Out of the many interesting things that have come out of the pandemic, one issue that I think is going to become increasingly relevant is how people treat the concept of money. More than a few people noticed how the Federal Reserve was able to conjure up trillions of dollars in liquidity seemingly out of thin air at a time when many were and still are agonizing over finding jobs, paying rent, and affording basic necessities. I have noticed heterodox ideas like Modern Monetary Theory, which essentially recommends governments print as much money as they need to pay for social programs, are gaining more traction especially among young people. I am not remotely qualified to discuss such theories, but I don’t think the theory itself is even what appeals to people. Far more important is the question being implied.
What is money, and why do we need it? It seems like every economic theory and discussion of policy begs the question. Pundits can talk about the national debt and the cost of various programs all day long, but it’s difficult to comprehend what any of that even means. Money is an abstraction invented by people, whereas food and labor and shelter are physical realities inextricable from human existence. If Jeff Bezos has as much money as 2.8 million years worth of the average full-time American worker’s income, does that mean he’s such a genius that his contribution is equivalent to that of millions of people? Could he buy 200 billion pounds of bananas?
The most basic conception of money is that it represents the goods and labor in an economy. Many of you have probably heard some form of the fable about how people used to barter for everything until money came along and you no longer had to trade farmer Sally your textiles for her honey so you could trade them to farmer Brown for some cows. This is in fact a myth. There is no evidence that any society has ever depended on barter without already having developed some medium for exchange first.
A sort of gift economy appears to be the most common form of exchange for most of human history, where resources were shared within smaller groups and gifts were given between “corporate groups” with the expectation that they would be reciprocated. This is not necessarily altruistic. In some Melanesian societies, “big men” accrue wealth by establishing themselves as dependable and likely to return big on gifts unlike “rubbish men” who are poor and lack social prestige. When large amounts of wealth are accrued, it is sometimes represented by livestock, which act as a medium of exchange and may be considered a type of money.
This is probably not where money as we understand it now came from. The lineage for our modern concept of money possibly originates in ancient Mesopotamia (seriously click on that link it’s a really great interview), where records of debt, holdings, and transactions triggered the invention of writing. Clay tablets and tokens were both used to keep track of various commodities. This accounting could be used to plan redistribution or claim possession of stored resources. Later in time, there is evidence for both a centralized administrative economy and free market activity with price fluctuations. It seems that institutions resembling banks, temples in this case, actually predate metal coins.
Money as a mere representation of real material goods pretty clearly fails to hold up in modern times, if it ever held up at all. Prices fluctuate drastically from one country to another, which often reflects how much people are able and willing to pay for goods more than how much it actually costs to produce them. Money doesn’t even have to represent goods or services in any meaningful way. When you pay your rent, you aren’t paying for a service or resources so much as fulfilling a contractual obligation to use space somebody else claims ownership to. This can include services but doesn’t have to. Theoretically, you could pay many times the actual cost of the property without gaining any tangible value or abstract equity whatsoever. The stock market is another substantial component of our economy that doesn’t require money represent anything in the physical world. When you buy a piece of stock, it doesn’t mean there’s a floor tile in some factory with your name on it.
One perspective, popularized by Friedrich Hayek, sees money as a form of communication. Prices act as an aggregate of all of the needs and desires of humanity and compel society to invest its resources in response to those needs and desires. When inefficiencies exist in the market, it is represented by fluctuations in the prices that cause speculators and investors to move resources towards a maximally efficient configuration. An example I have actually seen used of this is price gouging during natural disasters. As the demand for necessities skyrockets, the price for various goods goes through the roof and motivates self interested actors to move necessary goods to the devastated area until an equilibrium is reached.
I have already discussed this idea at length in a separate article. I think that trying to rehabilitate price gouging as an ethical act is fairly disgusting, and the assumption that the market is inherently ethical is borderline nonsense. That being said, I think there are some valid points to the concept of money as communication. The economy contains far too much information for any one person or even a group of people to coordinate. By distributing the information among all of the participants and coalescing it into price information, human beings with no relation to each other are able to coordinate in everyday feats of extraordinary complexity. It also explains a number of market actions that make no sense under the model that money is merely a representation of goods and services. Stock traders and other kinds of resellers are effectively being paid by the market to uncover the most accurate information and distribute resources as efficiently as possible.
There are a lot of problems with this concept in the real world. Prices don’t mean the same thing to everyone because people have vastly different amounts of wealth. Many of the things that make money aren’t actually useful to anyone or actively harm people. Information asymmetry means that it’s not always possible to make informed decisions and powerful actors are incentivized to trick people into making decisions that aren’t in their best interests. Humans are intelligent and have manipulated prices to mind-bogglingly ludicrous ends. People with lots of money have immense influence over prices, whereas people with no money have no representation for their needs or desires. Various important factors cannot be monetized or otherwise represented by the price system. Air, water, and and ecological systems are necessary for human existence, but their destruction has no market price.
There is a third perspective which I think is vitally important but barely discussed or even recognized when it comes to money. This is money as a representation of raw power and leverage over other human beings. As I put it in my other article: money broadly represents the ability of people to access the machinery of society in order to achieve their personal goals. This means that those with money are able to navigate society effectively and maneuver other people into laboring towards their ends. Whereas money as communication is very abstract for most people, I feel that money as power and leverage is something that most of us experience daily and defines the most important decisions in our lives.
Prices may have some say in where you rent, but if you don’t have enough money to own property, you must rent or you will be barred from almost all aspects of society and face severe criminalization. In order to pay rent you have to work, which means you have to place yourself under the influence of multiple people who own significantly more property than you and surrender large portions of your time and agency to them. Under the communication theory of money, the fact that there are more homes than homeless people seems like an absurd market failure. When you consider rent is a form of social control it makes a lot more sense. This also explains why billionaires need so much money: it represents how much relative power they have over other human beings.
There is a basic conundrum that governs political and economic systems of hierarchical societies. Generally, most of the labor necessary to run society involves tasks that almost all people would rather not be doing. Early farming was exceptionally brutal, but without it you obviously can’t feed a permanent urbanized population. If you want to guarantee that it is not you who has to do that labor, you need to create a framework that forces other people to do it for you. In some societies, that framework has been slavery. Other societies have used caste systems. Our society uses money.
Money is really complicated, and it’s possible that all three of these considerations combined do not satisfactorily explain your relationship with it. We live through a time when massive crises are forcing us to reconsider our relationship to basic societal concepts that most of us take for granted. The more minds we have working on these subjects, the more likely we will be able to solve the problems we face. It’s important that our discussions come from a place of clarity and knowledge so we are not stuck fumbling in the dark. Ignorance is only helpful for those who wish to exploit other people.