What is money?

[Editors note: Today I am starting what I hope will turn into a series of posts on what exactly it means to "wake up." I hear the words "awake and alive" a lot these days, particularly in Buddhist circles. When Buddhists talk about waking up they are usually referring to a state of non-dualism, everlasting consciousness, free from the ever-changing nature of our physical world. I've never really been able to discover the "awake" state that Buddhists refer to -- and I suspect most Buddhists, even those who claim enlightenment haven't experienced it either (in my experience, most people who claim to be enlightened in this world are not).

Instead, I'm talking about waking up in the political sense -- breaking through the assumptions and noise around us and seeing things as they really are. That's really the purpose of this blog in general but just in the last few weeks I feel like I've been seeing the outlines of what an awake political consciousness might really look like so I hope to begin sketching it here. I'm going to be coming at this question from a bunch of different angles so at first it will seem like my posts are all over the place. But I think over time, these various sketches will come together to paint a clearer picture of things as they are.]

As frequent readers of this blog will know, one of the questions I keep coming back to is, "What is the relationship between violence and wealth?" But I realized recently, that perhaps I have the question phrased incorrectly. Maybe the question is, "What is the relationship between violence and money?" And in order to answer that question, we need to ask, 'well, what exactly is this thing we call money?'

The answer is not as obvious as it may appear. Is money the rectangular piece of paper in my pocket printed by the government? Paper money used to be tied to gold but the U.S. went off the gold standard in 1971 and now the value of paper money is not tied to anything tangible. Furthermore, why did we ever treat hunks of metal as money in the first place? Is the demand for jewelry really that high? What about the number staring back at me on the computer screen showing my checking account balance? Are electronic ones and zeros stored in some remote server that most people never see really "money" in the same way that paper or metal is considered money?

To better understand money I read, Niall Ferguson's "The Ascent of Money: A Financial History of the World." Ferguson is a conservative (he's a Senior Fellow at the Hoover Institution) and he has a bad habit of dropping gratuitous neocon soundbites into the text that have nothing to do with his point. For example he argues that unions suck (page 116 in the hardcover edition); that the fascist military dictator Augusto Pinochet was really a great guy (pages 213-215); and that George Soros is evil (pgs 314-319). I guess that's just how conservatives roll -- they have to throw in their nonsensical applause lines every 50 pages in or so in order to keep their membership card active and get invited to the next conference.

Ferguson's knee jerk attacks on working people are all the more incongruous because he wrote this book during the middle of one of the greatest financial collapses in human history. As he narrates the economic history of the world, a picture emerges of an endless cycle of booms and busts and our era in no different. The long term data presented in The Ascent of Money serves as a pretty profound indictment of the capitalist system and the greed and avarice of bankers and businessmen (occasionally a few women too, but mostly men). But I guess that's why he had to throw in the red meat applause lines for conservatives -- he didn't want his neocon funders and friends to think he had 'gone all Naomi Klein on them' (even though the data in The Ascent of Money really supports Klein's politics more than Ferguson's.)

I would be remiss at this point if I failed to point out just how odious it is to have to read nonsense like this is a book by a major publisher:

To work the mines, the Spaniards at first relied on paying wages to the inhabitants of nearby villages. But conditions were so hard that from the late sixteenth century a system of forced labor (la mita) had to be introduced, whereby men aged between 18 and 50 from the sixteen highland provinces were conscripted for seventeen weeks a year. Mortality among the miners was horrendous, not least because of constant exposure to the mercury fumes generated by the patio process of refinement, whereby ground-up silver ore was trampled into an amalgam with mercury, washed and then heated to burn off the mercury. The air down the mine shafts was (and remains) noxious and miners had to descend seven-hundred-foot shafts on the most primitive of steps, clambering back up after long hours of digging with sacks or ore tied to their backs. (p. 21)

Did you catch that? Ferguson writes that 'The Spanish at first relied on paying wages. But the conditions were so bad (namely most of the miners died) so a system of forced labor HAD TO BE INTRODUCED.' The Spanish enslaved the population and worked them to death in the mines -- but Ferguson writes about it as an economic necessity as if the Spanish HAD NO OTHER CHOICE but to enslave and kill the local population.

Think of all the other ways that a more conscientious person might have written that passage: "But the conditions in the mines were so horrendous that the indigenous population refused to work at any price. Rather than improve conditions in the mine or simply walk away, the Spanish, driven by their lust for wealth and a theology of domination, decided to enslave the local population instead. The resulting forced labor and early death for the indigenous population were acts of genocide that enriched the Spanish crown." It's amazing to me that none of the editors at The Penguin Press bothered to cut out the sentences that make Ferguson look like a corporatist monster. But maybe they just didn't see it because they come from a similar worldview. It really shows the sorry state of conservative thinking that Ferguson is treated as a "serious academic" even though he reflexively sides with capital and against people every single time.

The numerous instances of sloppy, ideologically driven prose are really too bad because the information contained in The Ascent of Money is really quite excellent. Case in point, Ferguson's explanation of "what is money" is very insightful -- perhaps the strongest section in the book:

"What the Spaniards had failed to understand is that the value of precious metal is not absolute. Money is worth only what someone else is willing to give you for it. An increase in its supply will not make a society richer, thought it may enrich the government that monopolizes the production of money. Other things being equal, monetary expansion will merely make prices higher. There was in fact no reason other than historical happenstance that money was for so long equated in the Western mind with metal. In ancient Mesopotamia, beginning around five thousand years ago, people used clay tokens to record transaction involving agricultural produce like barley or wool, or metals such as silver. Rings, blocks or sheets made of silver certainly served as ready money (as did grain), but the clay tablets were just as important, and probably more so. A great many have survived, reminders that when human beings first began to produce written records of their activities they did so not to write history, poetry or philosophy, but to do business." (The Ascent of Money, p. 26 - 27.)

"What the conquistadors failed to understand is that money is a matter of belief, event faith: belief in the person paying us; belief in the person issuing the money he uses or the institution that honors his checks or transfers. Money is not metal. It is trust inscribed: on silver, on clay, on paper, on a liquid crystal display. Anything can serve as money, from the cowrie shells of the Maldives to the huge stone discs used on the pacific islands of Yap. And now, it seems, in this electronic age nothing can serve as money too." (p. 29 - 30.)

"It is no coincidence that in English the root of 'credit' is credo, the Latin for 'I believe.'" (p. 30)

"Cursed with an abundance of precious metal, mighty Spain failed to develop a sophisticated banking system relying instead of the merchants of Antwerp for short-term cash advances against future silver deliveries. The idea that money was really about credit, not metal, never quite caught on in Madrid. Indeed, the Spanish crown ended up defaulting on all or part of its debt no fewer than fourteen times between 1557 and 1696. With a track record like that, all the silver in Potosi could not make Spain a secure credit risk. In the modern world, power would go to the bankers, not the bankrupts." (p. 52)

In my next post I'll explore the ways in which fractional reserve banking explains The Protestant Ethic & the Spirit of Capitalism.