Money is an illusion. It only holds value because people perceive it to have value. A US dollar only holds value in places that accept US dollars. A Euro only holds value in places that accept Euros. Even gold only holds value if the other is willing to accept it.
Currency is based solely on a common agreement between parties that exchanging goods for a singular item, money, will guarantee a future exchange of other goods for that same item. The idea of Money in its sole form is simply to allow people to exchange goods and services that they desire without exchanging different goods and services the other party dislikes.
Ancient Egypt for most of its history relied on the archaic Bartering system for its economy. Everything had to be traded in physical goods: bushels of grain, iron, timbre, gold (Gold was not considered a currency at the time). Because of this, all business had to be done by "bartering" with the other party to obtain something you need. If you made pottery, all you had to pay for everything you need in life was the pottery you produced. If the other party did not accept your payment of pottery for basic necessities such as food and water, you were out of luck. (As a side note, Ancient Egypt did have a form of early currency called Deben that were used as weights. This served as a representation of a fixed number of goods to assess equal value between items and not as a real tradable good. One Deben could represent one hundred bushels of grain, for example. The Deben themselves were made from a variety of things, from copper and gold to stone weights)
Money solved this fundamental issue of trading. It was a promise that whatever goods you traded for money, money will get you whatever goods you needed as well. It was the single unifying factor of trade needed to properly grow an ancient economy. Everyone had to agree to that promise for it to work, however, and they did. It simply made trade much easier for everyone involved, and now there was no need to barter what goods you were willing to pay, or accept payment, for. What was a matter of "what" soon became a matter of "how much." Thus began the first steps of a modern economy.
The invention of Money brings with it another important idea: dividing resources. Money is simply a slice of the total resources available in a state's economy. Therefore, the more money one has, the bigger slice of resources one is entitled to.
A common example is the apples comparison. Let's assume there are only 100 apples and that sticks are used to purchase them. If there are 100 sticks, there each apple is worth 1 stick. However, if people were to break beaches to make more sticks to make 100 more sticks, there would be a total of 200 sticks in circulation. There are still only 100 apples to buy. Because of this, 1 apple is now worth 2 sticks as the number of sticks are more plentiful than apples. This simple idea is called Inflation. You now need more sticks to get the same number of apples in the future than you did in the past.
One may argue that the price of apples only rose because other people raised the price. If the price of apples only kept to 1 stick, there would be no issue, right?
This would be disastrous for an economy in reality. Remember, money is only a representative slice of the total economy. By keeping prices the same, you are essentially claiming you have 200 apples-worth to sell to others when in reality you only have 100 to spare. The number of apples would run out before the number of sticks run out, leaving you with 100 sticks and 0 apples by the end of the day. The sticks are now worthless as they cannot be exchanged for anything! This is the root cause of shortages and hyperinflation. Money is printed, but no new resources are made. As more resources are drained by society due to overabundance of cash, prices have to be raised to stop resource overconsumption. The free market naturally adjusts itself to properly allocate resources to those that provide the most value, the most resources to society. The more resource you can produce, the more you are entitled to a larger share of the economic pie.
This fundamental understanding is why in Capitalism, the Rich get Richer and Time and Effort does not equate to more Money: Adding Value to Society does. It is also why laws are written to heavily favor big businesses and investors, from tax breaks and subsidies to legal privileges. These two groups add more value to society than any single employee or small business can add, and thus it becomes logical to encourage people to build big businesses and invest in others: governments do not want growth to stop.
This is also why providing an economic cushion to impoverished citizens is a contentious issue. Governments want a return on their investments just as any private citizen would. If the government provides a universal safety net through providing welfare to its citizens, they want to see those same citizens growing and providing value to society. No government wants to see its citizens taking advantage of the safety need to drain more resources from society. At that point, they become a liability not just to themselves but to everyone else as well. They are not providing the value they should to compensate for the economic loss the safety net provides.
Mixed economies like those seen in Europe do provide a substantially large safety net to its citizens, and as a result these citizens enjoy a much higher standard of living with a relatively stable economy. This does come at a cost of economic growth, as research, development, and entrepreneurship slows from the downside of unfavorable laws that affect business. This is why many of the largest tech companies in the world are predominantly founded in countries such as the United States, China, or Japan. Growth is everything to them, and as a result favor business with rapid growth. Growth is an indicator of resource surplus, and the more surplus there is, the better a country fares in bad times.
At least that's the idea. The Great Recession of 2008 put to test that idea, and of the countries still struggling from the Recession, Japan was one notable victim. Inflated valuations coupled with aggressive monetary and fiscal policy meant inflation was outpacing actual productivity, and the imaginary resource surplus they had accumulated resulted in an economic bubble that exposed how little they had been growing in reality.
Money is an illusion. It is only as useful as long as everyone plays by its rules, and so long as an economy has the resources to back up its claim. It has given people the extraordinary flexibility to get whatever they want, whenever they want, while tediously managing their nation's total resources without compromising its stockpile in the background. It encourages productivity, and indeed it results in productivity, yet one must beware of imagined money that no one can claim: Equity.
Like Money, Equity is an illusion, but not one everyone agreed to. Central Banks can't print it, laws can't tax it, and no real basis for its worth. Equity is merely what one is willing to pay for something at the time. Take a painting for example. The painting is the same for a hundred years, but the price only goes up simply because someone is willing to buy it at a higher price in the future. If for some reason no one finds any appeal for the painting in the next hundred years, then the painting is effectively worthless. Equity relies solely on the whims of the people, and that is the most horrifying economic system to have. There is no total control over it, and economic systems can fail at a moment's notice due to its deceitful power of illusionary resource abundance. By simply claiming it is more than what it phyiscally is, Equity can drain the resource surplus "real" money accumulated in society. It tricks people to wasteful spending. It lures people with a mirage of riches. Worst of all, it is entirely self-inflicted. Equity is how economic bubbles are made.
Money is an illusion. It is a human construct made to help passively allocate resources in society in a simple and convenient manner. It controls our wants and desires, encourages us to conserve for our essential needs, and become more productive to society. It is a promise to our future selves and to others that we will do better, an everlasting debt we pay to be part of this grand social experiment of Community. Money is a marvelous thing, yet it is best served as a tool to keep our most deepest desires in check, not to encourage it. Those who understand this, the real purpose of Money, will come to be its master. Those who do not will always be enslaved to it.
