What Is Money?

Puzzled Musing

 

What Is Money?

 

 

I once ran across a a website called Zeitgeist that was peddling a paranoid conspiracy theory about money and the Federal Reserve and banking in general. The paranoia seemed to stem from the writers’ observation that in the money system as it currently stands, banks create money by issuing debt, thus essentially (it seems) creating money out of thin air. The website saw this as a sinister sleight of hand.

Actually, the equivalency of money and debt matches up pretty closely to what I’ve read in a bunch of books about money–except that economists seem to know and take for granted that money is nothing but debt personified, and are not freaked out by it.

What freaks me out is the fact that the money-system seems so inherently insubstantial: it is nothing but the interconnected faith of many people about what everyone else believes and what they’re going to do based on that belief; it all works when everyone is on the same page, believing together, but when that interconnection breaks down or that faith disappears, the money vanishes. It doesn’t “go somewhere.” It just ceases to exist. Economists all appear to know this, but most, I find, tend to think of gold and silver in a different light–those forms of money are “tangible,” they say. They’re “real money.” And as long as paper money is backed by gold, the experts seem to say, then the paper money is more real.

To me, the puzzling crux of the matter comes in that phrases “backed by.” I’m a know-nothing in the discipline of economics, but as far as I can see, gold and silver are no more tangible than paper in their character as money–that is to say, as personifications of value. What actually and ultimately backs up any currency, whether it’s paper, gold, or conch shells, is real-world economic activity: stuff you can use, activity that produces stuff you can use, ingenuity that contributes to the production of stuff you can use, and above all the interactivity that helps make the stuff you can use more lavish, more complex, and more accessible to all involved.

My brother Riaz once wrote me a letter suggesting that charging interest for a loan is inherently a Ponzi scheme because when it’s time to pay back the loan, that extra money has to come from somewhere and hence[column]

 it must come out of someone else’s pocket–a person who then has to take out a loan (at interest) to cover the expenditure, and so on in an endless, expanding chain. But that’s true only in a barter system.

In any more sophisticated economic system, a system based on credit (and hence debt) when a person borrows money to invest in a productive enterprise, the money grows, or at least it does if the enterprise succeeds in becoming productive. That is, the amount of economic activity and interactivity grows. And if that happens, when it’s time to pay back the loan, there actually is more of the fundamental underlying substance that money represents, the essence of value: more shoes, more food, more services, more exchange of above, etc. In short, there is actually more money.

It seems to me that we writers, artists, and other information-workers are getting pinched right now because the economic system, which is the network of all people amongst whom money is circulating (i.e. who are contributing economic value, and at some later time taking out economic value) are saying, “You can’t join this club, you’re not entitled to receive economic-value from the pool of value we’re creating because you’re not putting any value into the pool–your novel, your short story, your essays and whatnot, have no money value, because we can get all that stuff for free now, thanks to the Internet (and other technologies). As more and more people are told, “You’re not contributing anything we want and therefore you can’t be part of our club,” the club shrinks. And the shrinking of the club = the disappearing of money.

Anyway, that’s how it looks to me.

One Response to What Is Money?

  1. rendy October 7, 2012 at 3:33 AM #

    the problem was, USD used as international currency. which means, FED can produce much much more USD then the real gold or any other precious metal they have.
    it means they can buy/invest in other country as much as they like.

    in other part, other country can also do the same scenario.

    so, to avoid this, all country should give gold/other precious metal to barter with other country’s currency.

    thats my opinion..

    kindly respons 🙂
    thanks

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