First, let's understand how money is information
Money is a representation of value
that we use to trade for other things of value, that is, when we buy and sell things. We could do without the abstraction of money, by trading the things themselves, such as trading your baseball cards for a skateboard, or bartering your gardening services for a home cooked meal. Money was invented as just a fancy kind of IOU, to allow us to trade more easily
. I may want your baseball cards, but I don't have the skateboard you want, so instead, I give you some amount of money that we agree on, and you can go buy the skateboard with that money somewhere else.
The numbers which indicate how much value a piece of paper money has is clearly just an abstraction, a piece of information. Early forms of money had some inherent physical value as well, typically being made of something durable like a piece of metal. And we like to think of paper money as being backed by an equivalent amount of valuable metal, as if we could go and trade the money for the metal, but does it really matter whether there is enough gold in Fort Knox or the wh*** world to match all the money that is out in circulation? Not as long as we agree that the paper money has the value we say it does, as long as we have confidence that everyone else agrees as well.
And, of course, we don't have to use anything physical to represent the money either - virtual numbers
in our bank account are enough.
The abstraction of money also allows us to not just trade with it, but give the money away to those we care about, particularly our dependent children who cannot raise the money themselves until they have grown enough.
Beyond this direct one-to-one representation of value, we also have even more abstract and indirect representations of monetary value, such as loan contracts, stock options, and credit default swaps. All are based on mutual trust
in each other that we will continue to agree on the value of something as, ... whatever we agree on.
You have probably heard the phrase "information wants to be free
", attributed to Stewart Brand. He said this because the cost of producing and distributing information is getting lower and lower. He also said "information wants to be expensive, because it's so valuable" and that there will always be this tension between the two. Of course, not all information is equal, some is more valuable, and some less.
So one way to look at the question of the value of money as information is that we simply agree that money has a certain value, and that is the end of it. But is that the end of it? We have to look at how information and money change over time, what they "want", short term and long term.
We are entering the Information Age
, or rather, the information revolution really started exploding with the compounding advances in electronic communication and computation over the last century. Indeed, the cost of distributing information is getting vanishingly cheap, just as the cost of moving physical products around the planet has gotten as cheap as industrialization could push it during the preceding centuries of the Industrial Revolution. The production
of information is another matter, just as the production of physical products is, but production costs are also being reduced, because everything else is getting cheaper as well. Almost everything!
But the real lasting value is the skills of the people
who are instrumental in that production, the knowledge we possess of how to use our technologies to make everything more efficiently and thus cheaper. So I would argue that the "information wants to be free" side will tend to win out over the long run, because market forces will, over time, reduce the cost everything as much as possible. Some things will be more expensive for a while, but eventually, almost everything loses its value because something cheaper comes along to replace it. One exception is the relatively rare things that grow more valuable over time, partly for historical significance because we value such irreplaceable artifacts.
There are lots of interesting issues to explore there, but back to money and the original question: Since money is information, and information wants to be free, then can we conclude that money wants to be free?
What are your thoughts?
Just came across this article in Wired magazine: "The Future of Money: It's Flexible, Frictionless and (Almost) Free
", which is really about how to make the overhead of transferring money cheaper. Fine, but what about the cost of the things being bought and sold? That's what this blog is about, and so is my extended response to some comments below: "Money will always have some value