
What is money? (1913) - darkroasted
http://moslereconomics.com/mandatory-readings/what-is-money/
======
thelogos
Money is a piece of token that represents favor or debt the world owns to you,
or at least, anyone who takes money as payment.

This whole premise is enforced by central governments in modern times.

When we buy or sell goods, give away our time and labor for a salary, we're
simply exchanging favors.

That's all money is, a system for keeping track of "favors" owed to any
individual.

~~~
naturalethic
That's fiat money.

~~~
thelogos
The part on being enforced by a central government, yes.

But my last line still applies to all money.

That's why when someone mentions the phrase "intrinsic value", they are not
seeing the core truth of money.

It's interesting that money is misunderstood by so many people while
representing the fundamental fabric of human society.

There is no intrinsic value to anything in this universe, not one that applies
to every single organism.

For humans and most life forms, the closest thing that I can think of is
food/water/(oxygen for aerobic organism), force of violence, pleasure and
time.

Today, most money aren't even in physical circulation. Most of the gold in the
world sits in some cold dark vault.

It's literally a video game and the funny thing is, we have enough food and
water for everyone in the world already.

~~~
jsprogrammer
Current fiat monetary systems are not based on 'what the world ow[e]s you'.
Money is only a token of a debt an individual or group of individuals has with
a legally sanctioned and central bank blessed commercial bank.

~~~
mtrimpe
At it's core money is merely a concept used to determine deservingness though.
It lets us answer the question "does this person deserve X," where X can be
providing them services/goods (or not.)

At the moment money is a rather contorted and easily manipulable proxy for
deservingness though which is the cause of a lot, if not the majority, of the
world's troubles.

There's no technical reason though why we couldn't for example determine
deservingness through interpersonal distribution of value; like PageRank but
for people.

------
jchrisa
This history is required reading for anyone interested in the topic
[http://en.m.wikipedia.org/wiki/Debt:_The_First_5000_Years](http://en.m.wikipedia.org/wiki/Debt:_The_First_5000_Years)

~~~
hitekker
I'm not knowledgeable enough to dispute or agree with his broader assertions,
but I found his anthropological arguments behind debt to be far more
convincing than the "just so" stories of neo-liberal idealogy.

Definitely a good introduction to the subject matter.

------
seoguru
If you are not familiar with "MMT", I highly recommend reading:
[http://moslereconomics.com/wp-
content/powerpoints/7DIF.pdf](http://moslereconomics.com/wp-
content/powerpoints/7DIF.pdf) It's a quick and easy read and may be quite mind
expanding.

Also, this 2 hour long video with Mosler and Stephanie Kelton:
[https://www.youtube.com/watch?v=ba8XdDqZ-
Jg](https://www.youtube.com/watch?v=ba8XdDqZ-Jg)

Randall Wray, Bill Mitchell and Pavlina Tcherneva are a few other economists
trying to get the word out.

For the "fiscal conservatives":
[http://itsthepeoplesmoney.blogspot.com/2014/11/confessions-o...](http://itsthepeoplesmoney.blogspot.com/2014/11/confessions-
of-former-fiscal.html)

------
noahmarc
It's been a few years since I last read it but Menger's take was the first
I've ever read that just _makes sense_ :
[https://mises.org/sites/default/files/On%20the%20Origins%20o...](https://mises.org/sites/default/files/On%20the%20Origins%20of%20Money_5.pdf)
(1892)

~~~
jacobolus
It may “make sense”, but it’s also an ahistorical just-so story.

If you want a more accurate description, I recommend the first half of David
Graeber’s book _Debt: The First 5000 Years_ , also mentioned by another top-
level comment.

~~~
hitekker
For me, mises.org has the same credibility in economics as the DailyCaller or
PoliticaUsa have in politics.

~~~
amatic
Same here. I used to read articles from mises.org, but they seem to have some
fishy characters as contributors and authors.

Note, however, that Menger is not a columnist or blogger:
[http://en.wikipedia.org/wiki/Carl_Menger](http://en.wikipedia.org/wiki/Carl_Menger)
[http://www.britannica.com/EBchecked/topic/374958/Carl-
Menger](http://www.britannica.com/EBchecked/topic/374958/Carl-Menger)

------
msellout
Thinking of it another way: money is a technology for distributing wealth.
Without money we would need to rely on some centralized authority, a chief or
pharoah, who would directly or through a bureaucracy distribute wealth. Money
allows society to allocate resources with decentralized decisions.

~~~
AnimalMuppet
No, you're thinking of free markets. Free markets can work (inefficiently) by
barter, which still distributes wealth without centralized authority. But
barter is too inefficient (especially at scale).

You could say, then, that money is a technology for _efficiently_ distributing
wealth, without the need for some centralized authority (except perhaps for
the issuer of the money).

~~~
ArkyBeagle
I prefer "medium of account" and "medium of exchange." For one thing, it
emphasizes a duality that's easy to forget about.

~~~
dredmorbius
There are four roles. Account is useful, but I see exchange as primary. No use
accounting if you cannot facilitate exchange (that is: trade).

~~~
ArkyBeagle
It's a dualism - you can't have one without the other.

------
theVirginian
People on this website have told me my politics degree was useless but then I
see this on the front page.

------
shoo
I haven't seen anyone mention an ecological perspective, so here's "The
Trophic Theory of Money":

> The theory, in a nutshell, is that the volume of real money (adjusted for
> inflation) in an economy is a pretty good indicator of the ecological impact
> of that economy.

> In ecology, or the economy of nature, “trophic” refers to the flow of energy
> and nutrients. The lowest trophic level is the producers, or plants that
> produce their own food in the process of photosynthesis. Herbivorous animals
> eat plants, and carnivorous animals eat herbivores. That’s the economy of
> nature in a nutshell.

> In the human economy, the producers are farmers. Only with an agricultural
> surplus can there be a division of labor into manufacturing and service
> sectors.

> All of these real goods and services occupy some portion of the economic
> trophic structure. Because this trophic structure as a whole can only
> increase with increasing agricultural and extractive surplus, an expanding
> real money supply represents an increasing environmental impact.

[http://steadystate.org/the-trophic-theory-of-
money/](http://steadystate.org/the-trophic-theory-of-money/)

This clearly is not the only perspective of what money "is", or even a
mainstream one. But it seems like a reasonable stab at a functional
description of what money "means" in an environmental sense.

~~~
jules
I don't think that's an accurate viewpoint any more. Farming is already on the
order of 1% of the workforce for developed nations. Making that 0.1% won't
make a big difference. Extraction of raw materials in general, maybe, but a
bigger factor than how much materials are extracted is how those materials are
used. Look at how Silicon atoms can be used: as sand, as glass, or as computer
chips. The economy can grow without extracting additional raw materials by
using those materials in different ways.

~~~
dredmorbius
Farming remains a large share of the workforce, to 90% and more, for less-
developed nations. In the time of Smith and Ricardo, farms and the land _were_
the source of all wealth. Ricardo lamented over the inequitable distribution
of good farmland...

And developed nations are dependent upon petroleum and other fossil fuels.
Effectively farming ancient plant growth by way of buried reserves.

My read though of the Trophic Theory is that it's less one of _money_ than of
_wealth creation_ (that is, economic productivity), assuming a sustainable
economic system.

Though I may have to give it a longer look.

Eric Zencey, one of the contributors to the Daly News piece cited is also the
author of the Soddy critique I just referenced in another comment.

------
winterismute
Only partially related, but still: some friends are working on a game in which
you play as a "banker" from middle ages until modern times. It is mainly a
city "sim" game but that should also make you think about what is money and
what it represents. They would love any feedback:
[http://moneymakerdeluxe.com/](http://moneymakerdeluxe.com/)

------
RockyMcNuts
Adam Smith might be wrong about the detailed history or might be
oversimplifying the history. But I don't think he could be very wrong about
how people thought about money in his time. One point of the article is that
the exact amount of base metal was never really the point and the value of the
coins was regulated by supply and demand for coins somewhat independently of
the precious metal content. Which seems fair, but then one has to ask why make
the coins out of gold etc. in the first place, and why make a big deal about
how much is in there?

------
darkroasted
I posted this because it is an interesting view, and it was written in 1913
and so a lot the ideas here got picked up and included in ideas of economics
since then.

But I do have some major disagreements with the author:

" _Credit and debt have nothing and never have had anything to do with gold
and silver._ "

The history goes that originally humans used things like shells and beads to
signal debts and obligations (
[http://szabo.best.vwh.net/shell.html](http://szabo.best.vwh.net/shell.html)
). The idea is you need to have some collectible that is very hard to produce
or fake, otherwise someone could forge it and fake that you owed them a debt.
Overtime, it turns out gold and silver make the best tokens, because they are
rare, easily molded into tokens of various size, and are very hard to fake.
Then the government makes coins out of these gold and silver, and tries to
make the coins the official tender, and sets the value of the coins at premium
over the bullion included. Finally, the government tries to debase the coins
gradually so it can make money from seinorage.

" _Such legislation was, no doubt, due to the erroneous view that has grown up
in modern days that a depositor has the right to have his deposit paid in gold
or in “lawful money.” I am not aware of any law expressly giving him such a
right, and under normal conditions, at any rate, he would not have it_ "

It would have been news to the depositors that they did not have the right to
withdraw the money they put in. If they were not given this right, would they
still lend? Part of the problem with banking historically is that there needs
to be a clearer distinction between a deposit to a vault and investing in a
bond mutual fund. Banks are sort of a hybrid of the two, and the contradiction
makes the system break down.

" _but there is overwhelming evidence that there never was, a monetary unit
which depended on the value of coin or on a weight of metal; that there never
was, until quite modern days, any fixed relationship between the monetary unit
and any metal; that, in fact, there never was such a thing as a metallic
standard of value._ "

If this was the case, then why didn't the Roman emperors make their coins out
of iron? Sure, the face value always exceeded the metal value. But the metal
was irrelevant. If the government pushes it too far, people stop accepting the
coin, as the author notes in other parts of the essay.

" _Money, then, is credit and nothing but credit._ "

There is a sense in which this is true. It is like one of those optical
illusions, where the image flips depending on how you look at it.

But, from the point of view of a clean definition of terms, it only makes
sense to call something a "credit" if you are promised something specific in
return. If a token has no specific promise, then it is a collectible, not a
credit.

~~~
erikb
Is it true that governments started to make money to be money? I thought banks
started doing that first.

In my eyes it doesn't make sense for governments to start doing that.
Classical governments didn't achieve things because they had money, but
because they had power and people believed in that power. A painter would come
and change the kings walls colour not because he gets paid well, but because
he loses his head if he doesn't.

Banks (or banking families might be better) on the other hand trade debt. As
anybody who gets value from trade they want to decrease the burden of trading
debt, so instead of some infeasible hard, heavy stuff like gold barrels they
invent coins, and because that's also quite heavy and hard to track they
invent paper money. Paper is fairly easy to transport, exchange, so banks are
happy. Then the governments come and try to control money, because their
job/desire is to control what people are doing.

~~~
lmm
> Is it true that governments started to make money to be money? I thought
> banks started doing that first.

IIRC it was governments, for taxation. They have more motive than a banker
does. A banker is a professional trader, in the business of buying and selling
things at appropriate prices - that's where they make their profit, so having
their clients pay them in non-money is an advantage. By contrast for a
government that's collecting 5% of people's income, having that in a wide
variety of trade goods is an inconvenience.

~~~
erikb
Definitely an interesting thought.

------
twblalock
Someone needs to fix the contrast on that page. It's very hard to read.

------
dredmorbius
A few further points and references on money.

There's the standard four-point definition used in economics:

1\. A medium of exchange.

2\. A unit of account.

3\. A store of value.

4\. Sometimes: a standard of deferred payment.

Note that these four functions are given more-or-less in order of
significance, and that the great obsession of goldbugs and anti-inflationists
, a (stable) store of value, is third on the list and is exceeded by the role
as a medium of exchange. Fail in the first role and all commerce stops.

I was surprised that with the emphasis on debt and credit in the article,
David Graeber's _Debt: The first 5,000 years_ wasn't mentioned. Well worth
reading.

I've found the concepts of modern monetary theory (MMT) to be quite
interesting and that they tend to correspond to many of my own views. In
particular that money itself can simply be created (or destroyed), that it
enters circulation by way of government spending (or central-bank purchases of
assets), and that payments which are mandated in a given currency,
particularly taxes, but also interest and other debt obligations or mandated
currencies (e.g., the U.S. dollar's role as a reserve currency and in global
petroleum trade) create a value basis for the currency. That is: people and
organizations must pay taxes and buy petroleum, so they must have dollars, so
that dollars have value. A point the bitcoinistas seem to have failed to
grasp....

[http://en.wikipedia.org/wiki/Modern_Monetary_Theory](http://en.wikipedia.org/wiki/Modern_Monetary_Theory)

There's some history to the idea that money should be considered to be backed
in energy. I'd first encountered it in Arthur C. Clarke's novel _Imperial
Earth_ , in which "Sols" were backed in kilowatt-hours. Kim Stanley Robinson
uses the idea in his Re-Green-Blue Mars series, and Buckminster Fuller
discussed the concept. The earliest reference of which I'm aware is H.G. Wells
1914 story _The World Set Free_ ,

As Wells wrote:

 _The world had already been put upon one universal monetary basis. For some
months after the accession of the council, the world 's affairs had been
carried on without any sound currency at all. Over great regions money was
still in use, but with the most extravagant variations in price and the most
disconcerting fluctuations of public confidence. The ancient rarity of gold
upon which the entire system rested was gone. Gold was now a waste product in
the release of atomic energy, and it was plain that no metal could be the
basis of the monetary system again. Henceforth all coins must be token coins.
Yet the whole world was accustomed to metallic money, and a vast proportion of
existing human relationships had grown up upon a cash basis, and were almost
inconceivable without that convenient liquidating factor. It seemed absolutely
necessary to the life of the social organisation to have some sort of
currency, and the council had therefore to discover some real value upon which
to rest it. Various such apparently stable values as land and hours of work
were considered. Ultimately the government, which was now in possession of
most of the supplies of energy-releasing material, fixed a certain number of
units of energy as the value of a gold sovereign, declared a sovereign to be
worth exactly twenty marks, twenty-five francs, five dollars, and so forth,
with the other current units of the world, and undertook, under various
qualifications and conditions, to deliver energy upon demand as payment for
every sovereign presented._

[http://www.gutenberg.org/files/1059/1059-h/1059-h.htm](http://www.gutenberg.org/files/1059/1059-h/1059-h.htm)

Wells dedicates his book to Frederick Soddy, principally known as a chemist
(he won a Nobel prize), but also the author of _The Rôle of Money_ , avaible
at Archive.org:

[https://archive.org/stream/roleofmoney032861mbp#page/n3/mode...](https://archive.org/stream/roleofmoney032861mbp#page/n3/mode/2up)

Soddy's economics views, based on thermodynamics, have been criticized by
orthodox economists:

"Mr. Soddy’s Ecological Economy"

[http://www.nytimes.com/2009/04/12/opinion/12zencey.html?_r=1...](http://www.nytimes.com/2009/04/12/opinion/12zencey.html?_r=1&ref=opinion)

It further turns out that Clarke was quite the fan of Wells, read his books as
a child, and kept a photograph of the earlier author in his study in Columbo,
Sri Lanka. Clarke's portrayal of money in _Imperial Earth_ also carried strong
shades of contemporary politics at the time of its writing, including the
emerging importance of Middle-East oil, and the newly-coined term
"petrodollar" to describe dollars supported by the oil trade.

Thomas Edison also made some use of the concept.

This history is discussed in more depth here:

"Tracing the concept of money as backed by energy: H.G. Wells, 1914"
[https://www.reddit.com/r/dredmorbius/comments/24wyty/tracing...](https://www.reddit.com/r/dredmorbius/comments/24wyty/tracing_the_concept_of_money_as_backed_by_energy/)

My own view on money as "backed in energy" is that it has some value, and
almost certainly explains much of the actual origins of wealth (that is, total
productive capacity), but that money itself while it can be _exchanged_ for
energy and derives _value_ from energy isn't _the same as_ energy, and in
particular, as a unit of exchange and for settling debts, serves as
information and that the ability to inflate (or deflate) currency is in fact a
core attribute of it.

My own definition tends toward "demand rights", which can be created _de novo_
by a currency soverign or by mutual agreement (or unilateral choice by
counterfeiters), and that of its several uses, _facilitating exchange_ is of
utmost importance. Rather than the usual model of money as a bloodstream or
flow, I think a closer anatomical analog would be of electrolyte balances or
endocrine signals which encourage or discourage nutrient and other uptake by
the cells of the body. Excess accumulations of same would be unhealthy in the
body, and are for economies as well.

~~~
cokernel
> I was surprised that with the emphasis on debt and credit in the article,
> David Graeber's Debt: The first 5,000 years wasn't mentioned.

This is minor, but the article probably didn't mention that book because it
wasn't published until about 98 years later.

Thanks for the book recommendation, though. It sounds interesting, as do the
ideas about energy backing and "demand rights".

~~~
dredmorbius
I'm cringing a bit.

I was skimming through the piece and wasn't quite sure to what extent it was
_all_ written in 1913 or comprised both an earlier work and contemporary
commentary on it. Most of the language is quite modern.

But yes, you're painfully correct, my error.

------
RodericDay
The magical land of barter as neoliberal founding myth

------
ommunist
This article says what money WAS. What it actually is now is a form of credit
statement. The more "money" you have, the more debt you created in the
society. It is interesting how value is separated from money now. Equity is
more "money" than you think. And @msellout is right - "Money" is technology.

------
phoenix7978
Money is evil

