How does money, or a currency, gain traction, credibility?

My purpose here is to propose a novel understanding of what money is. Only when there is such a general understanding can the many other problems around money and debt be discussed rationally.

My starting point may surprise.

Money is for paying taxes. Taxes are imposed by an overarching authority, like a government or the suppliers of essential energy (electricity, fuel).

The govt (hegemon, Leviathan) has to employ people to assert its power, and these people must be rewarded. The govt issues these people with credit notes. Meanwhile, all citizens (subjects) are on note that, when the tax office opens in (say) two years’ time, they will have to render tribute (back payment) in the form of said credit notes. They can obtain the credit notes by trading with the govt employees, soldiers, enforcers etc. In return for the tribute, the govt affords protection through its said employees and enforcers. Since everyone will eventually need credit notes, even those who want no connection with govt find them useful for trading among themselves. Thereupon the credit notes have gained traction as a currency, or money.

How is money different to tokens? Tokens can only be used for specific purposes, like buying books or luncheon, and are only valid for a short time. In contrast, if you have money, apart from paying for protection (i.e. taxes) you can claim something in the future (things or services). But this something is unspecific and the claims extend indefinitely into the future.

Other essential features of money follow on from this.

* Money must circulate, but the speed of circulation varies. (In the case of cash, the speed and scope of circulation are unknown.)
* Money becomes a planning tool: it maps obligations and claims. Future obligations are debt, future claims are credit.
* Money, in the form of capital, becomes a means of mathematically modelling possessions (or wealth).

Note that money, qua money, can only exist under the auspices of an overwhelming & permanent authority and with a comprehensive economy.

Once these principles are understood, the other issues around money fall into place such that realistic solutions can be proposed.

Take, for example, the debates about local and parallel currencies.

Local, voluntary currencies have tokens, not money. They are too small-scale and, being voluntary, are unenforceable. But it would be possible to establish a parallel currency. A model for this would be to enable local or regional authorities to raise specific taxes independently of central govt, for example, a land tax. The local authority could issue credit notes to new hires, who would be engaged in local govt services, such as provision of care for the infirm, or upkeep of public spaces. This would alleviate unemployment, esp. since the credit notes would also facilitate trade among the rest of the population. They could be used, independently of the local administration, to pay for childcare, (music) tuition, gardening, cleaning, cultural events (concerts, theatre), and so on.

The land tax would be payable in said credit notes, which would thereupon become a parallel currency. (Failure to pay the land tax would result in seizure of the land.)

I have not addressed the weaknesses of the alternative conception of money, namely that it is a token for a holding of precious metals. (It might also be a token promising to deliver grain next harvest.) Unless endorsed by a strong government, crypto currencies are not money, any more than tulip bulbs or glass beads.

More at http://www.klasseverantwortung.de/english/money.html

Debt, planning, precision, & hubris

2013 Less than 300 words

It might be said that debt is temporary money.

Wherever there is debt, there is, for the time it takes, matching credit, credit being money on a leash. Like a lead or a lease.

A more obvious way of thinking about it is that debt is obligations, and these lie necessarily in the future. Together with credit, it is a planning tool. Since we cannot live day-by-day and do not relish hand-to-mouth, we provide for contingencies, create projects and make commitments. So some debt is good. The problems arise when we overreach ourselves.

It is like filling up our appointments diary years in advance. Indeed, this is how the level of national debt is represented, namely as a percentage of gross domestic product, which is an annualised figure.

If we overfill our diaries and book commitments years ahead, we are likely to default because, in all probability, circumstances will intervene that prevent us meeting our obligations. Re-scheduling everything becomes too complicated because we no longer have any room for manoeuvre, having booked up nearly every time slot.

So one reason that excessive debt (or indeed its counterpart, excessive credit) is bad is that it creates unmanageable complexity. Complexity is the enemy of transparency, and therefore of good governance. <

Excessive debt is, finally, also an instance of spurious precision because precise obligations are created in a magnitude and on a time-scale that have lost touch with human realities. Precision is imagined where none is possible. Precision is conjured up in the realm of speculation. This is hubris.

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