There is a lot of debate as to whether cryptocurrencies are real money. I wonder if one can really have this debate without a clear understanding of the intrinsic nature of money.
I’ve gone most of my life earning, saving, and spending money without ever considering what it really is.
So, what is money? Why do we need it? I hope to answer this over a series of blogs.
If money is a medium of exchange and a storage of value, then what exactly are we exchanging and what are we storing?
If we are exchanging “this” for “that”, then obviously “this” must have value for you, and “that” must have value for me.
If something is good enough to store, as opposed to simply discard, then it too must have value.
Before we can understand money, we need to understand “value” and “property rights”.
Let’s start with value …
In her bestselling book, Atlas Shrugged, Ayn Rand gave a simple but incredible definition of value:
“’Value’ is that which one acts to gain and keep”.
“’Virtue’ is the action by which one gains and keeps it”.
Whether it’s my child’s well-being, the love of a woman, my education, or a material item, if I act to gain it, and to keep it then it is of “value” to me.
Per Ayn Rand, the concept of value applies to every living thing in nature. There are a lot of lessons in nature …
If a plant needs sunshine to survive, it’s of value to the plant, and it will actively seek it by growing in the direction of the sun.
If an animal needs food to survive, then it is of value to the animal and it will actively hunt for it, and protect it from other animals trying to steal it because they too value food.
In the wild, if two animals value something in limited supply, they fight for it. They may kill each other for it, or they try to steal it.
But in a human society, when we value something in limited supply, the acknowledgement and acceptance of property rights encourages most of us to take a more virtuous path to obtain it and prevents us from stealing or killing each other to get it.
I’ll write about property rights on my next blog, in our quest to define money.