I would probably give my left arm to once and for all rid the world of all misconceptions about economics. One such frustrating misconception is how everybody assumes that “economy” necessarily has to do with money – and only money. Perhaps this is the reason why I, as an economist, frequently get asked about investment tips, how to “beat the market” on the stock exchange, and things like that (you really don’t want my investment advice). If anything “economy” is about money, then obviously an “economy-ist” knows how to make money.

In a sense I do know how to make money. I understand the Federal Reserve.

Seriously, however, there is some truth to the assumption that people make regarding economics. In our advanced specialized economy money is a central and very important institution. But money is far from the only phenomenon of import, so there is much more to economic theory than dollar signs. Money, as Menger showed in his 1892 essay “Geld” (On the Origins of Money), is important because it provides a vital function to the market: it radically lowers the cost of exchanging by relieving actors in the market from the double coincidence of wants limitation of barter trade. This is why economists commonly refer to money as a “means of exchange.”

It is not surprising, therefore, that all modern and highly productive economies are money economies. In this sense it is certainly correct to assume that economics has to do with money. But it is incorrect in the sense that economics only or even primarily studies money. Contrarily, what economists study is value – its production and distribution in a finite (and so scarce) world.

Value may be expressed in money, may be calculated through money, and may be achieved by using money. So money is central to understanding what goes on in the market, but it is neither necessary nor sufficient. This statement is, as far as I can tell, quite a surprise to non-economists (and, unfortunately, some economists), laymen and scholars alike. In terms of the latter, one often comes across representatives of the “fluffy” social sciences (sociology and so on) who eagerly point out how economists don’t know anything about the real world because of their focus on money-money-money. It is a sad state of things when fellow social scientists obviously have no clue what their colleagues in economics do. It is much worse when economics and economists are dismissed on those grounds.

The fact is that value is distinct from money and can be studied completely without involving money. In fact, it can often be easier to completely exclude money and instead talk about wants, preferences, or even “utility” to make it clear what is analyzed. And value is a subjective appreciation of something, which necessarily has a tacit component and therefore cannot fully be communicated to others. We can use all sorts of proxies or estimates, but they will never correctly “measure” the value as it is seen or felt by the individual him- or herself. This is not simply because people change their minds and preferences all the time, but because value is fundamentally immeasurable – there is no value unit that can be used to accurately measure the satisfaction felt by the individual achieving it.

We all act based on our subjective valuations and never on “money.” Money is but a means toward a value, whether through exchanging money for a product or service (which is commonly the case, as Menger discussed) – in the present or planned in the future – or simply for the felt security or ease by having money in case something unexpected happens. To the extent that money is a commodity (as it properly is, if we follow Mises’s typology in Theory of Money and Credit), money also serves other purposes – as a good.

As I noted above, value is achieved or created through action. For this reason, economists study such things as exchange (an activity individuals engage in with the purpose of achieving greater needs or wants satisfaction by offering their lower-valued good for someone else’s lower-valued good), production (the use of natural resources to create non-permanent “capital” resources that increase productivity of labor and thus increase the supply of value-achieving goods and services), distribution (of value or that which can provide value), and so on. Neither of these phenomena, or related ones, require money. In fact, they are just as “fluffy,” immaterial, and indistinct as any theoretical building blocs in social science.

This does not mean, of course, that there are no regularities or that we cannot figure anything out, which some seem to think. It only means we cannot rely on empirical studies and statistical analyses to find constant relationships – we have to start with introspection.

Money? Sure, it’s an important concept. But nothing more.