Kublai Khan was ahead of his time: He recognized that what matters about money is not what it looks like, or even what it’s backed by, but whether people believe in it enough to use it. Today, that concept is the foundation of all modern monetary systems, which are built on nothing more than governments’ support of and people’s faith in them. Money is, in other words, a complete abstraction—one that we are all intimately familiar with but whose growing complexity defies our comprehension.
There is, to be sure, something a bit eerie about all this, and periods like the recent housing bubble, when banks made an extraordinary number of bad loans, should remind us of the dangers of runaway credit. But it’s a mistake to yearn for a more “solid” foundation for the monetary system. Money is a social creation, just like language. It’s a tool that can be used well or poorly, and it’s preferable that we have more freedom to use that tool than less.