One way to think of power is as the ability to realise the ends aimed at by an acting agent. In the absence of non-coercive market relations, direct power (physical, social, political, military) is required to achieve any end. Therefore, the monetary unit is a discrete packet of sublimated power that replaces violence with exchange.
Money is an emergent property that arises out of the interaction of multiple agents aiming at differing ends. The competitive process, in its tendency toward establishing efficient mechanisms capable of allocating resources, makes the emergence of money inevitable because direct power is far less efficient a means to get what you want than exchange in a free market.
Power, as defined in this way, is also a function of one’s ability to labour, and so the monetary unit is in essence an exchangeable unit of societies’ aggregated labour power. Whoever holds money, holds the power of other men in their hand.
The problem with a monetary system which sublimates power into individual units of currency, is that it makes it possible for the power of others to be monopolised through the subtle manipulation of that currency. Whoever can control the money supply is therefore capable of breaking the link between labour and power — thus placing into the hands of a small number, the power of an entire society, and the moral entitlement of other peoples effort.
Marx, in an early essay entitled The Power of Money, wrote about money’s ability to transform the limited, natural powers of an individual into a potential for power that does not exist in nature.
The extent of the power of money is the extent of my power. Money’s properties are […] the possessor’s properties and essential powers. Thus, what I am and am not capable of is by no means determined by my individuality. I am ugly, but I can buy for myself the most beautiful of women. [..] I, according to my individual characteristics, am lame, but money furnishes me with twenty-four feet. Therefore I am not lame. I am bad, dishonest, unscrupulous, stupid; but money is honoured, and hence its possessor.
[…] Assume man to be man and his relationship to the world to be a human one: then you can exchange love only for love, trust for trust, etc. If you want to enjoy art, you must be an artistically cultivated person; if you want to exercise influence over other people, you must be a person with a stimulating and encouraging effect on other people.
[…] Money, then, appears as this distorting power both against the individual and against the bonds of society, etc., which claim to be entities in themselves. It transforms fidelity into infidelity, love into hate, hate into love, virtue into vice, vice into virtue, servant into master, master into servant, idiocy into intelligence, and intelligence into idiocy.
Marx was wrong in seeing money as a purely corrupting influence on society, for if money permits the wicked to become good, and the dishonest to become honoured, then it also has the potential to make the dependent self-sufficient, the excluded included, the displaced settled, and the violent peaceful.
It is not money that is inherently corrupting — in truth, the maxim of “from each according to his ability, to each according to his need” is only possible through transformative attributes it endows on its possessor (furnishing the ‘lame’ with the opportunity to stand on their own twenty-four feet). No, it is the distributive pattern of money (and hence power) that dictates whether a society remains corrupted once markets emerge, and this distributive pattern is the result of vast state distortions in the natural operation of the market itself.
Whilst it may be argued that individuals differ in their natural labouring ability, no person is greatly more powerful than another by virtue of the fact we generally all have two legs, two arms, a brain, etc. A relative labouring equality exists. This equality is, in primitive society, negated through socially exclusive institutions (castes, tribes, clans and classes etc.) — institutions that are an inevitable result of competing interests in a world with scarce resources that are, by their very nature, indivisible and so conducive to monopoly control.
If state coercion is used, which it always has been throughout history, to preserve the normative values of one class against the other once markets emerge, then the primitive divisions of past societies become imprinted on the modern market society. For this reason, the emergence of a market economy does not necessarily destroy the underlying power structure, it merely transforms it into something hidden — something that avoids the wastage of labour that is needed for constant class warfare.
And because this sublimation of violence appears to benefit both parties equally, it leaves any prior comparative advantage of one party over another (due to the aforementioned social exclusions) intact. Instead of replacing violence with exchange, the market finds efficiencies within the violent act that are then manifested in unequal exchange relationships.
This is the case in our current corporatist/statist market system, but in a genuinely free market the effect of a currency is to permit the physical immovability of capital to become liquid, and to cause the monopoly power of ruling classes to shatter into a billion exchangeable units.
“Money is the alienated ability of mankind,” writes Marx disparagingly — but viewed from the perspective presented here, this is exactly the same characteristic that gives money its edifying potential. The returns on labour, that are presently usurped by the monopolisers of capital, could finally be returned to where they originate — the labourer. The equal exchange of love for love and trust for trust is once again accompanied by the equal exchange of labour value for labour value.
One of my friends recommended this post to me, and I was excited to read it.
I think you hit the nail on the head with your remark: "The problem with a monetary system which sublimates power into individual units of currency, is that it makes it possible for the power of others to be monopolised through the subtle manipulation of that currency."
And…the concept of "controlling the money supply" is subtle, in our complex world. The federal reserve influences the money supply…as do many players in the finance industry (and not just banks). Similarly, check-cashing businesses exert some degree of control over the money supply in poor neighborhoods. Some of these players (banks, check-cashing outfits) profit off their control, whereas others (the federal reserve system) do not…but in each case, these manipulations have effects on people and businesses–many of which are accidental and unintentional, and some of which are tragic.
I also like how you are looking at Marx critically rather than blindly accepting his ideas, or blindly dismissing them (as most libertarians and conservatives do). He was very insightful, but like any thinker, he reaches his limits. I do think, however, that there is more in the alienation concept than you explore here. It is hard to argue that our current money system is not alienating. I also think there are some compelling ways to re-invent money or currency that makes it more reflective of people's actual work.
Have you read any work by Thomas H. Greco, an advocate of community currency? I would recommend his book "Money: Understanding and Creating Alternatives to Legal Tender" if you have not yet done so. It's a bit out there, but a stimulating read.
Please contact me if you are interested in further discussion / dialogue about money and currency. I am very interested in working together with intelligent people who are thinking critically about the nature of money. I think ultimately, this sort of dialogue is what is most necessary to move humanity forward, and this sort of dialogue may end up being one of the most productive ways to contribute to the collective prosperity of all human beings.
I think the most important point here is that if a monetary system can be controlled, people will try to control it for their own ends. This is why it is important to build a wall of separation between money and state. People should be able to create their own money; with natural, not man-made, limitations on its creation.
Precious metals, as far as I can see, are the only viable option. Anything that can be produced by man will allow for inflation. Anything that can be inflated can be manipulated in order to gain control. IMHO, the biggest problem with precious metals has been their conversion into money units by governments – open source that and return the money making power to the people (as individuals) and you break the ability for the monetary system to be controlled.
I completely agree with Ron's comment about separation between money and state.
However, I want to point out that there are many different solutions besides precious metals. Precious metals are not an optimal currency–and there are reasons that they are not used widely in everyday commerce, the way national currencies are. Gresham's law–Bad money replaces good, in everyday circulation–provides a compelling explanation.
I don't agree with everything that Thomas H. Greco says, but he makes this observation and advocates for community currencies using a demurrage (holding fee) to provide this added incentive.
When I think of an ideal economic system I imagine it would have multiple currencies. Something like precious metals function more as a store of value, but because they hold their value so well, they are actually not suitable for an everyday currency–such currencies promote an incentive for hoarding, which is a disincentive to economic activity. It's the same reason that economists say that a stable, moderate amount of inflation is good for business. Think of it like this, if your currency loses value, your incentive is to spend it as fast as possible–and if you want to save, you spend by investing in actual physical things (infrastructure, building, machinery, home repairs, making your home or commercial building more energy efficient, expanding your business into a new area, basically, buying anything that can generate profit or reduce costs). Ultimately, when everyone has a stronger incentive for this sort of productive activity, society as a whole is more productive.
This is why I think precious metals are never going to replace national currencies in everyday circulation. If we want to separate currency from government, we need to move in the other direction–create a currency that actually loses value faster than a currency like the dollar.
Alex: I think precious metals are probably the best overall currency, and that their historic preeminence is primarily because they are valuable, fungible, and of definite value (an ounce of gold is an ounce of gold). I do agree, however, that precious metals are not the be all and end all that some claim they are. I believe that money should be whatever metal, other commodity, piece of printed paper, or anything else that floats to the top as the preferred intermediary step in a three-party, two-step barter transaction.
On Gresham’s Law: A wonderful, compact statement about what actually occurs, but which leaves out one important piece of information. Namely, that this only happens if use of the currency in question at face value is enforced at the barrel of a gun. For example, suppose there exist currencies A, B, and C, all of which are for sake of argument, 1dwt to 1ozt fine gold coins. If Currency Maker A decides to change their coins to 95/5 gold/copper, without changing the gross weight or appearance of the coin, in a free market people will promptly devalue Currency A’s coins appropriately, if they aren’t driven out of the market for fraud first.
As for a faster inflating currency, while maybe it would induce people to keep it moving, is this really a good thing?. For starters, inflation is theft by the printers from savers (there are 100 of X, and A prints 5 of X. Once A starts spending X and goods/100, the value of X will go to good/105.) Second, short of the same gun required to make Gresham’s Law true, how do you propose to convince people to use it? I think that in a free market every sane person is going to choose something that holds value as perfectly as possible. Or, in other words, “In a free market, good money drives out bad.” Lastly, what is the correct rate of inflation? How do you propose to maintain it? What if people would rather use something that doesn’t lose value?
As for demurrage, once the fraud of fractional reserve is banished from the marketplace, banks will have to charge a fee to just hold whatever currency is used, whether precious metals or anything else. I don’t know what other honest and fair fee can exist to fulfill this function, although I think the two fees can be considered one and the same, except with different names and connotations.
Tor
Alex, your statement “[precious metals] currencies promote an incentive for hoarding, which is a disincentive to economic activity” is a biased, and I believe flawed, statement.
Who is to determine what amount of trade is appropriate? Think about which economists are saying that hoarding is bad – I think you’ll find that those who say that are either Keynesians or Chicago school. Doesn’t everyone have the right to decide for themselves how much they want to save?
If your artificially inflating currency is superior, then it should win in the free market. If it needs the support of a state to compete, however, then I suggest it is inferior. Go ahead and try out your currency ideas in the market – I am. [By “win” I mean survive and thrive, not necessarily become a monopoly currency.]
To look at it from a leftish viewpoint, you can’t build a sustainable economy on an unsustainable currency. Any currency with artificial inflation built in (like any based on debt like FRNs) is inherently unsustainable. Such currencies demand over-investing, which promotes the boom-and-bust cycle. They also lead to policies which cause harm in order to generate profits. I believe a great part of the environmental damage caused by corporations is tied to their need to expand at a greater than natural rate, caused by the inflationary currency we now have.
Gresham's law has nothing to do with force…if you look historically, you will find plenty of examples of currencies that are not backed by authorities thriving, due to Gresham's law. A classic example is the worgl experiment…which was started in 1932, and was wildly successful, until it was shut down by authorities in 1933.
Other examples are when there are competing national currencies…this is common in developing countries, where people will typically use the national currency, which often has high inflation, in day-to-day commerce, but use U.S. dollars (which hold their value) for saving. People only spend their U.S. dollars when they need to cash in on their savings and make a big purchase. These countries don't have a supply of U.S. currency…except in cases like Ecuador which just decided to use the U.S. dollar as their currency.
It's market forces, and free choice, that causes people to use the more-quickly-devaluing currency. Think about it…if you have some of two currencies, and you can buy something with each of them, you want to spend the one that will lose value before you spend the one that will hold value. Thus, it becomes easier for businesses to make sales in the quickly-devaluing currency…and it also becomes easier to earn money in wages in this currency.
I'm not saying currencies that hold their value are better or worse than ones that don't–only that there's a well-established pattern of the devaluation resulting in an increased velocity of circulation, and increased economic activity in that currency, whereas the currency that holds its value having the opposite effect. Look at the U.S. People use gold as a long-term investment vehicle, but they use it very infrequently as a trading medium in day-to-day business.
To respond to Ron, I think the boom-bust cycle is not a result of the fact that the currency loses value but rather, the fact that it's losing value through inflation coming from an expanding currency supply, which creates the need for constant growth (which as you pointed out, destroys the environment, and as I would like to contribute, also destroys community as well).
If you had a closed system where the currency supply was relatively static, or, perhaps expanded only in proportion to population, but the currency lost value over time, it could be more sustainable. I have two ideas of how this could look:
For an example with national currency. Suppose the U.S. abolished all income tax and payroll tax, and instead funded all expenditures through a demurrage fee / holding tax on money. This could result in a relative constant rate of the currency losing value (through the tax) yet without changing the total supply of currency.
Tor insightfully remarked that inflation is a wealth transfer–from people holding the old money to people holding the newly created money, whether it is printed outright (like the famous German hyperinflation) or created indirectly through bank lending (like in our Federal Reserve system). Taxes also are a wealth transfer. Since income tax is a disincentive towards economic activity, it seems common sense to eliminate it and replace it with a holding tax on money that could raise an equal amount of money, as the second would provide an incentive for productive investment. Why tax through disincentives on work when you could raise the same revenue through an incentive on work?
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For an example with a community currency, there would be no need for a large holding tax to finance government expenditures. What could the holding fee be used for? Besides a very small fee to finance administrative overhead of the system (which would hopefully be minimal), the fee could be a way to give the currency, effectively, a finite lifetime. Continuously retire old money from circulation, at a fixed rate, and issue new money.
There are different ways that it could look, those are just two ideas I had. Basically, I agree with you about the continual expansion of the currency supply being unsustainable. But there are ways for a currency to lose value even if the total supply in circulation is relatively fixed. I ultimately think that these sorts of currencies are the most sustainable.
Been a little busy, but finally got a chance to reply.
Alex – Interesting on the Worgl experiment, although it looks to me like it /was/ backed by the second biggest gorilla in the arena – while the biggest one was looking the other way. Use of the Worgl currency also was induced by its being one of only two to means of payment for a fee demanded at gunpoint, when no one had any of the other acceptable form of payment, which I suspect (although I have not verified – maybe you have more information on this at hand) was primarily caused by government antics that never would have occurred in a true free market to begin with.
I have no objections in principle to currencies that lose value, although it should be noted that anything used as money has a cost to keep around. For example, without the fraud of fractional reserve banking, to store money is a bank would have to cost money, unless the bank decided to finance its operations through a fee on transfers (the DGC Pecunix in financed in this way). If people wish to keep their Au/Ag coins hidden in their house, that is fine – but there is still a storage cost, although admittedly the most visible part of that cost is zero. Also, unless there is a need to keep that money in a very liquid form, I think that we would see much of it deposited with loan brokers in interest bearing accounts. These would almost certainly have a fixed term, as otherwise the loan broker would have accounts payable on demand that could only be fulfilled over years, which is fraud. It should also be noted that anyone who takes out a loan is spending money and keeping it moving through the economy.
As for the uS changing from an income tax to a holding tax, I'd rather see the the uS abolish all taxation altogether. If at the same time they were to end their gun-enforced monopoly on money, and allow any government entity or private person or group to create and use their own currency in any form that people choose to use, then it is most definitely an improvement over the current situation – although I doubt this will happen because the government would then finish going bankrupt overnight.
I still am of the opinion that gold and/or other precious metals would form the basis of worldwide currency in a true free market, and that {depreciation|demurrage|holding tax|storage fees} would be at whatever the true cost of providing the service is – and no more. However things work out in the free market, and whatever ends up being used as money – whether gold, silver, lets, devaluing currency, tobacco, or dried cow dung – I am certain that it will provide the greatest prosperity that humans are capable of creating at the time.
Tor
While it's nice to theorize about ideal possibilites, I think it's important to also live in the realm of practicality. The United States is probably going to continue to be around for a long time, and they're probably going to have taxes too.
I think, given that we have taxes, a holding tax would provide so much better incentives relative to an income tax. Another type of tax I would support preferentially, would be use taxes on common resources. For example, most water rates in the U.S. are so low, especially in the southwest where water is scarce. That water is effectively a public good / public resource, so, if conservation is an issue, why not just raise rates? It seems a no brainer to me. Another one would be highway tolls…most of them are not in proportion to the amount of wear-and-tear put on the roads (i.e. even though truck tolls are higher, they don't reflect the true amount of wear placed by these large vehicles, and small vehicles and taxpayers are effectively subsidizing them).
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Back to the currency question though, I think compared to some other countries, the U.S. actually has fairly lax laws with respect to currency? (Much laxer than, say, Germany, which until recently outright prohibited most alternative currency.) The only thing holding the currency in usage is the concept of "legal tender" and the fact that it is accepted for tax liabilities. But–anyone–including businesses, individuals, state and local governments, and even the federal government, are free to voluntarily accept payment in some other currency for settlement of any debt–they just aren't legally obligated to do so.
When you think about it this way, the notion of a currency not being legal tender is actually liberating…legal tender is in a sense, a form of coercion, because you HAVE to accept it.
But if you start using currency that's not legal tender, you don't have to accept it…it gives each party more freedom. And it makes debts harder to enforce, which, again, depending on your perspective, could be a good thing. Our banking system, wrapped up in the federal reserve, and based all on debt rather than anything tangible, is so convoluted and corrupt. Is it necessarily a good thing that debts in this system can be enforced so easily?
So in a sense, the legal system in the U.S. is actually liberating for people who want to use other currencies…they just need to build a framework of trust (rather than debt and coercion) to support their currency. But ultimately I think this would make it a much, much stronger currency.
debts are "selectively" enforced.
when they are enforced they are referred to as a "loan", when they are not enforced they are referred to as an "investment".
of course, the flow goes from individual to corporation for the most part. loans to corporations are considered investments while individuals must deal with loans and repay backed by the force of the state.
all debt is a play on the market, when we realize that and realease all debtholders who received funds from consenting creditiors as a market call and not labor bondage, we will have a completely different world.
This is a really interesting point. I think I agree with the core of what you're saying…the current system gives too much power to big lending interests, especially banks.
For example, if I invest money in a corporation I have little recourse if they squander the money…the only recourse are costly class-action suits which often fail and even when they succeed, rarely generate a substantial recovery of the investment.
But if a bank lends me money, they're probably going to get it back. Even if I declare bankruptcy, in many cases, they're still going to get a substantial portion of it back. The reform passed early in the George W. Bush administration pushed things even farther in this direction.
Exactly!
And, whose money are they lending in the first place?
The depositors, basically the same people who borrow the money. The money is in there simply because it is supposedly "insured" by the FDIC. It faces similar risks to any capital but the state declares it to be lower risk, so the average citizen sinks their capital in banks.
The fed has little to show for the FDIC fund. If push came to shove, they would simply print new money to get depositors their deposits and the value for the new money would come from money already in print. In other words, we insure our own deposits with our own capital and yet the banks reap the profit.
The system is no accident. I think it was rothbard who has the great expose on the formation of the federal reserve.
[Marx was wrong in seeing money as a purely corrupting influence on society,]
"…for if money permits the wicked to become good, and the dishonest to become honoured, then it also has the potential to make the dependent self-sufficient, the excluded included, the displaced settled, and the violent peaceful."
This statement is an unsupportable fallacy.
It is illogical and does not follow the idea of 'common sense'.
It takes an unsupported premise and furnishes it with an equally unsupported outcome.
The rest of this article is dirivative as it is a regurgitation of socialist/ mutualist 'labour value' theory.
'Labour value' theory would make a capatailist economic famework obsolete by operating outside of its definitions. 'Mutualism' at its heart is a simplified, 'liberalist' form of CAPATAILIST econonmic theory.
Capatailist economic theory and practice have failed. Capatailism is just the latest in a long line of primative power structures imposed on society by the 'ruling' 'classes'. All power is the product of agency and 'given agency'.
I have no real point other than; THINK ABOUT IT.
Nothing is absolute except transformation.
I don’t think you need to think in such absolute terms here. It’s not a question of these concepts being absolutely wrong or absolutely right…they’re subtle and nuanced.
I think the key here is that the money system is an information system. I agree with you that capitalism, as it is implemented in countries like the U.S., has failed (as measured by inner-city poverty, rural poverty, the corrupt influence of money on our political system, and the environmental devastation associated with economic “growth”).
However, when you use the term “money” you can think of many different things…everything from our current, rather convoluted debt-based currency system, to a precious-metal backed system, to various types of community currency (which are incredibly diverse). Each system sets up different incentives and has the potential to bring out different qualities in human beings.