Ignorance ‘out there’ about money is about as endemic and deep rooted as possible, penetrating the highest halls of academia, flooding the busy offices of the world’s mainstream media outlets, and poisoning economic thought and study as far as the eye can see. My own studies have yielded repeated gems of ignorance even in works that are otherwise excellent exemplars of academic rigour. The problem is that our cultural notions of money remain almost totally unexamined, even though money is key to society. Somehow we are generally prevented from debating this enormously important topic as openly and widely as it deserves.
Our collective ability to pierce money and understand it has only recently begun at the level of popular culture (the Internet is instrumental in this). Bernard Lietaer, Stephen Zarlenga, Ellen Brown, David Graeber, Charles Eisenstein, Bernd Senf and Franz Hoermann are some of the authors I know doing fine work on the money myth, and there are many others I’ve still to get to. Yet even now, most people think (or feel) that money is (or should be) a thing with ‘intrinsic’ value, that it is, in some inescapable way, real wealth. Our deep history tells a different story. Money’s origin had far more to do with measurement than store, was far more about keeping track of stuff than being something ‘intrinsically’ valuable (even though there is utility value in keeping track of value!).
With that in mind, perhaps we shouldn’t be talking about a linear progress from commodity money to information money, but of a return to information money, albeit in a new form. Graeber talks of money as debt, debt as a promise, and suggests the type of question we should be asking is what kind of promise, and how those promises are generated and administered. The launching pad for this post, however, comes from Ellen Brown’s article, “Time for a New Theory of Money”.
The concept of money-as-a-commodity can be traced back to the use of precious metal coins. Gold is widely claimed to be the oldest and most stable currency known, but this is not actually true. Money did not begin with gold coins and evolve into a sophisticated accounting system. It began as an accounting system and evolved into the use of precious metal coins. Money as a “unit of account” (a tally of sums paid and owed) predated money as a “store of value” (a commodity or thing) by two millennia; the Sumerian and Egyptian civilizations using these accounting-entry payment systems lasted not just hundreds of years (as with some civilizations using gold) but thousands of years. Their bank-like ancient payment systems were public systems—operated by the government the way that courts, libraries, and post offices are operated as public services today.
The unit of weight was the “shekel,” something that was not originally a coin but a standardized measure. She was the word for barley, suggesting the original unit of measure was a weight of grain. This was valued against other commodities by weight: So many shekels of wheat equaled so many cows equaled so many shekels of silver, etc. Prices of major commodities were fixed by the government; Hammurabi, Babylonian king and lawmaker, has detailed tables of these. Interest was also fixed and invariable, making economic life very predictable.
The point I’d like to make here, one which Brown does not address, is that the notion “equals” is a 'wisdom' vital to developing the concept of money, as is the idea that “value” is measurable (value which is to be stored for practical reasons (see below)). Eisenstein talks about equivalence in “Sacred Economics”: “Money is homogeneous in that regardless of any physical differences among coins, coins qua money are identical (if they are of the same denomination). New or old, worn or smooth, all one-drachma coins are equal.”
Money cannot therefore be the thing denoting it, it can only be the agreement (or fiat) about the measurement of value (and/or a price system generating ongoing value measurements via supply and demand). The giant question is, can there be a unit such as Value=1? Readers of “The Ascent of Humanity” will be familiar with a tribe of ‘primitives’ called the Piraha. Its members cannot understand counting, cannot be taught numbers above 1. For them, everything is unique, hence 1+1 is an impossible question (as is 1=1), cannot be imagined, its utility cannot be discerned. If there cannot be two of anything, what then is 2? Without “equal”, without a uniform unit of some kind, you cannot have money, nor counting. I see this as a profoundly important observation. An attempt to assess or measure the value of value—e.g., of grain relative to cows—can only occur in societal conditions generating the need for such measurement, including extracting taxes, paying wages, selling slaves, controlling economic activity, explicit tracking of debt and ownership, etc. At its deepest level, therefore, money arises out of the belief that nature can be controlled and measured.
Deeper into the money story we have explicit debt, a direct corollary of “equal”. The notion of an explicitly measurable credit/debt axis, though balancing and balanced, can, I feel, only arise out of the Separation Eisenstein talks of; Self from NotSelf, Me from You, Us from Them, Mine from Yours, Body from Spirit, etc. But why must a benefit be opposed by an exactly equal detriment? Isn’t that pure negation? Can anything be net-created at all? How is there change? We say every action has an equal and opposite reaction, but what is the opposite action of a smile? More fundamentally, what is an action? It is true that if energy goes there, it leaves here, so in that narrow sense credit/debt might be understandable. But what is energy, exactly? Information, perhaps? Are those two one? I don’t think so, and that is a VERY weird thought. On with the article:
Grain was stored in granaries, which served as a form of “bank.” But grain was perishable, so silver eventually became the standard tally representing sums owed. A farmer could go to market and exchange his perishable goods for a weight of silver, and come back at his leisure to redeem this market credit in other goods as needed. But it was still simply a tally of a debt owed and a right to make good on it later. Eventually, silver tallies became wooden tallies became paper tallies became electronic tallies.
Note how perishable is bad. Surely decay can only be a bad thing if we are too frightened of death, age, decrepitude, of the circle of life? This fear too has its roots in Separation. Note also the inescapable progression from store to bank to debt/credit. If I deposit something I own with you (ownership is vital), you owe me it back, or, you hand over an equal amount of something, so as not to owe me. But that something (silver, gold, paper, money, ledger entry) becomes a claim on other people’s product, a.k.a. society’s debt to me generated by my contribution to it as measured by some weight of silver/unit of value. And they must equal, otherwise the process is unfair, unjust, ‘game-able’, etc. But they cannot be equal. Nor can we really measure how much of that contribution was a product of my work, how much is owed to the soil, how much to slaves on my farm, to the sun, rain, weather, etc. The whole process is fraught with difficulty even at the simplest level, and very vulnerable to manipulation and corruption.
Next comes the implicit zero-sum of money-based thinking (which Brown arrives at discussing modern alternative money types):
Consider, for example, one called “Friendly Favors.” The participating Internet community does not have to begin with a fund of capital or reserves, as is now required of private banking institutions. Nor do members borrow from a pool of pre-existing money on which they pay interest to the pool’s owners. They create their own credit, simply by debiting their own accounts and crediting someone else’s. If Jane bakes cookies for Sue, Sue credits Jane’s account with 5 “favors” and debits her own with 5. They have “created” money in the same way that banks do, but the result is not inflationary. Jane’s plus-5 is balanced against Sue’s minus-5, and when Sue pays her debt by doing something for someone else, it all nets out. It is a zero-sum game.
Something bugs me about all this. There are two important money-related things happening when Jane bakes cookies for Sue. One is the dead material, including the energy, used to bake the cookies. The other is the effect doing such has on Jane’s and Sue’s (‘friendly’) relationship. How would this market process sound to us if we were to discover Jane and Sue are in fact sisters? In what way is baking someone cookies a favour if it is immediately ‘paid for’ with an exactly corresponding debt? Any potential gratitude disappears into the hole called “-5 favors”. Sue need feel no gratitude to Jane whatsoever, since now she explicitly owes the Friendly Favors community 5 favours. And what if those favours were iPads, or houses? How many cookie-favours equal one house-favour? And yet the idea of money as a favour is powerful.
Inescapable in a money-system is a unit of account, which needs market-trading to be organic and flexible (Value cannot = 1), which at least implies competition and profit, profit being reward for success, which is part of sorting the good ideas from the bad. We cannot escape failure (and shouldn’t try to), which with an explicit money-measure means indebtedness, which tends to accumulate, which is something no one wants happening to them (The Stick). Logically an accumulation of wealth must also occur (The Carrot), potentially (always?) followed by corruption aimed at keeping the playing field favouring the successful (since they’ve ‘proven’ themselves successful, this is of course justified; ‘survival of the fittest’ and all that), and so on. And history delivers this pattern again and again, with excessive income gaps preceding breakdown and revolution. Can we escape history's rhyme? Should we? Sort of and sort of. Neither money nor poverty can buy you love or joy, and the oscillations they set up are increasingly destructive. We risk our own extinction in pursuit of an illusion. The pattern has gone global.
Surely, then, the area of concern should be trading itself, or, more accurately, the paradigm and social infrastructure in which trading takes place, the functions and expectations it fulfils. At this point reference to Marshall Sahlins’ work on reciprocity would be helpful.
Sahlins ("Stone Age Economics" p193ff) divides reciprocity into three types; generalised, balanced and negative. Generalised reciprocity is ‘pure’ gift-giving with no expectation of return. Balanced reciprocity might be transparent agreements between clans or friends where the exchange is as equal as can be; no profit allowed at the cost of the partner, mutual profit being the point. Negative reciprocity includes tricks and subterfuge, what in economics might be called “information asymmetry”, such that maximum profit is sought at the expense of the partner.
Trading can only be about negative reciprocity, if such profit is its goal. The persistence of the myth that ‘free’ markets deliver maximum social good shows us how far we still must go to see our species as one family whose members should engage only in generalized and balanced reciprocity. Large, differential profit is still the sign of good business, the indicator of success, and by the dubious logic of economics business success leads inexorably to a successful society. And yet isn’t it by now abundantly clear that the Invisible Hand is a failed myth, that trickle down was a cynical and empty promise?
Reorganizing our paradigm to provide a framework in which trade and exchange can include investment of accumulated wealth yet be free of negative reciprocity will not be easy (at the simple level, Friendly Favors is a case of balanced reciprocity, but I don’t see how it could scale up). The challenge I see is how, even in crude outline, to walk the path towards a resource-based economy. Parts of it will be negative interest rates (demurrage), guaranteed income (social dividend), re-localization (the break up of the state), but what is clearer and clearer to me is that, from here, we cannot know what a resource-based economy will actually look like. For example, if money is a promise somehow denoted by a unit of account, perhaps we will never do without it. Will our language one day be free of “Thanks, I owe you one”? I doubt it, but who knows.
I’ve wandered off in a direction Ellen Brown probably wouldn’t have foreseen as a response to her article. No short article can cover all the bases, nor do I agree with anyone on everything (not even with myself), and yet I have a hard time disagreeing with Ellen Brown’s conclusion, which may surprise some of my readers:
“We have emerged from the financial crisis with new clarity: Money today is simply credit. When the credit is advanced by a bank, when the bank is owned by the community, and when the profits return to the community, the result can be a functional, efficient, and sustainable system of finance.”
Even treading the path to a RBE will require a new definition of money, and a new role for our banks—neither can be switched off over night, probably never. Whatever fulfils the function of a bank—which should be democratically redistributing community-accumulated wealth back into the community—whether that entity is internet-based, or located in an actual building, that function is inescapable, even should there be no money in the way we understand money today. What seems inescapable, and healthy, is a transparent method for democratically managing the excess fruits (profits) of the community’s efforts, a system we can trust because it is open, clear, simple to understand, and staffed by people we know and can talk to if need be. Local is therefore key. Guaranteed income is likewise key for those of us who, for whatever reason, are not quite as ‘useful’ to the economic sphere of the community as others. What may not happen is a forgotten, poverty-drenched sector of society that can find no way to dignity, and becomes alien at the edge of life. What may also not happen, is that the economic sphere is thought of as the most important.
(Here are some rough thoughts in reaction to this post:
Money is a promise frozen as an exchangeable debt which has utility proportionate to society's need to trade goods and services in some kind of market. If trade is unnecessary, so is money.
"Money is a promise" to pay. To pay what? Goods and services? Kinda. Couldn't we say that goods and services are promises to pay money? Bank of England notes are promises to pay the bearer the amount denoted on them. This is incomprehensible, but because it is everywhere and state-sanctioned we accept it unquestioningly.
Money is a moment-to-moment enabler of the belief that it is a promise to repay a debt--it works! If I have 'earned' money, I have 'earned' promises from society to hand over those goods and services of equal value I choose to purchase. The money I hold is society's debt to me. It is an indication of a relationship, a standing between me and society as measured by credit/debt.
Banks of the western model profit from this debt/credit accounting/monitoring via usury. Should they? They are providing a service, so why should they not be rewarded? They should be, but that line of inquiry is a dead end. Why money? Because trade? Why make explicit an accounting of debt and credit? Because trade? Why trade? Scarcity. Labour. Property.
If banking were automated, it would need only to be fed the amount of energy it needs to run. The admins sorting out the inevitable problems would have to be paid though! By whom? By society. Society would owe them a debt. What if those admins had fun doing their work, and needed no explicit reward, as in open source software? What if work done to keep the system going were rewarded generally by the functioning of a RBE? What if debt and credit were not explicitly tracked? What if it were culturally understood that we all benefit from doing what we can to keep such a system going, hence there would be no need for a money-accounting as an explicit attempt to measure value and track credit/debt. We need only track resources and ecosystem health. For starters, value cannot be measured. Attempting to do so has proven vulnerable to all sorts of heinous and unforeseen side-effects. Because money-rich is better than money-poor, having (explicit) money as part of society becomes a pressure to game the system so as to get rich and stay rich.)