I have been reading quite a lot recently on the nature of money (e.g. Felix Martin's Money: the Unauthorised Biography and various bits by David Graeber). The question of 'what is money?' intrigues me because, as an economist, I was long taught that money isn't really a thing - it is simply an index of value, a way of circumventing the inefficiencies of direct barter. Yet, it quite patently is a thing, for all sorts of reasons - it confers social status, is subject to hoarding, causes financial crises, etc. For me, the main problem with the economists' view of money lies in in its fiat property: unlike commodity or representative money, money in modern economies is literally created out of thin air by central and private banks, which doesn't sit well with the notion that money exists as some kind of 'natural law' of society.
Of course, it could be argued that the inflation brought about by money creation, by increasing prices of all goods by the same proportion, still retains an equivalence of relative value between those goods. Even if that is true, however, money creation and its consequences do have distributive consequences - for example between creditors and debtors in the case of inflation, or between asset-holders and everyone else in the case of quantitative easing. This, I believe, is where the heterodox definition of money excels - according to both Martin and Graeber, money is, by its very nature, a form of credit. In particular, I would say that it is a claim on society (and, for that matter, the natural environment) - its resources, its labour, or whatever.
The definition of money as socialised credit allows us to challenge the economic status-quo, along with its plethora of social disorders, in a way that is not possible with the definition of money as an immutable law of value. Take inequality, for example, perhaps the most prominent economic issue of our time. If we espouse the standard defintion of money, our ability to question the distribution of wealth and income is limited. We can still implement redistributive policies, of course, but there is a sense in which we are defying some kind of 'natural law' (such as c>g, perhaps!) in the process, unless we claim to be rectifying some previous infringement such as monopoly. If we espouse the definition of money as socialised credit, however, we can ask the fundamental question of whether society really 'owes' this person billions of dollars' worth of its resources or labour. What has that person contributed to society that commands such a hefty price tag? Has that person really contributed millions of times more (or, for that matter, anything more) than the average worker, whose wage has been stagnant for decades? Can we really justify a situation in which the 99% is in 'social debt' to the 1%?
Speaking of which, the issue of debt offers another lucid example of the contrasting definitions of money. From Germany's perspective, Greece must repay its debts, because it would be cheating not to - that's just the way that money works. When we conceive money as socialised credit, however, it becomes clear that such an assumption is moot in the context of the Eurozone, in which the mechanisms by which credit is socialised (such as a coordinated fiscal policy that could redistribute surpluses to deficit regions) are critically deficient and unfairly rigged.
In reality, of course, these examples are tremendously complex, involving numerous interacting elements; but how we understand money is surely one of the most consequential.
Of course, it could be argued that the inflation brought about by money creation, by increasing prices of all goods by the same proportion, still retains an equivalence of relative value between those goods. Even if that is true, however, money creation and its consequences do have distributive consequences - for example between creditors and debtors in the case of inflation, or between asset-holders and everyone else in the case of quantitative easing. This, I believe, is where the heterodox definition of money excels - according to both Martin and Graeber, money is, by its very nature, a form of credit. In particular, I would say that it is a claim on society (and, for that matter, the natural environment) - its resources, its labour, or whatever.
The definition of money as socialised credit allows us to challenge the economic status-quo, along with its plethora of social disorders, in a way that is not possible with the definition of money as an immutable law of value. Take inequality, for example, perhaps the most prominent economic issue of our time. If we espouse the standard defintion of money, our ability to question the distribution of wealth and income is limited. We can still implement redistributive policies, of course, but there is a sense in which we are defying some kind of 'natural law' (such as c>g, perhaps!) in the process, unless we claim to be rectifying some previous infringement such as monopoly. If we espouse the definition of money as socialised credit, however, we can ask the fundamental question of whether society really 'owes' this person billions of dollars' worth of its resources or labour. What has that person contributed to society that commands such a hefty price tag? Has that person really contributed millions of times more (or, for that matter, anything more) than the average worker, whose wage has been stagnant for decades? Can we really justify a situation in which the 99% is in 'social debt' to the 1%?
Speaking of which, the issue of debt offers another lucid example of the contrasting definitions of money. From Germany's perspective, Greece must repay its debts, because it would be cheating not to - that's just the way that money works. When we conceive money as socialised credit, however, it becomes clear that such an assumption is moot in the context of the Eurozone, in which the mechanisms by which credit is socialised (such as a coordinated fiscal policy that could redistribute surpluses to deficit regions) are critically deficient and unfairly rigged.
In reality, of course, these examples are tremendously complex, involving numerous interacting elements; but how we understand money is surely one of the most consequential.
