The Evolution of Money

by David Orrell

  Some economists argue that we can create an artificial market for the planet’s services and harness Adam Smith’s invisible hand to the task of environmental protection.9 But if the connection between price and value is tenuous for goods traded on human markets, it becomes looser still when you try to attach numbers to nonhuman systems. What is the price of a species if it is not an obvious service-provider? Or the price of fresh water that we don’t plan to drink? And if modelers can’t accurately calculate financial risk, such as the chance of a company going bankrupt, how can we price the risk of, say, a fishery’s collapse? By translating environmental problems into monetary terms, we can justify anything, because the numbers are easily rigged by whoever holds power and stands to profit—a fact excluded from economic models that focus on abstract calculations of utility.10

  Environmental conflict is therefore hardwired into the design of our monetary system—built for funding wars with kings and empires and now, as Klein documents, with the planet (one that, if it continues, the planet will win—it’s bigger). Dazzling us with number, it distracts us from the costs. This, rather than ideology, is why the GDP produced in a city like Beijing is booming, but people are leaving because they can’t breathe the air (and why, a little late, the National Congress of the Communist Party wrote the goal of an “ecological civilization” into its constitution in 2012). Like a toxic algal bloom on a lake, the economy is doing fine, but it is asphyxiating everything around it.

  Of course, money works only if we believe in it, and economic ideas are part of maintaining and feeding that belief. How can we redesign money—and our mind-set—for a mature economy or an ecological civilization?

  Bread Spread

  The continuous growth required by our monetary system for its survival also dominates the structure of our working lives. In his essay “Economic Possibilities for Our Grandchildren” (1930), John Maynard Keynes predicted that economic and technological growth would mean that people in rich countries could support themselves on a fifteen-hour work week. In 1967, the New York Times, with a slightly more restrained degree of optimism, reported that “by the year 2000, people will work no more than four days a week and less than eight hours a day. With legal holidays and long vacations, this could result in an annual working period of 147 days worked and 218 days off.”11 Today many are working longer hours than ever, so what happened?

  Part of the reason is a shift in the composition of jobs. According to a 2006 report on the American job market, “professional, managerial, clerical, sales, and service workers (except private household service workers) grew from one-quarter to three-quarters of total employment between 1910 and 2000.”12 Technology has indeed meant that we can produce more with less, as the utopians promised, but somehow we have conspired to maintain our workload, by managing one another.13 Another reason, already discussed in chapter 7, is that as we get richer, we increase our expectations and bid up the prices of things like real estate. But this still doesn’t completely explain why we collectively feel compelled to work so hard in what should be an age of plenty. And again the answer is related to the design of our monetary system, which to an excessive degree fosters competition and inequality.

  Keynes wrote in his thesis that “we shall endeavour to spread the bread thin on the butter—to make what work there is still to be done to be as widely shared as possible.”14 But money has a different idea. While we certainly seem to be trying to spread the work around, the actual reward—that is, the bread—has tended to be more concentrated, with most going to the very top tier of earners. The picture is complex, and growth in China and India has helped to reduce global measures of inequality, but within many countries wealth distribution has become increasingly skewed toward the rich. According to Thomas Piketty, this is because the rate of return on capital has long tended to exceed the rate of economic growth, with the result that money builds on itself as it is passed on within families through inheritance.

  Piketty’s proposed solution of a global tax on capital is, he admits, politically infeasible—a “utopian idea.”15 And again, the main problem is with money itself. Money begets money, in a positive-feedback loop, through interest but also through its association with power and status. Instead of spreading evenly, it clumps and clusters. As capital accumulates with the wealthy, so its opposite—debt—accumulates with everyone else. Gains in productivity due to technology are captured by the elite class of CEOs and investors. In the United States, the pay ratio of CEOs to unskilled workers is 354:1 (a survey showed that most people thought the real ratio was 30:1 and the ideal ratio 7:1).16 Wages for the middle classes stagnate, while those people further down the income scale are essentially wage slaves—rather than enjoying the much-anticipated age of leisure, they are working to break even or get out of debt. The tension, inherent in money, between positive wealth and negative debt has grown to a point where it threatens social stability.

  In the Organisation for Economic Co-operation and Development countries, for example, the average income of the richest 10 percent is about nine times higher than that of the 10 percent at the bottom, and the gap is widening even in traditionally more egalitarian places such as Germany and Scandinavia.17 And things only became worse in the aftermath of the GFC and the rescue operations that flooded the system with liquidity via quantitative easing, profiting the disproportionately affluent who are active market players. As the Bank of England reported in 2012, its monetary rescue mission had boosted the price of domestic stocks and bonds by 26 percent—and about 40 percent of resulting gains went to the richest 5 percent of British households. Quantitative easing was thus “exacerbating already extreme income inequality and the consequent social tensions that arise from it,” according to Dhaval Joshi of BCA Research. In the United States, the top 5 percent own 60 percent of individually held financial assets, so QE represented a regressive redistribution program.18

  Upward social mobility, or a chance that “one will have enough to be able to stop elbowing the others,” has thus been severely limited in the course of the past three decades or so. In some Western countries like Great Britain, the generation of recent graduates is the first in a long time that does not have a better prospect of social advancement than their parents, an Oxford University study shows.19 And the same goes for the United States, where people believed in the American Dream the least in nearly two decades in 2014 (when only 64 percent of those polled said hard work could result in riches, down from 74 percent in the midst of the GFC in 2009).20

  According to mainstream economics, prices correspond to utility, so things like pay inequality just reflect economic reality. As Eugene Fama of CEO compensation said in a 2007 interview: “You’re just looking at market wages. They may be big numbers; that’s not saying they’re too high.”21 But as discussed in chapter 7, prices are influenced by power relationships. The financial system, for example, is dominated by a relatively small number of highly connected firms. Profits flow to these companies and their employees largely because they occupy a privileged position in the network. Of course, they must compete to retain that position—they are all working very hard, managing away like crazy—but that competition appears to provide no real constraint on wages.

  Economic inequality is a matter not just of fairness—or the perception of it, which is crucial for social cohesion and thus stability—but also of economic health.22 In other words, the rising inequality orchestrated by “the relentless apostles of efficiency” hurts what they cherish the most—efficiency. This full circle seems to suggest that we have reached the natural limits of the current system, the monetary empire is overstretched, and a way forward cannot be powered by business as usual. As former governor of the Federal Reserve Henry Wallich said: “Growth is a substitute for equality of income. So long as there is growth there is hope, and that makes large income differentials tolerable.”23 But when growth slows, inequality becomes very obvious.

  Also, while predictions for an age of leisure (or unemploym
ent) have consistently been proven wrong, the revolution in areas such as robotics and artificial intelligence has barely begun; and as discussed in chapter 7, this will affect everything from factory work to legal work. The labor market will certainly adapt, and new occupations will appear, but if the whole point of robots is to replace people, then at some level they will probably succeed. This should be a good thing, but again, benefits will primarily flow to investors and managers. Which would you rather do, compete with a robot or own the robot?

  From the viewpoint of neoclassical economics, people are rather like robots anyway, since we are driven by similarly mechanical impulses (as one student from the University of Glasgow put it, “Whenever I sit an economics exam, I have to turn myself into a robot”).24 The only difference is that robots are programmed by us, while we are programmed by our desire to “optimize utility”; and we want to be happy, while robots (like slaves) just need to be maintained. However, extreme social inequality combined with environmental collapse does not seem the ideal circumstance to achieve Bentham’s “greatest happiness principle.” How can we redesign our monetary system to “spread the bread” and produce a fair society in which the benefits and the hazards of economic prosperity are more equally shared—even when growth is constrained to an extent by environmental factors?

  Wrong Number

  Mainstream economics has long argued that the market economy, at least in its idealized form, is a rational, efficient process that optimizes utility. At its heart is the idea that price equals value. But when we see price as an emergent phenomenon that depends on the complex properties of money objects and their use in society, that raises some questions. Money is a way of stamping numbers onto the world, but what do we do when the numbers look wrong? When the incentives they produce no longer make sense? When they are leading us on a dangerous course? Money may have been described as a form of memory, but what if its use is actually erasing local memories and creating a kind of cultural amnesia—a massive blind spot in the way we see the world?

  As the Harvard political philosopher Michael J. Sandel explains, “We have drifted from having market economies to becoming market societies. The difference is this: A market economy is a tool—a valuable and effective tool—for organizing productive activity. A market society, by contrast, is a place where almost everything is up for sale.” In this case: “What role should money and markets play in a good society?”25

  One option, as in More’s utopia, would be to move away from the idea of money altogether. Such an approach was favored by Athens’s great rival in ancient Greece, the city-state of Sparta, whose highly militaristic society had no need for money, which it saw as corrupt. Post-revolutionary Russia made a game attempt to eliminate money and create a Communist version of utopia in 1920. Today we have people such as the Irish activist Mark Boyle, known as the Moneyless Man because of his unorthodox career choice to live without money.26 However, apart from a few such holdouts, money has been in continuous use since the time it was invented and seems unlikely to go away any time soon. That leaves us with a few other options. One is to exploit its positive qualities while trying to contain its worst excesses through regulations, another is to redesign its basic features, and a third is to actively cultivate arenas that magnetically shield us from some of its effects.

  The first option is the default one, and there has been some progress on improving the financial regulatory framework since the crisis, for example, by increasing reserve requirements for banks and strengthening oversight of things like complex derivatives. However, it is generally agreed that these changes have been largely cosmetic and have done little to address the underlying problem, which is that the financial sector is far too large and unstable.27 Of course, we should continue to press for change in areas such as regulation of derivatives trading, the bonus culture, and so on, but if even a crisis of that magnitude did not result in truly transformatory change, it only shows how entrenched and resistant to change the monetary system has become.

  The second option—redesigning money—was discussed in chapters 8 and 9. Complementary currencies tend to become popular during times of crisis and less popular when the crisis is over (and before the next one arrives). However, there are a number of reasons why the current enthusiasm for new solutions may not be a temporary phenomenon. One is that the existing monetary structure, with its gold standard institutions, is based on a pretense that is becoming harder to maintain, as alternative currencies highlight its inconsistencies and threaten its monopoly. At the same time, technological advances such as the blockchain mean that alternative currencies can spread quickly and become global phenomena. And an unconditional basic income, which could be paid in a complementary currency, might seem particularly applicable if robots end up doing all the grunt work. Currencies bearing negative interest would have seemed a stretch a decade ago, but in the anemic recovery from the GFC many central banks, including the European Central Bank, have successfully experimented with bonds that do exactly that, effectively charging to store money in a safe place. (Though when debt levels are a problem, negative interest seems like throwing fuel on a fire.)

  Of course, one should again not underestimate the inertia of our financial system, the power of entrenched interests, and the great advantage enjoyed by official currencies, which is that they have a large captive market—taxpayers. The reason money caught on in ancient Greece was not just because the coins were handy and looked great but also because they were demanded back as taxes, thus closing the loop and guaranteeing their acceptance. Note that in principle there is nothing to stop a government from one day adopting an altcoin as an official currency. In 2014, before his spell as the Greek finance minister, Yanis Varoufakis proposed a blockchain-based currency denominated in euros and backed by future taxes—buy the altcoins now and use them to get a discount on taxes in two years. As mentioned in chapter 9, China is also said to be contemplating its own digital currency.28

  Giving

  In addition to these, there is the third option, which is to explore and develop the space around money and create a kind of oasis from it. Money hasn’t always been as important as it is today. We might not be able to live without the stuff, but—armed with a knowledge of its true nature—we can learn to better control, moderate, and direct its lines of force. Doing so will require finding ways to renegotiate the relationship—at the core of money—between number and value.

  As the behavioral psychologist Dan Ariely observes, “We live in two worlds: one characterized by social exchanges and the other characterized by market exchanges.”29 The former include offers of help, exchange of gifts, neighborly collaborations, and volunteer work; immediate reciprocity is not expected, demanded, or even wanted. Market exchanges, in contrast, are “sharp-edged” and based on left-brained, numerical calculations of wages and prices. The difference between the two spheres therefore comes down to the use of number. Confusing them can result in problems. “Imagine that you help me move and I give you twenty-two euros and seventy-five cents at the end of the day. You would be offended,” notes economist and philosopher Tomáš Sedláček, adding that once it is a nice meal and a glass of wine of the same price everybody suddenly feels happy.30

  One of the powers of money, because of the way it points toward number, is that its mere presence is enough to make us shift from social norms to market norms. This has been demonstrated by a number of experiments in which subjects are primed to think about money before carrying out some tasks, for example, by seating them in view of a pile of Monopoly cash. The effect of the exposure to money was to make them less likely to ask for help, offer help, or collaborate in any way. They even preferred to sit farther apart from each other.31 (Unsurprisingly, given its mantras of scarcity, competition, self-optimizing behavior, rational economic man, etc., the study of economics appears to make people more self-centered.)32 A study at the University of California, Los Angeles, found that over the past 200 years there has been an increase in use of wor
ds such as “get,” “unique,” “individual,” and “self,” but a decrease in words such as “give” and “obliged.”33 The researchers put this down to English-speaking countries moving from “a predominantly rural, low-tech society to a predominantly urban, hi-tech society” but another reason could be the growing importance of money. An oft-stated advantage of money is that it removes the need for personal relationships to conduct business, but a side effect is that personal relationships get replaced by money.

  However, while the pull of money sometimes seems an unstoppable force, it can be countered with some effort and organization. The Global Freecycle Network, for instance, is made up of more than 5,000 communities totaling 9.3 million members worldwide. It is one of many grassroots, nonprofit groups built upon the premise that not everything should be viewed through the prism of a price tag. Be it Haizhu, China; Hermosillo, Mexico; or any other participating city in one of the 110 countries on all inhabited continents, they are ready to give and get stuff for free, working with the principle that it is better to share than hoard and to reuse than fill landfills with usable things.

  How much stuff (and money, by extension) could be saved this way? Numbers delivered by Freecycle alone are impressive: we are talking about 32,000 items that change hands a day or more than 100 million tons of potential landfill content a year. The gift economy is an alternative to the exactness of the market economy, on the one hand, and the impracticality of barter, on the other. It seems to offer a place where “there is enough for everyone’s need, but not for everyone’s greed” as a banner reads in a Giveaway shop in Utrecht, the Netherlands.