Overview
Money is a form of debt. If you have lots of money, the issuer of that money is indebted to you in some fashion. Typically that means that your money can be used to:
- Fulfill your tax obligation
- Pay back your debt to government chartered bank, or
- Traded to others in exchange for goods or services
To cut to the chase, money is a social construct for keeping track of who owes whom and how much. Without laws to enforce these uses of money, it is worthless. This is the case for cryptocurrencies, where the "laws" embedded in the software are insufficient to deal with the types of issues that arise wth money, contracts, and transactions. Details follow.
Money and Debt
Here are some of my favorite explanations of money and its history:
- Randy Wray: American Colonial Currency (Debt Free Money, Part 4) Excerpt (in colorful prose):
To be sure, debt is much older than money. No human has ever escaped debt. At birth, you are indebted to your parents, your kin, and your gods. You spend your lifetime incurring new debts and repaying old debts and accumulating credits that are the debts of others. If you earn enough credits, you join the Redeemer and make it to the Promised Land after death; if you don’t you join Satan—the original tax collector–in hell.
Our modern rituals and accounting and terminology evolved from these ancient origins. Debts began to be monetized and recorded at least six millennia ago. The monetization probably grew out of the Tribal practice called Wergild–the assessment and collection of fines paid for transgressions—with the rise of class society and the emergence of authorities. Writing was apparently invented to keep track of debts; in other words, it was an accounting invention.
Over time, the technology used for accounting changed—from scratches on rocks and bones, to chalk tallies on slate, to tokens pushed into clay balls, to clay shubati tablets, to notched tally sticks, to stamped and milled coins, to paper notes, and finally to entries on computer tapes. Part—but not all–of the impetus for technological evolution was to keep up with the counterfeiters.
What we call “money” (coins, tally sticks, paper notes, electronic entries on bank balance sheets) is simply the record of debt, “accounted for” in the money of account. The line between what we want to count as “money” debts or merely as “money denominated” debts is and always has been arbitrary. Most will include a checkable bank deposit in their definition of “money”; most will not include a non-checkable certificate of deposit in that definition…
Let us back up a bit. Our word “to pay” comes from “pacify”, reflecting payment of Wergild fines owed to victims in order to avoid blood feuds…
- Reviews of David Graeber's book: Debt - Updated and Expanded: The First 5,000 Years (addresses issue of “not fitting in” as a minority that we discussed at lunch)
Graeber's work a classic in economic anthropology.
Following quotes from comments By Hans G. Despain on January 4, 2012:
What does one find in Graeber's book? The primary thesis can be identified as `the duality of debt' (my term not Graeber's). On the one hand debt has a type of ontological expression, i.e. debt is what binds us as a species, e.g. we are indebted to our parents, family, culture, society for our well-being and personal development, and more theologically an indebtedness to the Cosmos/God. This side of debt is found in its expression (i.e. language) and development. On the other hand debt has an historical existential tendency to be employed to enslave or create circumstances of debt peonage...
If the primary thesis can be expressed as "the duality of debt" there are several other major theses of considerable interest. I identify six major theses... I attempt to divide the book into six major theses, in so doing it can be seen that the first five theses are historical and scientific, only the last is political. In other words, the politics and science can be logically separated....
(1) Debt predates money
(2) Government construct national markets
(3) Primordial debt theory -- Money is invented to quantify certain types of debt.
(4) Military-coinage-slavery complex -- Historically the emergence of coinage (i.e. money) is linked with military efforts
(5) Historical attitudes toward debt/World cycles -- attitudes toward debt not only change over time (he identifies four the Axial Age 800 BC - 600 AD, Middle Ages 600 - 1450, Capitalistic Age 1450 - 1971, Something Yet to Be Determined Age 1971 - future), but attitudes are also cyclical and global (Europe, China, India, Africa, etc.).
(6) History removes the veil of debt as road to servitude and peonage
The problem is that anthropologists assume, via economic postulates of universal human nature, competitive market activity whenever there seems to be exchange and interaction. The great economist Karl Polanyi demonstrated this is a major mistake in anthropology. For example, if a future anthropologist were to assume monetary exchange relations in contemporary American households, there would be great misunderstanding of family relationships of 2012, between spouse and spouse and between parent and child. Contemporary family relationships have little to do with monetary exchange relations.
(1) The historical emergence of money is to mark a social debt relationship (e.g. somebody owes someone else something)
(2) This was an historical process that almost always included some public institution (e.g. the State) to keep track of, and enforce, the social debt relationship.
(3) This means money was not invited for market exchange (what economist call a "medium of exchange") but rather money functioned merely as a "unit of account".
(4) Public officials would quickly understand these social debt tokens (as units of account) functioned as a means of power (what economists call "a store of value"), i.e. the social debt tokens meant that someone could get someone else to do something.
(5) The historical presence of currency in this "Chartalist" view does not mean "market-exchange", but the presence of specific State Power. First, the power to levy taxes on its subjects, and second the power to demand payment in a specific form (e.g. state coin).
I am interested in any reviews or evaluation you may have on books of the greenbackers, S. Zarlenga, The Lost Science of Money, and E. Brown, The Web of Debt....
I fully endorse both books. We need to begin to understand that the "Big Squeeze" on American households is not merely from the government, indeed Federal and State taxes have gone down in the last four decades, but the interest paid to the banks (which has gone up significantly in the last four decades). Second the symbiotic relationship between banks and government. Third how protecting big banks is a serious "national security" issue. These three issues suggest rather strongly, in concert with the politics of Greenbackers, Zarlenga, and Brown, --- Banks and money are a public good.
This is primarily because of the power of the institution of money (Randall Wray's work on Modern Money Theory being the most important underscoring a better science ofmoney).
Where I might take issue with Zarlenga and Brown is that the history of money has been in the hands of the state, and the results not always any better, debt-peonage, slavery, etc (Graeber's, Wray's and Polanyi's history of money support this statement). This means that not only must the intitution of money be understood as a public good, but the relationship between citizens and government needs to be changed in rather radical ways.
This means it is not merely a monetary issue, but understanding the relationship between Individual Citizens - Production (especially Big Business) - Big Finance - Government
The review by Aaron Brown, below Despain's, is also brilliant. It points out that money/debt also have advantages, which may in fact outweigh the disadvantages in the big picture. Also, this:
Finally, one of the author's key points is that debt can have the effect of ripping a person out of social context to be treated as a source of repayment rather than a friend, neighbor, son and so on. This is a brilliant point, well-argued and important. But it has an obverse side the author misrepresents. Some people run away from traditional societies and small towns for the anonymity of a city. They shed what they consider the burdens of social ties to create and join less personal organizations. Debt in its quantified and impersonal form was undoubtedly created by these types of people.
The author treats social refugees as either evil or deluded. If unsuccessful, they are caught in a debt trap that destroyed everything of meaning in their lives. If successful, they are addicted to the pursuit of money, which cannot buy them happiness. In fact, many people have at least some tendencies in these directions at some points in their lives. Some are mainly escaping intolerable or suffocating situations. Others are looking for excitement and adventure. Or they may want to pursue ideas that require wider contacts (and therefore relatively impersonal and rational human relations) than their traditional social ties can provide. Not everyone who flees the family farm is after world domination or mindless stockpiling of gold. You'd think someone who didn't understand this would spend his time arguing with his friends and teaching his children, not writing a book.
Following quotes from comments By Hans G. Despain on January 4, 2012:
What does one find in Graeber's book? The primary thesis can be identified as `the duality of debt' (my term not Graeber's). On the one hand debt has a type of ontological expression, i.e. debt is what binds us as a species, e.g. we are indebted to our parents, family, culture, society for our well-being and personal development, and more theologically an indebtedness to the Cosmos/God. This side of debt is found in its expression (i.e. language) and development. On the other hand debt has an historical existential tendency to be employed to enslave or create circumstances of debt peonage...
If the primary thesis can be expressed as "the duality of debt" there are several other major theses of considerable interest. I identify six major theses... I attempt to divide the book into six major theses, in so doing it can be seen that the first five theses are historical and scientific, only the last is political. In other words, the politics and science can be logically separated....
(1) Debt predates money
(2) Government construct national markets
(3) Primordial debt theory -- Money is invented to quantify certain types of debt.
(4) Military-coinage-slavery complex -- Historically the emergence of coinage (i.e. money) is linked with military efforts
(5) Historical attitudes toward debt/World cycles -- attitudes toward debt not only change over time (he identifies four the Axial Age 800 BC - 600 AD, Middle Ages 600 - 1450, Capitalistic Age 1450 - 1971, Something Yet to Be Determined Age 1971 - future), but attitudes are also cyclical and global (Europe, China, India, Africa, etc.).
(6) History removes the veil of debt as road to servitude and peonage
The problem is that anthropologists assume, via economic postulates of universal human nature, competitive market activity whenever there seems to be exchange and interaction. The great economist Karl Polanyi demonstrated this is a major mistake in anthropology. For example, if a future anthropologist were to assume monetary exchange relations in contemporary American households, there would be great misunderstanding of family relationships of 2012, between spouse and spouse and between parent and child. Contemporary family relationships have little to do with monetary exchange relations.
(1) The historical emergence of money is to mark a social debt relationship (e.g. somebody owes someone else something)
(2) This was an historical process that almost always included some public institution (e.g. the State) to keep track of, and enforce, the social debt relationship.
(3) This means money was not invited for market exchange (what economist call a "medium of exchange") but rather money functioned merely as a "unit of account".
(4) Public officials would quickly understand these social debt tokens (as units of account) functioned as a means of power (what economists call "a store of value"), i.e. the social debt tokens meant that someone could get someone else to do something.
(5) The historical presence of currency in this "Chartalist" view does not mean "market-exchange", but the presence of specific State Power. First, the power to levy taxes on its subjects, and second the power to demand payment in a specific form (e.g. state coin).
I am interested in any reviews or evaluation you may have on books of the greenbackers, S. Zarlenga, The Lost Science of Money, and E. Brown, The Web of Debt....
I fully endorse both books. We need to begin to understand that the "Big Squeeze" on American households is not merely from the government, indeed Federal and State taxes have gone down in the last four decades, but the interest paid to the banks (which has gone up significantly in the last four decades). Second the symbiotic relationship between banks and government. Third how protecting big banks is a serious "national security" issue. These three issues suggest rather strongly, in concert with the politics of Greenbackers, Zarlenga, and Brown, --- Banks and money are a public good.
This is primarily because of the power of the institution of money (Randall Wray's work on Modern Money Theory being the most important underscoring a better science ofmoney).
Where I might take issue with Zarlenga and Brown is that the history of money has been in the hands of the state, and the results not always any better, debt-peonage, slavery, etc (Graeber's, Wray's and Polanyi's history of money support this statement). This means that not only must the intitution of money be understood as a public good, but the relationship between citizens and government needs to be changed in rather radical ways.
This means it is not merely a monetary issue, but understanding the relationship between Individual Citizens - Production (especially Big Business) - Big Finance - Government
The review by Aaron Brown, below Despain's, is also brilliant. It points out that money/debt also have advantages, which may in fact outweigh the disadvantages in the big picture. Also, this:
Finally, one of the author's key points is that debt can have the effect of ripping a person out of social context to be treated as a source of repayment rather than a friend, neighbor, son and so on. This is a brilliant point, well-argued and important. But it has an obverse side the author misrepresents. Some people run away from traditional societies and small towns for the anonymity of a city. They shed what they consider the burdens of social ties to create and join less personal organizations. Debt in its quantified and impersonal form was undoubtedly created by these types of people.
The author treats social refugees as either evil or deluded. If unsuccessful, they are caught in a debt trap that destroyed everything of meaning in their lives. If successful, they are addicted to the pursuit of money, which cannot buy them happiness. In fact, many people have at least some tendencies in these directions at some points in their lives. Some are mainly escaping intolerable or suffocating situations. Others are looking for excitement and adventure. Or they may want to pursue ideas that require wider contacts (and therefore relatively impersonal and rational human relations) than their traditional social ties can provide. Not everyone who flees the family farm is after world domination or mindless stockpiling of gold. You'd think someone who didn't understand this would spend his time arguing with his friends and teaching his children, not writing a book.
Cryptocurrencies and Blockchain
- The blockchain paradox: Why distributed ledger technologies may do little to transform the economy. Excerpt:“The reason that blockchain is making waves is that it promises to change the very way economies are organized: to eliminate centralized third parties… once you address the problem of governance, you no longer need blockchain; you can just as well use conventional technology that assumes a trusted central party to enforce the rules, because you’re already trusting somebody (or some organization/process) to make the rules… I’m very happy to be challenged on this, if you can point out a place in my reasoning where I’ve made an error. Understanding grows via debate.”
- Ten years in, nobody has come up with a use for blockchain Excerpt:“Each purported use case — from payments to legal documents, from escrow to voting systems—amounts to a set of contortions to add a distributed, encrypted, anonymous ledger where none was needed. What if there isn’t actually any use for a distributed ledger at all? What if, ten years after it was invented, the reason nobody has adopted a distributed ledger at scale is because nobody wants it?”
- Of Bitcoins and Balance Sheets: The Real Lesson From Bitcoin Excerpt:
The monetary systems of nations operate on two types of balance sheet expansion:
1. National, where the government spends into the economy expanding a national balance sheet
2. (The sum of) banks’ balance sheet expansions, where bank loans create deposits
The liability side of both of the above are traded around as “money”…
Bitcoin is not the result of a balance sheet expansion. There is no inherent obligation for repayment of bitcoin to any government (taxes) or to extinguish private debt (banking system). There is no in-built demand for bitcoin (or any cryptocurrency).
- Crypto Crackdown: Bitcoin is a “Combination of Bubble, Ponzi Scheme, Environmental Disaster” Excerpt:“We are seeing the type of cracks and cheating that brought down other private currencies starting to appear in the House of Bitcoin.”
Debasement.
“In Bitcoin, these take the form of forks, a type of spin-off in which developers clone Bitcoin’s software, release it with a new name and a new coin, after possibly adding a few new features or tinkering with the algorithms’ parameters. Often, the objective is to capitalize on the public’s familiarity with Bitcoin to make some serious money, at least virtually.”
“Last year alone, 19 Bitcoin forks came out, including Bitcoin Cash, Bitcoin Gold and Bitcoin Diamond. Forks can fork again, and many more could happen. After all, it just takes a bunch of smart programmers and a catchy name.”
These multiplying cryptos “dilute the value of existing ones, to the extent such cryptocurrencies have any economic value at all,” he said. There are now over 1,500 cryptocurrencies, up from just a handful several years ago.
“Even if the supply of one type of cryptocurrency is limited, the mushrooming of so many of them means that the total supply of all forms of cryptocurrency is unlimited. Given the experience with currency debasement that has peppered history, the proliferation of such private monies should give everyone pause for thought.” …
“In practice, central bank experiments show that [distributed leger technology] based systems are very expensive to run and slower and much less efficient to operate than conventional payment and settlement systems. The electricity used in the process of mining bitcoins is staggering…”
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