Home > Uncategorized > The weird absence of money and finance in economic theory

The weird absence of money and finance in economic theory

from Lars Syll

Consider the problem of money. Money is of central importance to any modern capitalist market economy. Yet it is mainly sociologists, philosophers and dissenters that have maintained an interest in what money “is” with a view to continued critique and development … One might think this is because economics has already provided an agreed clear concept of money. But this is not the case. Contemporary economics defines money in terms of function (unit of account, store of value, medium of exchange), but puts aside both the actual history of money (after an origin story) and the conceptual problem of money, both of which likely affect the functionality of money in the broader sense of its role and consequence in real systems …

barterWhat appears weird to those outside of the mainstream is that in economic theory in general money is typically absent. It is usually assumed that in a properly functioning market system prices express the value of output such that all prices effectively become representative of ratios between goods and services (and inputs), and this ultimately means a market system operates as though it were barter. Money simply becomes the convenient symbol (in its medium of exchange guise) that expresses these ratios. As such, it has no independent significance, and one ought to look through money to the operation of “real” economic factors, and can in effect ignore money as a contributory, contextualising or significant component in a system …

The role of money in real systems has generally been peripheralised because of an arbitrary limitation created by the assumption that money is separate from and then circumspectly significant to “real” factors. This statement may seem odd to a non-economist, since we live in a world where monetary policy is high profile, and a great deal of attention is paid to central bank policy (inflation targeting for price stability), and to the existence and activity of banks.

Jamie Morgan / RWER

Yes indeed — money doesn’t matter in mainstream macroeconomic models. That’s true. According to the ‘classical dichotomy,’ real variables — output and employment — are independent of monetary variables, and so enables mainstream economics to depict the economy as basically a barter system.

But in the real world in which we happen to live, money certainly does matter. Money is not neutral and money matters in both the short run and the long run:

The theory which I desiderate would deal … with an economy in which money plays a part of its own and affects motives and decisions, and is, in short, one of the operative factors in the situation, so that the course of events cannot be predicted in either the long period or in the short, without a knowledge of the behaviour of money between the first state and the last. And it is this which we ought to mean when we speak of a monetary economy.

J. M. Keynes A monetary theory of production (1933)

What is also ‘forgotten’ in mainstream economic theory, is the insight that finance — in all its different shapes — has its own dimension, and if taken seriously, its effect on an analysis must modify the whole theoretical system and not just be added as an unsystematic appendage. Finance is fundamental to our understanding of modern economies​ and acting like the baker’s apprentice who, having forgotten to add yeast to the dough, throws it into the oven afterwards, simply isn’t enough.

All real economic activities nowadays depend on a functioning financial machinery. But institutional arrangements, states of confidence, fundamental uncertainties, asymmetric expectations, the banking system, financial intermediation, loan granting processes, default risks, liquidity constraints, aggregate debt, cash flow fluctuations, etc., etc. — things that play decisive roles in channelling money/savings/credit — are more or less left in the dark in modern mainstream formalizations.

  1. Yoshinori Shiozawa
    June 28, 2019 at 5:00 am

    It was a good judgment that Keynes wanted to build a monetary theory of production. In the mainstream general equilibrium theory like Arrow and Debreu no money exists in the sense that economy needs no money (or something which plays the function of the medium of exchange). However, Keynes and many of his followers including Lars Syll are confusing two separable domains of economy: real economy and financial economy (or FIRE economy as some people call it after the abbreviation of Finance, Insurance and Real Estate).

    Lars Syll wrote:

    “All real economic activities nowadays depend on a functioning financial machinery. But institutional arrangements, states of confidence, fundamental uncertainties, asymmetric expectations, the banking system, financial intermediation, loan granting processes, default risks, liquidity constraints, aggregate debt, cash flow fluctuations, etc., etc. — things that play decisive roles in channelling money/savings/credit — are more or less left in the dark in modern mainstream formalizations.”

    This is a typical confusion or neglect of distinction of the above two domains. It is true that financial economy gives a great influence on real economy, but there is still a relative separation between the two. In many cases we can study real economy assuming that financial economy is external factors to the real economy. Even in this real economy, money has its proper role as mediators of exchange and source of lucrative motives (or pursuit-of-profits motive for firms). Keynes in 1933 barely remained on this point, but later economists came to identify monetary theory of production with the theory of financial economy.

    In view of our theoretical capability (at least at the moment we live), it is far better to try to attack each of two economies separately than to try to build a unified theory of the two by a single stroke. We may construct a relatively good theory for real economy but the theory that analyzes financial economy is far away in scope. For example, Minskian economics may be the best “theory” of financial economy but it is still a very rude one if we can call it a theory. As for the theory of real economy, we have already a huge accumulation since Adam Smith or David Ricardo or Karl Marx. Even the works like Arrow and Debreu can play a role of negative examples.

    Lars Syll is intoxicated by a methodological ideology of totality or holism. He preaches that economics should be a holistic science. If it is possible, he is right. But, for the moment, this possibility is a matter of far away future. If I am right, he is a wrong prophet who leads people (economists, mostly young economists) in the way to wilderness which is barren and produces nothing.

    We should recall that modern physics did not start from Newton. It started from Galileo and Kepler. We also remind that even the modern physics has not arrived to the theory of everything, even though it is the final target of many theoretical physicists. (I have repeated this remarks many times in this RWER blog.)

    • Jamie Morgan
      June 28, 2019 at 11:10 am

      Hello Yoshinori you seem to be reading a great deal into this. To say that things are interrelated does not commit one to saying they have no differentiations- holism is not the same as universal homogeneity or fundamental causal unity. To be clear, however, there are many good reasons to explore the way in which finance is not just influential on but integrated into the economy. If a private equity firm acquires a publically listed company it then has control of a financial asset from its point of view but a component of the real economy from another… the LBO likely involved CLOs and complex sets of connections and consequences that ripple through the economy and society base don financial interests and points of view – is it ideological holism to suggest exploring the interconnection and power relations is a meaningful activity – one that much of mainstream economics cannot achieve effectively because of its a priori?

      Best wishes, Jamie

    • Yoshinori Shiozawa
      June 28, 2019 at 1:32 pm

      Dear Jamie
      If you are thinking that “holism is not the same as universal homogeneity or fundamental causal unity,” how can you contend that a theory of real economy is impossible when we have no good theory of financial economy.

      Kepler’s laws of orbital motion were possible, because most of the mass of solar system was concentrated in the Sun. The heaviest planet Jupiter represents only one-thousandth that of the Sun. If Jupiter weighted 1/3 of the Sun, orbital movement would have become too complicated (famous three body problem) and Kepler could not have discovered his laws. The history of modern physics must be very different from what happened. The movement of falling bodies is not independent from the motion of the Moon but mutual influence between the two were safely negligible. Modern physic succeeded when it could find a small separated subsystem of the universe which is relatively independent and tractable. .

      You can emphasize the importance of financial economy. No one denies that. But what we should keep in mid is the research strategy of economics. If you admit that economy is an articulated structure and is a loosely connected network, how can you deny possibilities that we can find a subsystem that is smaller and narrower than the total economy?

      • June 28, 2019 at 3:10 pm

        Dear Yoshinori, it always sounds enlightening and scientific when reference is made to physics (and astronomy) but the key, defining difference between economics and physics is their respective ontologies. In brief, if you allow for human faculty uncertainty kicks in and the question of controllable subsystems becomes obsolete (https://www.s-e-i.ch/archive/AI.htm ).
        Best
        Christian

      • Jamie Morgan
        June 28, 2019 at 4:06 pm

        I didn’t contend this Yoshinori you inferred this. As I said, you seem to be doing a lot of imputing. I did not deny anything of the sort (possibility), though this by no means requires that I agree with you either. You seem quite confident in what people mean based on what they have not said. You need a concept of a system to have a sub system and what we discussing is the nature of both – the real and finance distinction is only one way to cut up the whole.

      • Yoshinori Shiozawa
        June 28, 2019 at 4:18 pm

        Dear Christian

        Is it always true that, when uncertainty kicks in, the question of controllable subsystems becomes obsolete?

        Keynes may have introduced uncertainty into economics, but the uncertainty is no unique concept only in economics. In quantum physics the principle of uncertainty was introduced in 1927 by Heisenberg (of course after Keynes). This principle induced a great repercussion among philosophers of that time. Classical belief of the world was shaken and obliged to be abandoned. Even though no physicists except a few argued that controlled subsystem was now impossible. How can you claim that economics is different?

      • Yoshinori Shiozawa
        June 29, 2019 at 12:18 am

        Dear Jamie

        Reply relation became complicated. If you do not contend what I have inferred to, then that’s OK. I have no intention to offend you. I am only talking about methodological holism and the risk that is inherent to it.

        I have only one point to say. Holism without precaution has a risk to be an obstruction to further development of economics. See my post below dated June 28, 2019 at 4:31 pm.

    • Yoshinori Shiozawa
      June 28, 2019 at 4:31 pm

      Those people who preach holism often forget that economy is an articulated structure and is a loosely connected network. If they keep this in mind, they will see that economics has much more possibility and can be studied in much more flexible way. Holism without this precaution is a simple mirror image of methodological individualism.

      The narrow ontology of methodological holism may easily become an epistemological obstruction for further development of economics.

      • Jamie Morgan
        June 29, 2019 at 11:29 am

        Hello Yoshinori I am not sure why you think people are “preaching” holism and that this is pejorative. Most non mainstream economists are open system theorists that are interested in different solutions to the agent structure problem, none of which are holist or individualist they are combined solutions based on different methodological and philosophical sources. You seem to be pursuing an argument at a basic tangent to many peoples understanding of the issue.

        Similarly, whilst the sociology of knowledge of science (physics) and the insights of that science are not irrelevant to social reality in its constitution it does not follow that either the insights or the claim are all that is involved in social reality including in knowledge constitution, so your statement as is lacks warrant, and the rhetorical question strategy you pursue is simply confusing as an argumentation strategy (it is not an argument that lends credence to an alternative if it is ill founded or ambiguous). Can you clarify what you mean and under what motive you are making the inferences you do?

        Best wishes, Jamie

      • Yoshinori Shiozawa
        June 29, 2019 at 4:17 pm

        Hi, Jamie
        let us continue our discussion in a discussion page in ResearchGate.

        Deep sincere discussion is difficult in this RWER blog.

    • June 28, 2019 at 5:50 pm

      CMK et al, thanks for everything! This little thread is like beginning a string of pearls. Now, if we let bio-ethics into the theorizing, we may get much closer to a theory of everything economical. However, since money is (among other things) a belief system for measuring value — and, in the real world, valuation is either subjective or mutually determined by agreement of 2 or more parties to a discussion or negotiation — how could we ever fix or replace economics with a science that qualifies as an effective discipline, considering the metaphysical and/or fictional nature of the subject, human culture?

  2. June 28, 2019 at 8:48 am

    Yes indeed, money cannot be understood as being the sum of its functions. Strangely enough economists usually answer the question “what is money?” with statements that rather fit the question “what does money do?”. The question about the nature of money, therefore, remains. I suggest this answer: money is trust.

    • June 28, 2019 at 5:54 pm

      CMK, as I mentioned above, money is a belief system, not trust. That is why trust is essential. Yet, how can we trust a system for measuring valuation based on notional data & current beliefs?

  3. June 28, 2019 at 9:37 am

    Yes, trust is an important feature of money. When trust is lost in our dollars and euros, they are not functioning as money anymore. Then we/society/state have to decide what else has to count as money. That said, money is, of course, something more than just trust …

    • June 28, 2019 at 12:36 pm

      True, loss of trust is the key to understanding devaluation and also inflation though I suggest to dig a little deeper. Money is a social construct that rests on the institutions humans created. Trust therefore rests with those institutions (or it does not) that constitute money (in the case of gold it is the social construct of gold’s worth) and it is this trust, the trust in these institutions that determine the value of money. Let this trust deteriorate and you’ll see inflation and devaluation.

      • June 28, 2019 at 6:20 pm

        In financialist reality, inflation and devaluation are exactly the same thing, created the same way, automatically, with national-debt-based fiat currency controlled by the usurious central banking cartel for compound interest.

        When that truth and the nature of money are understood, we see that it is outrageously ridiculous to pay bankers compound interest for the right to use our own money system. Money is a belief system, but it’s also a rule-based culture game we play, whether we realize that or not.

        Once that understanding is attained & sustained, we can see that units of currency, like personal checks & receipts, can be used to award compensation & due credit in exchange for real benefits, goods & services received by us, The People. Taxation is clearly unnecessary and worse, it’s paying more than double for everything.

        Why more than double? Because of the compound interest and fractional reserve banking rules that guarantee structural inflation as eternal national debt for ever increasing profit. If you doubt that, get out your calculator and do some real arithmetic on the official CPI numbers for pre-Fed and post-Fed inflation (devaluation).

        What you will find is that — since 1913 — the loss of real buying power suffered by 99.9% of us is inversely proportional the increase of financial score of 0.01% of us. Naturally, you will also realize that the official numbers, like mainstream economists, are absurd.

        Hmmm…it seems that what we need is post-absurd economics. Yet, it would be an art, not a science.

      • June 28, 2019 at 7:06 pm

        Michael, I do agree that devaluation and inflation are caused by the same forces. It’s not true, however, that it always boils down to debasing by a vicious government. It’s the undermining of the institutions, or, rather the trust in the institutions that constitute and support the currency that causes inflation. Debasing may be one way to diminish trust monopoly practices another.

    • June 28, 2019 at 4:31 pm

      It is only recently that we have become aware of the power law scaling of networks. The utility of a network scales as the square of the number of nodes comprising the network. This leads to so called “network externalities” in which participants can find themselves trapped in a love (due to utility), hate(due to winner take all scaling), relationship with a given network. We see this playing out now with social media, and some are realizing that money, and the payments system, is a data network, per se. Through this modern lens of the potential for abuse of network externalities by those who control our networks is a very real social risk. The decision by Facebook to create a new payments system with a new digital money called the Libra is telling.

      • June 28, 2019 at 6:24 pm

        Wow! Great comment Peter. I think you’ll enjoy my new post at my MichaelMonterey blog at wordpress: IT Economics 101 — a brief history of the global IT ecotecture & its currently endless need of patches and hype (cow gas), and why.

  4. Jamie Morgan
    June 28, 2019 at 9:58 am

    My comment is to include centrally an analysis of the ownership of money. Money becomes a form of property (private, collective, corporate, state…) and of course a medium to exercise social power. To purchase anything is to act in a complex network of social power relations (and in today’s global political economy, to purchase or “consume”  implicates extensive global supply chains and complex relations with the ” natural environment”. The history of money is typically inextricably linked to the state, even in ancient times. An instrument of state power and the class(es) who hold and wield that power.
    JK Galbraith’s book “Money: whence it came and where it went” is a good text as I remember it. The British Museum study on money and its history is quite good and takes a global perspective. The Money Room in the British Museum is exemplary in embodying a global history approach. I once did research there on the origins of money, assisted by Mr Joe Cribbs and Helen Wang of the BM ( also contributing authors to the above) on the archaic origins of money in Mesopotamia; Indus; and China. 

    And:

    Money should not be analysed in isolation, but rather historically contextualised, in direct relation to what I refer to as ” the value complex” of the particular social order in question. The value complex is a term used to imply a psychological dimension. I relate this concept to what i refer to as ” the accumulation complex” (the psychological disposition to seek to differentiate status hierarchically via the accumulation of value (read social power). Both the value complex and the accumulation complex are related to “symbolic value” (a factor absent in most “economics” accounts). Symbolic value can in fact be a principle determinant of other forms of value, including exchange value. This relates to a theory of preciosities and their role in materially realising the accumulation of value in a particular historical social system. (for instance as an aspect of elites mentalities and behaviour…and in relation to the drivers for long distance acquisition of or exchange of preciosities. It is revealing to do comparative analysis of cases; e.g. Mesopotamia versus MesoAmerica. This reveals how a range of very different preciosities can be selected in different socio-historical conditions and deployed as ” money” in that system: cocoa, jade, tropical feathers in MesoAmerica; electrum, gold, silver in MesoAmerica…and to symbolically display social power. 
    I wrote a manuscript on these ideas about 25 years ago while on a sabbatical…but have not published it.

    Professor Barry Gills, University of Helsinki, posted on his behalf by Jamie Morgan

    • June 28, 2019 at 2:01 pm

      Dear Jamie Morgan, dear Barry Gills, I partly agree with “The history of money is typically inextricably linked to the state, even in ancient times” but I do think there is an even more general observation to be made here: Certain materials like gold serve as money across totally different societies, histories and social contexts while others such as feathers have a limited scope. Add to this the various paper and fiat moneys and you observe the need for a unifying approach.
      In my humble opinion the common ground for all moneys is indeed the social institution underneath the many different manifestations of money. Once we understand that all moneys are supported by some institution (like cultural norms, culturally determined values, governments, companies and the like) we can free us from the urge to analyse money in terms of its respective materialisation.
      It is then also easy to understand that the focus of research must shift from researching specific forms of money (physical, electronical, whatever, fiat, commodity) to researching the specific forms / properties of the underlying institutions. And, as I mention above, we can start to understand that the questions about the worth or value of money have to, in fact, addressed at these institutions.
      Yours, Christian

      • June 28, 2019 at 6:40 pm

        CMK – And that is why there will be no science or art of economics without bio-ethics and qualitative ecometrics for “weighting” analyses.

        To put it more simply, if institutions or cultures are unethical or, as most are now, anti-ethical, all bets are off. Then practicing economics is just plutonomics for the sake of the hyper-rich “winners” of their Winners Take All game AKA tyranny.

        Really, if that were untrue, would Warren Buffett admit its a class-war that his hyper-rich class started? As far as I’m concerned, anyone who says otherwise is either one of the 0.01%ers, or working for them or self-deluded or just ignorant, disinformed & dyseducated.

        I recommend remembering that our global habitat is not like the Titanic. In our case, it’s not just us lower-class passengers locked into the lower decks who go down with the ship.

        Cheers & Good Luck ~

  5. Jamie Morgan
  6. Craig
    June 28, 2019 at 5:43 pm

    The current paradigm of money is and always has been the economic problem. Discover the concept of the new monetary paradigm and aligning policy with it is a straightforward logical and rational process.

  7. June 29, 2019 at 12:30 am

    There is a simple (philosophical) reason why a comprehensive theory of money cannot be written based on the foundational principles of conventional economic theories. Frank Hahn’s lament about its absence concerns orthodox theory. Hicks-Davidson’s approach forgoes its possibility by holding as fact that money is what money does. While In a similar vein MMT doesn’t pretend being a theory, but instead seeks its salvation by considering money operationally. And Marx was stuck in his historical-materialism point of departure.
    The reason for the dismal failure of all approaches to comprehensively define money is that nothing in our world can both be itself and its opposite.

    As long as all conventional approaches to the question of how the economy works consider money to be a unit of account, a “no-thing”, it cannot also be its opposite or a “thing”. And it doesn’t matter if that thing is a material currency to pay one’s taxes with, or a physical means to store value. A consistent or non-contradictory economic theory has to fully drop either one or the other, regardless the consequences. Half-assedly dropping the “thingy” part won’t do.

    • June 29, 2019 at 1:06 pm

      Dear John, agreed, a non-thing cannot be a thing at the same time unless we move to spiritual life.
      As you say, the theories that you mention get stuck at the moment of departure. Therefore, I am convinced that we first must step back and note that the question of what money “is” cannot be answered by looking at money’s phenomenology.
      Money is first of and above all a social construct. We must therefore first understand this construct’s main properties. My suggestion is to focus on trust forming the backbone of this construct. It’s the man-made institutions that generate and maintain the phenomenology of money. As long as they operate as expected money has all the nice properties it is supposed to have. If, however, trust in these institutions is undermined money stops functioning properly. That’s what we call inflation and devaluation.
      Freedman had correctly noted that printing money can lead to hyperinflation and MMT has realised that this is not a must. Reconciling both stances is straightforward : if printing money destroys trust in the institutions backing the currency you get inflation if not you don’t see inflation.

      • July 1, 2019 at 7:13 pm

        Sorry for replying late Christian but I was otherwise engaged. Is a social construct a thing, or not? For that would be the criterion as to whether it’s able to validly define money. In my opinion money is better defined as a mode in terms of which the social construct, the economy, finds a purposeful meaning, hangs together, and is bounded. Human activity not involving money, the purposeful, free, or so-called better things in life, all take place outside this bounded social structure; the benefits of the former becoming added to the benefits of final output produced in the latter within a money-less exogeneity. This would imply that while individual activity regarding money may well impede the progress of already gained production expertise within that structure and as such effect a socially dreaded discontinuity in its determination, it cannot held to be an impetus to its continuity or any gain. Instead, the latter two becoming only socially determined through a demand for final output at a later date. All money investment can do is to foist, or prolong, a to be resolved systemic debt (or booked debit entry) upon the social construct; the sought initiation to any growth still being indeterminate. Or in other words, regardless established institutional arrangements that can make it appear to behave differently, “money” can only pull accounts into equilibrium; all pushing disequilibrates.

        The insight that human beings, while making a living within an economy as a purposeful human-made social construct, don’t live and form opinions within its institutions explains the discrepancy in monetary behaviour that you noted.
        So at the very least we agree “that the question of what money “is” cannot be answered by looking at money’s phenomenology”.

  8. June 29, 2019 at 2:21 am

    Insightful post, and sharp comments, which I found enlightening. Particularly: Money is a belief system for measuring value. A question which always arises in my mind, but I have not seen addressed often here, is WHY economists have such absurd beliefs. To say that money does not matter, it is a veil, to analyze modern financial economies as if they were barter economies, is spectacularly idiotic – it is like someone who claims to be Napoleon Bonaparte. It is like someone who claims it is midnight when the sun is shining. What are the mechanisms which allow people to say such things in public, and what is worse, how can they be called experts, awarded Nobels, and, after causing the greatest financial crisis of the century, be praised for their performance, and given the job of handling financial affairs of the nation. This requires studying belief systems to understand how people come to believe in alternative realities, denying direct physical evidence provided by their senses.

    • Rob
      June 29, 2019 at 3:46 am

      What are the mechanisms which allow people to say such things in public, and what is worse, how can they be called experts, awarded Nobels, and, after causing the greatest financial crisis of the century, be praised for their performance, and given the job of handling financial affairs of the nation. This requires studying belief systems to understand how people come to believe in alternative realities, denying direct physical evidence provided by their senses. ~ Asad Zaman

      Just finished a economics history on The Nobel Factor. Economics is a cuckoo bird with a big fat egg in the Nobel Nest.

  9. Barry Gills
    June 29, 2019 at 12:48 pm

    I thank Christian Mueller-Kardemann for his comments in my intervention to this dialogue and especially his argument that “the common ground for all moneys is indeed the social institution underneath the many manifestations of money”. His call to shift research towards the study of “the specific forms/properties of the underlying institutions” is in my view very much on target. When combined with a historical sociological approach to investigate the hypothesis suggested in this dialogue by Adam Zaman, i.e. that “Money is a belief system for measuring value” the agenda becomes stronger, and aligned with a powerful use of theory derived from the field of Anthropology. But I would include, as I said originally, that it is also necessary and useful to examine the role of money as a “technical means” or as Mumford might have said, to analyse the control of money as a “technics of power”, and to undertake this study as an aspect of Global History, thus seeking to reveal common and contrasting patterns across many historical social orders.

  10. Ikonoclast
    June 30, 2019 at 12:19 am

    If we look at money as scientifically as we can via complex systems theory, we have to say that money is information. Information is any pattern which influences the formation or transformation of other patterns. Information has physical instantiation as patterns in matter, energy or fields. The processes by which a pattern may influence the formation or transformation of other patterns may be mechanical, chemical, bio-chemical, electrical, electromagnetic, neurological and so on (if one can think of other examples). A conscious mind is not always necessary to the process (unless one posits that a conscious God is necessary for all processes) as exemplified by the issue of DNA replicating and transmitting information.

    However, once conscious human minds are involved (and even computers) we note that information requires decoding via learned or programmed heuristics and algorithms in a processing system (mind or computer) to become information that is socially transmissible and/or socially/physically “action-inducing” . The agent (human or computer) may act on the information to form, inform or transform other agents, materials or information sets.

    Viewed in this light, money cannot be neutral. Information is not neutral in any interacting complex system. By definition, it is pattern which influences the formation or transformation of other patterns. We cannot deny that the information that we are offering via money (as the information embodied in the amount of money and its denomination) for goods, services or financial instruments then influences the patterns of those goods, services, financial instruments and people in the socio-economy. It does. From an information and complex systems theory perspective, this is a simple proof that money is not and cannot be neutral in a socio-economy or political economy.

    In our minds, via language and cultural learning, and in our society via institutions and institutionalized legal laws and social rules, we implement heuristics and algorithms for processing social information in general including money which is a particular form of social information. Money, as information, passes back and forth in this complex meta-processing system. From the point of view of pragmatic social philosophy, we should, in my opinion, accept that this is what money is operationally (information) and we should then not obsess further over money ontologically but pragmatically and operationally tailor it to operate to meet real goals (less CO2 emissions for example) and ethical goals (broad human equality and access to necessities and life-enhancing amenities). This is an implicitly socialist concluding statement of course.

  11. Ken Zimmerman
    June 30, 2019 at 3:44 am

    A few basics for economists on money. Money is not a thing or even a physical object (although money may use physical objects). Money is a cultural process (institution) created to credit and clear, satisfy and impose obligations, duties, and responsibilities. Historians often misunderstand money because they focused too much on what it leaves behind, coins, contracts, pay and tax records, etc., rather than the networks created via money and their working out over time. Along with economists and social scientists, historians sometimes fail to examine money because they are the fish of the Chinese proverb, “The fish is the last to know water.” Humans are the last to know money. The closer an institution is to the center of our daily lives, the trickier it is to step outside of it in order to study it—and the more controversial will be attempts to do so. As with all institutions, views of money become clearer and more accessible when the institution of money is under construction and when that institution fails.

    How the money institution is framed and operates is historically contingent. But not generally an historical accident. For the past several thousand years the arrangements of money networks (credit and clear, satisfy and impose obligations, duties, and responsibilities) have been in the hands of “elite” groups. There’s never going to be a “fair” sharing of the money pie between elites and non-elites without specific changes in American culture. These elites do not base their actions on economic theories, of any sort but a rather simple factor – who controls the keys to the banks. That control rests with economic, political, and military elites. To maintain peace within these elite groups, money (objects) is distributed in ways that favor members of one or all these elites. The two main problems with these distributions is hiding what is happening and defending it, in the name of science if possible. The banks take care of the first, while economists take care of the second.

    As a cultural creation, the fundamental purpose or money is to provide a means for people to satisfy their needs for physical products and services. As a cultural device, money only exists in the in-betweens of people, in their interactions. For most of its history money has had a physical form and presence, e.g., the bill, the coin. Today money also exists digitally on computers and electronic storage media. Of all the cultural devices or tools humans have created money is thus far the most flexible. It can be used in almost any exchange. Early money simply circulated continually from exchange to exchange, some involving some form of market, but most not. Later those favoring capitalist markets seized money to provide the dynamic for their markets and ownership. But money is separate from and does not require capitalism. Also, because of its flexibility and appropriation by capitalism, money was made into a measuring tool to establish cultural status of groups and individuals. And thus, plutocracy and plutocrats are added to human culture.

    Money also is a powerful ideology of our time, a single, interchangeable, impersonal instrument — the very essence of our rationalizing modern civilization. Money’s “colorlessness,” as Georg Simmel saw it at the turn of the 20th century, repainted the modern world into an “evenly flat and gray tone.” All meaningful nuances were stamped out by the new quantitative logic that asked only “how much,” but not “what and how.” Whether conservative or liberal, all saw the expanding cash/money nexus as the source of evil. But Simmel and the others are wrong. Examining how people use money contradicts all of this. People fit money not only to their needs but also to their dreams, fears, loves, hates, and desires. Re-purposing it for new futures or failed pasts. Making all kinds of what Zelizer calls “special” monies. From domestic and foreign money to gifted money and charity money. From poor peoples’ money to stolen money and war money. This social lexicon of monies shows that money itself is nothing. It is how people shape it and use it that makes money whatever it is. This richness is lost when we accept Simmel’s gray and flat world created by a money economy. In their everyday existence, people understand that money is not fully fungible, that despite the anonymity of dollar bills, not all dollars are equal or interchangeable. Some money is more limited in who or what gives and receives credit, debt, and obligations. This is developing a new research focus for historians and anthropologists, but not for economists.

    • Craig
      June 30, 2019 at 4:38 am

      “Along with economists and social scientists, historians sometimes fail to examine money because they are the fish of the Chinese proverb, “The fish is the last to know water.” Humans are the last to know money. The closer an institution is to the center of our daily lives, the trickier it is to step outside of it in order to study it—and the more controversial will be attempts to do so. As with all institutions, views of money become clearer and more accessible when the institution of money is under construction and when that institution fails.”

      Yes, money and its paradigm is also very much like breathing. Most are not conscious of it at all, but as soon as you can’t breath its utter power and importance immediately looms up before us.

      “Money is a cultural process (institution) created to credit and clear, satisfy and impose obligations, duties, and responsibilities.”

      Yes, and when the flow of systemic costs of the economy chronically and inherently exceed the flow of individual incomes…money as a gift, an abundant gift becomes the new concept that creates an entirely new pattern. Social crediters had the right idea, but they made a mere theory out of a potential paradigm change with their nit picking, book balancing hide bound clinging to the classical idea of equilibrium. It took the guy who could never accept orthodoxy to step completely outside of the box and discover that the new paradigm was abundance to the point of “the higher monetary disequilibrium”.

      • Ken Zimmerman
        July 1, 2019 at 12:10 am

        Edmund Burke gives guidance on our lives and the cultures that create them.

        You see. Sir, that in this enlightened age I am bold enough to confess that we are generally men of untaught feelings, that,
        instead of casting away all our old prejudices, we cherish them to a very considerable degree, and to take more shame to ourselves, we cherish them because they are prejudices; and the longer they have lasted and the more generally they have prevailed, the more we cherish them. We are afraid to put men to live and trade each on his own private stock of reason, because we suspect that this stock in each man is small. and that the individuals would do better to avail themselves of the general bank and capital of nations and of ages. Many of our men of speculation, instead of exploding general prejudices. employ their sagacity to discover the latent wisdom which prevails in them. If they find what they seek, and they seldom fail, they think it more wise to continue the prejudice, with the reason involved, than to cast away the coat of prejudice and to leave nothing but the naked reason; because prejudice, with its reason. has a motive to give action to that reason, and an affection which will give it permanence. Prejudice is of ready application in the emergency; it previously engages the mind in a steady course of wisdom and virtue and does not leave the man hesitating in the moment of decision skeptical. puzzled. and unresolved. Prejudice renders a man’s virtue his habit. and not a series of unconnected acts. Through just prejudice. his duty becomes a part of his nature.

      • Craig
        July 1, 2019 at 5:04 am

        Cynicism is wisdom….until the obvious progressive moment of paradigm change makes it just a load of egg on one’s face. Or do paradigm changes never occur?

      • Ken Zimmerman
        July 1, 2019 at 10:27 am

        Craig, I hope you’re not saying Edmund Burke was a cynic. He was the farthest thing from that. Generally identified as the founder of modern conservativism, Burke was an opponent of revolutionary change, and revolution in general. According to Russell Kirk, “Any informed conservative is reluctant to condense dense profound and intricate intellectual systems to a few pretentious phrases…. Conservatism is not a fixed and immutable body of dogma, and conservatives inherit from Burke a talent for re-expressing their convictions to fit the times. As a working premise, nevertheless, one can observe here that the essence of social conservatism is preservation of the ancient moral traditions of humanity.” In other words, preservation of the prejudices of Sapiens. This is what sets conservatism apart from its rivals (liberalism, socialism, communism, etc.). The latter preach that a better world can be built by revolutionary ideas and changes in paradigms. While conservatives assert the direction of human history is worked out over time via slow cultural movement without a plan. And that people must be allowed the freedom and tools to do this working out.

    • Ikonoclast
      July 1, 2019 at 1:25 am

      Ken, I agree with everything you wrote in your comment on June 30, 2019 at 3:44 am. I also hold that my contention (that money at the most basic empirical level is information) is wholly consistent with your developed exposition.

      I offered my explanation as a simple proof, from empirical first principles, that money is not neutral. Information (as patterns which influence the formations and transformations of other patterns) plays a role in complex, physical systems, or at least in all complex physical systems involving life and its productions. The information as such is not neutral. It plays a role in formations and transformations. Change, growth, new structures, new developments, the emergence of radical novelty and so on are all to some extent dependent on and mediated by information, its effects and uses, in complex systems like life systems and economic systems.

      To say that information in its basic physical instantiation (as a ledger book, a bank’s computer file or a sheet of music) is merely pattern which may influence the formations and transformations of other patterns is not deny its higher level importance and developments. It was these higher level significations and developments which you highlighted in your post. These come about because information in the human and social context is communicated, interpreted and actioned by human beings (and these days also by automated systems developed by human beings).

      Human generated formal information (of which bank computer files and sheet music are examples) is passive and inoperative in its mere physical instantiation until interpreted, processed and acted upon by humans i.e. by their personal, social and automated systems. The information has to be passed through social and other “machinery” to develop emergent phenomena. It is at these levels that money ceases to be mere information in the physicalist or empirical sense and becomes, as you described, a complex set of social and ideological phenomena with extensive ramifications and transformations.

      I post this merely to indicate that I consider our views entirely compatible. They cover the spectrum of money’s manifestations from mere pattern information in physical instantiation to its complex cultural meaning and effects in social instantiation. And of course, in this progress money (as an extensive phenomenon) is not a simple object but a set of processes occurring at multiple levels, as you point out.

      • Ken Zimmerman
        July 1, 2019 at 3:45 am

        Ikonoclast, my only “first principle” is there are no first principles. Humans take their form and acquire their attributes as a result of their relations with other humans and with nonhumans. Humans have no inherent qualities: no essential divisions exist. Humans invented money as part of the cultures they had invented. And then humans continued to elaborate money. There is no preset pattern. We follow the actors and their work to find the patterns. Empiricism and human creativity are our entire science.

    • Ikonoclast
      July 1, 2019 at 6:59 am

      Ken,

      I have previously cautioned myself (several times) not to assume you are entirely postmodern in philosophical viewpoint. But your last post above at July 1, 2019 at 3:45 am, has me wondering.

      “That postmodernism is indefinable is a truism. However, it can be described as a set of critical, strategic and rhetorical practices employing concepts such as difference, repetition, the trace, the simulacrum, and hyperreality to destabilize other concepts such as presence, identity, historical progress, epistemic certainty, and the univocity of meaning.” – Stanford Encyclopedia of Philosophy.

      1. “My only “first principle” is there are no first principles.”

      This is meaningless as an a priori and if it is not an a priori what is it? It is self-contradictory. It is a word game like the sentence: “This statement is false.”, and likewise suffers from the liar paradox. It is fine to define all language-expressed a prioris as false or meaningless but to remain consistent from that point onward one must remain silent and advance no arguments.

      “Habermas also criticizes Derrida for leveling the distinction between philosophy and literature in a textualism that brings logic and argumentative reason into the domain of rhetoric. In this way, he says, Derrida hopes to avoid the logical problem of self-reference in his critique of reason. However, as Habermas remarks: “Whoever transposes the radical critique of reason into the domain of rhetoric in order to blunt the paradox of self-referentiality, also dulls the sword of the critique of reason itself”” – Stanford Encyclopedia of Philosophy.

      The signs that you have transferred the critique of reason into the domain of rhetoric in order to blunt a paradox of self-contradiction (the liar paradox) are the actual quote symbols you use in the first instance of “first principle”. You attempt to avoid the paradox of self-refutation by a slight of hand with quote symbols (scare quotes). The statement becomes rhetoric not logic. As I said, in essence, it is fine to deride or abandon logic but to be consistent you must abandon all attempts at logical argument from that point forward.

      However, I might be mistaken in thinking your position is entirely post-modernist. It will probably boil down to your theory of truth or your theory that there can be no theory of truth.

      • Ken Zimmerman
        July 1, 2019 at 8:09 am

        Ikonoclast, let me express where I begin by using words from those who use Actor-Network-Theory (ANT). The way we study ourselves and the things we make along with the other actors that make them with us must change. It is no longer enough to take actors as informers offering cases of some well-known types. You must grant them back the ability to make up their own theories of what the social is made of. No longer is it your task to impose some order, to limit the range of acceptable entities, to teach actors what they are, or to add some reflexivity to their blind practice. Rather, you must follow the actors themselves. Try to grasp their often subtle, often wild innovations in order to learn from them what in their hands the collective existence has become, which methods and tools they have expanded and re-formed to make it fit together, which accounts could best define the new associations they have been forced to establish.

        This is not postmodernism. Postmodernists’ focus is on dispersion and deconstruction. Like them I focus on the critique of the `Great narratives’ and `Eurocentric’ or `hegemonic’ standpoint. Dispersion, destruction, and deconstruction are not the goals to be achieved but what needs to be overcome. It’s much more important to check what are the new institutions, procedures, and concepts able to collect and to reconnect the social. In other words, how humans now build the social is first and last priority.

      • Robert Locke
        July 1, 2019 at 10:07 am

        Postmodernism undoubtedly ended the authoritative narrative (Lyotard) in the humanities when it introduced new voices into the dialogue, but it also, inadvertently perhaps, weakened the humanities within the university. It has been, its critics in the humanities say, a negative if not destructive force because it has torn down the Enlightenment project without putting any ethical norms in its place. Its critique of the humanities amounts to “an unjustified betrayal of the modernist project of building an ever better world” (Beyer, 2006, 2). Locke, Critique of Post Modernism in the Collapse of the American Management Mystique, OUP, 1996, 254.

      • Ken Zimmerman
        July 1, 2019 at 10:48 am

        Robert, I agree postmodernism has been more destructive than constructive. But that Beyer statement has always bothered me. Just about every authoritarian movement since the end of WWII has promised a “better world” if you follow us. If that’s all modernism is, then I want no part of it. And if we examine democracy projects, we see many are based on traditional notions about human rights and how polities operate. Which creates multiple questions about the role of modernism in the success and failure of democracy.

      • Robert Locke
        July 1, 2019 at 4:55 pm

        Ken, in 1979 (The future of operational research is past), Russel Ackoff concluded, when talking about OR that “they leave out the human dimension, the motivational one;” indeed, he affirmed that the successful treatment of managerial problems deserves the “application not only of science with a capital S but, also, all the arts and humanities we can command.” Arts and humanities take mythopoetic dimensions of decision problems into consideration that express tacit-bonding skills and even sensory modes of communications essential to collaboration.

        My point about post-modernism is that it has made very little impression on the modern money-driven managerial sciences that took over post wwii universities; they, with few exceptions, in their triumph ignored post-modernism. But post-modernism played a major role in diminishing the study of humanities in universities. I watched it happen as a history professor during my career.

      • Ken Zimmerman
        July 2, 2019 at 2:30 am

        Robert, I guess it depends on what you believe about post modernism. What role post modernism played in diminishing the study of humanities in universities is still debated today. Particularly the study of history. My own take is that the reorganized and very bent “New Right Coalition.” plays a much bigger role in lessening the study of humanities and particularly history. Right now the decline in the study of history is being debated by members of the American Historical Association. Both online and at the upcoming AHA meeting. But my general view is that the study of history, in the US anyway is no longer, if it ever was declining, But the New Right makes a strange and stark determination that all academics are anti-conservative, particularly those in history and the humanities. They are now expanding that circle to include academics in the sciences, all sciences. As a conservative colleague noted to me a few days ago, if we remove knowledge from the humanities and history (the usual source relied on my conservatives), knowledge from all the social and physical sciences, there’s nothing left of human knowledge except rumor, unexamined prejudices, and stark political and physical power. If she’s correct, American conservatism is becoming dark, very dark.

      • Craig
        July 1, 2019 at 5:31 pm

        Post modernism is the folly of the paradigm of de-construction ONLY. It’s the unconscious use/abuse of consciousness and is the antithesis of the wisdom phrase Wherever you go THERE. YOU. ARE.

        The trick of course is to integrate and keep on integrating which is the process of wisdom whose pinnacle concept and experience is the flow state aka grace, satori, samadhi, atonement, The Friend.

        Integrating the truths in opposites enables one to combine philosophy and science into the thirdness greater oneness of wisdom/self actualization/grace etc. above and in no way obscures or blunts the intellect but rather is a greater focusing experience of it.

        New paradigms being an integration of a single concept and the new temporal plauralistic pattern it creates is an expression of the oppositionally integrative wisdom process itself, and new paradigm perception a wisdom skill.

      • Ken Zimmerman
        July 2, 2019 at 2:42 am

        Craig, agreed post modernism is a foolish enterprise. It’s reluctance to study history and learn from the past is not only short-sighted but dangerous for the continued survival of our species. But post modernism is merely the reaction to a great hurt. A hurt that continues and one that members of this blog should understand well. Since the beginning of written history humans have lived under the dominion of hegemonic, all inclusive narratives of the nature of humans and human history. Whether political, religious, artistic, or some combination, humans have been channeled down pre-determined paths. Post modernism is just a straight out “F*ck You” to all of that. The real question is what do we do after we utter the phrase? Many times “F*ck You” leads nowhere. No actions, no debate, no plans to change, etc. We need to work on these. The “F*ck You” phase is over.

      • Craig
        July 1, 2019 at 10:09 pm

        Those who refuse to integrate past scientism are doomed to dramatize the natural philosophical interpretation of the biblical critique in Romans: “Professing themselves to be wise, they became fools,…”

      • Craig
        July 2, 2019 at 6:46 am

        Post modernism is a REACTIONARY stuck in dualism response. It’s a total F*ck you response. Only ACTUAL integrations of the truths in opposites to the point of thirdness greater oneness of truths, workabilities etc. are not reactions or palliative reforms. The F*ck you response I’m referring to is to the rigid, enforced and/or unconscious dualism of opposing orthodoxies. Thirdness greater oneness can and does occur, but only via an actual integration.

      • Ken Zimmerman
        July 2, 2019 at 11:35 am

        Craig, post modernists direct their irritation toward universalist notions of objective reality, morality, truth, human nature, reason, language, and social progress. Instead the post modernists often point out knowledge claims and value systems are contingent and collectively created, situating them as products of cultural discourses and hierarchies of identifiable times and places. Overall postmodernism is characterized by tendencies to self-referentiality, epistemological and moral relativism, pluralism, and irreverence. It is perhaps the last that most agitates the critics of post modernism. While the stances of postmodernists may be new and/or frightening to some, they have been parts of Anthropology and history for longer than post modernism has existed. Post modernists’ critiques tend to be quite blunt, and often rude, however. Post modernists also at times tend to make their assessments of the contingency of knowledge, morality, and human culture much too cut-and-dried. The details of contingency are always difficult to establish, and the work cannot ever be complete.

      • Craig
        July 2, 2019 at 5:49 pm

        Ken, you’re not telling me anything I don’t already know. However my point that post modernism and post modernists are still stuck in dualism and essentially have nothing but intellectual inanity to give us….still stands. It is my contention that post modernists may TALK a lot about epistemology but they don’t do the WALK necessary to experience an elevation of same…..so that the necessity to act becomes more than just another nice idea to chat about. A perfect example of this is this blog where I offer up policies that resolve all of the heterodox critiques of neo-liberal DSGE and pave the way for direct and concerted action to resolve the ecological crisis we’re weltering in by pointing out the incredibly powerful tipping point of retail sale for monetary and economic policy….and I get either no response or at best static intellectual engagement.

        Look at the immediate empirical, mathematical and ongoing resolving temporal universe effects of such policy and the other structural changes and stabilizing regulations I’ve offered up here and in my book….and let’s get on with it.

      • Ken Zimmerman
        July 3, 2019 at 11:58 am

        Craig, Derrida, Foucault, Lyotard, Rorty, Baudrillard, Jameson, and Kellner disagree with you. You may say their works in philosophy are extreme and push the envelope, but they certainly are not trapped within any dualism, modern or traditional. And the works of post modernists in art, architecture, literature, music, and urban planning certainly don’t have such a limitation. Look at just about any school constructed in the last 25 years, for example and you’re likely looking at the work of a post-modernist architect.

      • Craig
        July 5, 2019 at 12:30 am

        Yes I can say it. I’m not saying there isn’t ANY insight in their work, but they’re all still stuck in dualism to one degree or another. Discovering the the utterly integrative and natural concept of grace is the only philosophy that can escape dualism and begin to approach thirdness, unity and greater oneness.

        Dualism in art can be instructive and satisfying, but any field with application in the temporal universe is reactionary until it cognites on the natural philosophical concept of grace.

  12. Craig
    June 30, 2019 at 9:21 pm

    Given that survival trumps every other economic consideration the new monetary paradigm of Gifting would enable us to immediately initiate what I would call F*#k It economics where the price of every big ticket item, green consumer item and innovation is vastly reduced as in my 75% price reduction via my twin 50% discount/rebate policies.

    Likewise direct monetary distributional funding of commercial carbon sequestration projects, a national charging station project for electric and autonomous vehicles and a national hyperloop system to complement/reduce aeronautical transportation until an ecologically sane means of powering air travel can be found.

    We need to think wisely and WAAAY outside of the box of neo-liberalism.

    F*#k It!

  13. Heribert Genreith
    July 4, 2019 at 10:03 pm

    Of course, financial market and goods market are directly related and condition each other.
    The problem is quite easy to solve with Newtonian mechanics:

    D. Peetz and H. Genreith, The financial sector and the real economy, Real-World Economics Review, issue no. 57, 6 September 2011, pp. 40-47 further reading: H. Genreith, Field Theory of Macroeconomics, arXiv:1407.6334 [q-fin.GN], 16 May/24 July 2014

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