Money

Money lies at the root of many things — evil or otherwise — so it's not exactly surprising to find it at the heart of the Computational Finance discipline. Its central role makes it a fitting point from which to start our incursion into the domain, and our "trusty" old Wikipedia can speed us along with a fairly reasonable working definition (emphasis ours):

Definition 2.1: Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context.

The first key take-away here is that money is mostly a social convention, based on use, and, typically, enforced by legal apparatus; that is how general acceptance emerges. In other words, money is able to fulfil its role largely because the individuals within a society will for it to act in that way, irrespective of the means by which consensus is achieved (e.g., coercion). This rather important but somewhat confusing notion underpins much of the power of money and also many of its challenges. Since we tend to experience money as a concrete, physical phenomena, it is difficult to penetrate through the fog of custom and see it for what it really is — more of an object of philosophy, sociology or law rather than a real world thing. Because these ideas are so terribly important, lets make them even clearer:

• Money works mostly because we — for sufficiently large definitions of we — believe that it works.
• When we stop believing in money, in sufficiently large numbers, it stops working.
• If we resume believing in money, in sufficiently large numbers, it starts working again.
• Force may assist in creating belief, but its neither a necessary nor a sufficient condition.
• Because the belief is so deeply held, we mistakenly equate it to a natural law¹.
• It is difficult to get people to start or stop believing; belief emerges as part of a long historical process.

Clearly, most of these notions fly in the face of the common sense understanding of money, so the reader may not find them entirely convincing; they aren't particularly reassuring either. Unfortunately, we must not lose ourselves in philosophical debate this early in the proceedings, so we'll have to let these words linger and leave it at that for now. However, do keep in mind that this is the standpoint from which the remainder of this work is anchored².

A second take-away from Definition 2.1 is perhaps even broader in its consequences: the fact that any form of verifiable record can be considered money. The full implications of this notion can only be made apparent by analysing the kinds of money in existence, which we shall do later on (c.f. Kinds of Money).

The third and final point we'd like to extract from Definition 2.1 is related to the use of money for payments of goods and services and the repayment of debts; these can be thought of as money's use cases or applications. This notion can be further generalised into a set of functional attributes, which the next section will cover in detail.

Next: Functions of Money

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