Wednesday, June 1, 2011

Where does money come from?

Dear Prof. Smith,

The most honest answer is, of course, that we made it up. In other words, it is a creature --- a creature of Man. As such, it certainly has no life: breath, nor sight, nor hearing --- though we may give it mouth and eyes and ears in the form of Her Majesty's likeness. And of course, we don't even pretend anymore that any money has intrinsic value. So, alright, there is paper backed by metal-stock, there are title deeds for plots of land, and so forth. But the primary business of "business" in the British Imperial Diaspora is usually conducted, measured, and reported, (for taxation purposes) in units of some local currency.

Last time I wrote, I alluded to professional and trade unions, strike and other pressure tactics, which have as final cause that "whoever has accepted responsibility for paying them [agree] to pay them more. Whatever that means." The charitable view of strike/work pressure is that for whatever reason, the workers of some trade or profession generally aren't able to live in "becoming dignity according to their state in life", and a re-negotiation of working/contracting terms is wanted so as to correct that. The charitable view of employers' not paying more than they do for needed labour would be that they honestly don't have the extra money to spend. But it's worth-while asking what does it mean to pay people more?

Odd Rumblings

I actually came to this question from the other end, asking a friend one day (years ago) where inflation comes from; and his answer was that people keep asking for raises. The answer surprised me, because I had thought it worked the other way around: you work at some decided wage, then inflation outruns you, so you ask for a raise. I literally hadn't worked-out the instability inherent in the system.

This funny chicken-and-egg story reminds me of the odd way blocks of currency get bartered on the international market. What exactly is meant by that I really still haven't figured out; but it highlights the placeholder nature of all currency, in what I find a sad way. I understand that the basic narrative has something to do with hypothetical Greek goatherds who want to buy Congolese coffee, and Congolese coffee growers who want feta for their salads... but it leaves me feeling remarkably unsatisfied; I think I must be missing some degree of complication, perhaps the Italian-Libyan shipping conglomerate that carries their stuff in both directions, and recently developped a penchant for cold-brewed American Sasaparilla? Anyways.

Debt Eternal

An idea most estranged from common speech, but which I think very true and even widely understood, is that all money is borrowed. In more detail, you might argue that some (even most) people are paid money for their labor, or for goods they produce surplus to their own needs, but that's begging the question: for who pays out of what funds? The only answer really available is that Private Banks borrow cash from a Central Bank, move around bits of paper (or nowadays, electrons) referring to cash, lend it to clients, collect it from them again, and periodically send damaged cash back to the Central bank to be decommissioned. That the volume of circulation can grow at all is ultimately due to general contentment to not check whether the books add up from one week to the next --- they couldn't possibly. But it "doesn't really matter" because it's not human persons who owe this money, nor are human persons owed it.

Of course, it hasn't always been this way --- at least, not everywhere all at once.${}^1$ No-one would have bought it from the outset, of course. Sometimes the paper referred to some number of goats, or quantity of grain, or weights of various alloys... you know, useful things; the things might or might not be there, but at least you could find out which! Some paper now-a-days still does refer to these sorts of things, but they aren't widely perceived as personally useful anymore.

Last letter I lamented that the Monetary Standard (the circular principals that money is worth what it will buy, and all else is worth what top bidder will pay for it) artificially flattens our notions of value. This time I'm going to throw in the related contention that, under the Monetary Standard Cash Economy, is is as though money serves two masters, and these are at variance.

Firstly, money is (as I have defined it) a medium for commuting the indebtedness of individuals to society; in this usage, the invariant is the owner of the debt --- who holds the cash, whose name on the bank account, is the person to whom "society owes" whatever debt.

Secondly, money is rented out, as it were; time spent with flexible expenses is, aparently, worth something; it is "of interest". That is, money is sometimes moved in order to put the holder in debt. This is the opposite of the other meaning of money, where the holder of cash is also the holder of debt. Now, instead of communicating indebtedness, money itself is the substance of a debt. Also, while the owner of the debt probably does hold paper recording it (a loan or line-of-credit contract), neither the weight of the debt nor on whom it rests is really fixed, for the borrower probably pays the interest by obliging himself to people around him --- it's entirely possible that he is a good to society.


These thoughts, of course, have been bugging me for some time. They're also clearly unfinished, and I can't see a good way to wrap-up now. But I'm allarmed to learn that the 3rd Nobel Laureate Symposium quantify poverty in a dollars-per-day language. These are supposed to be smart people, and instead they're using an expression that would have suggested extreme wealth to King James I of Scotland, for example, for to describe extreme poverty. In charity, I should acknowledge that they're writing to a club of contemporary bankers' friends and hoping to provoke particular actions within the year.

Anyways, clearly, I shall have to write again.

All the best,
the armchair philosop... oh, that's, like, all of them!

${}^1$ I had an amusing read about a Pharaonic Egyptian system of grain-backed currency (an update of the cuneiform record-tablets?) with built-in depreciation to model the tendency of stored grain to gradually spoil. The same webpage criticised Catholicism for suppressing the "Great Mother" Jungian archetype; I suspect this is a sorry debasement of Jung's philosophy (whether that is any good itself I don't know), to say nothing of how it misses pretty much the whole nature of the Catholic Faith...


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