What Is Money?

Money is a number on a ledger.

If my account holds 100 million won, the bank does not keep 100 million won in banknotes for me in a vault. Its ledger simply records an obligation to pay me that amount. Cash is a physical token that allows the same number to be transferred outside the ledger.

Money has no intrinsic value. A banknote is paper, and an account balance is data. Yet we use them to buy food and houses and to obtain other people’s labor.

Money is a numerical record of the capacity for exchange recognized by society.

Holding 10,000 won does not mean that 10,000 won of value resides inside it. It means that other people will also accept the number, allowing its holder to ask for that amount in goods or services.

The state and society create this capacity together. The state defines the monetary unit and uses it for taxes and settlement. Banks maintain the ledgers, while people transact in the belief that others will accept the same money.

New money is also created on ledgers. When a bank lends 100 million won, it records both a loan of 100 million won that it is owed and a deposit of 100 million won that its customer can spend. Money appears when the loan is made and disappears when the principal is repaid.

Creating money does not create value. Money is only a capacity to exchange for the goods and labor that society produces. If the amount of money grows excessively while production remains unchanged, each unit can be exchanged for less.

Money is ultimately a number recording a socially authorized capacity for exchange. The number has no power by itself. It becomes money only when institutions maintain the system and everyone accepts the number in exchange for real value.