In this blog post, we’ll explore why money—which has neither a physical form nor an absolute value—has become a central tool in our lives.
Money is an actor playing a crucial role in the play that is our lives. We work for the sake of a few digits appearing in our bank accounts. The reason students study late into the night even when they want to go out and have fun is also to earn more money later on. It is also because of money that office workers give up relaxing at home with their families to stay at uncomfortable company dinners. Although so many people pursue money, it is never easily obtained. On the contrary, money often eludes those who need it most. As a result, money causes countless people to live in anxiety and worry, and it can even shatter the peace of a household. Some people, tormented by financial problems, even make the extreme choice of suicide. It is no wonder that the saying “Money is the root of all kinds of evil” exists.
However, as the Athenian statesman Pericles said, money is also potential itself. Money makes almost anything possible. With money, one can wear warm clothes, eat delicious food, and rest in a comfortable home. With money, you can enjoy your hobbies and partake in various cultural activities. You can even find love. Does this mean money is only meaningful for pursuing personal values? No. If a country has ample funds, it can provide more educational opportunities for underprivileged children, offer medical care to the elderly, and prevent war and crime. In fact, many of the problems plaguing society today could be resolved if there were sufficient funds.
What kind of value does money possess that makes so many things possible? It is not easy to grasp the value of money. This is especially true nowadays, when most financial transactions are conducted electronically. What meaning do the numbers on a bank statement really hold? When your salary is deposited at the end of each month, it is quickly deducted to cover last month’s credit card bills and various utility payments. One might counter that we still use coins and bills, but aside from the fact that they are money, they are nothing more than useless paper and metal. What about the days when we used gold and silver coins? If you think about it, aren’t gold and silver just shiny lumps of metal? And what about the stories of using stone fragments and seashells as currency?
Although money plays such an important role in our lives, it is very difficult to define it in a single sentence. One economics textbook defines money as “any object widely accepted as a medium of exchange within a given national or social context.” Most other textbooks either adopt a similar definition or indirectly define money by listing its functions without providing a clear definition.
First and foremost, money is a medium of exchange. Exchange refers to the act of paying a certain consideration to receive what one desires (goods or services) from another party. Today, most transactions are conducted through money. We pay tuition to attend classes at school, pay for books at a bookstore to read them, and pay subway fares to travel to our desired destinations. We even pay money to eat and drink. In today’s highly specialized modern society, it is very difficult to find a transaction that does not use money as a medium.
However, just because something is a medium of exchange does not automatically make it money. In barter, where goods or services are exchanged directly, a transaction clearly takes place, but no money changes hands. Money is distinguished from a medium of exchange in that its value must be widely recognized by the state or society. In barter, the value that the two parties assign to the goods may differ. For example, suppose the owner of a pear orchard and the owner of a tangerine orchard exchanged one pear for one tangerine. Someone who loves pears would mock the pear orchard owner for trading that delicious pear for just a single tangerine. Conversely, someone who prefers tangerines would mock the tangerine orchard owner. As such, it is difficult to reach a consensus on the value of the goods exchanged in barter. However, if we convert the value of each good into money—a medium whose value is widely recognized—and compare them, we can objectively evaluate the transaction.
Here, we can see that money cannot be considered separately from the society in which it is used. Gold and silver, which were once used as money, certainly still hold value, but that value is now solely as metals; they no longer possess value as money. Turning this around, one could argue that there could be as many types of money as there are human groups we call societies. A clear example of this is the in-game currency used in online games.
In online games, many users trade with one another to obtain items needed for their characters. While most transactions are conducted using in-game currency, some high-value items are traded using real-world money. Furthermore, since in-game currency itself becomes the subject of real-world transactions, we can see that, at least among game users, there is a consensus regarding the value of in-game currency. In other words, in-game currency is fully deserving of the title “currency.” The phenomenon of currency in online games raises several topics worth considering in relation to real-world monetary issues; let’s explore them.
First, online games refer to the experience of many people enjoying games together in a virtual world via the internet. It is entirely appropriate to view the people playing the same game as forming a society, one that includes both birth and death. Here, “birth” refers to the creation of a new character, while “death” refers to the deletion of a character or a user’s departure from the game. As characters are created and deleted within the game, active trading and collaboration take place among players. Given its extremely fast pace, online gaming can serve as an excellent testing ground for simulating real-world society. The first reason is that it is easy to arbitrarily manipulate various variables; the second is that it is possible to observe the resulting outcomes; and the third is that each user strives to maximize their character’s interests.
Naturally, the game company plays the role of the central bank in online games. Game companies make significant efforts to maintain the in-game currency supply at an appropriate level. The primary method is to regulate the in-game currency users receive as rewards for defeating monsters. If users defeat many monsters and the amount of in-game currency they receive increases, the currency supply circulating in the game economy will rise, leading to inflation. Therefore, game companies prevent the collapse of the economic system by selling items to users and thereby reclaiming in-game currency.
If a game company fails to regulate the in-game currency supply, the game’s economic system will collapse, and users will leave in droves. For example, in the online game Ragnarok, a bug once caused an anomaly where players could actually make money by buying and reselling a specific item; this phenomenon persisted for several days. As a result, those who exploited the bug accumulated fortunes exceeding trillions of gold in-game. This created an extreme wealth gap between those who exploited the bug and those who did not, disrupting the distribution of resources. Furthermore, it dampened the motivation to actively participate in the game and acted as a barrier to entry for new users. Nevertheless, by failing to recover the illicitly obtained in-game currency, the game company allowed the game’s economic system to collapse completely. This is very similar to the problems caused by hyperinflation in the real world or those arising from a distorted resource allocation structure.
Meanwhile, online games also reveal significant insights regarding the origins of currency. In the online game Diablo II, there was a cap on the amount of in-game currency each character could hold. Since this amount could be earned by a user with just about two hours of effort, it was practically unusable as a medium of exchange. Consequently, users devised a separate form of currency. Magic scrolls—which were quite useful in the game and neither too easy nor too difficult to obtain—became the basic unit of exchange, with high-value items being traded for a few of these scrolls. Since these scrolls possessed a certain intrinsic value of their own, this could be viewed as a form of barter. Furthermore, since the scrolls were recognized by many players as having a new value as money and thus became a medium of exchange, this could also be seen as the emergence of a new form of money.
Ultimately, money is sufficient if its value is widely recognized by people and a certain consensus regarding that value has been reached; it does not need to possess any intrinsic value. We can even see that money does not even need to have a physical form. From this perspective, the monetary economic system can be viewed as having a very weak foundation for its existence. As seen in the cases of Zimbabwe and Venezuela, which experienced hyperinflation, or in online games, the monetary economy is bound to collapse once trust in its value crumbles. How did such a fragile social tool come into being, and how has it managed to maintain its vitality as a medium of exchange for thousands of years?
It is because, despite its fragile foundation, money significantly reduces transaction costs in society. As long as members of society recognize the value of money, all goods and services can be calculated by converting them into monetary terms. Unlike in barter, money eliminates the need to consider the dual alignment of desires. By converting the value of all goods into money and comparing them, one can easily decide whether to proceed with a transaction. If money did not exist, strangers would have to bear significant risks when trading with one another, which would make collaboration and division of labor—the very foundations of modern capitalism—extremely difficult.
Therefore, we can say that today’s money is a system born out of these social evolutionary needs. So, what will the future of the monetary system look like? At one time, the Soviet Union viewed money as the root of all evil and implemented an extreme communist economy that sought to eliminate money itself. As everyone might expect, this system rendered transactions impossible, plunging the economy into the depths of recession. Although the most extreme experiment involving money ended in failure, no one knows what experiments or new systems may emerge in the future. In particular, with the euro successfully establishing itself in the European Union, a single currency on a global or regional scale might emerge. Humanity has a keen interest in how currency should function.
Looking further into the future, we can imagine even more outlandish scenarios. If we were to encounter aliens, what would serve as the medium of exchange? Even without aliens, if humanity ventures into space, what would function as money in space? Or could a future arrive where human material civilization has advanced to such an extreme that supply exceeds demand, rendering money unnecessary? Some science fiction games even imagine a future where, due to environmental changes on Earth, water becomes so scarce that a “water standard”—where water serves as the basis of currency—is implemented.
In this way, money will evolve into forms we cannot even imagine, driven by the advancement of civilization and technology. However, no matter how money evolves, countless people will continue to chase after it, and the fact that money will not come easily to us will remain unchanged. Therefore, those who make money the purpose of their lives are likely to be unhappy. Only those who remember that money is, after all, merely a means to pursue happiness, and who recognize that there are things in life more precious than money, are truly happy people.
