10 Thoughts On Money
Some philosophical aspects of our most important technology
Hello there,
Hope you’re enjoying the weekly 5-minute idea-bombs. If you’re here because you love origin stories, check out this piece on how technology shaped the modern world.
Now, some thoughts on one of the most important technologies we ever invented:
What is money? The most dominant theory about money is that it is a thing- like gold, cowrie shells, or tobacco- all of which have been forms of money at various times. But this isn’t true. These items are simply tokens that are used for settlement. So if these aren’t money, what is? The question may sound deceptively simplistic, but it’s one of the greatest philosophical rabbit holes in the world.
Is this really it? While a straightforward answer may not be possible, I find the credit theory of money an interesting way to understand what this is all about. Put simply, money is nothing but transferable credit. There are 3 key characteristics of money: a universally applicable unit of economic value (which was represented by the physical commodities discussed above), a system of recording who owes whom (what your snotty banker friend calls ‘debts’ and ‘credits’), and a way to settle those debts (decentralized transfer).
From this POV, money is a system that records these value relationships (Shyam owes Akash Rs 10 or Ashish owes everything he ever earned to Bajaj Finance), with the rupee being a particular token that allows Shyam and Akash to settle the outstanding balance. So money isn’t just a physical thing. It’s a social technology: a way to understand credit relationships in the world, a way to denote & transfer value so we can coordinate our activities in the real world. The rupee notes today (or the cowrie shells in ancient India) are liquid tokens that help settle our debts.
The conventional theory also propagates the idea that money was a useful way to overcome the inconvenience of barter. According to it, we first had barter, then we got money and then we got credit. But that’s the exact reverse of what seems to have happened. We always had credit (that’s how humans coordinated their actions in very small-scale settings), which then led to token money, and reverted to barter only in extreme cases where the money system broke down. [I pointed this out in one of my first Substack articles- 10 Big Ideas from 2021].
So why has the conventional view been dominant for so long? One, because our archaeological record mainly throws up shells and coins, we’ve always thought that those things represent what money really is. More importantly, since money is a social tech that’s deeply embedded within society, it’s hard for us to step back and take an objective look at it (just as we find it hard to step back and observe our own thoughts because they’re a part of us). It’s in times when the money system starts crumbling that we can get to understand what it really is.
Interestingly, when the money system starts falling apart, it’s a good sign that the empire itself isn’t going to last for too long. Historians assert that monetary debasement (printing too much money such that its value degrades) is what led to the beginning of the end of the Roman Empire. Ray Dalio observes in his latest book (detailed notes here) that the same happened with the Dutch Empire (where the endpoint was a run on the Bank of Amsterdam). Break the money, and you break the empire.
A similar process is playing out in the entire world right now. Fiat currencies like dollars and euros are continuously debased- their value keeps dropping over time as central bankers print more and more money. Money printing is a tax on everyone because it simply reduces the value of the money you possess- and CBs across the world have been printing money like there’s no tomorrow. The dollar has lost much of its value Federal Reserve began- $1 could buy 10 bottles of beer 100 years ago, and today one call hardly get a cup of coffee at McDonald’s with that. But the work done to earn a dollar back then (say by providing a haircut) is the same as the work done to earn it today- it hasn’t really fallen off a cliff. Inflation, therefore, is an invisible form of theft that the masses hardly pay attention to.
Perhaps that is the reason we live in a world that seems so deranged- where the rich getting richer while the masses working their asses off just to remain afloat, where we witness a proliferation of soul-zapping bullshit jobs that one has to stick to because it’s hard to survive otherwise, and a world where the more harm you do the more you get paid (lobbyists, weapon manufacturers) while being an artist or a poet is a one-way ticket to starvation.
Those who control the money control the world. The money system seems to be completely rigged, where the elite and the ruling class are in cahoots while the rest suffer from the consequences of a messed up way of measuring value. Imagine- if money is something as fundamental as language or consciousness, what must be the damage to society if its functioning is corrupted? That is the reality we’re living in, and we already seem to have some clever solutions to this problem.
Money is tokenized energy- a bunch of units we earn by trading our energy (via our hard work and efforts) to savor the things we value. If we have to pursue the things we value to live a truly meaningful life, we have to depend on the integrity of the energy system we base our lives on. But when that system is full of rot, it shakes the very foundations of our existence. Maybe that is why I find some truth in the overly zealous quote “Fix the money, fix the world”.
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