Seton Hall Magazine, Winter 2000 - Seton Hall University

E c o n o m i c s
Ihave been asked, as an economist,
to write about “money.”
It is typical to think that economists
focus primarily upon
money — its control, uses and
abuses. But anyone who has
taken a course or two in the
subject matter of economics
knows that money plays second
fiddle to the primary concern of
economists — resources.
That is not to say that money
hasn’t had a long and fascinating
history. Nations have risen and
fallen in part due to their ability
or inability to manage money. But
what, exactly, is the nature of
money? When I receive my salary
as a “direct deposit” to my bank
account, is that money? When I use a
phone card, is that using money? When
I pay my credit card company with a
check, is that pale blue piece of paper
the same as money? To answer these
questions one needs to understand the
functions of money.
Money, first of all, serves as a medium
of exchange (i.e., it enables us to buy
and sell goods readily and quickly, thereby
reducing enormously the time that
used to be spent by folks in barter
economies trying to find willing partners
to an exchange). Hence, money in this
role has often been called the lubricant
of an economy, allowing numerous transactions
to flow smoothly day in and day
out. Just as important, though, is
money’s role as a store of value. When
we work and create something useful,
we are said to create value. But we may
not desire to possess much of what we
create and would rather have other
goods and services. So we receive compensation
for our efforts in the form of
money, which represents the value we
have produced. We can hold onto that
money and use it later. Of course, we
could hold onto the goods we initially
created, but over time they might deteri-
26 SETON HALL UNIVERSITY MAGAZINE
The Mystery of Money
BY FRANK D. TINARI, PH.D.
“Once accumulated,
money has no
value in and of
itself. Ask anyone
with a wallet filled
with cash who has
ever been stranded
in the wilderness
what good their
money did them.”
orate or become
obsolete. So
money is a good
substitute and
can even earn
interest for us
while we retain
it. This is not to
say that money
couldn’t lose
value, especially
in times of inflation. But that is another
story for another time.
Money is also pretty nifty in allowing
us to compare values. It serves as a unit
of account, a standard measuring rod,
and enables us to add up the value of
different items we possess. That makes
lots of business and family matters easier
to manage. But sometimes this function
of money becomes warped into a national
policy of collecting and hoarding
money, which was the downfall of the
mercantilist policies of the 18th century.
I suppose one could call this the national
version of the biblical warning that love
of money is the root of evil.
So now we can answer our questions.
Is a check money? Yes. It is acceptable
in exchange for goods, and a checking
account can serve as a store of value,
ready to be used whenever we wish.
But a phone card and a credit card
are not money themselves since one
must use an actual form of money
to pay for their use. Most strange,
however, is direct deposit money
sent in the form of electronic
digits over phone lines. Since I
accept it as compensation for my
work, and since my bank account
is credited with the amount
“sent,” it is real money.
But once accumulated, money
has no value in and of itself. Ask
anyone with a wallet filled with
cash who has ever been stranded
in the wilderness what good their
money did them. For money has
value only insofar as we can acquire
real things with it. That is why we say
that economics is about producing real
wealth with our limited (scarce)
resources, and that money is a mechanism
designed to facilitate attainment of
that primary goal, and not the goal itself.
Nevertheless, there continues to be
concern over money, especially in light
of the coming boom in World Wide Web
transactions, and in the increasing use of
digitized forms of money. Just 20 years
ago, there were fashionable predictions
about the coming “cashless society.”
That hasn’t materialized just yet, but we
are certainly moving in that direction.
It is probably safe to add that, on the
one hand, as long as people lose sight of
money as representing the storage value
of their labor efforts, they will not use it
wisely, and on the other, as long as people
overly emphasize money and lose
sight of the underlying goods and services
it represents, that such love of
money will continue to be a fundamental
root of evil human behavior.
BECKY HEAVNER
Frank D. Tinari, Ph.D., is
a professor of economics in
the Stillman School of Business.