Money is typically portrayed as an equivalent value expression for all types of
goods and services. It is defined as serving three functions. As a ‘medium of
exchange’ it facilitates trade between goods. If a fisherman had to barter whatever
he had caught directly for all the goods and services that he needed, it would require
a lot of work, or luck, to find trading partners in possession of what he wanted, and
they would also have to want fish in return. Money eases barter by dividing it into
two transactions. The fisherman gets money for his fish from whoever wants the
fish, and gives that money to whoever happens to offer what he himself wants. As a
‘unit of account’ money therefore allows the fisherman to measure the exchange
value of what he has and to estimate how much of which good or service he can get
on selling his produce. This also allows him to start planning a more complex
fisheries enterprise and to use the money as a ‘store of value’ until he has saved
enough, so that he can purchase another boat. During periods of low catches this
also allows him to continue buying goods or services without having any fish to
sell.
These three functions are listed in the mainstream textbooks. Here, exchange
value and use value are directly linked. Each economic process involves investing
money in order to produce an output whose value is higher than that of the single
input factors. Savings or credit is applied to enable productive processes. The
investor or creditor often participates in the generated surplus value for the prudence that saving money took or the risk that taking on a debt involves.
Thus goes the money story, and originally, as the term ‘commodity money’
expresses, there was something of real value behind it, e.g., beads or rare metals
like gold. Marx’s equation for this function of money goes as follows: C–M–C’, or
in other words commodities of a given value are available as input—one applies
money to enable a process of combining them—commodities with higher value
form the output (Marx 1887: 102–108).
This narrative is so strong that even today we think of money as something
thing-like. But it was in fact a social innovation and over the course of the Great
Transition stripped of any real use value, making it ‘fiat money.’ This type of
money exists only because of government regulation. Its paper value tokens or
numbers on computer screens have no real value at all. They are not real wealth but
a claim on wealth and only function because you and the person or institution
owing you the money accept this relational duty—or have to accept it by legal
imposition.
So money is a relationship, as the root of the word credit—the Latin term
credere or believing in—indicates. The paper notes of the Bank of England still
have the following pledge on them: “I promise to pay the bearer on demand the sum
of….” This type of money is a form of debt: Someone owes you something of real
value. It is a promise of access to something one desires in the future.
With this innovation societies gave themselves the collective illusion that such
faith-based wealth tokens could be transformed into any use value at any time.
James Tobin (1918–2002), who won the Nobel Prize for economics in 1981,
summarized this effect nicely:
108
3 Why the Mainstream Economic Paradigm Cannot Inform …
goods and services. It is defined as serving three functions. As a ‘medium of
exchange’ it facilitates trade between goods. If a fisherman had to barter whatever
he had caught directly for all the goods and services that he needed, it would require
a lot of work, or luck, to find trading partners in possession of what he wanted, and
they would also have to want fish in return. Money eases barter by dividing it into
two transactions. The fisherman gets money for his fish from whoever wants the
fish, and gives that money to whoever happens to offer what he himself wants. As a
‘unit of account’ money therefore allows the fisherman to measure the exchange
value of what he has and to estimate how much of which good or service he can get
on selling his produce. This also allows him to start planning a more complex
fisheries enterprise and to use the money as a ‘store of value’ until he has saved
enough, so that he can purchase another boat. During periods of low catches this
also allows him to continue buying goods or services without having any fish to
sell.
These three functions are listed in the mainstream textbooks. Here, exchange
value and use value are directly linked. Each economic process involves investing
money in order to produce an output whose value is higher than that of the single
input factors. Savings or credit is applied to enable productive processes. The
investor or creditor often participates in the generated surplus value for the prudence that saving money took or the risk that taking on a debt involves.
Thus goes the money story, and originally, as the term ‘commodity money’
expresses, there was something of real value behind it, e.g., beads or rare metals
like gold. Marx’s equation for this function of money goes as follows: C–M–C’, or
in other words commodities of a given value are available as input—one applies
money to enable a process of combining them—commodities with higher value
form the output (Marx 1887: 102–108).
This narrative is so strong that even today we think of money as something
thing-like. But it was in fact a social innovation and over the course of the Great
Transition stripped of any real use value, making it ‘fiat money.’ This type of
money exists only because of government regulation. Its paper value tokens or
numbers on computer screens have no real value at all. They are not real wealth but
a claim on wealth and only function because you and the person or institution
owing you the money accept this relational duty—or have to accept it by legal
imposition.
So money is a relationship, as the root of the word credit—the Latin term
credere or believing in—indicates. The paper notes of the Bank of England still
have the following pledge on them: “I promise to pay the bearer on demand the sum
of….” This type of money is a form of debt: Someone owes you something of real
value. It is a promise of access to something one desires in the future.
With this innovation societies gave themselves the collective illusion that such
faith-based wealth tokens could be transformed into any use value at any time.
James Tobin (1918–2002), who won the Nobel Prize for economics in 1981,
summarized this effect nicely:
108
3 Why the Mainstream Economic Paradigm Cannot Inform …