“Mom, could I have some money to go buy some candy at the store?” For most of us, our first experience of money is as a necessary object in the ritual of getting the things we want from stores. We accept it with the pragmatism of an innocent child, unaware of the mystery behind the transaction.

As we mature, we become conversant in many adult mysteries. We learn where babies come from, and participate in that process. We learn that all living things eventually die, and witness the death of a relative, friend, or perhaps a pet. We learn how our government works, and who makes the rules by which we are required to live.

And yet, one of the central mysteries of our lives as social beings – money – remains completely obscure to virtually everyone. Most people probably suspect that the answer to the nature of money comes from the study of economics or monetary theory, and we all know these fields are boring – full of equations and devoid of emotional juice.

Ironically, money itself is a very emotionally juicy topic. Throwing money on the ground in a public place gets as much attention as taking off our clothes. Those who work in financial markets recognize that strong emotions rule over most money issues: emotions that are ubiquitous, violent, volatile and overwhelmingly powerful. Strangely, neither economics nor monetary theories consider the emotional nature of money. In fact, in order to study money “scientifically,” they deliberately suppress its basically emotional nature. What is going on here?

The creation of money is largely invisible to the untrained eye, and seems almost miraculous. Most people, when they find out where money really comes from, are as disbelieving as some children when they first find out where babies come from. “How could this possibly be true?” they wonder.

Economics textbooks deal with the question of what money does, but not with what money is. By asking the deceptively simple question “What is money?” we are put in touch with money’s age-old magic. This chapter will clarify the mystery by showing that money is not a thing, but an agreement – usually an unconscious one.

In contemporary society, we not only agree to participate in the existing money system – unconsciously – but we also bestow extraordinary power on that system. Here, the nature of that power will be explored, as well as the four key features of modern money that we usually take for granted. For instance, national currencies make economic interaction with our fellow citizens more desirable than with “foreigners,” thereby cultivating national consciousness. Less obvious is the mechanism of the interest, which will be shown to foster competition among users of the currency.

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