Studies suggest that people can endure more pain when they have money in their hands than when they don’t. What about holding paper or metal money makes us care so much about it? When we take a closer look at what money is, the question becomes how does it relate to value? When a state has a surplus on its balance sheet, or a hoard of gold ingots, why does this often translate into eventual economic growth? Or, why can this same abundance build something that is more than just something material, like the human talent of a strong military? When we spend money — moving a fiat currency between people — we may take this as an increase in value in that market — for we can all see wealth and see that it often comes from where money is put. But wealth is something more nebulous and different than the money that makes and quantifies it; wealth is the raw economic facts on the ground when money has had its say.
I would argue that money is a language. It coordinates action and energy from symbols carried on paper, coins, or in a computer. A language isn’t valued per se for the sum total of its symbols and spoken sounds but for how useful it is. Money coordinates as a language the way the spoken word creates meaning from linking sound frequencies to intelligible physical or mental states. For money, it’s language is reflected by how the raw facts on the ground change, from the allocation of steel between industries, to the development of specialized talent, or the balance of transactions between market actors. Good use of money creates the coordinating conditions under which good projects and talented workers add value to a market exchange.
When we view money as a language, it helps us better understand what use of it can and cannot do. Money can help shape an efficient allocation of materials and get resources into the hands of people who can make best use of them — where “best” describes an inclination to highest efficiency after all edges of market “need” are factored in. But money by itself cannot inject value independent of what the material facts on the ground can support. Take price controls as an example of the limitations of what money can do in a market. When a government caps a commodity or resource, they have not erased how people value that thing. Instead, they have changed the official language about how a resource or item should be used. Seldom does this official language square with reality. Instead, it distorts it. Fiscal stimulus and loose monetary policy are two separate examples where again the act of spending money or of printing it for their stimulus effects are conflated with creating value in an economy. Simply adding money into a market — either through printing or unfocused government spending — may add more distortionary language than actually stimulate real economic output.
If we looked at money in a technical way, of what it actually does, we might have a better sense of what spending it can and cannot do.