Friday, April 2, 2010

Money: The power of an idea

In order for money to work, it requires a certain amount of collective investment. People need to agree upon money as the unit of exchange, or every society would still run on the barter system. Historically, economies have run on two types of money: commodity and representative.

Commodity money is money whose value comes from the commodity from which it is made. A common example is gold, but any item of value to a society can be used as a medium of exchange, such as pearls, shells, rice, barley, cannabis, etc. The commodity is recognized as having value in itself, apart from its role as a medium of exchange.

Representative money consists of tokens or certificates that can, at least in theory, be exchanged for a fixed value of a commodity. The money's value is linked to the commodity that backs it.

Modern economies, however, run on a system called fiat money. Fiat money does not have any intrinsic value, nor is it backed by a commodity such as gold. Its value comes from government order, making it the legal medium of exchange. Its value also comes from the collective faith of the people. In order for money to work, we all have to believe in it.

I find this astonishing. Money is an idea. An idea that requires collective investment. It is our belief in money which gives it its potency.

Many of us question the value of money from time to time, but it is so ubiquitous in our lives that few people ever question its actual reality. Is money real? In a way, money really is the religion of our society. In the Middle Ages, the power of the Catholic church came from everybody's belief in its divinity. Today, the power of money comes from everybody's belief in its potency. And just like adherents to a religion, we regard with suspicion those who do not believe in money. We call them hippies, communists, or just plain crazy.

Money is a missionary religion. When we speak of spreading modernity, or spreading democracy throughout the world, are we not also speaking of spreading market capitalism? We cannot concieve of a democracy without markets, a modern society that does not run on money.

Is money, or the fiat system, inherently evil? Undeniably, it is responsible for many evil acts. We are destroying the life support systems of our planet: our air, our water, our soil, not to mention the lives of other people, in pursuit of something which does not actually exist anywhere but in our minds. This is pretty damning evidence indeed. Can capitalism be reformed, or is it in the very nature of monetary society to corrupt people and make them blind to what's really important?
Again, this mirrors the debate on religion. Those in one camp say that religion is inherently evil and and outdated. A second camp says that though atrocities have been committed in the name of religion, it is not religion itself, but something in human nature, that allows those atrocities to happen. The there is the third camp, which insists that without religion (or a particular religion), humankind is lost.

Which camp do I fall into? For religion, definitely the second. I believe that at its best, religion fulfills a basic human need, the need to be spiritual. For money.. I'm not sure. I'm an anti-capitalist at heart, but insofar as money is a form of abstraction, I believe that a certain level of abstraction is an inescapable part of human nature. So, I don't know. But I do know that while we can't change the physical realities of living on the planet (if we pump CO2 into the air, the planet will warm, if we pollute our drinking water, we will become sick), we can change our minds.

What is money worth to you?

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