Philosophy club: Money as a Collective Imaginative Construct

Today I will talk about the origin and meaning of money from the perspective of a scholar, **Yuval Noah Harari**, mainly famous for the book Homo Sapiens. I started to become interested in his perspective on money reading that book and later discovered he has also written another smaller book entirely focussed on the topic of money, which I highly recommend.

Harari discusses the concept of money not from the technical perspective of an economist but through the lens of a philosopher who inquires into how human consciousness and collective belief shape the material world. And this very unique perspective has made interesting to me a topic I would have otherwise found dry and boring.

Harari posits that money isn’t a material invention but a “purely mental revolution”, an “inter-subjective reality” existing only in our shared imagination. Its immense power stems from our collective agreement to believe in its value, underpinned by “mutual trust.” This unique human capacity to create and sustain collective fictions — like nations, laws, and money — is what enables unprecedented cooperation among strangers.

According to Harari, money serves 4 key functions:

• Representation of Value: Money allows people to “compare quickly and easily the value of different commodities” , providing a common metric for diverse goods and services.
• Facilitation of Value Exchange: money overcomes the double coincidence of wants (which is a problem in systems based on barter), as “everyone always wants money because everyone else also always wants money, which means you can exchange money for whatever you want or need”.
• Storage of Value: Money provides a convenient way to store wealth over time. Unlike perishable goods or bulky commodities like grain, money is durable and compact.
• Transportability of Wealth: Money solves the problem of moving wealth across distances.

Beyond these functions, money operates on the basis of two fundamental principles:

• Universal Convertibility: Harari describes money as an “alchemist”, capable of converting almost everything into almost anything else.
• Universal Trust: This is arguably the most fundamental principle. Money’s worth is a “psychological construct”. People accept money because they trust that others will also accept it.

The evolution of money, as viewed by Harari, is a journey from tangible commodities to abstract digital representations, each step marked by shifts in the nature of collective trust.

Before the advent of money, human societies largely operated on systems of favours, obligations, and direct barter. However, the rise of cities and kingdoms, coupled with improvements in transport infrastructure, fostered specialisation. This led to the emergence of full-time professionals — shoemakers, doctors, carpenters etc — and villages began to specialise in particular products/services. This specialisation quickly exposed the inherent inefficiencies of barter.

• The primary obstacle was the “double coincidence of wants” where two parties must simultaneously desire what the other possesses.
• Furthermore, barter necessitated constantly learning and juggling an unmanageable number of exchange rates.

Money has evolved dramatically. It began around 3000 BC with Sumerian Barley Money, a bulky and perishable food-based currency. This was followed by Mesopotamia’s silver shekel (mid-3rd millennium BC), a standardized weight of silver with cultural rather than inherent value, which was easier to transport and store.

The first coins emerged around 640 BC in Lydia. These stamped gold and silver pieces, guaranteed by political authority, revolutionized trade by standardizing value and preventing the need for constant weighing.

Today, money is largely electronic, existing as data on computer servers. This modern system, built on trust in the future and credit, enables our economy to grow by leveraging future prosperity — a testament to the imaginative nature of money itself.

While Harari offers a broad, philosophical understanding of money rooted in shared imagination and trust, other economic and philosophical theories provide alternative, often more specific, lenses through which to view its origin and nature.

• Commodity Theory: Money’s value comes from what it’s made of (e.g., gold, barley), meaning it has inherent worth. The value is “directly perceived by its users,” who recognise the utility or beauty of the tokens as goods in themselves. A key proponent of this view was **Carl Menger, an Austrian economist. Menger argued that money is not a government creation or a result of collective convention, but rather arises “spontaneously from the marketplace” through the actions of individuals. Harari’s view departs from a pure commodity theory**. While he discusses early forms of money like barley and silver that align with commodity theory, his core argument is that even in these cases, their monetary value transcended their mere intrinsic worth.
• Chartalism (fiat money): a monetary theory that posits money is a “creation of the government” and derives its value from its status as “legal tender”. Crucially, its value is established because “governments require that you pay taxes on that money”. Harari implicitly acknowledges the chartalist perspective when he notes that trust in money is reinforced because “our king believes in them and demands them in taxes”. However, Harari’s “mutual trust” of society for money is a broader concept, encompassing ideological systems beyond mere governmental decree, suggesting a more organic, bottom-up element to trust alongside top-down enforcement.
• Credit Theory: (or debt theory). It posits that money and credit/debt are fundamentally “the same thing, seen from different points of view”. Proponents argue that money originated as a “unit of account for debt,” and that “money creation involves the simultaneous creation of debt”. In this view, money is not a commodity or a state token, but a record of an obligation. The world’s current monetary system largely became debt-based after the 1971 “Nixon shock” when the link between money and gold was suspended. Commercial banks now create money “out of nothing” when extending loans, simultaneously creating a corresponding amount of debt. There is a strong conceptual alignment between Harari’s view and the credit theory of money. Harari’s notion of money representing “imaginary goods” and being founded on “trust in the future” resonates deeply with the credit theory’s assertion that money is fundamentally debt and that banks create money “out of nothing” when extending loans.

Another interesting concept is considering money as a “double-edged sword):

• On the positive side, money uniquely enables cooperation between millions of strangers, fostering complex societies and global trade. Harari calls it “the apogee of human tolerance” because its universal acceptance transcends cultural, religious, and social divides, allowing diverse people to engage in commerce.
• However, its very impersonality has a dark side. When trust shifts from human relationships to abstract systems like money, it can facilitate horrific acts, as seen in the Atlantic slave trade and colonial abuses. Money’s “cold laws of supply and demand” can corrode local traditions and human values. The modern “capitalist creed” now sees economic growth as the supreme good, turning money from a tool into a goal to pursue for its own sake.

Harari also leaves an open question for the future around the concepts of money and value…

For centuries, money has served as our primary metric of value, a tangible representation of the value we assign to human labor and the goods and services produced by it. But what happens when this equation breaks down, when human labor becomes largely superfluous in the economic realm and the traditional means of earning money start to disappear? Harari warns us that this could happen in the very next future with the rise of Artificial Intelligence (AI)-driven automation, which has the potential to substitute many humans in their jobs. When AI takes over most work, and earning money isn’t how we live, our idea of value will need a complete metamorphosis. For ages, money has been how we measure what human work is worth. But if humans become unnecessary in the workplace, that old system breaks. If we can’t define our worth by what we do for a living, how will we define a person’s value?