Just read your short write up at the WEA website. Had two thoughts:
(1) I’d like to see “money” treated in a mathematical way, such as by the axiomatic method. That is, money would be a variable implicitly defined by the several properties it has in relation to other variables or mathematical entities or relations, which in themselves would represent concepts such as medium of exchange, or debt, or accounting, or store of value. I think this would be more useful than calling it a “fundamental quantity” as in physics.
(2) It seems to me that the key to the usefulness of money as store of value or medium of debt lies in its societal “backing”. For example, money is created for extending credit to someone only because the creditors believe that the legal, economic, and cultural system is strong enough to guarantee that the debt will be repaid in the vast majority of cases. Likewise, as a store of value, people believe that this system is strong enough to prevent the value from being inflated away or lost in other ways, though a modest loss of value may be accepted in some circumstances, especially if there are ways to invest the money so as to avoid the loss. So to me a “backing” function is an essential part of any good theory of money. In other words, without some kind of widely accepted social backing, emergent prices will be ephemeral, as otherwise someone will sooner or later find a way to manipulate the currency to enrich themselves and defraud others. Already confidence in our current system has been severely eroded by the financial crash of 2008 and the subsequent Wall Street bailouts, which represented the kind of financial fraud (especially of the middle and struggling classes) that our system is supposed to suppress. So to me this is a prime example of the importance of the issue of “backing”. Longer term, this “backing” is even more threatened by the slowing of global economic growth. In fact I expect that when stagnation eventually turns to long term contraction (due to ecological, social, and resource overshoot) the situation will become far worse, with a collapse of much our current, privatized financial system.
Comment by Dick Burkhart — September 28, 2016 @ 8:06 pm
(1) Part of the idea is that money is an attempt to impose number onto things that don’t conform to mathematical logic, such as ideas about value. So I agree it would be nice to find a way to express this more clearly, but not sure what the right framework is.
(2) I think the main thing a currency needs is that it be used by a large enough number of people, but longer term it will only work if as you say there is some kind of backing (legal structures, metal, etc.). But agree that trust can evaporate quite quickly!