Money provides a universal utility converter-it enables one person's economic needs and wants to be translated into the same units as someone else's needs and wants.
-Eric D. Beinhocker, The Origin of Wealth, p.276
We might sup-pose that we all know what money is. After all, as financial planners, independent business people and 21st century citizens of Planet Earth, we spend our days engrossed in the stuff. So do most folks, of course. We are just obviously more so.
Yet, at the end of the day, what do even we know of it? How well do we understand it? How does it function? Where did it come from? Who invented it? How did it develop, historically? How did money get to be as it is today? As financial planners, what ought we to understand of it?
Clearly, money is an ever-present aspect of our professional lives. We know its movements and nuances, its risks, rewards and particular applications, how to grow it and, perchance, our risks of losing it or outliving it. We read about it. We develop our knowledge of it. We worry about it.
Yet, what do we know about it? It seems money is frequently reluctant to reveal its seductive mysteries even to those of us who proudly proclaim our expertise.
For example, do we even know what it is? Over the years, I have asked various audiences "What is money?" People generally answer in terms of intransitive verbs, using descriptions of money's functions. They will tell you that money facilitates the exchange of goods and services. On rare occasions, someone might observe that money functions as a storehouse of value or as an accounting tool. Or, they will tell you with straight faces and wistful new-age gazes that money is "energy." When I ask if they could take "energy" to the grocery store without the implicit money agreement, they get funny faced.
Of course, such answers would not be wrong if I had asked for the nature of money's work. Obviously, it does those things. It is just that these answers beg the question. They miss the noun, moving instead to intransitive verbs, answering unasked queries. We are attempting to search for money's essence, what it is-not its function.
The question "What is money?" is uncomplicated. Yet, its answer eludes. What is it? What makes money money?
Bernard Lietaer, one of the Euro's designers, currency creator, former European central banker and Belgian electronic currency czar, currency trader extraordinaire, insightful academic and general expert in all things money, suggests the answer: "Money is an agreement."
In other words, money is what groups of people say it is as far as they are concerned. From inception, those who use money must fundamentally agree that it is money. Otherwise, it is just dots of ink on pieces of paper. Or handfuls of dirt. Or heaps of shells, rocks, minerals, skins, pelts or other sorts of uniform, fungible difficult-to-counterfeit commodities. If people agreed (and we could lick the counterfeiting problem), it could even come from a game with a little pot-bellied man snappily dressed in top hat, striped pants and a huge mustache.
An agreement? Could it be so simple? Of course, agreements to the power of humanity's population are not without complexity. How can we have such a far-reaching accord among six and a half billion people? And yet, more or less, we do.
Turn it about. In the absence of agreements, money cannot function at all. We could still exchange, store value and count through an array of items and devices-but we would not have money. Without agreement, money simply does not work.