Thursday, 9 December 2010

The Wonder of Money

I've recently been thinking about printing my own money. Searching for inspiration, I visited the coin and note collection at the Ashmolean Museum in Oxford. What a delight! The coins date back thousands of years and vary in design and pattern reflecting the society and culture. Why restrict yourself to a circular coin when, like the Chinese, you could strike coins in the shape of knives that you can hang from your belt?! 

Why we use money. Humans have a long history of using money. Without it people can barter their goods with one another - I'll give you one of my sheep for your sheaves of corn - but in such a system problems arise. What if you don't want a sheep but a pig, what if your sheaves are only worth half my sheep, or what if my sheep has become too old? Money overcomes these problems because it is divisible, allows for indirect exchange (i'll pay you for your corn and you can use that money to buy a pig from a third party), and is a non-perishing store of value . Well designed money should also be durable, portable and easily stored, which explains why money is often small and made of long lasting materials. (I should mention that there are alternatives to exchange economies. Societies evolve in enumerate ways! See gift economy.)

Money is at the foundations of our economic and social life. Any monetary system can only work if, as a community, we trust and respect it. A society might be willing to trade with commodity money, like shells or gold, for example, if shells and gold are considered desirable and valuable. Fiat money, which we have in the UK, relies on the trust of society alone. Pound sterling doesn't represent any physical commodity but gains value by virtue of people's perception and faith. Lose confidence and the value of the money in our economy evaporates. 

Money as evil. In his second treatise on civil government, John Locke wrote that money ultimately leads to inequality. In a barter system a degree of economic equality is imposed on us because we are each physically constrained by the amount of labour we can put in to take goods from nature, and tradeables generally have a shelf life. Money, however, can be earned or appropriated and kept forever. The resulting inequality is a good reason to have a state if it can realign wealth in the economy. Professor Mary Mellor goes further and believes that money should be a common resource to which we should all have fair access and decide democratically as a society where to allocate it.

Control of the money supply. Money is far from public today. Officially it's the Royal Mint and the Bank of England who create money but that makes up a tiny amount of the digital money that we actually use in the UK. It is the high street banks who, through their lending decisions, effectively have power over the money supply and they also direct where it goes. They have private incentives to allocate money where it will make them the most amount of profit, which is often in conflict with public interest.

I don't plan to create a real currency. I'm designing fliers to advertise a debate on the future of banking. Banks form the system in which our money flows and it has proven to be poorly designed. More information on this to come. If, however, anyone is interested in starting a local Oxford Pound do let me know!

1 comment:

  1. Hello there,

    I'm a first time poster and recently came to know your blog (I think it was on a facebook mention).

    Doesn't money say something like 'I promise to pay the bearer...'. Often there's a phrase of 'this isn't worth the money it's printed on'. I don't know very much about money ( or the other words for money), but it seems to me that making a system of exchange presumes that the currency is based on some kind of value. Be it gold, or some commodity.

    People often talk about money losing that base. I understand that money can have varying value and commodities can have varied value due to various circumstances and reasons (like derivatives), but then there's a normative issue of being responsible about controlling the respectability of a currency.

    I wonder if we can ever be so organised as we are in trading and politics and administration without money. I suspect not.

    I look forward to more of your posts