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.
Money is a reasonable way to track favours, but it's also a reasonable standard exchange medium, it's also a reasonable representation of value, etc. But for all explanations you can also find reasons why it's not, e.g., it's not a favour because a favour is a one-to-one relationship, while money you can get from one person and use it to get something from another person. (No need to counter argue here, you don't need to convince me. I just wanted to present an example of why the idea of "money=favour" is not perfect as well.)
E.g. money is token of favour FROM <government> TO <current-bearer-of-token>.
Your general point about looking at things in more than one way is sound.
The world does not owe you a debt or favor just because you possess that money. I don't owe you a debt, such that I have to give you anything for that money if I choose not to; and nobody else does either. Viewing money as a debt owed, is a very incorrect way to look at it.
To prove the point, try walking up to someone and telling them that you have a piece of government paper in your pocket that represents a claim on their shoes, and since they owe you a debt you demand they give you their shoes (or really anything else for that matter) right now. See what happens.
> 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
I think perhaps that line might be better stated as something like:
"Money is a piece of token that represents favor or debt the <backer-of-money> owes you."
E.g. <backer-of-money> might be a bank or government. E.g. fiat currency.
If someone accepts my money in payment, that is not because money is some "debt-upon-the-world" that I can transfer to an arbitrary person, and force them to repay, rather, they perceive that a token of the <backer-of-money>'s debt has value, and they are willing to exchange some good or service so that the <backer-of-money> is now in their debt.
Perhaps a more general way of looking at it is that money is a token that one believes has value because one believes that others believe the token has value, and are willing to accept it in exchange for other things of value (which may or may not be other forms of money, or goods/services with "actual" value).
Yet another way of looking at it is that money is part of a system that influences a group of individuals in society to behave in a certain way. From this perspective you could ask things like:
1. are the collective actions of society a desirable outcome? 2. is this an efficient way to achieve the current outcome? 3. what other kinds of systems might produce different outcomes? 4. pragmatically, what other kinds of systems are reachable given that we're operating within the context of the current system?
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.
There's nothing in the phrase "Money is a piece of token that represents favor or debt the world owns to you" which specifies either fiat or specie currency.
There have absolutely been government-issued specie currencies through history. Virtually all have also seen tremendous devaluation. Look up the 94% devaluation (and corresponding inflation) of the silver Roman denarius.
EDIT: In practicality, not legally.
Details of economic systems, tax codes, social services, labor laws, job markets, trade agreements, and financial institutions are what "distributes" wealth.
State-owned Soviet Economy! Central Planning! Cybernetics! Linear programming!
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).
1. Real currencies only exist by virtue of a central authority - a central bank.
2. The distribution of wealth is incredibly inefficient.
It's inefficient in the practical sense. It can take unfeasibly large amounts of time and effort to organise money transfers, certain transactions are either banned or deliberately made very difficult, and moving money always attracts a "tax" paid to the administrators of the transfer. Debt, which is a purely abstract social game, is even more toxic.
Wealth distribution is also incredibly inefficient politically, because most wealth is hoarded by individuals and organisations who did very little to create it. In a rational culture they would have no claim on it at all.
Meanwhile perfectly viable and useful business ideas are consistently starved of funding (i.e. approval by the financial priest castes.)
In fact money is just an irrational tribal status fetish. It makes as much sense as religion, and exists for much the same political reasons - as a useful backchannel by which mediocre and sometimes rather disturbed humans can make claims on resources and acquire political influence for personal gain.
It's more interesting to think about why we want a medium of exchange rather than how to contrast money, credit, and all the other vocabulary built into our current system.
To say that one technology is more efficient than another needs a definition of efficient. How do you want to measure efficiency?
Further, I did not argue that money (as a conflated bag of concepts representing our current system) is more efficient than a centralized authority. It appears so, given recent historical evidence, but that's still just a hypothesis.
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.
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.
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.
Is there a difference?
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.
Definitely a good introduction to the subject matter.
Or perhaps - I read this book and ended up far less ignorant of my confusion as to what money was.
This is a great book.
> 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/
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.
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.
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
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
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...
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...
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...
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.
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".
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.
Also, this 2 hour long video with Mosler and Stephanie Kelton: 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...
