What Is This Money Thing Anyway?

 

One of the consequences of economics pretending to be a science, when it is not, is the tendency to attempt to explain financial behaviour from its base constituent parts, rather as a physicist might build up a picture of a compound from its molecules. This repeatedly results in observations that are either banal or based on circular arguments. And once those observations are generalised, taken beyond their thought experiment circularity, they become consistently misleading. There was an example of this in an article in The Economist that discusses the origin of money, or specie. Money, we are told, is “perhaps the most basic building block in economics”. Well, yes. Painters use paint, too. But money, unlike paint, is a little harder to define:

“It is clear what it does, but its origins are a mystery. Some argue that money has its roots in the power of the state. Others claim the origin of money is a purely private matter: it would exist even if governments did not. This debate is long-running but it informs some of the most pressing monetary questions of today. Money fulfils three main functions. First, it must be a medium of exchange, easily traded for goods and services. Second, it must be a store of value, so that it can be saved and used for consumption in the future. Third, it must be a unit of account, a useful measuring-stick. Lots of things can do these jobs. Tea, salt and cattle have all been used as money. In Britain’s prisons, inmates currently favour shower-gel capsules or rosary beads.”

It is interesting how this argument develops. There is no real definition of what it is other than it is a “mystery”, then we return to what money does, its functions. As Nobel laureate Sir James Mirrlees  commented, traditional economic theory has no explanation for the existence of money. Not a small gap, to say the least. Then the article goes on to look at historical types of money, including barter at which point it has safely departed from any relevance to the meta money world that has developed in the global capital markets.

Taking a building block approach, in other words, gets pretty much nowhere. The quasi-science defeats itself readily enough.

Money, it seems to me, is rules. Rules about value and obligation. The rules can be enforced or overseen by government or they can be loosely enforced through private self organisation. The opposing arguments about money being from the state or private sources is really a non-argument. They are just different kinds of rules. What we are seeing in the global capital market is the shifting of the rule making away from governments and towards private actors, but both are typically involved. It is just that the balance over the last decade has been skewed towards traders, leaving governments to fix the mess when it all inevitably went wrong.

The article also makes the mistake of looking at money as a tangible thing, which is a blind alley. Rules are intangible:

“But the story just doesn’t match the facts in most monetary economies, according to a 1998 paper** by Charles Goodhart of the London School of Economics. Take the widespread use of precious metals as money. A Mengerian would say that this happens because metals are durable, divisible and portable: that makes them an ideal medium of exchange. But it is incredibly hard to value raw metals, Mr Goodhart argued, so the cost of using them in trade is high. It is much easier to assess the value of a bag of salt or a cow than a lump of metal. Raw metals fail Menger’s own saleableness test.

This problem explains why metal money has circulated not in lumps but as coins, with a regulated amount of metal in each coin. But history shows that minting developed not as a private-sector attempt to minimise the costs of trading, but as a government operation. It was state intervention, not the private market, that made metal specie work as money. “

I would say that the physical version of money — and almost all money these days is blips on a computer screen, almost none physical coinage — was developed to be a store of rules (and only secondarily a store of value).

Whatever, the building block approach to understanding money is arid. It ends up only telling us what money does, not what it is. A much better approach is, having defined money as rules, to then ask how human beings create, and are affected by, the rules. An excellent starting point for that is the anthropologist George Simmel, who links it with the rise of individuality. Money allows an individual to define his or herself:

“Money furthers differentiation not only as a by product of of differentiation in society but within the individual directly. It does this by providing an effective means of distinguising between the subjective centre and the objective achievement of a person. The individual’s performance may be paid for while the person remains outside the transaction..”

But Simmel says the individualising power of money has another side. Group membership can either enhance or reduce individuality: investment bankers are all alike except for the differences in their bank balances. And it has an effect on how we conceive others:

“Such power is achieved at the cost of de-individualizing other beings whom one tends to evaluate in monetary terms. Here we confront the Neitzschean belief that there is a world economy of individuality, with the result that its increase in the few takes place at the expense of the depersonalised many.”

It is worth remembering, especially at a time when neo-liberal ideas of the worth of the individual and limitless virtues of markets abound, that the word “individual” once had the opposite meaning: “indivisible from”. That reflects the ambiguity, even paradox, of the idea. One is reminded of the Monty Python film Life of Brian:

Brian: You are all individuals

Crowd: We are all individuals

Some guy: I’m not.

Money is rules, and the patterns of individuality and co-operation or colectivism are revealed in relation to those rules. The question should be in this current bizarre world of meta-money: “What rules are good and what rules are either bad or dangerous?”

The answer will be found in looking at the balance between individual rights and freedoms and the collective good.

 

 

 

 

 

 

 

 

Comments

    • Yes, interesting post. For me, value will once again be invested in scarcity as the human condition becomes more dire, and energy + climate problems undermine the current economic paradigm. What is scarce? Precious metals are the time-tested resources, and we will no doubt go back to them (indeed, some countries already have, with increased CB buying, especially from China).

    • I think you will find it is the extreme right wing of the alphabet party that is responsible for x x z. – sorry its late.

      • Tres droll Phh007…

        For clarity, I was referring to partisan carry on in recent comments, as opposed to actual MB content. Brings to mind the parallel between ar$3holes and opinions.

  1. Thanks SoN. Another superb article provoking deeper thought across the weekend.

    I agree 100% with your definition. “Money is rules”. It follows that he who makes the rules, or, most cleverly breaks the rules, gains an advantage over all those who do neither.

    I think it fair to say that “money”, however one defines it, is (has become) the master of mankind. It should be our servant. All the moreso when, as you say, most “money” does not even exist except in the form of electronic bookkeeping entries, and is in truth nothing more than rules.

    Which is why I believe that humanity will never evolve beyond the often (“cyclically”?) parlous state of the past xx,ooo years, until such time as the true nature of “money” is properly understood by all, not just a few, and consequently ways are found to permanently render it as servant, rather than master.

    I see one possibility for that occurring via separation of “store of value” function from “currency” function, and, empowering individual (digital) currency issuance subject to uniform pre-programmed debit/credit rules, and including most importantly a publicly visible (pre-transaction) “Honour” rating system, where the Honour % is an automated direct function of each individual’s current debit/credit status. In other words, everyone becomes their own central banker, subject to uniform preset rules, including an automated Honour system discouraging excessive / unnecessary “borrowing” (currency issuance to oneself), and encouraging a zero-point credit/debit status in order to achieve and maintain a (publicly visible) 100% Honour rating.

    • ♦Opinion8red said:

      I agree 100% with your definition. “Money is rules”.

      At first I didn’t understand what SON meant. But the more I study and read the more I understand, and agree, with SON’s assertion. The notion that “Money is rules” is quite heterodox, in that it challenges the advoctes of Classical economics and laissez-faire, who delcare the independence of economics from state power.

      ♦Opinion8red said:

      It follows that he who makes the rules, or, most cleverly breaks the rules, gains an advantage over all those who do neither.

      Absolutely. But this is also where SON and I part ways. SON says:

      **quote**

      The rules can be enforced or overseen by government or they can be loosely enforced through private self organisation…. What we are seeing in the global capital market is the shifting of the rule making away from governments and towards private actors, but both are typically involved.

      **end of quote**

      I don’t believe that the power of the state has been diminished at all. Quite the contrary, it has been greatly enhanced under neo-liberalism. How much would all that new meta-money be worth without the long arm of the state being there to enforce its payment?

      If we take a look at the reality of Neo-liberalism, as opposed to its hype, we see two trends:

      1) The capture by the transnational capital class of national states, followed by a tremendous gowth in both the budgets and the police power of those national states, and

      2) The creation by the transnational cpaital class of a powerful supra-national state (e.g. IMF, World Bank), also controlled by the transnational capital class.

      Neoliberalism entails a massive buildup of the state (a la Reagan), but carefully obfuscated by an elaborate campaign of lies and propaganda.

      It also entails a double morality, which became clarion in the policies of the early gurus of neo-liberalism (again, a la Reagan): massive government subsides for the transnational capital class, austerity for everyone else; impunity for the transnational capital class, the jackboot of the state against the neck of everyone else.

      One of the important contributions that classical economists like Michael Hudson have made to this debate is to call attention to the fact that “everybody else” not only includes the poor and the proletariat, but the nationally oriented industrial capitalists as well.

      • Agreed. Thanks for elaborating a view that I share.

        Any thoughts on alternatives? My final paragraph a necessarily brief summation of my own present conclusion regarding an ideal system to strive towards.

        • Here’s an academic paper you might find interesting:

          http://www.tandfonline.com/doi/abs/10.1080/09692290.2012.698997

          It sounds like, using the rubric of the authors, that we both fall into the Cartalist camp, as opposed to the Metallist camp. As the authors explain, in the Cartalist approach “the role of money as a unit of account is a reflection of the political power to establish a particular asset as the currency in the economic system.” And “it is the power of the state, rather than confidence of the markets, that is essential for the moneyness of a particular asset.”

          So for those of the Cartalist persuasion, the money question gets moved out of the economic realm and into the political realm, and the dilemma becomes one of how to form a democratic political community which has enough virtue and honesty to prevent the outbreak of social resentments, which are surefire nation wreckers.

          There was some young fellow who wrote a series of posts for MB some time back who was advocating direct democracy. I can’t put my finger on the posts right now, but it’s an idea that I find most intriguing, and appealing.

          • Whilst I abhor “labelling”, of others or oneself, I would happily concede that my persuasions vis-a-vis a better future do indeed lend themselves more to Chartalist than Metallist philosophy. With the strict disclaimer, of course, that (as evidenced by my concept suggestion) I firmly oppose the idea that “money” (tokens) should be a national currency created exclusively by government (or indeed, any exclusive conglomerate), entering circulation as government spending, and given official “legal tender” status (ie, the “rules”) via taxation, as MMT devotees advocate. As above, I am instead persuaded that an imperative for human societal transformation (evolution) is that this power of currency issuance be given to all citizens individually, subject to pre-programmed, fully transparent “rules” that apply equally to all participants in the economy.

            The author/guest blogger you refer to was Stephen Spadijer, and yes, the topic area of Direct Democracy was one that I too found most worthy of further advocacy and discussion. A coming imperative, indeed –

            http://www.macrobusiness.com.au/2012/01/weekend-musing-direct-democracy-and-economics/

          • Opinion8red said:

            I am instead persuaded that an imperative for human societal transformation (evolution) is that this power of currency issuance be given to all citizens individually, subject to pre-programmed, fully transparent “rules” that apply equally to all participants in the economy.

            Have you bought much on Ebay? I buy a great many antiques so have bought maybe a couple of hundred things on Ebay.

            It’s really quite remarkable how well the information sharing (the rating system) and self-policing works. I’ve had better luck with the accuracy of descriptions coming from Ebay merchants than I have from the big auction houses.

  2. The only ‘good’ is in the individual’s right to the protection of their lawful property, and the ability to act as private agents (in accordance with those laws protecting property), free of the interference of government. The notion of structuring and directing human behaviour to achieve a ‘collective good’ is a failed progressive fantasy, and contrary to the unalienable right of men and women to choose their own destiny, and conceive of their own notion of what constitutes ‘good’.

    The labyrinth of laws and regulations that have been erected in the name of a ‘collective good’ have created a pathology among the citizenry that expects Government to care for and nurture and protect it from itself. Its basis lies in human’s instinctive risk aversion, which in the correct context is a useful mechanism, but when allowed primacy over rational thought, leads humans to irrationally fear the paths that other’s might choose, and attempt to exert power over other people’s destiny.

      • I would expect no less from you.

        The courage of Ayn Rand to enunciate such principles, to express such forceful veracity, dangerous as this is to the status quo of collectivist ideologues, Government, and the vested interests that feed off it, will one day ultimately create a massive intellectual shift on a global scale, such that political thinkers and leaders who impart her simple wisdom will be as gladly received and embraced throughout this planet as the words of Christ.

        • “There are two novels that can change a bookish fourteen-year old’s life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs.”

        • According to her (Ayn Randian)theory of “objectivism,” you are a drain upon society if you use public healthcare/unemployment insurance/roads

          • What was so funny, was that in her latter years, she did not deny herself access to the public coffers when she had the opportunity to. Some said “Hypocritical” Hard to not agree.

    • First we have…

      The only ‘good’ is in the individual’s right to the protection of their lawful property,

      Then we have….

      The notion of structuring and directing human behaviour to achieve a ‘collective good’ is a failed progressive fantasy,

      … all in the same paragraph!

      Prescriptive laws are social constructs. It involves a consensus of a collective that agree and will enforce the directive.

      Seriously, you’re not a budding billionaire that’s being held back by income tax and dole bludgers.

      • There is no inconsistency. Of course the nature of laws are proscriptive and apply to a collective. Social structures need to be ordered to a basic degree that fundamentally provides for the protection of property, and that principle is never achieved by consensus, otherwise there would not be the requirement to devise such laws. It does not follow that all laws are for the collective good.

        • You didn’t make any qualification.

          You stated…

          ‘The notion of structuring and directing human behaviour to achieve a ‘collective good’ is a failed progressive fantasy’

          Which isn’t consistent. What you’re rallying against here, if to be consistent, is that ‘progressives’ aren’t good at structuring and directing human behaviour.

          We’ve a history of reactionaries and conservatives ALSO structuring and directing human behaviour.

          Then if we cherry pick the bad parts, no entity should be part, then we’re back to anarchy, and no protection of your property can be assured.

          • I am railing against the idea, perpetuated here by SON, that there is a ‘collective good’ in the progressive sense that he clearly subscribes to, and which progressive brands of politics arm wrestle among themselves to produce better versions via increased regulation, laws, and taxation structures that at best inhibit private enterprise, and at worst entrench a framework intent on punishing the successful, and protecting and rewarding the idiotic.

          • @ loonyright

            The group vs. individual debate is an ancient one, one which we inherited from Classical Civilization.

            The problem with radical individualism, for time immemorial, has always been the same, and that is when taken to its logical extreme, it results in two end states:

            1) Anarchy
            2) The law of the jungle (e.g., “every man for himself”, “anything goes”, “might makes right”, “survival of the strongest”, “survival of the fittest”, “kill or be killed”, “dog eat dog” and “eat or be eaten”).

            That’s why laissez-faire capitalism almost always goes hand in glove with the social Darwinism of folks like Ayn Rand, Richard Dawkins, Sir Francis Galton, Herbert Spencer and William Graham Sumner.

          • It is a sad state of affairs that the primacy of rational thinking and the freedom to pursue one’s self interest is characterised as ‘radical’. With all respect, this debate has been captive for too long to progressive institutional frameworks, and many find themselves exhibiting symptoms reminiscent of Stockholm’s Syndrome.

            The true capitalist spirit – for so long perverted in the US and elsewhere by the vested interests of the banking and welfare complex – expressed through the actions of independent, rational agents does not end at a logical conclusion of anarchy at all.

            We will find in a world free of fraudulent bankster capitalism that we face difficult choices that may seem from a progressive standpoint like social Darwinism, but will more honestly be a demonstration of man’s most fundamental and primal instinct of self-preservation.

          • @ loonyright

            You also have to be extremely skeptical of the modern prophets of radical individualsim. Have you ever heard of “wolves in sheeps’ clothing?”

            Our modern-day radical individualists are hardly deserving of that fine tradition whose pantheon includes such greats as the Ionian Scientists, the sophists, the philosophic nominalists, William of Occam, Erasums and Luther. All of these were upholders of democracy and human equality in that they worked essentially from the bottom upwards instead of from government circles downward. This is about as remote from the workings of our present-day “radical individualists” as one could get.

            A good read on this is by the Polish psychologist Andrew M. Lobaczewski: Political Ponerology. As he explains:

            **quote**

            An ideology of a secondarily ponerogenic association is formed by gradual adaptation of the primary ideology to functions and goals other than the original formative ones. A certain kind of layering or schizophrenia of ideology takes place during the ponerization process. The outer layer closest to the original content is used for the group’s propaganda purposes, especially regarding the outside world, although it can in part also be used inside with regard to disbelieving lower-echelon members. The second layer presents the elite with no problems of comprehension: it is more hermetic, generally composed by slipping a different meaning into the same names. Since identical names signify different contents depending on the layer in question, understanding the “doubletalk” requires simultaneous fluency in both languages.

            **end of quote**

          • ♦loonyright said:

            …the primacy of rational thinking and the freedom to pursue one’s self interest is characterised as ‘radical’.

            You conflate two things here which are polar opposites. “Rational thinking”—-its requiement of universals, its realist ontology and syllogistic logic—-is the antithesis of individualism. “Rational thinking” has always been the mainstay of the status quo, extremely elitist, and is hardly radical. Individualism, on the other hand, has always been marshalled in opposition to the status quo, and has thus invariably played a radical role.

            ♦loonyright said:

            With all respect, this debate has been captive for too long to progressive institutional frameworks…

            And neo-liberal institutional frameworks.

            ♦loonyright said:

            The true capitalist spirit…expressed through the actions of independent, rational agents does not end at a logical conclusion of anarchy at all.

            No, what it has ended in, as was so thoroughly documented by Simonde de Sismondi in the first decades of the 19th century and by dozens of other investigators since, is the law of the jungle, grotesque social and economic inequality and obscene concentrations of political power in the hands of the capitalist class.

            ♦loonyright said:

            We will find…we face difficult choices that may seem from a progressive standpoint like social Darwinism, but will more honestly be a demonstration of man’s most fundamental and primal instinct of self-preservation.

            I think you’ve been overly influenced by the purpose-driven pseudo-science emanating from New Atheists like Ayn Rand and Richard Dawkins, what Stephen Jay Gould called the “Darwinian fundamentalists” http://www.nybooks.com/articles/archives/1997/jun/12/darwinian-fundamentalism/?pagination=false and David Sloan Wilson called the evangelists of “The Age of Naive Individualism.” http://www.skeptic.com/eskeptic/07-07-04/

            Human survival is actually dependent on a complicated combination and interplay of group and individual fitness, as Wilson explains here:

            “THE NEW FABLE OF THE BEES:
            MULTILEVEL SELECTION, ADAPTIVE
            SOCIETIES, AND THE CONCEPT OF
            SELF INTEREST”

            http://evolution.binghamton.edu/dswilson/wp-content/uploads/2010/01/DSW10.pdf

          • I’m sorry but labelling Richard Dawkins a social darwinist is an egregious slander. He has said unequivocally that as the only species to ever understand the process of evolution by natural selection, we are compelled to do everything in our power to nullify the effects of this process on ourselves and our societies. Please never make that mistake again.

          • MJV said:

            I’m sorry but labelling Richard Dawkins a social darwinist is an egregious slander….

            Your Dawkins sychophancy is moving, but misdirected. He seems to have duped a great many people with his doublespeak and purpose-driven polemics.

            For another viewpoint, try reading some of the links I cited above. Here, for instance, is Stephen Jay Gould:

            **quote**

            Since the ultras [e.g., Dawkins, Dennett, etc.] are fundamentalists at heart, and since fundamentalists generally try to stigmatize their opponents by depicting them as apostates from the one true way, may I state for the record that I (along with all other Darwinian pluralists) do not deny either the existence and central importance of adaptation, or the production of adaptation by natural selection…

            But selection cannot suffice as a full explanation for many aspects of evolution; for other types and styles of causes become relevant, or even prevalent, in domains both far above and far below the traditional Darwinian locus of the organism. These other causes are not, as the ultras often claim, the product of thinly veiled attempts to smuggle purpose back into biology. These additional principles are as directionless, nonteleological, and materialistic as natural selection itself—but they operate differently from Darwin’s central mechanism. In other words, I agree with Darwin that natural selection is “not the exclusive means of modification.” ….

            Daniel Dennett’s 1995 book, Darwin’s Dangerous Idea, presents itself as the ultras’ philosophical manifesto of pure adaptationism. Dennett explains the strict adaptationist view well enough, but he defends a miserly and blinkered picture of evolution in assuming that all important phenomena can be explained thereby. His limited and superficial book reads like a caricature of a caricature—for if Richard Dawkins has trivialized Darwin’s richness by adhering to the strictest form of adaptationist argument in a maximally reductionist mode, then Dennett, as Dawkins’s publicist, manages to convert an already vitiated and improbable account into an even more simplistic and uncompromising doctrine. If history, as often noted, replays grandeurs as farces, and if T.H. Huxley truly acted as “Darwin’s bulldog,” then it is hard to resist thinking of Dennett, in this book, as “Dawkins’s lapdog.”

            **end of quote**

          • And as David Sloan Wilson put it, “it is hard to fathom the zeal with which evolutionists such as Williams and Dawkins rejected group selection and developed a view of evolution as based entirely on self-interest.”

            In additon to Gould and Wilson, the evolutionary psychologist Jonathan Haidt has not minced words in critiquing Dawkins’ dogmatic simplemindedness:

            **quote**

            To my mind an irony of Dawkins’ position is that he reveals a kind of religious orthodoxy in his absolute rejection of group selection….

            It’s time to examine the question anew. Yet Dawkins has referred to group selection in interviews as a “heresy,” and in The God Delusion he dismisses it without giving a reason. In chapter 5 he states the standard Williams free rider objection, notes the argument that religion is a way around the Williams objection, concedes that Darwin believed in group selection, and then moves on. Dismissing a credible position without reasons, and calling it a heresy (even if tongue in cheek), are hallmarks of standard moral thinking, not scientific thinking.

            http://www.edge.org/3rd_culture/haidt07/haidt07_index.html

            **end of quote**

            All of this challenging and questioning of the priestly caste and the most sacred of orthodoxies is an indication of a greater level of academic freedom in the field of biology and psychology than in the field of economics. As Christopher Hayes has observed: “Mafia is probably a tad hperbolic, but there is undobtedly something of a code of omertà within the [economcs] discipline. Just ask Alan Blinder and David Card.” http://www.thenation.com/article/hip-heterodoxy

            So even if the mafia dons ensconced upon their thrones at the University of Chicago no longer resort to hanging, beheading, drowing, burning at the stake or burying alive, they nevertheless have their ways of quelling dissent and propagating the one true faith.

          • Your Dawkins sychophancy is moving, but misdirected. He seems to have duped a great many people with his doublespeak and purpose-driven polemics.

            How, exactly ? I’ve read a couple of Dawkins’ books, though it has been several years since reading the last one. I can’t remember him, at any point, advocating “Social Darwinism”.

            He is quite fiercely and vocally atheist, but I can’t recall him ever arguing we should build the kind of selfish and individualistic society promoted by Rand. Quite the opposite, in fact.

          • There is no correlation between Atheism and Social Darwinism what so ever.

            Ayn Rand was an atheist doesn’t mean every Atheist therefore supports Social Darwinism.

            Richard Dawkins certainly isn’t one of them. Selfish Gene =/= Selfish Human Being.

          • You’re confusing a debate of evolutionary psychology and gene vs group selection with social Darwinism. Dawkins and Dennett and Pinker all advocated an adaptationist approach to the human psychological development. This describes a process that naturally occurs, not one that should occur. Social Darwinism is an ideology that states that human societies should artificially select individuals with the most desirable traits; a completely different idea, and one that all the men you have mentioned reject and abhor.

            Do you research before insulting others.

          • drsmithy said:

            I’ve read a couple of Dawkins’ books, though it has been several years since reading the last one. I can’t remember him, at any point, advocating “Social Darwinism”.

            ….I can’t recall him ever arguing we should build the kind of selfish and individualistic society promoted by Rand. Quite the opposite, in fact.

            In order to understand what the debate is all about, and why Dawkins is an Ayn Rand clone (although granted, an infinitely more intelligent and stealthy one), then it will be neccessay to read more than just what Dawkins himself has written. For example, did you read the four articles I linked?

            If not, here’s another one:

            **quote**

            As we have seen, economic theory has traditionally posited that the basic structure of a market economy can be derived from principles that are obvious from casual examination. An example of one of these assumptions is that individuals are self-regarding…. However, we now know that predictions based on the model of the self-regarding actor often do not hold up under empirical scrutiny….

            A similar situation has existed in human biology. Biologists have been lulled into complacency by the simplicity and apparent explanatory power of two theories: inclusive fitness and reciprocal altruism (Hamilton 1964; Williams 1966; Trivers 1971)…. Trivers’ reciprocal altruism, which mirrors the economic analysis of exchange between self-interested agents in the absence of costless third-party enforcement (Axelrod and Hamilton 1981), has enjoyed only limited application to nonhuman species (Stephens, McLinn, and Stevens 2002), but became the basis for biological models of human behavior (Dawkins 1976; Wilson 1975).

            These theories convinced a generation of researchers that, except for sacrifice on behalf of kin, what appears to be altruism (personal sacrifice on behalf of others) is really just long-run material self-interest. Ironically, human biology has settled in the same place as economic theory, although the disciplines began from very different starting points, and used contrasting logic. Richard Dawkins, for instance, struck a responsive chord among economists when, in The Selfish Gene (1989[1976], v.), he confidently asserted ‘‘We are survival machines— robot vehicles blindly programmed to preserve the selfish molecules known as genes. . . . This gene selfishness will usually give rise to selfishness in individual behavior.’’….

            The experimental evidence supporting the ubiquity of non–selfregarding motives, however, casts doubt on both the economist’s and the biologist’s model of the self-regarding human actor.

            http://joelvelasco.net/teaching/tawp/gintis%20etal%2009%20-%20moral%20sentiments%20chap%201.pdf

            **end of quote**

            Dawkins‘ highly simplistic evolutionary theory has been inundated with a flood of new empirical research, coming from a plethora of disciplines (e.g., biology, antrhropology, psychology, neuro-science, economics), but he still clings to it as to a life raft in turbulent waters.

          • Hewell said:

            There is no correlation between Atheism and Social Darwinism what so ever.

            Ayn Rand was an atheist doesn’t mean every Atheist therefore supports Social Darwinism.

            Straw man.

            Stephen Jay Gould, David Sloan Wilson and Jonathan Haidt are all avowed atheists.

            However, they are not New Atheists, which is a faction of atheists that embraces certain dogmas, such as those embraced by Ayn Rand and Richard Dawkins.

          • MJV said:

            You’re confusing a debate of evolutionary psychology and gene vs group selection with social Darwinism.

            Well there must be a lot of confused people out there then, such as Robert H. Nelson, writing in Economics as Religion:

            **quote**

            The new titans of American industry looked to social Darwinism to bless their victories in the market and resulting accumulations of vast wealth…. The workings of evolutionary biology that Darwin had discovered must surely also be the natural law of economic affairs….

            In short, for the new economics of the late nineteenth-century market, the prevailing image of the working of self-interest is now to be found in a new scientific model dominant for this time….

            For Spencer, it might be a different kind of “invisible hand,” but some force beyond human control…was still acting to ensure that the common good would be served by the individual pursuit of self-interest in the market….

            In the advance of the world, old ideals like social justice, fairness, equality, and so forth will do more harm than good…. Social planning is an impossibility because it is beyond human capacity to redirect the laws of nature.

            **end of quote**

          • glen

            Your prejudice against Atheists are appalling.

            You are no better than those people calling ALL Christians hypocrites, because all they see are paedophile priests being protected by the Church.

            Yes, you are just as bad.

          • What has that got to do with Richard Dawkins? You are talking about people applying Darwinism to economics. There is a superficial analogy there, but the survival and success of corporations in a free market is totally different to the controlled breeding of human beings that characterizes social Darwinism. And it has nothing to do with Dawkins.

            Richard Dawkins in an interview in 2005:

            “No self-respecting person would want to live in a society that operates according to Darwinian laws. I am a passionate Darwinist, when it involves explaining the development of life. However, I am a passionate anti-Darwinist when it involves the kind of society in which we want to live. A Darwinian state would be a Fascist state.”

            I hope that clears it up.

          • However, they are not New Atheists, which is a faction of atheists that embraces certain dogmas, such as those embraced by Ayn Rand and Richard Dawkins.

            If you can find me some examples of Dawkins advocating Rand’s ideal society of radical individualism and selfishness-as-a-virtue, I’d be more inclined to sympathise with your argument.

            It sounds to me like you’re just parroting the usual misinterpretation of “The Selfish Gene”.

          • @glen

            I can imagine such groaningly earnest displays of erudition may be impressive within an environment of second-tier University academics tenured within their tax payer funded institution’s Department of Philosophy, however, it is mostly all frippery and ultimately inconsequential.

            You contention that human survival is actually dependent on a complicated combination and interplay of group and individual fitness is not inconsistent with the pursuit of self-interest and what you refer to pejoratively as social Darwinism, and has nothing to do with the reality that governments worldwide have over-reached their limited remit, and are now actively interfering in the endeavours of the entrepreneurs who actually generate the wealth that government presumes as its own.

            Feel free to weigh into developing a philosophy of government when you have actually risked your own capital in the real world, run a business, employed people – and come up against the constant bureaucratic barriers and taxation structures that are strangling the spirit of free enterprise, in this country and others.

          • Hewell said:

            Your prejudice against Atheists are appalling.

            Who is being prejudiced here?

            Are you expending the cachet of the entire atheist community in order to defend the dogmas of Richard Dawkins and Ayn Rand?

            Are you saying all atheists agree with Dawkins and Rand?

            Is no diversity of opinion or thought allowed within the atheist community?

            Yours is the perfect example of “rational thinking” taken to its extreme—-i.e., the sweeping universals that inhere in Platonic realism and the concomitant syllogistic logic.

          • MJV said:

            I hope that clears it up.

            Well yes, it does help clear it up. The quote you cite is the perfect example of the kind of “doublethink” that has become Dawkins’ stock in trade.

            Let’s look at the quote a bit closer. Here’s Dawkins:

            I am a passionate Darwinist, when it involves explaining the development of life. However, I am a passionate anti-Darwinist when it involves the kind of society in which we want to live.

            So how is it possible to be “a passionate Darwinist” and “a passionate anti-Darwinist” at the same time?

            Oh well, I suppose “WAR IS PEACE,” “FREEDOM IS SLAVERY,” AND “IGNORANCE IS STRENGTH.”

            Now let’s take a look at the rest of the quote, which is where Dawkins crashes head-on with reality and a growing body of empirical evidence:

            No self-respecting person would want to live in a society that operates according to Darwinian laws…. A Darwinian state would be a Fascist state.

            So let me get this straight: “Darwinian laws“? And whose laws might those be? Why Darwins’ laws of course, communicated directly to Dawkins by the Darwinian deity, as if Dawkins had ventured up Mount Sinai.

            And of course if we accept Dawkins’ “Darwinian laws,” then of course a “Darwinian state would be a Fascist state.” But here’s the rub: Dawkins’ “evolutionary laws” are nothing but a bunch of simpleminded dogma.

            It’s what George Orwell called “Newspeak,” as he explains in 1984:

            **quote**
            The keyword here is blackwhite. Like so many Newspeak words, this word has two mutually contradictory meanings. Applied to an opponent, it means the habit of impudently claiming that black is white, in contradiction of the plain facts. Applied to a Party member, it means a loyal willingness to say that black is white when Party discipline demands this. But it means also the ability to believe that black is white, and more, to know that black is white, and to forget that one has ever believed the contrary. This demands a continuous alteration of the past, made possible by the system of thought whihc really embraces all of the rest, and which is known in Newspeak as doublethink.
            **end of quote**

          • drsmithy said:

            If you can find me some examples of Dawkins advocating Rand’s ideal society of radical individualism and selfishness-as-a-virtue, I’d be more inclined to sympathise with your argument.

            Here’s an example that David Sloan Wilson cited:

            **quote**
            In retrospect, it is hard to fathom the zeal with which evolutionists such as Williams and Dawkins rejected group selection and developed a view of evolution as based entirely on self-interest. Williams ended Adaptation and Natural Selection with the phrase “I believe that it is the light and the way.” Here is how Dawkins recounts the period in his 1982 book The Extended Phenotype:

            The intervening years since Darwin have seen an astonishing retreat from his individual-centered stand, a lapse into sloppily unconscious group-selectionism … We painfully struggled back, harassed by sniping from a Jesuitically sophisticated and dedicated neo-group-selectionist rearguard, until we finally regained Darwin’s ground, the position that I am characterizing by the label ‘the selfish organism…”

            This passage has all the earmarks of fundamentalist rhetoric, including appropriating the deity (Darwin) for one’s own cause. Never mind that Darwin was the first group selectionist.

            http://www.skeptic.com/eskeptic/07-07-04/

            **end of quote**

          • @ loonyright

            You might up your game a bit if you attempted to play the ball instead of the man.

            Regarding the following assertion:

            You contention that human survival is actually dependent on a complicated combination and interplay of group and individual fitness is not inconsistent with the pursuit of self-interest and what you refer to pejoratively as social Darwinism…

            I suppose that could be true if you do what MJV does, which is to go shopping for a definition of “social Darwinism” which is custom tailored to your argument and which is not consistent with the meaning it has in popular usage.

            As to the following assertion:

            You contention that human survival is actually dependent on a complicated combination and interplay of group and individual fitness…has nothing to do with the reality that governments worldwide have over-reached their limited remit, and are now actively interfering in the endeavours of the entrepreneurs who actually generate the wealth that government presumes as its own.

            I think if you will look at some of the references I have cited above, a great many people believe that the one does have something to do with the other.

          • So how is it possible to be “a passionate Darwinist” and “a passionate anti-Darwinist” at the same time?
            The same way one could be a believer that end result of free markets is oligopoly, while simultaneously believing this extreme is bad result and should be avoided ?

            So let me get this straight: “Darwinian laws“? And whose laws might those be? Why Darwins’ laws of course, communicated directly to Dawkins by the Darwinian deity, as if Dawkins had ventured up Mount Sinai.
            Do you get similarly agitated when someone refer’s to Newton’s Laws ?

            Here’s an example that David Sloan Wilson cited:
            Your example doesn’t support your assertion.

          • @ drsmithy

            All I can do is put the evidence out there, and if you decide to ignore it, then that is your election.

            Another piece of evidence is a presentation that Dawkins gave at The Science Network:

            http://thesciencenetwork.org/programs/beyond-belief-science-religion-reason-and-survival/session-7-1

            At minute 46:25, Dawkins asks the questions: “Where does our morality come from? Where does the Good Samaritan in us come from?”

            Then Dawkins runs through the litany of noncontroversial evolutionary mechanisms that everyone agrees would have produced altruism in a small village environment: kinship, reciprocation, reputation and handicap principle.

            But then Dawkins concedes that “it is less clear to see why we are still altruistic” in today’s large cities and highly impersonal social settings. “We have empathy. We have sympathy,” he continues. “We have all these qualities which don’t seem to belong in the world of the selfish gene.”

            Dawkins then concludes that “our urge to kindness, altruism, generosity, empathy, pity, sympathy” are “misfirings” and “Darwinian mistakes.” They are, in other words, traits which evolved “under ancestral conditions”—-when we all lived in small villages—-but that, in present-day society, no longer enhance the survival or fitness of the selfish genes.

            The explanation that Dawkins offers as to why “our urge to kindness, altruism, generosity, empathy, pity, sympathy” are no longer adaptive or fitness enhancing is this:

            Selection does not, could not favor the evolution of a cognitive awareness of what is good for our selfish genes. That cognitive awareness had to wait for the 20th century, and even then was only understood by a minority of scientifically trained people. What natural selection favors is not that which is best for the selfish genes. What it favors are rules of thumb in the brain which under ancestral conditions would have favored the survival of the selfish gene.

            So there you have it, stright from the horse’s mouth. Only “a minority of scientifically trained people” posess the “cognitive awareness” of why selfish behavior is adaptive and fitness enhancing, and yet “our urge to kindness, alturism, generosity, empathy, pity, sympathy” is not.

          • drsmithy said:

            Do you get similarly agitated when someone refer’s to Newton’s Laws ?

            No, but I do get agitated when folks like Richard Dawkins conjure up these “scientific” laws designed to give license—-moral and intellectual justification—-to selfishness and greed.

            Dawkins’ game is not a new one. The same sort of corruption of science, thinking, writing, and value systems that we see with Ayn Rand and Dawkins was in full bloom the 19th century. As Robert Heilbroner wrote, it was

            **quote**
            a world that was not only harsh and cruel but that rationalized its cruelty under the guise of economic law. Necker, the French financier and statesman, said at the turn of the century, “Were it possible to discover a kind of food less agreeable than bread but having double its substance, people would be reduced to eating only once in two days.” Harsh as such a sentiment might have sounded, it did ring with a kind of logic. It was the world that was cruel, not the people in it. For the world was run by economic laws, and economic laws were nothing with which one could or should trifle; they were simply there, and to rail about whatever injustices might be tossed up as an unfortunate consequence of their working was as foolish as to lament the ebb and flow of the tides.

            The laws were few but final. We have seen how Adam Smith, Malthus, and Ricardo elaborated the laws of economic distribution. These laws seemed to explain not only how the produce of society tended to be distributed but how it should be distributed. The laws showed that profits were evened out and controlled by competition, that wages were always under pressure from population, and that rent accrued to the landlord as society expanded. And that was that. One might not necessarily like the result, but it was apparent that this result was the natural outcome of society’s dynamics: there was no personal ill-will involved nor any personal manipulation. Economic laws were like the laws of gravitation, and it seemed as nonsensical to challenge one as the other.

            ROBERT L. HEILBRONER, The Worldly Philosophers

            **end of quote**

          • drsmithy says:

            So how is it possible to be “a passionate Darwinist” and “a passionate anti-Darwinist” at the same time?

            The same way one could be a believer that end result of free markets is oligopoly, while simultaneously believing this extreme is bad result and should be avoided ?

            So what are you asserting, that it is better to be a “passionate believer” in free market mythology than it is to formulate a theory that does not depart so drastically from reality?

          • All I can do is put the evidence out there, and if you decide to ignore it, then that is your election.
            You have yet to put forth any evidence that Dawkins advocates a Randian society. All you’ve presented is other people’s interpretations of his writing.

            But then Dawkins concedes that “it is less clear to see why we are still altruistic” in today’s large cities and highly impersonal social settings.
            One could probably make an argument we have become less altruistic as the proportion of people in “today’s large cities and highly impersonal social settings” becomes larger. Indeed, such research would be quite interesting – do you know of any ?

            So there you have it, stright from the horse’s mouth. Only “a minority of scientifically trained people” posess the “cognitive awareness” of why selfish behavior is adaptive and fitness enhancing, and yet “our urge to kindness, alturism, generosity, empathy, pity, sympathy” is not.
            And ? Is there a point here ? Is the idea that a relatively small number of appropriately educated people understand some scientific concept really that bizarre or offensive ? You do not need to understand some scientific principle for it to work, or be true, as evidenced by our lack of understanding of gravity not preventing us from flying off into space.

            The basic argument you are making is akin to saying Einstein advocated bombing Nagasaki and Horishima because he shared some of the scientific knowledge behind nuclear weapons.

            In fact, if you go on to listen, he specifically states, at 59:00 (paraphrased):
            “and I want to stress that [this Darwinian analysis] is not in any way intended to demean the noble emotions of compassion and generosity”.

            Or again at 82:35:
            “I’ve always emphasised cooperation […] genes working together”

            Indeed, Dawkins’ presentation has done nothing but reinforce my opinion that you just have some axe to grind with Dawkins and are twisting his words to match your argument.

            No, but I do get agitated when folks like Richard Dawkins conjure up these “scientific” laws designed to give license—-moral and intellectual justification—-to selfishness and greed.
            You have yet to provide any evidence of _Dawkins_ presenting “moral and intellectual justification of “selfishness and greed”.

            So what are you asserting, that it is better to be a “passionate believer” in free market mythology than it is to formulate a theory that does not depart so drastically from reality?
            No, that it is quite reasonable to be a “passionate believer” in a theory that can have negative outcomes while also not agreeing those outcomes should simply be left to happen.

  3. Great post, as usual.

    Money is rules. But it is also a means of transacting with somebody whom you may or may not trust, aptly captured by the phrase “In god we trust, the rest pay cash”. When central banks devalue money and hand it over to banks, they are essentially devaluing trust and it will eventually lead to a breakdown of commerce.

    • “In god we trust”….. as on the Dollar Bill.

      But you really do miss the entire point of the devaluation of money. The Dollar function is also a future claim on goods and services.

      Those, and the people that produce them , are the ones truly being devalued.

      A breakdown in commerce may or may not occur. Even if it did , human nature and adpatability shows that another form of exchange will step in to fill the breach.

      The real issue is that Money has been hijacked and remains under the control of vested interests. That’s the search that matters IMO.

      • GSM said:

        The Dollar function is also a future claim on goods and services.

        Those, and the people that produce them , are the ones truly being devalued.

        This is a subtely deceptive form of “logic,” one which Steve Keen has helped me see through.

        If we divide the world into two classes, the creditor class and the debtor class, what we find is that “the people that produce goods and services” don’t always fall into the creditor class. And in fact, according to Keen, when the finance sector is performing a socially constructive role, “the people that produce goods and services” invariably fall into the debtor class. So a certain amount of devaluation, so long as it is not disruptive, certainly behooves the interest of “the people that produce goods and services.”

        Those who advocate a strong currency, or even a currency that is increasing in its purchasing power, hail from the creditor faction of the rentier class. If we use the 17th-century definiton of rentier—-a person who “derived their income from houses, land and money at interest”—-this becomes quite obvious.

        Kevin Phillips does a good job of explaining this in Wealth and Democracy, but the premier work in this regard is Lawrence Goodwyn’s The Populist Moment. Here’s but one example of the many he gives of how the rentiers manipulate the money to their own advantage:

        **quote**

        However, bankers and other creditor-bondholders had a more specific motive for specie resumption. The currency had depreciated steadily during the war, and, having purchased government bonds then, they, understandably, looked forward to the windfall profits to be made from redeeming their holdings in gold, valued at the pre-war level. A governmental decision to begin paying coin for its obligations would mean that, though the Civil War had been fought with fifty-cent dollars, the cost would be paid in one-hundred-cent dollars. The nation’s taxpayers would pay the difference to the banking community holding the bonds.

        **end of quote**

        • “Those who advocate a strong currency, or even a currency that is increasing in its purchasing power, hail from the creditor faction of the rentier class”

          An excellent and vital point. In the brief summation of my concept of a new monetary (currency) model above, I inadvertently neglected to mention that a key aspect would be preprogrammed automatic devaluation (towards zero) of each individual’s debit and credit currency balances, summed since last log-on.

  4. Thanks SoN.

    Very thoughtful and thought provoking article.

    “Money is rules” is correct. And indeed it must perform those basic 3 functions.

    However while pondering the post above I ended up turning to (as always!) issues beyond the mechanics and history of specie and the various functions it performs today – to the how and why.

    The true power of Money can be seen when it morphs into Debt and Credit. Credit rules Kingdoms. So, a 4th function can be attributed to Money IMO. Perhaps the most important function. It could be described in various ways – Power, Control , Influence, Primacy.

    How is the control or issuance of Money governed? WHO has that authority and control? How is that power obtained , granted or perhaps confiscated? What advantages are derived from that privilaged position?

    Trying to find answers to these questions over the years has opened up all kinds of reading avenues. But primarily, it has led me to believe that there are serious advantages derived by powerful vested interests in keeping the public at large dumb on Money matters. And that active strategies are always deployed to influence or achieve that goal.

    This is why understanding The Fed, it’s genesis , ownership, it’s role and how it’s activities influence is such a rich learning device about the history and powers of Money today.

    A bulwark of sorts against those vested interests is freedom of speech and thought. Probably the most important of all freedoms from which most all others are derived. But my simple layman’s education is so far from complete.

  5. Great article SoN.

    Goldbugs – just remember, gold is just another rules based form of money.

    It is not the ONLY form of money, just one that peoples/States/armies decided upon (along with others) throughout history (but not all the time either) as one set of rules to agree to….most of the time….

    The same applies to the fiatbugs – people can decide to change the rules or perceive that the rules have changed – look at QE – which is not money printing, but is perceived to be, i.e the participants consider the rules have changed, even though no new ones have been written…or notes printed.

    Money is just perception of the rules of society, of transactions- i.e it is as real as people think it is.

      • I’m not sure I follow their description of the money creation process, it sounded a bit bungled to me. It seemed as though they were saying that $100 of borrowing by the federal government leads to $1000 of new currency in circulation, is that how you understood it? The federal government doesn’t control the money supply, the reserve bank does. And even then, it isn’t the purchasing of securities by commercial banks that increases the money supply, it is the selling of securities to the central bank in exchange for new currency (purchasing securities from the central bank decreases the money supply). $100 worth of securities are replaced by currency on the commercial bank’s balance sheet, $90 of which may be lent out, $10 of which remains in reserves at the fed. This $90 eventually finds its way to another commercial bank by way of a depositor: $81 gets leant out, $9 goes to the fed. And so on until $1000 of new money is created in total (at a reserve ratio of 10%). This is the money multiplier in action. There is a fiscal multiplier, but this doesn’t directly affect the money supply, so I’m not sure where they got that idea from. There doesn’t seem much point in spending 2 hours watching a doco on the banking system made by folks who don’t understand the basic functions of fractional reserve banking, does there?

        • Wasted OpportunitiesMEMBER

          MJV, I’m just a layman trying to get my head around some of these concepts, but it seems that if the security bought by the central bank is a $100 government bond, then the money is created by government borrowing.

          In practice this is true whenever the central bank acts as a lender of last resort to bailout a government backed organisation. The “assets” that end up on the central bank balance sheet might not be government bonds, but if they are backed by the government it has the same effect.

          • That’s correct, but it is the action by the central bank that creates the money, not the federal government. In and of itself, the issuance of government debt doesn’t increase the money supply. When a government borrows, an agent in the economy is giving up spending today and lending to the government, which then spends. The effect on the money supply is no different to if the saver simply spent that money himself. So it is simply wrong to say that a commercial bank gets to lend out $1000 ‘it doesn’t have’ every time it buys a government bond.

          • Suppose I borrow $10 from the reserve bank and deposits it to a commercial bank, say, ANZ. ANZ does not know, nor does it care, whether the new $10 in their deposit book is borrowed money or not. ANZ can lend out extra $100 based on the $10 I put if the regulation allows sufficiently low tier one capital ratio. Then whoever borrowed that $100 can go to the next bank, say NAB, and deposit the whole $100. NAB, in turn, can lend out extra $1000, and it goes on.

            So,….. as long as a bank is allowed to lend more than 100% of their deposit books, there is no mathematical limit in the total amount of money than can ciculate.

          • Oh, hang on a sec.

            The initial $10 does not need to come from RBA, it can come from CBA!

            It appears that RBA is utterly powerless in controlling the amount of money in circulation.

    • Good points TP, but the rules must have predictability and certainty to retain their validity, even if they retain their enforceability.

      This is really what gives the gold bugs the whip hand at the moment, gold is rules but it is also steeped in historical norms that give the rules an historical validity that transcends a regime made rule.

      Fiat currency does seem to be eating itself by breaking the tenets that gave the rules utility.

      • Like all forms of Control, Gold is not immune.

        But ever so slowly the leash is coming off. Not a goldbug, but you can’t deny that gold is fullfilling it’s historical role yet again. Whatever it is, TPTB haven’t managed to harness gold yet.

    • + 1 , and there frankly is the nub of it.

      So reading the tealeaves becomes even more important when those rules invariably put the target on YOUR back.

    • That certainly was Marx’s take on the nature of the polity. But, as Amitai Etzioni puts it in The Moral Dimension, not everyone marches in lockstep with Marx:

      **quote**

      The two most important observations about the application of interventionist power are: (1) its exercise generates economic consequences comparable in magnitude to those gained through the exercise of economic power (by one economic actor over others), and (2) interventionist power can be applied whether or not the actor commands economic power.… In short, economic actors can, by the use of political means, achieve various effects often attributed to concentraton of economic power.

      The theorem just stated is in opposition to the Marxist notion that political power merely or largely reflects economic power. While it is true that if an actor commands economic power it might be converted into interventionist power, economic power is not a prerequisite for interventionist power, and interventionist power is often the source of economic power. While many actors command both kinds of power, there is no necessary correlation between the two.

      **end of quote**

  6. For an economics blog, there is an odd hostility towards to the economics profession here at MB. From what I can see, the main criticisms appear to be: economists are lousy forecasters; economists pretend to be scientists. I’d like to shed some light on these grievances, if I may.

    Most economists don’t forecast. The ones that do are overwhelming employed in the private sector (a notable exception being the IMF), and serve the purpose of creating the impression that their employers, typically banks, possess potent powers of divination unavailable to mere mortals. It’s a marketing tool, and a useful one at that; as flawed as their forecasts may be, it is still preferable to have a best guess of future economic conditions rather than no guess at all.

    Economists don’t pretend they are scientists. Economics is a social science. ‘Social’ in that it is a study of human behaviour; ‘science’ in that empirically testable models are constructed to explain this behaviour based on certain assumptions. No economist I have ever met has asserted that these models produce immutable laws governing human behaviour. These models are only as good as their assumptions, and when empirical results invalidate them, you try something else. What you mean when you allege that economics pretends to be a science is that economics pretends to be a natural science. It does not. If you simply disdain the association of the words ‘social’ and ‘science’, then don’t reserve you censure for economics, there are plenty of other apparently illegitimate disciplines that fall into this categorization.

    • Tks for the thoughts, MJV. What kind of relationship do you see operating between the words “social” and “science”? (it’s a serious question). Put another way, if economists do not pretend to be scientists, but do pretend to be social scientists, how is the science different?

      • Well firstly, economists don’t ‘pretend’ to be social scientists, they are social scientists; unless you reject the label altogether.

        I’m no scientist and I’m painfully ignorant of the field(s). But simplifying the distinction as best I can, I would say that natural or ‘hard’ sciences deal with fixed relations of physical properties; carbon and oxygen always make carbon dioxide, a tossed stone will always fall to the ground. Social sciences examine human behaviour, which is inherently unstable. Decades of ‘normal’ behaviour may suddenly give way to entirely different patterns of behaviour that shatter existing assumptions. A key difference is the nature of the observable data on hand. Hard sciences can repeatedly run identical controlled experiments to determine a relation. In economics, for the most part, you have to rely on real events that often transpire over lengthy periods of time. And even then, as they say, history rarely repeats, it only rhymes. So looking at say the Great Depression for applicable lessons in our current plight isn’t particularly useful given that the circumstances are so vastly different. No two economic events are exactly alike. Not being about to run repeated experiments with controlled variables means economics cannot produce theories in the sense that a hard science can.

        For what it’s worth, I think an over-emphasis on mathematics in economics is folly. But that is where the profession is at present (to be honest, that doesn’t bother me; it’s easier to get high grades when the you aren’t at the mercy of the marker’s discretion). You may argue that this emphasis on mathematics is evidence of economists masquerading as scientists. But the connection is superficial. Economists are the first to acknowledge that the models they construct are only as good as their underlying assumptions. In hard sciences you have theories that may be falsified; in economics you have models with reasonable or unreasonable assumptions. As new evidence emerges, you discover which assumptions are unreasonable and discard models predicated on them.

        Not all economists embrace the mathematical approach, I might add. The Austrian School more or less rejects it outright, although I’m not sure they’d be your cup of tea.

        • Tks MJV. Yes, you are right about the mathematics bit, probably my prejudice I suppose because I am well aware that there are schools of economic thought that either reject it or treat it with scepticism. More to the point, would you agree that the focus on normative behaviour, as you describe it, has, by implication, a moral dimension (in the sense that “moral” relates to “mores”, which is normative?)

          • The trouble with a lot of heterodox schools though is the reliance on a priori deduction. You may not be able to gather data as neatly as you can in other fields, but it is nonetheless feasible to test economic propositions with real world observation. So while there is an emphasis on mathematical deduction in mainstream economics, it is backed up by empirical observation.

            Yes economics certainly does deal with normative questions, if that is what you are eluding to. But these cannot be judged adequately without positive examinations of outcomes. So the normative statement might be, ‘these tax cuts should not be implemented because the benefits will accrue overwhelmingly to the wealthy.’ But this relies on a positive statement, ‘the benefits of these tax cuts will accrue overwhelmingly to the wealthy.’ Once you have established the past or probable future economic relation, the moral dimension can be assessed. This is why the quantitative element of economics is important. You cannot truly argue a moral case in economics without statistical evidence of what the effects will be or have been of this or that policy.

    • MJV, i’m not sure it’s hostility. I think there is a major failure in politics and economics as the inequity now is simply gone too far IMO which people in general are reacting to. we’re simply expected to accept the crap that dealt to us.

      last week in Canberra one of our current politicians was lobbying for even higher wages for the political class. that didn’t get a lot of air in MSM.

      There are so many issues, and yet there is a resistance to change which in the end would benefit all. In most cases now you simply can’t work hard and have a good life.

      I’m falling in and out of hope that anything will ever change, but I believe change is possible, but economists and politicians need to look outside of economics for the answers.

      my economics question is how long can Australia go on with such high cost for all aspects of our economy?

    • I’ll try posting again .

      Economic thought is, among other things, a derivative of politics and vested interests. Those interests may be of a pure political nature (Marx, Engels etc) or a commercial nature ( Banks). Very few economists are what could be called “independant” IMO , even though they think they are. Through no fault of their own.

      Because, from what I can see, all schools of economic thought have subscribed to a political influence and seek to extend that influence via their version of their correct economic theory and it’s teachings. All economists learning their “trade” are therefore effected. Steve Keen is waging a campaign to change the way Economics is taught for these (and other ) reasons.

      MJV , the majority of economists do forecast. As well as interpret (spin?) the current economic situation. “Interpret” being the operative word. Because much is at stake- your investing, spending and voting habits to name a few.

      That is why I value the information and interpretation put forward here at MB. Sometimes it’s confronting but on balance I find it quite valuable to me and how I view the economic landscape , how I view my family’s future. The influences mentioned earlier are muted by general commonsense.

  7. The first (means of exchange at that moment in time) and third (unit of account) purposes of money are trivially met by government fiat (with or without gold or other backing).
    The only rules are a statement of legal tender and security aspects – to ensure that what is being used is what it claims to be. That is, $100 note can be easily trusted as genuine and banking transfers are protected by law.
    The most interesting purpose of money is the second one – a store of value. Almost no governments have a rule to preserve store of value for money. In fact most have a rule that money will be devalued on a continuous basis. In Australia the policy is to devalue by 2%-3% every year. But this is not even a legal rule but a gentlemen’s agreement between the Treasurer and the Governor of the RBA.
    Partially as a response to this intended devaluation of money people who lend money charge (interest and/or fees) borrowers of money (the means of exchange). This gets messed with by the CB setting interest rates between itself and the banks but other than that it is a matter between private lenders and borrowers and is not dependant on rules. Rules on lenders and borrowers are simply an interference.
    The store of value issue is a matter of trust by the users of the money issued by the authorities. The government can make as many or whatever rules it likes but the users trust will be based on rather more than that. Can government rules be trusted?

    • Good post.

      “In Australia the policy is to devalue by 2%-3% every year”.

      It’s a bit higher than that. How can you trust the rules when you can’t trust the official data or it’s just wrong.

      “Can government rules be trusted?
      Generally not”.

      Some of the rules can be changed under existing powers. Australian law has a mechanism in place to require delivery of gold to the Reserve Bank of Australia (RBA) – Part IV of the Banking Act 1959.

  8. Money is power.

    In my case, the power to exchange coins for a cup of coffee, which I desperately need this morning.

    In the case of government and business, it means a whole lot more.

    • I know an anthropologist who would bitterly disagree with you. Personally, I don’t see a huge amount of difference.

  9. Why do people like football? Well, yes, some don’t. Like me!. But….. it has rules… and someone to enforce the rules…. the ump! The game of economics is similar… with a few exceptions… You can’t throw a tinnie at the economic ump and he… or she… is getting secret instruction by ear piece on how to interpret the rules, by the real untouchables, like Goldman Sachs. I wish like the Icelandics that ‘no one is too big to fail!’ The people of Iceland say… Please let them fail… They have destroyed our economy!
    Oh. Sell on News’ recommendation http://youtu.be/swkq2E8mswI

    is excellent. The guy that made it was running for the 2012 presidency…. Did he have any hope? Not a chance… the electorate is simply not well enough informed to make any choice. Rather much like Australia… So wish we could get some newspapers in this country that weren’t so behold’in to the Anglo American Establishment.

    • “the electorate is simply not well enough informed to make any choice. Rather much like Australia”

      Indeed.

      Why is it that Finance and Economics are only studied at Uni and by those few who are inclined to do so? Such a knowledge gap in our education system seems almost obscene.

      • I said this before but, it is a pity that money does not come with a user’s manual.

        And I suspect that is because nobody knows how to write one.

        Economists can keep making useless theories that cannot be tested experimentally (so cannnot be held accountable), while keep collecting paychecks. Sounds like a good job to have. You would quickly go out of your job if you do that in REAL science.

  10. “Money, it seems to me, is rules.”

    SoN, I don’t mean to be a complete pain in the backside, but this does not serve as a definition of or explanation for money. It only invites us to ask “What are rules?” Or, more aptly, to provoke us to ask what kind of rules are relevant to money.

    At another (even more irritating and painful) level, trying to equate money with rules is a bit like trying to equate the behaviour of traffic with the road code or trying to explain the operations of a company be referring to the Corporations Act.

    This is not to say that rules are unimportant or that the questions of who makes them, how they are made and what they consist of are trivial. Far from it.

    But it does say we need a more useful understanding of what “money” is and how its existence explains the behaviour of individuals, their interacting perceptions and decisions, and the complex of events commonly grouped together and called economic activities.

    I have my own rudimentary idea about money, and that is that it should be thought of as a form of social energy – as something that can be measured, created, converted, captured, stored, released and reproduced – that is derived from and applied within “productive” activities.

    It also has some incredibly useful properties. First, it allows for both time and concrete objects to be given unambiguous, arithmetic abstract expression, and, conversely, for abstract measures to be turned into real objects and forces; and, second, it allows such measurements and their exchange to be transmissible across space and time. Viewed this way, money is also a time machine for concrete values.

    A further contention is that these things occur regardless of the specific rules that happen to operate in any given instance, and therefore rules follow the creation of abstract values (being “money” in its most elementary sense).

    • Well, somebody once said, and it is unfortunate that I cannot recall who it was, “Given its prevalence, it is a pity that money does not come with a user’s manual.”

  11. Money is rules seems a bit unclear and clumsy to me. The best writing I’ve read on this is by anthropologist David Graeber in his book Debt: The First 5000 Years.

    From his research he comes to the conclusion that Money is an IOU. It is debt. But a debt that can be traded.

    This is consistent with the article when it suggests that money is related to value and obligation. But is it rules about value and obligation, or a representation of that value and obligation? I tend to think the latter.

    Money represents our debts to each other as individuals. This is why currency systems tied to commodities have always been prone to crisis; because as the number of interactions (call it economic activity) between individuals fluctuates, by definition the aggregate level of debt must fluctuate. It follows that the token with which we choose to measure that debt must fluctuate with it; and these changes in economic activity often have no relationship with the commodity used to back currencies.

    This is also consistent with data that suggests in a fiat currency system, credit creation is endogenous to demand rather than dependent on fractional reserve banking as is the myth we currently believe. i.e. Banks create credit out of thin air, and this credit drives most of the activity in the economy. So banks are the overseers of debt arrangements. They perform a crucial service in any monetary economy, but that’s all it is, a service. Banks do not create wealth, so when finance takes over an economy it creates what Michael Hudson calls a “toll booth” effect, making the wealth generating, productive sectors of an economy more high cost. This occurs because of the rules that govern how money enters the economy/credit creation etc.

    I digressed a little, but the point is that while the rules can change, money is always an IOU or a debt. I think this is a much clearer way of thinking about what money actually is.

    • Yes, debt (demand) creates money. I think Steve Keen explained the point very clearly using an example of a credit card.

      And that is THE reason why the central bank of Japan keeps printing over the last 20 years and yet the CPI had hardly changed in the same span…

      The newly printed money simply went to the sink in the commercial banks that offset the bad debts accummulated in the past.

      So… unless there is new demand for credit, the acutal amount of money in circulation does not increase regardless of how much more the central bank prints.

  12. Thanks for these regular musings, SoN, they’re one of the reasons I keep reading MB.

    Apart from MB, some of the most enlightening insights into the nature of money and wealth that I have come across come from the reflections of an Archdruid.

    Yes, I’m serious. Take this post for example: http://thearchdruidreport.blogspot.com.au/2009/07/nature-wealth-and-money.html

    There’s a lot of common ground between you and the druid, but he brings historical and ecological dimensions into the discussion, which I found quite valuable. Some examples from the link above:

    Those who accept the identity of money and wealth seem most often to think of the rules governing money as something akin to laws of nature, untainted by human purposes and agendas; those who draw a distinction between them tend to see those rules as social constructs that benefit some people at the expense of others.

    It’s simple cultural chauvinism to insist that the particular, and peculiar, form of money used in contemporary Western societies is the only one that matters. Over the span of human history, money is a fairly late invention, and until very recently it played only a small part in the lives of most people even in the societies that used it; until the eighteenth century, even in the Western world, a majority of all goods and services were produced and exchanged within the household economy, or in local customary economies that made no use of money, and only the well off could expect to handle money on a daily basis.

    Every human society has had some social mechanism for distributing goods and services. Paleoanthropologists have argued that it was precisely the evolution of food sharing within bands of ancestral humans that gave our species the evolutionary edge to expand across the globe in the face of wide variations in habitat and the rigors of ice age climates. Hunting and gathering societies around the world have intricate arrangements for sorting out who gets how much of the various natural sources of wealth available to them; so do the horticultural and pastoral human ecologies that evolved out of the hunter-gatherer pattern. Some of these latter use a particular trade good in certain contexts as a general marker for value – think of the shell-bead wampum strands used by the First Nations in eastern North America, for example – but these get used only in a restricted class of prestige exchanges, and play no role in everyday exchanges of goods and services. The same thing was true of gold and silver coinage in many ancient and medieval societies; most of the population of medieval England, for example, could expect to go from one winter to the next without seeing more than a handful of silver coins.

    … and so on leading up to a discussion of what you’ve termed “meta-money”. Check it out.

  13. …i’m playing with the idea that even more fundamental than the idea that money is made / is a store of rules, is that money is made from / is a store of Trust and Convention.

    I leaning towards them being more fundamental concepts, philosophically and logically speaking, then Rules.

    Just my 2c
    Stewart

    • “a store of Trust and Convention”

      Indeed. Hence my idea for a decentralised electronic currency system wherein the concept of one’s public trust (automated Honour rating) is intrinsic.

    • Money systems are the same whether private or public. People as a whole judge the effort it takes to ‘acquire’ money/asset and use that to compare what’s fair.

      I don’t think money is rules at all – rather I think its a little less theoretical/philosophical than that. Money is a common unit that’s value is derived by how much I can get for my dollar. Normally when I try to charge a price for a good/service I am providing I have to match the community’s expectation as to what that is worth otherwise I won’t get a sale.

      I see money as more of a common sense thing. Money systems have been founded by governments and private businesses alike – and it really doesn’t effect the success of money I believe in the long run. What gives money its value is the fact that I and others are willing to work and deliver value for it knowing others will do the same. If money is rules its really an implicit agreement as to what work is worth what.