What is money? Image of a graduation cap and money

What is Money?

What is money article excerpted from
Sosteric (2012). Rocket Scientists’ Guide to Money and the Economy. Read it today!

What is Money – Introduction

Money, money, money. Money makes the world go round. So, what is the problem with money? Well, money is the root of all evil, or so we are told. It is the bane of our existence. It is the source of our despair, especially if you don’t have money and therefore can’t get enough of it to eat.

Money, money, money.

Money is bad, and that is the bottom line.

But is money really bad?

Personally, I don’t think so. Consider my own work; consider this book. As a writer of my ilk writing a book of this nature, I have often been approached by people suggesting that I should give this book away for free. It is a critical book they say, and it is an important book, so shouldn’t you make it freely available? After all, you can’t charge for something as basic and important as this information, right? The question always bothers me, and sets up a bit of a conflict. I agree with the sentiment, to a degree. The information that I provide should be accessible to everyone who wants it; but should it be free? Personally, I don’t think so. Having spent thousands and thousands of hours writing, it seems disrespectful and insensitive to ask someone something like that. You don’t go up to the baker of your daily bread and say, “hand over the bread ‘cause I’m entitled”, do ya?

Of course not!

To do that would not only dishonor and disrespect the work that the baker put in, but it would be insensitive to the fact that in this western world you cannot do anything without money, you cannot even eat. I mean, I live in a nice house, but I cannot grow food where I live because I couldn’t afford a yard big enough to grow food. What is worse, because of the way the global economy is set up, I cannot even barter[1] my services. How am I going to barter my English writings  and books for bananas grown by a Latin American field laborer, or clothes sewn by a Chinese worker in a factory? The truth is, I cannot.

You see the problem?

The fundamental economic problem is that most people don’t have enough money to exchange.If I do not make money from the work I do (which is to write useful and interesting books), my family and I don’t eat. In this day and age, we all need money to survive and so no, I shouldn’t be required to just give my labor away. Still, as I said, I do agree with the basic sentiment. The bottom line is, everybody who wants to buy my books should have the money they need to do so. That everybody doesn’t have enough money to buy my books is the basic issue and fundamental economic problem of this planet.

So you see, the problem is not that I don’t give the information away for free, and the problem is not money itself. As we will see in the main body of this book, money itself is good, and having money is good as well. The problem is, the “evil” is, not having money. The problem is that despite the fact that we (and by “we” I mean the people of this Earth) have amazing technology and amazing productive potential, not everybody on this earth can afford the modest fee I charge for my books. Considering how little that really is, that is a crime, and it’s a crime that goes way beyond the desire to have information available for free. I mean, it’s not just books that people cannot afford. Many people on this earth do not even have the money they need to buy food and decent shelter and because of that, a lot of children on this earth go hungry and starve. Considering our modern productive capacity (which is massive), and considering that once we eliminate over consumption, unnecessary consumption, and waste there is more than enough food and resources to go around for everybody, letting even a single individual, let alone a child, starve because they don’t have enough money is a crime of truly biblical proportions.

So, to conclude, the problem on this Earth is not with money itself. Money is good because it helps people exchange. The problem is that people do not have enough money. In this context the question is not, “Is money evil?” or “How do we give things away for free?” In this context, the question is “Why do so many people lack the cash they need to buy the things that they want even when there is way more than enough food, clothing, and shelter to go around?”

The Nature of Money

To answer the question why people do not have enough money, you first have to figure out what money is, and that is very easy. Let us start by saying that money is not the paper it is printed on. Money is not gold, it is not silver, it is not platinum, and it is certainly not a shiny diamond rock you put on your finger to impress your family and friends. Money is not a concrete thing at all. In fact, when you think about it, money is simply an idea, and it is an idea that, despite what some people might want you to think, is not that hard to understand.

It is simple, really.

When you boil it right down to its essence, money represents time. Time is money they say, and that’s totally true; though to be honest there is a bit more to it than that. Money does represent time, but not all types of time. Money has a very specific reference and that is work time. We can say that money represents work time. When you think about it like this, it seems rather obvious. You work an hour, you get paid for an hour. If you stand around and do nothing, money does not fall from the sky. You only get money when you work. Therefore, money is work time; but even that is not wholly specified. While it is true that money does represent work time, it is also true that money doesn’t represent all types of work time. Money represents a very specific type of work. The fact is, I don’t get paid money for working in my back yard; I only get paid money when I’m doing something for somebody else. When I do something, build something, or provide a service for somebody else, I get money in exchange. Although I might fantasize about it, you the reader are not going to give me a single penny for working in my garden to grow flowers for my kitchen table. However, I might be able to convince you to give me a few pennies for a flower I’ve grown for your kitchen table.

You see how that works?

Money, money, money.

The definition of money is this: money represents time spent working for someone else.

If we define “time spent working for someone else” as labor time, then we can say with clarity and specificity that money equals time spent laboring for other people. Put it in a formula and it looks like this:

Money = Labor Time[2]


Money = The time you spend working for another person

See how simple that is!?

Money = Labor Time.

And now you know what money is.

The Economy

The whole money = labor time thing should be obvious to you at this point, but the understanding this gives you is still basic. To get a better idea of what money is all about, we have to take a look at money in an economy.[3] Once again, that is easy. An economy is simply the formal exchange of something. Whenever two or more people get together and do something for each other in exchange for something else, you have an economy. Thus if you come over and clean my windows and I give you a loaf of my home baked bread, we have exchanged something (you have exchanged labor for my bread) and we have an economy.

As you can see, understanding money in an economy is equally simple. Since money = labor, an economy where money is exchanged is essentially an economy where labor is exchanged.[4] We can express that in a formula thus:

Economy = Labor Exchange

As you can see from this, an economy is a fundamentally social thing. Economies emerge out of human interaction and are designed to fulfill human needs. When you are engaged in economic activity, you are working for, and with, other people in order to meet your needs (e.g. a need for clean windows, a need for bread, etc.).

No social activity?

No social exchange?

No economy!

Now of course, there are different types of economies and not all economies need money to function. That is, not all economies are monetized. In our modern world, the official economy,[5] that is the economy that is recorded, monitored, taxed, and fiercely policed by those in power, does use money and is therefore monetized. Beneath that official economy however there are other economies. There is the underground economy, for example. The underground economy (the black market as it is sometimes called) is also a monetized economy, but it is not recorded and taxed like the official economy. Alongside the underground economy there is also the informal economy.[6] The informal economy uses barter as a method of exchanging labor. When I traded a complete set of my books to a young man who helped to clean the windows in my house there was an exchange of labor, but it wasn’t monetized, it was barter. The point here however is not to go into detail about the different types of economies; the point is simply that an economy involves the exchange of labor. Whether that labor is represented by money or barter, or is recorded or not, is irrelevant. The simple truth is this: an economy involves the exchange of labor.

We can see this quite clearly if we simplify things by looking at a small economy of only one hundred people. In this simple economy, everybody does something useful for somebody else. One person plays guitar, another sings, another builds houses, one runs a farm, another is into computers, another bakes bread, another processes animals, and so on. They all have a skill (or skills), they all have things they love to do, and they all get up every day and apply those skills in their daily life. In our small economy of one hundred people, each individual has some specialized talents and abilities and they bring these talents and abilities to their community; and that is great because not everybody is the same. Not everybody likes to build things, not everybody likes to sit all day and write, not everybody likes animals, and so on. However, that is OK because in an economy we can all get what we need (and want) by exchanging labor with each other for things that we cannot (or will not) do ourselves.

As noted above, there are different ways of exchanging labor. Barter (i.e. I build you a house, you give me a lifetime supply of hamburgers) is fine as far as it goes, but it is quite limited because barter is neither an efficient nor a flexible means of exchanging labor. The problem is, you may not want what the other person has to barter. Maybe I’m a vegetarian carpenter and you are a butcher. If so, how are you going to trade with me? Or, maybe you the butcher already have a house and do not need the services of a carpenter, or a plumber, or an electrician. If so, how are the plumber and electrician going to eat?

You see the problem?

Barter is inefficient and inflexible.

So, enter money.

Money, money, money.

Money is a medium for exchanging labor power, but it is an abstract medium. Money doesn’t represent a specific type of labor (i.e. carpentry) or a specific type of product (i.e. hamburger), money represents all types/any type of labor. Money is labor power abstracted and as abstracted labor, money lubricates economic exchange! If I spend an hour building a house for you, instead of giving me hamburger meat (which I do not like) you will give me some money to represent my labor. And that is great!! If you give me some money to represent my labor, I can then use that money to buy something that I do like (i.e. fruits and vegetables) from somebody else.

Isn’t that cool?

With this in mind we can now refine our definition of money and say that… Money = Abstracted Labor Time. As you will no doubt conclude, money is a major improvement over a system of barter because it abstracts labor. When the economy is based at least partly on money (i.e. partly monetized), then your options for exchange are expanded and any problems that might exist (like a vegetarian trying to trade with a carnivore) simply evaporate. Instead of paying me in dead meat (which I, as a vegetarian, would never accept), you can now pay me cash. This is fantastic because now I can buy whatever I want with no worries. And the benefits of money go way beyond simply lubricating exchange between vegetarians and carnivores. As an abstracted measure of labor time, money makes economic exchange more efficient, flexible, and fluid. In a monetized economy, all the inefficiencies, obstacles, and hurdles of barter simply evaporate away. Indeed, and as we will see, monetized economies are what make the productive potential of modern societies possible. When money is in play, and in particular when money is backed by modern communication technologies, you can exchange labor with anybody, anywhere in the world. But, I’m jumping ahead. So there you have it. Money is simply abstracted labor time. Money allows us to exchange labor time with each other in an efficient and fluid way. Put this way, money hardly seems like the root of all evil as so many people like to think. Put like this it would seem that money is a good thing after all.

If you are an educator, this important point about money, i.e. that it makes our modern world possible, is illustrated by the video Money Moksha, moksha being the sanskrit word for total enlightenment and release from delusion.

The Source of Money

If money is abstracted labor, and if the economy is nothing more than a way to exchange labor, then where does money come from? Well, it does not appear out of thin air. Money comes into being in a two-step process. First, somebody makes it. If it is paper money, we put paper through a press with special inks and we print it. If it is metal money, we stamp it with a logo and some numbers. Second, we agree on a value. It is as simple as that. It is important to note, whatever you are using for money, whether it is gold, lead, or stone, does not matter. All that is important is that the people who are involved agree that this piece of paper, that lump of metal, this other shiny sparkly rock, or that new tulip bulb,[7] represents a certain amount of labor time. That is all there is to it. Once you agree that you are going to abstract labor and pour it into some kind of container, all you need is a container to attach it to, general agreement about the value of the container, and you have money. It is all a question of concordance. If I hand you a piece of blue paper and tell you it’s worth one thousand labor units (assuming one labor unit is one hour of labor) and you agree, then we have created money.

The Value of Money

I suppose the question that arises now is, how do we determine the value of money? That is, how do we determine how much labor power is represented by our instruments of exchange? Obviously, the value isn’t intrinsic to the instrument. That is, a piece of paper isn’t automatically worth one thousand labor units. Indeed, a small piece of off-white paper printed in a huge mill with automated machinery at economies of scale is probably worth something in the order of .001 cents. The same can be said of other instruments of exchange, like the gold, silver, and diamonds that have been made to hold value over the centuries. No matter what anybody tells you, gold has no intrinsic value.[8] It has a small labor value,[9] but it is worthless over and above that. It is only when we agree that gold, paper, shiny rocks, or whatever are worth “something more” that they take on a monetary value over and above the value of the labor that went into producing them.

Of course, the question at this point is, how do we add monetary value to money? As noted above, the monetary value of money is derived simply from the amount of value that we agree it represents. Since, as we have seen, Money = Labor Time, the value of any piece of money is the value of the labor time that it contains. Since the value of money is determined by concordance, the labor contained in any piece of money is determined by agreement. If you and I agree that a piece of paper with a certain president’s head on it is worth 10,000 labor-units, then so it is.[10] As such, we may say that the value of money is the labor-exchange value (or just exchange value for short) that is has. If you can exchange a certain paper bill for ten hours of labor, then the labor-exchange value of that bill is ten (labor hours). Simple.

So, money contains the amount of labor that we agree that it contains. Clearly however we just don’t make up a value and assign that. That is, the value of money is not random, or at least, it shouldn’t be. Technically the value of money, or more accurately the total value of all money in a given economy, should be determined in relation to the total amount of labor being exchanged in an economy. That is, all the money available in a society to exchange should be approximately equal to all the labor that is available to exchange. We could say that… Total Value of All Money to Exchange (ME) = Total Labor Available to Exchange (LE).

I know it might sound complicated, but it is not. A simple example will suffice to bring clarity. Say you have a small economy of one hundred people and you want to monetize (i.e. add money in a way that displaces barter as a primary form of exchange) that economy. How much money will you introduce? Well, you want to introduce exactly as much money as will represent the total labor output of the one hundred people in the economy. For example, if you measure each hour of labor as one unit, and if most people work four hours a day, seven days a week, then in order to fully monetize our little economy you would add one hundred and forty-six thousand (146,000) units of labor. That is four hours a day (4), times three hundred and sixty-five (365) days a year, times the one hundred (100) working people in the economy. If you did that, if you added enough money so that ME = LE you would have a fully monetized economy with enough money circulating so that everybody could freely (and fairly) exchange their labor! As for individual pieces of money, their value should be determined in relation to the total value of money in the economy. Assuming you are starting fresh and with no history of inflation, how much an individual piece of money is worth would depend on what fraction of the total it represented. If you wanted to you could circulate the required 146,000 units of money in our small economy using 146 thousand-dollar bills; in that case, each bill would be worth 1,000 labor units. Alternatively, you could break it up and circulate it as 146,000 one-dollar bills. In that case, each bill would be worth one labor unit. Of course, a combination of big and little bills, small coins and other containers is probably best. Regardless of what you choose, the value of the individual bills is only meaningful in relation to the total labor output in an economy. In other words, in order to determine the value of money in an economy, you have to look at the amount of labor in the economy (i.e. the number of people working and the hours they work) as a whole, estimate that, and then create enough money to serve in the interests of exchange.

And that, my dear friend, is money.

Money is abstracted labor-time.

Money is used to lubricate economic exchange.

Money has value because we all agree that it does.

Finally, the value of all money in an economy should be determined by the amount of labor that needs to be exchanged.


Now you understand money and modern economies.

I am sure you will agree, this is all very simple. Indeed, at this point, you should have a clear understanding of the nature and purpose of money. At this point you should also see that money is a good thing. Money is a way to lubricate [social] exchange and so money is not inherently evil, it is inherently social. I would even go so far as to say that money is inherently spiritual. I would say this because money facilitates individual and collective creation, and positive and life-affirming creation is what Spirit is all about. Of course, looking out and seeing all the evil, greedy, and anti-social uses to which money is put may cause you to doubt what I say; but, the evil creations of blindfolded humans are not caused by money per se, they are caused by disconnection.[11] Money, as we shall see, only facilitates evil; it does this only because it facilitates the accumulation and control of labor power! Money through the control of labor power, could just as easily facilitate good. As we will see in the rest of this book, it is “love of money” (or rather, the love of what money gives you, which is power over others) coupled with the easy way money can be accumulated that is the cause of all our local and global problems.

But, I’m jumping ahead.

Now that you know what money is it is time to turn to a discussion of the problems associated with money. As we will see, there are some doozies. While it is true that money makes the modern world go around, and while we could easily (and accurately) say that without money we could not have built our wonderful modern world, it is equally true that there is something about money that is bringing our world to an end. The truth is, we as a human race face an increasingly dire situation. As should be obvious to anyone with eyes, we stand at the cusp of global catastrophe. From ascending violence and chaos, to rising environmental crises, to growing psychological anguish and despair, the world is in dire straits and it is money that has brought us to this point. We can still save the planet and ourselves, but we have to open our eyes to the crises, and we have to act fast. The first step to solving the crises was learning about the true nature of money. The next step is learning about the problems with money and why money, for all its amazing and wonderful potential, has brought us to such an obvious and definitive brink.

Want More? Complete Economic Enlightenment can be found in my book Rocket Scientists’ Guide to Money and the Economy. Read it today.


[1] See www.thespiritwiki.com /Barter [2] http://www.thespiritwiki.com/Labor_Time/ [3] http://www.thespiritwiki.com/Economy [4] Remember, labor is what you do when you work for someone else. [5] http://ww.thespiritwiki.com/Official_Economy [6] whttp://ww.thespiritwiki.com/Informal_Economy [7] The fact that value/money is created by general collective agreement is brought home by Tulip Mania. Tulip mania was a period in Dutch history (whose peak was in 1637) where the humble tulip bulb became extraordinarily valuable. At one point, according to the stories, a single tulip bulb could be used to buy 12 acres of land! This is now known to be an exaggeration, but there is no doubt that tulip bulbs were extremely valuable for a short period in Dutch history. They were extremely valuable because of concordance; people agreed that they were valuable, and so they were. For more see https://en.wikipedia.org/wiki/Tulip_mania [8] In the context of this discussion, putting an economy back on a “gold standard” makes absolutely no sense at all. [9] The labour value of something is the total amount of labour that went into producing and distributing the item for exchange. The labour value of gold is the total amount of labor that went into extracting it from the ground, refining it into purity, shipping it to the store, forming it into a ring, and putting it on a shelf. (Note: throughout the document so far, you have spelled “labor” without the ‘u’). [10] Of course, you and I do not agree to the value of money. Money is too important to be left up to the random decisions of a billion people. Instead, the value of money is determined centrally by the people (we might call them the players) who control the money supply. These people print a dollar bill, give it a number, tell you what it is worth, and you agree. Understand, this is not necessarily a bad thing. In a free an open system where everybody understands the purpose of money and where money is implemented as a means of equitable and efficient labor exchange, knowing the value of money is critical. The problem comes, as we shall see, when the economy is twisted and corrupted in the interests of a few. When the economy is twisted and corrupted to benefit the few (as it has been for many thousands of years now), the central assignation of value becomes twisted and corrupted as well. [11] http://www.thespiritwiki.com/Disconnection

Mike Sosteric (Dr. S.)

Just another loud mouth sociology professor, teaching sociology courses at Athabasca University. Check me out here at the Socjourn, over there at The Conversation and at academia.edu.

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