Money is choice

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Several recent posts in this blog have been focused on the idea of human volition (or “choice,” or “free will”). [1] While there is more ground to cover on the biological foundations of this perception, we can say at this point that we all (including the most strict of “determinists” who philosophically deny that free will exists) live our lives as if we have choice over how much of our lives play out.

In this post, I will look at how our economic concept of money is primarily a “counter” for socially-shared choices. Bitcoin and other cryptocurrencies have challenged our understanding of what money really is, so this is a good time to “re-think” this ubiquitous method of exercising human volition.

We also again encounter probabilistic randomness, another frequent topic of this blog, every day in our dealings with money. [2] Consumer prices, stock prices, interest rates and exchange rates usually exhibit mathematical patterns in the aggregate and longer term, but random variation on any specific day. [3] Think for a moment of how the (usually) free market is mashing together, on a continual basis, millions of human choices as too how much each good, service, or investment is worth to each decision-maker. When the price is right, one side of the transaction makes the choice to sell, and the other side makes the choice to purchase, agreeing on a to-the-minute “money-choice value” for the item in question.

Money is, simply put, denominated choice. We take multiple types of products or services and pair them up against one another in the grand-scale marketplace, and a ratio of relative value emerges. One Ford truck at is worth “X” number of McDonald’s meals in the broad marketplace. At the same time, some collective entity, usually a government, then places a numeric value on those exchange ratios, representing the market’s “collective wisdom” of the choice trade-offs, say, trucks versus milk versus hamburgers, and then that government protects and enforces their system of “denomination” in several different ways on the local populace. That, in short, is money.

What is a “dollar”?

Early in the life of the United States as a nation, in 1792 to be exact, the fledgling government opted to standardize its monetary denomination, its mode of counting, based on the decimalized Spanish dollar (one dollar equals 100 cents) rather than the British pound sterling, with its much more eclectic value relationship at that time of pounds, shillings, and pence. [4] Since then, successive U.S. administrations have used the power of the Mint, the spending and borrowing power of the Congress, and the market manipulation power wielded by several incarnations of a central bank to try to hold the trading value, that denominator, of the dollar relatively stable, sometimes with more success than others.

If my employer manufactures a product through my labor, our customer gives up some number of “choices” to obtain our product. My employer then passes some of those “choices” on to me in exchange for my labor, which I then pass on to others whose products and services that I want or need. Whether these “choices” are denominated in dollars or euros or yen is really just a function of who sets the counting rate, the denominator itself, where I happen to live. In the United States, this “choice counting” in dollars is so deeply ingrained in our thinking that we often lose sight of the fact that the counter itself is very artificial. We even “deify” the counter itself through such phrases as “the almighty dollar.”

This is especially true in this digital world, where currencies can be exchanged internationally nearly instantaneously with a minimum of transaction cost from one “counting system” to another, especially if you are moving large sums of money. [5] I still have some income from sources in the United Kingdom as a result of my time living there, denominated in British pounds and deposited regularly in a British bank. These “choices” spend the same as my American dollar income, and very seamlessly, in fact, if I use my U.K. bank debit card, but I need to be “multi-lingual” in my ability to “count” my choices. And because my amounts are small, I also need to try to minimize the retail bank fees I pay to change from one “counter” to the other.

For “big business,” the cost of the conversion is far less a problem than is the daily variability of the ratio between the two counters, but even that variability is quite easily managed using foreign exchange market options and futures. I was employed in the U.K. when the Euro was adopted by our “continental” customers, and our company’s information systems implemented four different options for automatically dealing with foreign exchange variability across customers and six different accepted currencies, including the new Euro. American corporate billing systems, on the other hand, often still say, “Just pay us in U.S. dollars.”

Spending my choices

On the other side of the ledger, my spending is then my personal prioritization of the choices facing me throughout the day. The first choices I distribute usually go for food, clothing and shelter, which often do not “feel” like choices. If I have more dollars left over after that set of choices, I make further choices about what is next on the list of my life’s priorities. Again, this economic exchange is so “second nature” to us that we quickly forget that we are constantly “weighing” these choices in spending and timing against one another.

Small choices with money add up to big choices over time. To throw in a guilt trip, if I spend $3.00 every day on a soft drink and a candy bar out of the vending machine, then I am demonstrating by my “choice” that $1000 worth of vending machine purchases over one year is more important to me than, say, providing $1000 worth of food aid for starving people on another continent or closer to home, or even to invest that $1000 for future use. [6] But most of us don’t easily perceive that short-term/long-term trade-off.

What we experience as “inflation” and “deflation” are the net effects of competing efforts by big market players and governmental entities to move the “denominator” of the exchange counter as a short cut to gaining more “choices.” If I owe you money, for instance, it is in my best interest for the counter value to inflate so that my debt of, say, $1 million, is worth less than it was when I first borrowed the money in relative terms of my “counter.” If you lent that money to me, on the other hand, you have the opposite preference. Deflation would make that $1 million worth more in relative terms when it was paid backInflation, and more rarely deflation, can also occur when a government loses control over its own monetary denominator through unwise fiscal “choices.”

Debt, investment and choice

Debt, using this concept of money, is just an exchange to gain a current choice (say, an automobile) by giving up larger future choices, usually in the form of required loan payments plus interest. When we incur debt, we are “selling” our future choices.

An investment, on the other hand, is the reverse. We give up a current choice, usually cash that could be spent today, in return for anticipated larger future incoming choices in the form of dividends, gains, or interest. In short, with investments we are “buying” future choices. But it is a bet. With my investments, I am betting both that the “choice rate” remains relatively stable and that either I or my family will be able to benefit down the road. Life is probabilistic.


So, what about Bitcoin and the growing number of other cryptocurrencies? That is a subject for a longer discussion, but the value of each cryptocurrency hinges on the reliability of its own, self-determined “counter.” If the counter is not reliable and stable (and so far, none of them are), then is it is probably best to see these currencies more as “commodities,” like gold or silver, where the value is mostly in the perception of the buyer. And in commodities, the Bigger Fool model of valuation is often the best predictor of value, where you are betting that there will be a “bigger fool than I” to purchase my gold/silver/Bitcoin at a later date. This usually works until you wind up being the “bigger fool.”

Economist Paul Krugman recently noted that cryptocurrencies frequently go directly against the grain of two factors that make a particular currency effective:

“If you look at the broad sweep of monetary history, there has been a clear direction of change over time: namely, one of reducing the frictions of doing business and the amount of real resources required to deal with those frictions.” [7]

In short, “good money” is a “friction-less” way to make choices in a free market, as in my example above of smoothly moving between American and British currencies. There is a very human tendency to put more meaning into the idea of “money” itself, and not enough on the array of choices that it represents. Even Jesus made that error in his exhortation that you have to “choose” between God and money. [8] Money often is the act of human choice-making. To paraphrase the late futurist Buckminster Fuller [9], perhaps money is not a noun, rather “it seems to be a verb.”


  1. Click on the “Volition” category in the left column to read some of these posts. A good place to start is this one on our conscious versus unconscious choices.
  2. The posts tagged with the category “The Dice” touch on the mathematical concept of probabilistic randomness, where events often seem random, yet exhibit a pattern in that randomness. This series started with an account of a critical election decided by a game of chance. You can click on the “Dice” icon at the bottom of each related post to follow the thread of this conversation. Small Dice Icon
  3. For instance, to see a pattern in the behavior of the Standard and Poors 500 investment index over time, see this earlier post on “Visualizing 7% risk”.
  4. The British pound sterling was divided into 20 shillings per pound and 12 pence per shilling until the shilling was eliminated in the decimalization of the pound in 1971.
  5. The XE Currency Converter site is an easy-to-use resource to see end-of-day and live exchange rate conversion ratios. Click on the blue and white arrow icon to see the most recent exchange rate table for dozens of currencies.
  6. And I personally admit to having frittered away many thousands of dollars this way over my lifetime.
  7. Krugman, Paul. “Transaction Costs and Tethers: Why I’m a Crypto Skeptic.” The New York Times, 31 July 2018,
  8. Matthew 6:24. Am I allowed to say that Jesus “erred” in his understanding of economics? Let’s just say that we likely miss the larger point of this adage.
  9. Fuller, R. Buckminster, Jerome Agel, and Quentin Fiore. I Seem to Be a Verb. Bantam, 1970.

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