Content is irrelevant;
the money form shapes all economic relations
By Georgios Papadopoulos
8 July 2020
One of the fundamental questions in the theory of money is how it gets in the economy. Α question that is of course both philosophical, related to the ontological analysis of money, and technical concerning the design of the institutional structures that support the monetary system and the economy in general.
Interrogating and possibly challenging the pyramidality of the socio-political structures of the market economy should also address, and maybe start from investigating the trajectory of money from its origins, to its circulation and its recent movement towards automation. Actually, money seems to be an exemplar case for top down relations and pyramids: from Friedman’s image of helicopter money, namely money that is dropped from above (like death from above in the jungles of Vietnam or like mana from heaven), to the flash-crash of May 2010, to the most recent ICO schemes in cryptocurrency ecosystems, money flows in the economy mirror the steepest of pyramids.
Origin:
The starting point of the analysis could be the interrogation of the different theories on the origin of money, theories that inform our understanding and our relation to money much more than they analyze money as an ontologically independent social fact. Both the commodity and the state theory offer distinct rational reconstructions of the origin of money, which are supportive of their definition of money. The proposed reconstructions of the origin of money are framed as a natural selection argument where money is selected for fulfilling specific economic functions – means of exchange according to the commodity theorists, abstract standard of value for the Chartalists.
The debate between these two competing scientific research programs started in 1892, when Carl Menger argued that money is constituted through exchange, and it is primarily a means thereof. His analysis paved the way for what was later recognized as the commodity theory of money; an efficiency explanation in a context of market exchange and minimal justice. Agents quickly realized they could save on time and economize on other transaction costs by opting for commodities with higher demand that could in turn be exchanged for the desired goods. Such commodities evolve into money as they are used more frequently as media of exchange. The state theory studies money in relation to authority, rather than explaining the advent of money as a market phenomenon.
In the state theory, money is defined as a standard of abstract value, suggesting that the source of monetary value lies in its support by a sovereign authority. Herein, we find the chief difference between the state theory and the commodity theory: in commodity theory, money has a value due to its commodity or “hylic” nature, while in state theory monetary value has a nominal or conventional nature. Max Weber defined fiat or sovereign money as that “which derives its character as means of payment from the marking of the pieces rather than from their substantive content” (Weber 1978, 79). In other words, money is a creature of the state and is constituted as legal tender by the law that creates it. Authority is necessary but not sufficient for constituting or empowering money — and the use of force is not the only guarantee of its value. The privilege of the state to impose taxes is a further condition for the acceptability of fiat money, which becomes valuable because it is necessary for the payment of taxes. It is constituted on the basis of a credit relation between the issuing authorities and the users of money; its issue creates a liability to the state that will be neutralized through the payment of taxes.
Value:
Along with the question of the origin of money, it is essential to consider the notion of value itself and how it relates to an understanding of money as a necessarily hierarchical relation. Authority was, and still remains the main source of value, not only economic, but also political and moral. Primarily God (the deification of the Sun in various cultures relates to the use of gold as currency), then the sovereign, and of course the indebtedness of the individual to communities constituted differently across geographical territories and historical periods is the origin of the monetary system and its mirror image the system of taxation. Money is nothing more than a debt drawn by the authority in the name of society, a debt that the authority imposes on its subjects only to annul it through taxation. There is no way outside this indebtedness to authority, society and money, not just in the sense that the subject can never escape the use of money or the payment of taxes, but more importantly and more tragically that the subject cannot defy the laws of value that are imposed by authority; morality, economy, culture, all these different systems of valuation are as alien to the subject as language itself, while they form both the foundation of its subjection and the main instruments of its alienation.
Going back to money, one could argue that value is one of the most important concepts in economic analysis; it provides the necessary measure for the comparison and the exchange of commodities, allowing for the constitution of the market and the division of labor. Money should be analyzed as an institution that supports and organizes the process of economic valuation rather than just a medium of indirect economic exchange (Papadopoulos 2009). Two of its most recognized functions, namely those of a store and a standard of value are connected to economic value. The comparison and the appraisal of the analysis of economic value, its meaning and its constitution, across the different theories of money can be employed as the frame for the analysis of economic value of its meaning, of its preconditions and of the relation of value to money. Economic agents rely heavily on economic value and they predicate all their market interactions upon the given, or the expected, prices of commodities and services. When we speak of value, we need to refer to an object.
Still, the valued object does not acquire a new intrinsic quality when someone deems it valuable; it is valued because of the appreciation of the qualities that it has, while its meaning and its identity are not affected by the question of whether or not it has a value and how much this value may be. Consequently, value is not a feature or a property that is part of the identity or the ‘nature’ of the objects; value is not intrinsic to them and cannot be “inferred from their mere natural existence or content” (Simmel 1990, 59). Value is relative and dependent on the intentionality of the observer(s), while valuation emerges as an individual psychological occurrence that is situated in subjective consciousness; it is a judgment conferred upon an object by a subject and remains inherent to the subject. In that respect evaluation is akin to intentionality, a directness upon the word that creates a new representation of objects organizing them in a system of valuation.
The subjective basis of valuation does not preclude the possibility of a shared system of values or a collective valuation of objects, on the contrary it is the very process of becoming subject the outcome of socialization (and alienation) in different systems of valuation. Ontological subjectivity does not preclude epistemological objectivity; the content of valuation can be dependent on specific traits that are shared and can be appraised by intersubjective criteria. Narratives and institutions raise value from the domain of subjective valuation into an intersubjective organizing substance.
The imposition of the economic logic on social reality passes through the re-constitution of society as a market. Prices communicate the content of social constitution, organizing a signifying chain where all commodities are inserted as signifiers of economic value in accordance to their prices. Signification is regulated by money, the master signifier of economic value, which supports and quilts the signifying chain of commodities, effectively constituting the system of prices. Economic value, the ultimate signified of all commodities, remains nonetheless elusive and ambiguous, an ambiguity that is never eliminated but always remains obscured by money. The ambiguity of economic value is a consequence of its self-referentiality.
Value is not a property of objects and by ascribing value to an object we do not transform the object itself in any way, we only alter our perception of its position and of its relations to other objects. Value is not dictated by some ‘intrinsic’ characteristic of the valued object, it is rather an organizing principle which creates an ordinal taxonomy and arranges objects according to this taxonomy. We talk about aesthetic, economic, moral, or even political value; when we ascribe value we have to refer to a social narrative and to a set of institutions that provide value with meaning. The opposition between utility and price, or between use and exchange value, and the arguments on the primacy or the authenticity of the former are neglecting the inescapably relative, social character of value.
A theory of value that tries to ascribe a deterministic and material dimension to valuations is nothing more than a fetishistic illusion which conflates the economic conditions that lead to valuation for the intrinsic properties of the object. Value is a discursive formation that is socially conciliated and constructed. Economic value can then be expressed in prices negotiated in the market and this negotiation is mediated by money. The hegemonic moment lies in the resolution of the antagonism that surrounds the constitution of the price system and in the articulation of the notion of economic value in a specific social context. The phenomenal illusion of an independent and substantive economic value is the result of the universalization of the market system of valuation.
Institutions:
Both the analysis of the origin of money and the exposition of the meaning of economic value point to the subjectifying and subjugating relation that money is, but the introduction money in the relation that materializes the hierarchical structure of the system of prices is not just a matter of social constitution of meaning – it is first and foremost the outcome of debt relations that are currently structured by the system of fractional reserve banking and the creation of credit, always supported by the ability of central banks to impose taxes.
Money is created by commercial banks through the supply of credit, the quantity of which is supposedly related to the assets of the issuing banks, but actually dependent on the ability of the central bank to issue legal tender and of the state to enforce taxes. The introduction of money is always and everywhere associated with the indebtedness of individual members of society, which otherwise operates without public oversight. Currency is issued by commercial banks, under the aegis of the Central Bank, an institution that is technically not part of the government at all, but a peculiar sort of public-private hybrid, independent entity. This arrangement is based on the scheme originally pioneered by the Bank of England, whereby the Central Bank " loans" money to the government (initially the king) by purchasing treasury bonds, and then monetizes government debt by lending the money thus owed by the government to other banks. The difference is that while the Bank of England originally loaned the king gold, currently Central Banks simply bring the money into existence by borrowing to the commercial banks. In turn, commercial banks can create money by supplying credit to the public, at a fractional reserve rate established by regulation. The flows are always bottom down – Central banks offer liquidity to commercial banks, which offer them as loans and in the form of deposits to the public and these very deposits are the reserves against which commercial banks issue more loans.
Two questions arise naturally from this simplistic exposition of fractional reserve banking. Why is it that the public accepts this system of enforced debt slavery? And what are the benefits accrued by the main stakeholders of the system, namely commercial and central banks, as well as their subsidiary institutions that include credit card companies, financial intermediaries, insurance companies, rating agencies, accounting firms – the list is long – since they have unlimited access to credit? Both questions point to the same direction – to ‘the man with the gun’ (Graeber 2011, 364). It’s the state apparatus of oppression – authority in one word – that makes people accept the hierarchical and subjugating monetary system, and the alienating system of prices that socializes them in the market. At the same time, the system of fractional reserve banking aligns governments to the financial systems, as debtors and as enforcers. The question of who is really on top – banks or states – is still to be resolved, but it is certain that since the first time the King borrowed money from the Bank of England the tables are turning.
Automation:
The subjugating and alienating force of the monetary system, the collusion of government and big finance, and the fraudulence of the ideological myth of a ‘free’ market became apparent to many in the aftermath of the 2009 crisis. Still, the realization of the modern forms of serfdom enforced by the mechanism of the monetary system has been enough to mobilize resistance, but not to institute a real alternative. In this closing section, I am going to discuss the myth that automated decentralized ledgers, like the blockchain, offer a real possibility of getting rid of the oppressive and unfair apparatus of fractional reserve banking and government sponsored fiat money. The appeal of such alternatives is fueled by the misconception that peer-to-peer, i.e. distributed, networks are by structure (more?) democratic, a misconception that is underlined by a confusion between decentralization of power and network resilience. The study of the conditions for the operation of cryptocurrencies contradicts the misconception about blockchain platforms as ‘non-human’ mediators that can make the hierarchical relations that currently support the operation of money obsolete. Decentralization has proved effective for safeguarding the survival of networks in the face of authorities, but not necessarily of the individual nodes or users. It has reduced the control of central modes over networks, only to reinforce controls at the level of protocols. Such technology-based solutions to problems of power are nearly as impossible to realise as their promise of infrastructure for social and economic interaction.
Still, the problem is not just political or social, it is first and foremost economic, or even monetary. Individuals can only escape the material and ideological control of the master signifier of economic value for so long, only to reaffirm it (sometimes with even greater intensity) later. Bitcoin, despite the early aspirations of antagonizing financial intermediation, has created a series of speculative bubbles. The rapid appreciation of the price of bitcoins lead to small ecological disaster by fueling the competition of ‘miners’ effectively increasing the energy consumption of the Bitcoin network to the size of a medium-sized country, at the same time as the Gini-coefficient (an index measuring inequality) in Bitcoin is steeper than the most unequal societies including North-Korea and Zimbabwe. Even worse, a series of alt-coins, alternative currencies using Bitcoin’s source code, dubbed as ‘scam-coins’ duped gullible investors to invest in what could be described as Ponzi-schemes on the blockchain. Such enterprises are symptomatic of a general tendency in the cryptocurrency ecosystem to cash-out on the – real or fictional – potential of these novel configurations of currency, either by ‘selling out’ to the traditional financial sector that for years now controls the technology, or for the less successful or competent to use any information asymmetries or early-adoption advantages to profit at the expense of the ‘community’.
Tokenization is a process of self-financing through which many blockchain projects tried to acquire funds by selling tokens issued by the project and used as passes for accessing the system created. This model of crowdfunding “has shifted the political economic assumptions in network culture, from one founded on openness and a critique of in particular intellectual property, to one of multiplying propertied relationships and their immediate enforcement.” (Brekke 2019, 140) In this sense, token-based platforms are not alternative decentralized networks that pose challenge to the existing financial architecture, but rather just another layer that interacts with existing systems follows the imperatives of financial speculation. The emerging platform for allocation and enforcement of property and identities accelerate and intensify the control of capital over society, building even steeper pyramids and even more powerful panopticons.
References:
Brekke, Jaya Klara. “Disassembling the Trust Machine: Three cuts on the political matter of blockchain.” PhD Thesis, Geography Department, Durham University, 2019.
Graeber, David. Debt: The first 5000 Years. New York: Melville House. 2011.
Menger, Karl. “On the Origin of Money.” The Economic Journal 2, 6 (1892): 239-255.
Papadopoulos, Georgios. 2009. “Between rules and power: Money as an Institution Sanctioned by political authority.” Journal of Economic Issues, 43 (4): 951-969.
Simmel, Georg. The Philosophy of Money. London: Routledge, 1990.
Weber, Max. Economy and Society. Berkley: University of California Press, 1978.