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The Metaphysics of Money

A valuable social construct

What is money like? That's what the metaphysics of money would talk about. We all know what money is like on the physical level of bills and coins and bank accounts. It's stuff we earn and stuff we spend - and we handle money at that level without much mystery thought it can be troublesome.
The theory is easy but the practice can be tricky.

But once we move our attention from that material level the idea of money becomes tricky. A slightly more abstract way of thinking of what money is like is to think of it as a medium of exchange. Once the conventional wisdom was that money was invented to get around the limitations of barter. Recent research shows a different story.

Long story short; When states and kings first arose thousands of years ago they needed a way to pay their soldiers. The solution was to mint coins to pay with. The soldiers would use the coins to pay for their supplies from the population. The king also applied various taxes and fees and rents and fines on the population that could only be paid in the coinage of the realm.

Once the coins were made of precious metal that gave a tenuous link to the barter idea. But that link was fading even in ancient times because kings were putting less and less precious metal into the coins. The courts ruled that that doesn't matter. The coins were worth whatever the king said they were worth. And of course now we have paper money with no precious metal content at all.

Thus money can be thought of as a medium that facilitates transactions - a catalyst or a lubricant perhaps. The pressure for the transaction is there and money makes transactions so much easier that they multiply.

Money allows people to trade at a distance. And when they use money farmer Fred can get fish from fishmonger Lizzie using the money paid for food by logger Ethelred. Money enables the sort of division of labour that makes society so much more effective than a bunch of individuals. And the money that does that can be anything society designates - conch shells, pearls, gold, jewels - all it has to be is scarce and beautiful enough that people take it in exchange as exchanging value for value. The shell is worth to the farmer what the bushel of what he gives in exchange is to the logger. In general its a zero sum game because the farmer might like the shell as a beautiful object enough to not want to trade it on. So the shell has value in exchange because it has aesthetic value.

But that's not what money is now. I mean the banknotes are fabulous these days, but I'd not keep a hundred dollar bill because I thought it was pretty enough to be actually worth $100 to me as an aesthetic object. Current money has no intrinsic value - it is deemed to have value by fiat of some authorizing agency. And it can be just made up out of thin air.

With the reserve system a dollar deposit value can multiply to 10 times that much value in new money. Nobody has to run printing presses. A number in one account is changed to go up. That's it. And that's what happen everytime you make a credit card transaction - money is created out of thin air and put in your vendor's account on your promise to repay later. And the strange thing about this whole system is that when you repay the loan you are actually destroying money.

So - in the present world we can see a new aspect of what money is like. It's stuff that can be created at will or whim. This is a bit of a shock when you first get it; it raises huge moral questions since being in a position to create money is means you are in a position to get rich.

Who should be so privileged and why? But let's leave that as a side issue. The surprising thing when we arrive at this view of what money is like we can see that instead of enabling a class of rich people to get rich by creating money, society could just create that money to do worthwhile things and then destroy that money again when the worthwhile things increase the stock of goods and services that we can pay off the obligation from the surplus.
That's pretty mainstream economics.

Bitcoins are an interesting return to non-fiat value money like conch shells or jewels. I'm not quite sure of how it all works - but at the base it seems that miners let their machines be nodes in a huge parallel processor that does something that generates bitcoins. The miners are rewarded in bitcoins in proportion to the work their machine contributed to the process. These days you can by very specialized machines for thousands of dollars that are optimized to make bitcoins.

We are so used to money that one of the things we often don't notice is what it isn't. Money isn't intrinsically valuable - it's value is derived from the value of the transactions it enables.

But there are many valuable transactions that money doesn't enable because in our society the norm is that if you have no money then you cannot do lots of transactions.

And this economic fact is doing lots of damage. The fundamental problem is that people can't get work that pays them well enough to buy all our society produces. So in a situation where we could easily produce all that everyone needs we can't because of a blockage in the way we think about money.

What do you think?

Star I present regular philosophy discussions in a virtual reality called Second Life. I set a topic and people come as avatars and sit around a virtual table to discuss it. Each week I write a short essay to set the topic. I show a selection of them here.

I've been thinking and reading about philosophy for a long time but I'm mostly self taught. That is I've had the good fortune to read what interests me rather than follow a course of study. That has it's limits of course but advantages. It doesn't cost as much and is fun too.

My interests are things like evolution and cognition and social issues and economics and science in general.