The Story of Money
We understand the world through stories. Many stories are buried so deeply in our way of seeing the world that they are not obvious to us and it takes some mental work to expose them and see that they are stories rather than objective reality. The story of money is a good example.
Money is a cultural invention; it does not exist outside of human culture. The existence of money, or something very like money, goes far back in our history. The story we base our understanding of money on is an ancient one, and may no longer be serving us well as we proceed into the twenty-first century. Our future holds the possibility of the loss of huge numbers of jobs to technological developments such as self-driving vehicles; there just may not enough jobs to go around and we may need to consider the idea of guaranteeing everyone a minimum standard of living via a Universal Basic Income. It’s possible that our way of thinking about money may need to change. It seems worthwhile to investigate our ideas about money and other possible stories for understanding money in the modern world.
Long ago, human groups discovered the advantages of barter. A group who lived near one natural resource, say the seashore for shells or fish, could trade with a group who lived near another natural resource, say a volcanic area for obsidian to make arrowheads. This barter provided an advantage to both groups so the practice continued and spread. This cooperation between territorial groups is probably the most striking thing which separates us from the apes. (See “The Rational Optimist” by Matt Ridley.) Some of our closest relatives, the chimpanzees, are known to attack and kill members of neighboring groups when they encounter them. Sure there was territorial tribal warfare among humans, but the ability to suspend such territorial hostility for mutual benefit through trade is, arguably, the beginning of the path which led to civilization as we know it. This behavior is essential to what makes us human. It’s also the root of the story of money which we base our understanding on today, the story of my stuff. The story grows out of: “I flaked these arrowheads, they are my arrowheads. I can trade them for the salmon that my neighbor caught and smoked. Then the smoked salmon would be my smoked salmon and these would be his arrowheads.” I earn my stuff by making it, then I can trade my stuff for your stuff. I earned my arrowheads by finding the obsidian and flaking them, and by extension, I earned the salmon by trading my arrowheads for them.
However, direct barter has its limitations. Some resources are seasonal, or we might need to do a three-way trade for each of us to get what we want. All over the world, cultures developed some sort of trade stand-in for the actual stuff so that stuff could be traded for a stand-in now, then the stand-in traded for stuff at a later time. For example, shell money existed over much of the world. In native California, strings of certain shells were a common trade stand-in. Some native Californians even had arm tattoos for measuring lengths of strings of trade shells. Certain shells were just difficult enough to find and gather that they made a good trade stand-in. Scarcity is necessary. Shells wouldn’t work as a trade stand-in if they weren’t scarce and I could just go get another basket full of shells any time I wanted. With the use of a stand-in for the actual stuff, our story begins to get a bit ambiguous, since the shells aren’t actually the stuff we want. It’s still stuff in a sense, but it is stuff whose only purpose is to trade for other stuff. It’s no longer pure barter once we are using a stand-in. But we still think about the stand-in in terms of the old barter story: my stuff that I can trade for your stuff.
Trade stand-ins changed as civilizations became more complex. Eventually, metal coins became common with the value of the stand-in token being related to the scarcity of the metal. Again, it had to be a somewhat scarce metal to make an appropriate stand-in. It became common to depict a monarch on the coin, which added another layer of ambiguity to the story: is this coin the king’s stuff? Or my stuff? But the core story of my stuff persisted.
As forms of government changed, the metal coin trade stand-in tokens began to be replaced by paper notes. The paper hasn’t much intrinsic value, but we ascribe value to it for trade. Paper monetary notes are printed with the name of the government backing them and it became up to the government to artificially enforce the scarcity for the paper notes to work as a trade stand-in. Again, another level of ambiguity, is it the government’s stuff? Or my stuff? Yet again, the ancient core story of my stuff persists.
Along the way, it became more and more common to trade one’s labor directly for coin or currency, so the story of how you earned it was not necessarily involved with any physical objects, you just earned money directly for your labor. You worked hard for the money, and then it became your stuff.
It is becoming more and more common for there to be no physical token anymore. Wages are direct-deposited into an account then spent with the use of a plastic card. The “money” is a digital entity in a computer at a bank that can be transferred by reciting the appropriate numbers over a telephone. The scarcity is artificially enforced behind the scenes, most people have no idea exactly how. There is increasingly no stuff to money anymore, but still, we persist in thinking about in terms of my stuff, just as our bartering ancestors did. It’s more than just ambiguous, money is just a social convention with little physical manifestation. This story of money as stuff is the basis of ideas such as taxation is theft, if the government takes my stuff, that’s stealing. Is this story of my stuff helping us or hurting us in an age of digital money? What if we acknowledge that money is no longer stuff? If money isn’t stuff, then what is it, and what is it for? If everyone’s labor is no longer required to produce all of the actual stuff, but everyone still needs food, shelter, and clothing. The economy will need more consumers than it needs wage earners. The story of the stuff I earned to trade for your stuff starts to sound obsolete in such a world and possibly an impediment to progress.
I am not totally alone in my thinking. I’m trying to use different language to describe something that has traction in economics. For example economist Cameron K. Murray writing over at the excellent site exploring new thinking in economics, Evonomics:
“Money for example, is not a real resource, or a traded widget, as it is almost universally assumed to be in neoclassical models. It is a set of accounts. It has its own domain.”
In science, when we get new data that does not fit an old story, scientists hypothesize a new story to fit the data. Could we develop a new story of money that better fits how money actually needs to function in the modern marketplace? I’d like to propose some metaphors which might open up different ways of thinking of money which might better suit the society we are moving inexorably towards.
- Money is a fluid, maybe even a lubricant. Money needs to flow to make the economy work. Financial terms like liquidate, liquidity, and liquid assets already go in this direction. But take it a bit further. Taxes are not to take away your stuff, they are to keep the fluid flowing through the economy. Parking a bunch of assets in an offshore bank is not hoarding stuff, it’s damming up the flow of money. This liquid money facilitates the movement of the actual stuff, goods and services, through the economy.
- Money is a service provided by the government. This is very similar to the liquid metaphor, and largely consistent with it, but somewhat looser. It’s easier to understand the monetary policy of central banks in terms of money as a government service than money as stuff. A government provides the service to keep the economy operating, so it should be able to move the money from one part of the economy to another, so taxes make sense.
It’s very difficult to dislodge a story as deeply embedded into our culture as money is stuff, but I think it’s a worthwhile thought experiment to attempt. It looks as if, going forward, we have a choice to just give money to those without jobs, or watch as the entire economy shuts down and the unemployed revolt. It’s easier to understand giving them the money if we see it not as giving away free stuff but as lubricating the economy.
Jonathan Haidt’s work illuminates the moral foundations of our political life and shows how liberals and conservatives differ in the emphasis of their moral framework. For example, Haidt’s Care/Harm moral foundation is important to liberals where conservatives and libertarians weigh other foundations more heavily. But our moral reactions to any given situation are greatly dependent on the way we tell the story of that situation. The very same events could be understood as someone being cared for or someone cheating depending on how the story of it is told. The story of money as stuff can cause a lot of resistance to an idea such as Universal Basic Income and trigger a reaction based on a moral sense that those who get stuff without working for it are cheating. However, when advances in technology, such as self-driving vehicles, make large numbers of jobs obsolete, there would be no jobs to be had in order for someone to earn a wage. If society needs everyone to participate in the economy, it isn’t really cheating if the money is spread around to facilitate participation. Part of the idea of Universal Basic Income is to give it to absolutely everyone, so it should be able to be considered fair. If our society needs to give citizens a basic income in order to keep the economy flowing, we make have to find a way to let go of the story of money as stuff and find a story of money that doesn’t trigger a negative moral judgment.
