bitcoin is collectively adopted by humanity as money, it will not be as the result of a random choice. Bitcoin will be chosen on its merits. It will not be merely a social construct or a shared hallucination. It will be a material reality based on its superior monetary properties.


I understand what you are saying from the examples you have given. ‘‘Gold as money is no more a social construct than automobiles as a mode of transportation is a social construct.’’
I feel that everyone is with a similar mindset.