In this blog post, we explore why money—which has no physical substance or absolute value—has become a core tool in life.
Money is an actor playing a crucial role in the play of our lives. We work for the sake of a few digits appearing in our bank accounts. Even when students want to go out and play, they study late into the night for the sake of earning more money later. Office workers sacrifice time with family at home to endure uncomfortable company dinners—all for money. Yet despite this pursuit, money never comes easily. Often, it flees from those who need it most. Consequently, money traps countless people in anxiety and worry, shattering family peace. Some even face such financial distress that they make the extreme choice of suicide. It’s no wonder the saying “Money is the root of all kinds of evil” exists.
Yet, as the Athenian statesman Pericles said, money is also possibility itself. Money makes almost anything possible. With money, you can wear warm clothes, eat delicious food, and rest in a comfortable home. With money, you can enjoy desired hobbies and partake in various cultural activities. You can even find love with money. So, does money only hold meaning for pursuing personal values? No. When a country has ample money, it can provide more educational opportunities for poor children, offer medical services to the elderly, and prevent war and crime. In fact, many of the problems existing in today’s society could be solved if there were enough money.
What value does money possess that makes so many things possible? Confirming the value of money is not easy. This is especially true nowadays, when most monetary transactions are conducted electronically. What meaning do the numbers appearing in your bank account hold? When your salary arrives in your account at the end of each month, it’s quickly followed by the withdrawal of last month’s credit card payments and various utility bills. One might counter that we still use coins and bills, but aside from being money, they are essentially useless pieces of paper and metal. What about the days when gold and silver coins were used? Think about it – aren’t gold and silver just shiny lumps of metal? And what about the stories of using stone chips and seashells as currency?
Thus, while money plays a vital role in our lives, defining it succinctly is extremely difficult. 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 adopt similar definitions 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 people paying a certain consideration to receive what they desire (goods or services) from another party. Today, most exchanges occur through money as the medium. We pay tuition to attend classes at school, pay for books at a bookstore to read them, and pay subway fares to travel to desired locations. We even pay to eat food and drink water. In our highly specialized modern society, it’s extremely difficult to find a transaction that doesn’t use money as a medium.
However, just because something is a medium of exchange doesn’t automatically make it money. In barter, where people exchange goods or services directly, a transaction clearly occurs, yet no money changes hands. Money differs from a medium of exchange in that its value must be widely accepted by the state or society. In barter, the value assigned to goods by the two parties involved can differ. For example, suppose an apple orchard owner and a tangerine orchard owner exchange one apple for one tangerine. Someone who loves apples would mock the apple orchard owner for trading that delicious apple for just one tangerine. Conversely, someone who prefers tangerines might mock the tangerine grower. Thus, in barter, the value of the exchanged goods is difficult to agree upon between the parties. However, by converting the value of each good into money—a widely accepted measure of value—and comparing them, the transaction can be objectively evaluated.
Here, we see that we cannot think of money in isolation from the society in which it is used. Gold and silver, which were once used as money, clearly still hold value, but it is now only their value as metals, not 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 striking example of this is the in-game currency used in online games.
In online games, many users trade with each other to obtain items needed for their characters. While most transactions use 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, it is clear that at least among game users, a consensus exists regarding its value. In other words, in-game currency is entirely worthy of being called money. The phenomenon of currency in online games raises several thought-provoking topics related to real-world money issues. Let’s consider them.
First, online games refer to many people enjoying games together in a virtual world via the internet. It’s entirely appropriate to view players of the same game as forming a society, complete with births and deaths. Here, birth means the creation of a new character, while death signifies character deletion or the user leaving the game. As characters are created and deleted within the game, active trading and collaboration occur among players. Online games, with their extremely fast turnover rates, can serve as excellent testing grounds for simulating real-world society. The first reason is the ease of arbitrarily manipulating various variables; the second is the ability to observe the resulting outcomes. The third reason is that each user strives to maximize their own character’s interests.
Naturally, the game company serves as the central bank in online games. Game companies exert significant effort to maintain an appropriate level of currency within the game. The primary means is regulating the game money users receive as rewards for defeating monsters. If users defeat many monsters and the game money they receive as rewards increases, the amount of currency circulating within the game society will rise, causing inflation. Therefore, game companies prevent the collapse of the economic system by selling items to users, thereby reclaiming the in-game currency.
If a game company fails to regulate the in-game currency supply, the game’s economic system collapses, and users leave en masse. For example, in the online game Ragnarok, a bug once caused an anomaly where purchasing and reselling specific items actually generated profit for several days. As a result, those exploiting the bug accumulated assets worth trillions of gold in-game. This created an extreme wealth gap between those who exploited the bug and those who didn’t, disrupting resource distribution. It also diminished motivation to actively participate in game activities and further acted as a barrier to entry for new users. Nevertheless, the game company’s decision not to recover the illicitly acquired in-game currency led to the decisive collapse of the game’s economic system. This is strikingly similar to the problems caused by hyperinflation in the real world or issues arising from distorted resource allocation structures.
Meanwhile, online games also reveal significant insights regarding the origin of currency. In the online game Diablo II, there was a cap on the amount of in-game currency each character could hold. This amount was so low—earnable in about two hours of effort—that it was practically unusable as a medium of exchange. Consequently, players developed a separate currency. Magic scrolls, which were quite useful in the game and neither too easy nor too difficult to obtain, became the basic unit of trade. High-value items were exchanged for a few magic scrolls. This could be seen as barter, as the scrolls themselves possessed a certain inherent value. It could also be viewed as the emergence of new money, as the scrolls gained recognition as a new form of value among many players within the game, becoming a medium of exchange.
Ultimately, money only needs to be something whose value is widely recognized by people, with a certain consensus on that value, and it doesn’t need to possess any intrinsic value. We can even see that money doesn’t even need to have a physical form. From this perspective, the monetary economic system can also be seen as having a very weak foundation for its existence. As seen in hyperinflation-stricken Zimbabwe, Venezuela, or online games, when trust in value collapses, the monetary economy inevitably crumbles. How did such a fragile social tool come into being, and how has it maintained its vitality as a medium of exchange for thousands of years until today?
It is because money, despite its fragile foundation, drastically reduces society’s transaction costs. As long as society’s members recognize money’s value, all goods and services can be calculated by converting them into money. Money eliminates the need to consider the dual matching of desires, as in barter. Converting the value of all commodities into money for comparison makes it easy to decide whether to trade. Without money, strangers would have to bear significant risks to trade with each other, making the cooperation and division of labor that underpin modern capitalism extremely difficult.
Therefore, today’s money can be seen as an institution born out of this evolutionary social necessity. So, what will become of the future of this institution called money? 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 made transactions impossible, plunging the economy into a deep recession. While this most extreme experiment with money ended in failure, no one knows what experiments or new systems might emerge in the future. Particularly with the euro successfully establishing itself in the European Union, a single currency at the global or bloc level might emerge. Humanity holds great interest in how money should operate.
Looking further into the future, even more ingenious imaginings are possible. If we encounter extraterrestrials, what would serve as the medium for trade? Even without extraterrestrials, if humanity ventures into space, what would function as money in the cosmos? Or could a future arrive where humanity’s material civilization advances so far that supply exceeds demand, rendering money unnecessary? Some sci-fi games even imagine a future where water becomes so scarce due to Earth’s environmental changes that a ‘water standard’ is implemented, making water the basis of currency.
Thus, money will evolve in ways we cannot imagine, driven by the progress of civilization and technology. However, no matter how money evolves, countless people will chase after it, and yet the fact that money will not easily come into our hands will remain unchanged. Therefore, those who make money the purpose of their lives are likely to become unhappy. Remember that money is ultimately a means to pursue happiness, and those who know there are things in our lives more precious than money are the ones who will be truly happy.
