The subject of money has fascinated wise men from the time of Aristotle to the present day because it is so full of mystery and paradox. The piece of paper labelled one dollar or 100 francs or 10 kroner or 1,000 yen is little different, as paper, from a piece of the same size torn from a newspaper or magazine, yet it will enable its bearer to command some measure of food, drink, clothing, and the remaining goods of life while the other is fit only to light the fire. Whence the difference?
The easy answer, and the right one, is that people accept money as such because they know that others will. The pieces of paper are valuable because everyone thinks they are, and everyone thinks they are because in his experience they always have been. At bottom money is, then, a social convention, but a convention of uncommon strength that people will abide by even under extreme provocation. The strength of the convention is, of course, what enables governments to profit by inflating the currency. But it is not indestructible. When great variations occur in the quantity of these pieces of paper–as they have during and after wars–they may be seen to be, after all, no more than pieces of paper. People will then seek substitutes–like the cigarettes and cognac that for a time became the medium of exchange in Germany after World War II. As John Stuart Mill wrote: (see also Index: inflation)

There cannot, in short, be intrinsically a more insignificant thing, in the economy of society, than money; except in the character of a contrivance for sparing time and labour. It is a machinery for doing quickly and commodiously, what would be done, though less quickly and commodiously, without it: and like many other kinds of machinery, it only exerts a distinct and independent influence of its own when it gets out of order. (Principles of Political Economy, W.J. Ashley [ed.], 1909, p. 488.)

Mill was perfectly correct, although one must add that there is hardly a contrivance man possesses that can do more damage to a society when it goes wrong.

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To cite this page:
“Money” Britannica Online.
[Accessed 10 May 1998].