But my point was that there is an, admittedly polemic, abstraction that match all the human tradition: money is a token of debt.
In this view, one important consequence, is that the material of the token is not relevant. The use of precious metals is just an added security measure against counterfeit, but not the thing that make it valuable (that would be the debt that represent).
If this is true, part of the debate about strong money vs. fiat money just become pointless.
I think ultimately it's a useless distinction. People try to argue about "sound money" and all that, but more and more my view is that both the historical/anthropological evidence and the realities of our modern economic systems point towards the debt as money theory, and that sound money just doesn't really exist. Commodities like gold are commodities, and currency (which is money) is different.
> Money was in coin form but money also existed as promissory notes, land deeds, titles, contracts and countless other non-tangible forms
You are confusing money with wealth.
From Wikipedia
> Money is a commodity accepted by general consent as a medium of economic exchange.
Money is not land or a loan. It's a unit to enable the exchange of these lands or loans. That's the problem with money: It is worth something when it actually should be worth nothing.
Your first sentence is a bit ironic. You're conflating currency with money. Gold was never really used as currency, the currency (dollar) was backed by money (gold)
Arguably, the distinction made in the parent comment is a poor one. It's more accurate to say that debt predates money in the form of either coin or other forms of currency such as banknotes, checks, or (somewhat understandably) computerised transfers.
Money is seen as having four principle functions:[1]
1. A medium of exchange.
2. A unit of account.
3. A store of value.
4. Sometimes, a standard of deferred payment.
Function 1 is currency. Function 2 is value. Function 3 is as an asset. Function 4 is debt.
Note that debt also needs to have some sense of value, and that effective debt-management systems tend to rely on a stable metric of value.
William Stanley Jevons writing in Money and the Mechanism of Exchange (1875)[2] gives seven qualities of the material of money: utility/value, portability, indestructibility, homogeneity, divisibility, stability, and cognizability.
By utility, he holds that money must have an intrinsic value of itself. Given the existence of nominal coinage and fiat currencies, this is clearly false.
By portability, that money is easily transported and exchanged, unlike other assets, say, land.
By homogeneity, that any given unit of money is equally exchangeable for another. It doesn't matter what dollar, euro, yen, or mark you have, only how many.
By indestructibility, somewhat relaxed, that money not be easily or spontaneously degraded. Volatile or uncontainable forms of assets are not suitable for money.
By divisibility, that the units of money be either subject to division or multiplication. Unlike, say, a Great Masters artwork, which has value, is portable, and is reasonably durable, but whose value does not survive its being cut into pieces. Contrast a dollar which can be subdivided into pennies, or aggregated to a $100 banknote.
By stability, that the value is reasonably uniform over time. As with utility, this seems not strictly true.
By cognizability, that money is immediately and universally recognisable as money. Note that this argues against certain suggested money alternatives, such as bitcoin, which literally requires a planet-wide network of extraordinarily expensive computations to be computed to "cognize" any given transaction.
The history of debt and money shows numerous forms, including "gift cultures" (generally for small tribes), grain accounts (early cities), numerous commodities (metals, stones, beads, glass, beaver pelts, oyster shells, cattle, cattle hides, and more. (Many of these origins show up in slang terms for money.) Virtually all currencies have or had names suggesting either weight, divisibility, quality, domain of relevance (typically country), or some indicator of quality, of coinage: pound, shekel, dinar, dollar, mark, royal, florin, ruble, afghani, and many more.[3]
Examples of currencies not representing government-issued coin (or other demarcations) are commonplace, and range from other governments' currency (as in US dollar trade or black markets outside the US, or use of Spanish Reals in colonial America and the early US) to former governments' currency (Roman coinage being used long after the fall of the Roman Empire), to commodity currencies based on raw materials (such as beaver pelts and oyster shells) to manufactured products such as cigarettes. A classic example of the last is given in "The Economic Organisation of a P.O.W. Camp", by Richard Radford, describing the cigarette-based economy of a German WWII camp.
My own view is that money (or debt) is information, specifically socially recognised recognition of obligations, and in its manifestations, tokenised money represents some credible expression of that obligation. In form, then, money is whatever commodity forms the most universally acceptable and available medium of exchange within a given exchange network. This might be a government-issued coinage, but can be something else. The classic functions and Jevons' list of qualities are not absolutes, and there can be considerable trade-offs amongst these.
An element explicitly mentioned in either the four functions or Jevons lists is trust evidenced in money. In tightly-knit tribal structures, the trust is manifest and tokenisation is not required. Credits and debits are known, disputes are readily settled, and explicit tokenisation is not required, so money does not exist. In early cities, grain and other commodities served as both principle exchanged goods, and principle units of value, and an accounting system with an annual cycle functioned relatively well. As trade and exchange expanded in both goods, distance, and numbers of participants, an explicit tokenisation was required, and uniform assets with concentrated stable value and assayable quality (mostly precious metals) emerged. The notion of seigniorage, a premium paid for coinage based on its minting, above the specie metal contained within it, is a measure of trust in the mint. Paper, fiat, and non-work-factor digital currencies have effectively infinite seigniorage -- there is no intrinsic value, instead the value is in the trust of institutions and systems of account.
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 ). 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.
That money is debt. In a very fundamental, literal and practical sense, debt or credit (i.e. someone owing somebody something valuable) is what money is. The traditional definition of means of unit of measure, means of payment and unit of value describe how money is used, not what it is.
Like, knife is a sharp edged tool used to cut things vs knife actually is steel.
(This also being my main reason objecting cryptocurrencies. Idea of current cryptocurrencies being money is to me very much cargo cultish until there is a proper way to manage credit within the cryptocurrency system.)
A gold bar has value as does a copper bar, but physical stuff isn’t money.
The idea of money as debt is really around taxes. You need to pay your taxes in money issued by the country you live in. Let’s take a New Country (NC) with a Government called NCG with a currency called Token.
At the start of the year NCG created some Tokens and at the end of the year citizens of NC need to have Tokens to pay taxes with, but why would the NCG accept stuff it just created from thin air as having value? And the answer is before people pay taxes NCG can buy stuff using Tokens by saying people are going to want to eventually pay taxes with these so they aren’t just pieces of paper they are IOU’s Aka Money. So at the end of the year when people are paying the government of NCG formerly imaginary Tokens what they are essentially doing is cashing in IOU’s from the NCG.
Of course the idea of these Tokens having value takes on a life of it’s own, much like how Bitcoins can be perceived as valuable when they don’t actually do anything. But if a country fails it’s currency quickly becomes worthless.
> Money represents an obligation for society to provide you with something of value.
What does that mean?
> many things would work exactly the same if people agreed to pretend that gold was moved from one vault to another instead of actually physically moving gold around.
This is how commodity money works. The dollar (as well as almost all paper currencies) originated as commodity money. The paper dollar was backed by and convertible to gold.
> Money is by definition a purely financial asset, a liability on somebody's balance sheet.
Maybe Econ 101 has changed, but I remember learning that "money" was:
- A medium of exchange
- A store of value
- A unit of account
When we were on the gold standard these were all true. Now that we're off the gold standard gold is no longer a medium of exchange or a unit of account, but one could argue pretty effectively that it's a better store of value than dollars have been, and it's done so for throughout history. (I'm talking time periods of decades, not the post 2008 crisis volatility here.)
The fact that the system we're using now is debt-based rather than based on precious metals should't change the definition of money, however.
This description of money doesn't sound right, to me? Personally, I subscribe to the Graeber-Innes hypothesis: the use of precious metal coinage was a credit risk mitigation strategy. Using gold (or whatever) was important not because of any latent value of the metal, but simply because it provided material accounting for asset backed representative monies in a distributed, robust, vaguely secure manner.
I mean, I seem to remember the Mesopotamian cultures using "fiat" accounting for 3000-odd years? That's one of the theories of the development of writing: accounting.
Currency is physical tokens of value for trading money. Money is a system that fulfills several criteria: unit of account, medium of exchange and store of value. Not debt in any meaningful sense, apart from systems that lack trust for store of value or stability for unit of account, in which case explicitly linking to another less easily gamed asset is supposed to increase trust.
Debt can be money if the legal system is sound. But money doesn't need to be debt if the money issuer is trusted not to debase the currency.
Credit is money - there's literally no distinction between the two. Precious metal currencies are only money because it takes way less systemic trust to believe that the bearer of precious metal coins can get things for them later. Gold-backed paper currencies are an interesting intermediate, basically adding trust that you can exchange them for the actual metal at banks.
>Money is a medium of exchange - a mechanism for judging the relative value of unlike goods. That is literally impossible if the thing used as money is non-economic, like fiat currency. The money must be itself a tradeable commodity. Commodities that are useful as money have all the traditional traits you learn in elementary school, and gold is the traditional and current best fit for those traits.
If "money" is a physical medium of exchange then advanced economies do not have or need "money".
Our modern banking system simply lets people promise each other goods and services. It's effectively a system built around relationships.
I think you may have misread Graeber. He is NOT advocating for commodity/debt-free currency. His whole point is that money started as credit - only later was it viewed as commodity, and only occasionally.
Money effectively is both commodity and an IOU. Attempts to force it into one category or another eventually leads to social breakdown.
The key question for our time is how to craft a stable monetary system that is decentralized. We don't know how to do this yet, and Bitcoin is not likely the answer BECAUSE it is finite (which would be catastrophic, as gold was). Crypto currencies can and should grow in experimentation but this one has a fundamental flaw.
> So what's the difference between 'money' and 'currency'?
Uh-oh don't get us started on that one, that's a can of worms!
Used to be, way back in the past, "money" was "coin or bullion in your bank's vaults" and banks' receipts for "money" starting circulating -- hence, we have the separate word currency.
Nowadays, I suppose the distinction is largely lost, other than "currency" now implicating different jurisdictions -- EUR and USD are considered different "currencies" but both are considered "money" by and large.
Money is spent or lent or hoarded, currency circulates. One necessitates the other.
Whether "hard" or "soft", in all history and today both are certainly always "credit" -- a (rightly or wrongly) trusted claim to some future consumption of some future production. Whether the "money" is paper or metal or digital. If we swap a banana for an apple, a trade is completed and settled, no money was needed. But since most of apple sellers are not also banana buyers "right here and now", this purely mental value-association, regardless the medium it's recorded on, is needed and used and traded in-place with ease and the world mostly works! Money hence is always a debt for future trade settlement -- completion of exchange.. (Whether banks should create new money for all their lending is another question, whether all savings of people should be in ambiguous claims on future production is another question. Doesn't change this most fundamental nature of "money".)
In this view, one important consequence, is that the material of the token is not relevant. The use of precious metals is just an added security measure against counterfeit, but not the thing that make it valuable (that would be the debt that represent).
If this is true, part of the debate about strong money vs. fiat money just become pointless.
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