Money Fundamentals 3.17 What makes money money?

So, what makes money, money? What characteristics must an object have before communities use it to buy and sell with each other?

Community-wide agreement

A community must agree to use the token as an intermediary when they buy and sell. If everyone in a community agrees cowry shells will be used as money, cowry shells will be the money. Agreement is a product of governance: an all-powerful individual may dictate cowry shells will be money, or on the other end of the spectrum, an egalitarian decision-making community may decide they will use cowry shells for their money.

A token

A money token can be made of many things – from cowry shells, giant stones, precious metals, and paper to virtual digital bits and bytes. So, what money is made of does not make it money. But, it does have to be made of something recognizable and securable.


No matter what money is made of, counterfeiting will always be a concern. So an authority is needed to guarantee authenticity. Such authorities can be an individual who differentiates between real cowry shells and counterfeits of bone or stone; an assayist who tests the weight and purity of gold, and stamps it into coins of guaranteed value; a government (monarchy to democracy) that use special papers, imprints, and even holographic images for paper money – and dedicates resources to finding and prosecuting counterfeiters. An authority can be a consortium of computer programmers who claim their exchange of digital bits and bytes cannot be hacked. Whatever the choice of token, a token is useful only if it is guaranteed to be authentic and not easily counterfeited.


Trustworthiness requires some kind of guarantee of continuing value; if you take a dollar in payment today, you want to know you will be able to use it to buy something that costs a dollar tomorrow. While some of this trustworthiness comes from the authority guaranteeing authenticity, money also carries with it a promise of value from the past, present or the future. Whether the value resides in the past, present or future depends on the money system.


A community can issue money based on a history and reputation for trustworthiness. When we say the US dollar is backed by the full faith and credit of the nation, we are claiming our reputation for trustworthiness, established in the past, will continue into the future and guarantee our money.


A community can issue money based on natural resources and the wealth built up over generations – value created in the past and existing now. When we say the US dollar is backed by the common wealth of the nation, we mean as a nation we have a store of equity that can be drawn on to make our dollar promises good. We have a wealth of sustainable resources.


A community can issue money based on wealth to be created in the future. In a money system that creates new money by issuing an IOU for future value, the promise of trustworthiness is dependent on the ability of the borrowers to produce the value in the future and pay off the loans. We are saying that we have invested in our nation, we can maintain our assets into the future, remain productive, and guarantee our money. The trustworthiness of this promise depends on preserving a community of educated, innovative, healthy people living and working in safe, healthy and productive jobs.

Money systems can combine these means to trustworthiness.

Creation & destruction

Whatever the choice of token, it must be turned into money in use by some process. And there will be another process that removes money from use and/or destroys it. Someone must find cowry shells. Someone must mine gold (or historically, have the wealth, power, army or security forces, to steal it from and/or control those who do the actual mining), coin it and stamp it. Paper tokens must be printed and introduced into the economy as money by some authority. Digital bits and bytes must be created by someone’s keystrokes. Once created money can be entered into an economy as debt, as a credit, or as equity.

The power to change a commodity – real or virtual, or an IOU piece of paper, or digital bits and bytes into negotiable currency is enormous. Imagine the power to create money and all the advantages that brings. Without thoughtful and extensive controls, this power will override any and all other power in a community. Choosing who or what creates the money is choosing who will rule. This is such an important concept it is worth repeating:

Whoever creates the money will rule.

Money can be destroyed. Cowry shells can be smashed. Gold coins can be melted into bullion and used in jewelry, electronics, medicine, or manufacturing, removing them from the money token pool. Paper can burn. Digital bits and bytes can vanish with a keystroke.

Whatever the money token, people who are able to accumulate an extraordinary amount of it are able to influence, or control the amount in circulation by simply removing enough or flooding the supply to suit their purpose. In any system that allows a few individuals to control significant percentages of the total wealth, these individuals will be able to control the amount of money in the economy. Hence they will be able to control its value and the value of all else in the economy.

This gives people of great wealth a secondary power to introduce money into the economy or remove it at will, effectively creating or destroying it temporarily, no matter what the chosen system. Some systems amplify this power and other systems keep it in check.

The essence

The token used for money can be anything material or virtual, so the essence of money is not the stuff of which it is made. Some argue real money must have tangible, marketplace value, but the evidence says otherwise.

Authenticity and trustworthiness are of critical importance to well- functioning money, but there have been periods in history when counterfeiting has been rampant, and the false token functioned as money – for a time. So authenticity and trustworthiness are very important characteristics, but they are not the essence of money.

Anything manmade is by definition, created. And, anything man creates can be destroyed. So, this characteristic is not money’s essence.

Which leaves us with the essence of money: community-wide agreement to use something in particular as money. The essence of money is the intangible – but very real nonetheless – agreement of people in a community. How agreement is reached is a separate matter.

Money is a token that can be authenticated and held trustworthy, chosen by a community to act as an intermediary in exchanges. Money can be created or destroyed.

That which is essential cannot be seen with the human eye.

— Antoine Saint Exupery, The Little Prince, 1943