Note: This was originally published as a response to the Aeon Conversations piece ‘What is Money‘
Money is not a store of value. It is a claim upon value. This might sound like pedantic semantics, but it is crucially important, especially if you’re trying to alter how it works.
Imagine a Coca Cola bottle with Coke in it. That bottle is a store of value. If I open it and drink the Coke, it will kickstart energy processes in my body and help me to carry on surviving. Now imagine a piece of paper next to the bottle that says ‘whoever holds this is entitled to claim this bottle of Coke’. That’s a claim upon value. If a group of people come to believe in the validity of that claim, the note can be passed around as a means to metaphorically ‘transfer’ Coke value, or – more accurately – to transfer access to Coke value. That’s then a form of money.
The fundamental difference between the note and the Coke can be tested by a simple experiment. Burning them. Imagine I drop the Coke into a furnace and it evaporates away. Nobody can ever drink it now, and we have destroyed value. The note is simultaneously rendered meaningless. It’s just a piece of paper saying you can claim a non-existent thing.
Now imagine that instead of incinerating the Coke, I burn the note instead. The Coke remains, and no value is destroyed. All that has happened it that I’ve destroyed my claim to that value.
…click on the above link to read the rest of the article…
