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Definition of Money [Finance
Posted on November 23, 2015 @ 08:37:00 AM by Paul Meagher

I'm currently reading a book by Lars Tvede called The Creative Society (2015).

I'll probably have occasion to blog about the contents of this quirky and wide-ranging book in the future, but today I want to discuss Lars' definition of money which I found interesting:

Money is an information technology that informs us about the value of experiments and rewards those who performed them. ~p. 57

In an earlier section, he elaborates upon this definition as follows:

Money is often described as "a unit of accounting, a store of value, and a medium of exchange", but is also an essential information technology which describes to us the value of a voluntary win-win transaction. Win-win, yes. But win-win how much? The money provides the answer in a simple, common code. Two camels. 20 seashells. One million dollars. Any blabbermouth can fantasize about how much he did for others, but if he does it in a marketplace, we can make a decent estimate of its value by counting the money people gave him for his effort (of course, there are exceptions to that). ~ p. 54.

In perceptual psychology, we might call money a measurement scale where the amount of value in a product or service can be assessed according to the price we assign to it. So when we see that a product has a certain price, we assume it has a certain value. If we don't perceive the product or service as having that actual value then we don't buy it. We might view branding as a way to manage the measurement scale so that the price we assign a product or service has the perceived and experienced value associated with that price.

Ultimately what I like about Lars' definition is that is a definition entrepreneurs might find useful. Money informs us about the value of our experiments and rewards those who perform them.

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