What Is Money?
by Dr. Ronald Nash
Money is first and foremost a medium of exchange. As human society became increasingly more complex, it became inconvenient for humans to barter one commodity or service for another or to exchange a certain quantity of labor for a certain quantity of some commodity. No one invented money; it simply developed. People who wanted to exchange something found that it was sometimes difficult to find someone who had exactly what they wanted and who at the same time wanted exactly what they had to exchange. In order to make exchanges easier, the circle of exchanges widened from two parties to three or more. A had what B wanted; B had what C wanted; C had what A wanted. In this way, indirect exchanges began to develop. Over a period of time, specialized goods that were more difficult to trade were exchanged for goods that were more easily marketed. As a consequence, the more marketable goods became even more marketable because demand for them increased. Eventually, the most marketable or saleable of these goods acquired the function of money, a medium of exchange. Many goods have served as money. In the cultures with which we are most familiar, money tended to take the form of precise weights of such metals as gold and silver.
In this sense of a medium of exchange, money is both a social and an economic convenience. It makes complicated economic exchanges more convenient and more efficient than if each person had to barter commodities and services directly with other people. Money is an important social institution. A complex society simply could not function without some kind of common medium of exchange. Money also allows people to specialize in what they do best and thus increase their efficiency in ways that benefit both themselves and others. People no longer have to produce everything that they need in the way of food, clothes, and housing. They can concentrate on what they do best, exchange that good or service for money, and then exchange that money for whatever else they want. As people specialize in this way, their productivity is increased.
In addition to its use as a medium of exchange, money has acquired several subsidiary functions. For example, it is useful as a measure of value. Money is used as a standard by which we measure the value of various things. When a farmer goes to buy a new truck or tractor, he does not have to think in terms of the number of cattle he will have to exchange in order to acquire the tractor. He can think solely in terms of the monetary cost. Obviously, it is easier and more efficient to handle such transactions in terms of a common denominator than to engage in a continuing series of calculations in which one estimates the interrelated exchange values for a large number of items. Money eliminates the need for such complex procedures by serving as the one commodity with reference to which the price of anything can be compared.
Money is also useful as a measure of deferred payment. When selling something, it is not necessary that the seller demand full payment in the present. He may opt instead for a deferred payment in order to receive interest. Money is also useful as a store of wealth. It is an easy form by which people can save and store that part of their wealth that they choose not to consume in the present.
Given the important social functions of money, it is difficult to understand what Christians like Ellul really have in mind when they denounce money. The conviction of some Christians that money is evil appears to be grounded on several serious economic errors. Such Christians seem to have little comprehension of what voluntary economic exchange is and how it is a positive-sum game in which both parties can win in the sense of leaving the trade in better position than they were before the trade. They also seem unaware of the necessary social functions money performs as a medium of exchange, as a measure of value, and as a store of wealth. Much of Ellul's confusion in this area seems to result from his failure to draw a clear distinction between money (anything that may be used as a means of exchange) and mammon (which is money personified and deified).
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