If the value of money does not lie in precious metals nor in the power of governments, where does it lie? We will conclude, after the following investigation, that money is mainly, but not exclusively, an act of remembering, a way of keeping track of some of the exchanges we each enter into with the rest of humanity. And that is what makes money an instrument of collective memory. British conservatives who feel that the replacement of the pound sterling by the euro involves the loss of an important part of their cultural heritage have a point, even if it is a narrow one in a world which increasingly uses English as its common language. Once freed of a spurious claim to objectivity, money is revealed as a creature of our shared collective life, as necessary to it as language. Moreover, interpreted in a certain way, its history points to the possibility of economic democracy.

Ideas normally lag behind the movement of society; and this chapter begins with a brief history of concrete changes in the money form. Money today is more plural and dynamic than at any time previously. Banknotes and coins have become equally worthless in terms of the costs of their production; and private instruments of credit are multiplying. A short period when nation-states sought to manage their currencies in the public interest is rapidly giving way, under pressure from the international economy, to a phase where money markets, offshore banking and electronic payment systems have sharply reduced the autonomy of national governments. It may be premature to see the communications revolution as a stimulus to the middle-class tax revolt. But it is clear that the certainties of mid-century are being undermined at its close. Unprecedented developments are unfolding under our noses; so that an empirical approach to contemporary economic history is a salutary antidote to the welter of speculation which is the main subject-matter of this chapter.

The history of the money form

For he has, of course, been hounded by the authorities as a counterfeiter, even though his drawings could never be confused with the “real thing”. At London’s Old Bailey court in 1987 he was accused of “reproducing” sterling banknotes. His successful defence was that the banknotes were reproductions; his drawings were unique. In Australia, he was acquitted on charges brought by the currency police and awarded A$20,000 in damages. Juries like Boggs and, in his home country, the United States, the Secret Service has waged a long campaign of legal harassment without going so far as to initiate a jury trial. His alleged crime is “uttering images in the similitude” of actual American currency. The Secret Service did manage to stop his plan to flood Pittsburgh with $1 million in the form of photocopies of Boggs bills, by threatening all concerned with the direst consequences. In 1992 they seized the contents of his studio; and this led Boggs to engage in a series of appeals and civil suits which have so far cost him $800,000, without benefit of either a favourable ruling or a criminal prosecution which would require a jury trial. He cannot get his property back because the government has argued successfully that his drawings are contraband, like hard-core drugs, whose owner cannot demand them back, even if he is not prosecuted.

Boggs is funny, so what is the joke? And why are the authorities so worried about Boggs that the US Secret Service will spend millions of taxpayers’ dollars trying to disrupt his enterprise? Today’s money, the measure of the value of everything, is intrinsically worthless. Not just that, value itself is so capricious that it can be whatever people will pay for something which catches their fancy. Money and art, especially when exchanged for each other, rest on values which are insubstantial or only as substantial as the shifting desires of the people who exchange them. Money, like art, is subjective.

Unfortunately, shortly afterwards, inflation rates of over 20% became normal in the leading western economies. This may not seem very much by the standards of the German inflation of the 1920s or of Brazil at any time, but the experience of finding prices in the supermarkets adjusted upwards by 2% every month was definitely unsettling. Businessmen do not like inflation because it makes it more difficult to calculate profits or perhaps because it symbolises the ascendancy of the politicians. Ordinary people just get frightened when the value of money itself is unstable. Accordingly, around 1980, neo-liberal conservatives (Reagan, Thatcher, Kohl) were established in office throughout the western world and their creed was “monetarism”, a rejection of state-made money and a return to the commodity theory which underpinned Victorian civilisation (you are only allowed to spend the cash you have in hand).

The two sides were also opposed in terms of the weight they gave to the national and the international economy respectively. Here was what each proposed:

Lowndes: remint the same number of coins with a reduced silver content (devaluation).

Locke: return fewer coins with the same weight and silver content as the currency was supposed to have, but no longer did (revaluation).

His opponents accused Locke of favouring Portuguese wine merchants (who would use a reliable international currency) over the national interest, since, they claimed, his own quantity theory of money predicts that a reduced money supply would cause prices and therefore employment to fall. To which he replied that the business of business is making money, not giving pleasure; people who put up with fraud are fools, but governments who endorse it undermine themselves; the world economy was the prime source of accumulation; and something had to be done to check the rise of the criminal economy. For all these, and perhaps other reasons, Locke won the day.

Locke was trying to build an infrastructure for the 18^th century and his monetary policies were just part, but a very significant part, of his overall concern that the state should exercise the power and will to establish standards. He wanted the state to secure the currency, but not to take it over as an instrument of its own policy. He thought that adhering to an immutable metallic standard would ensure both these ends; and he helped recruit Isaac Newton to be Master of the Mint, where his scientific credentials could be brought to bear on maintaining the highest possible standards of coin production. In fact, Newton took his job so seriously that he strung up a large number of counterfeiters and other economic criminals on Tyburn Hill. Between them the two greatest English intellectuals of all time devoted their efforts to making the pound sterling the by-word for reliability that it subsequently became.

As it happened, Locke succeeded in the aim of promoting sterling as an international currency, but he failed in his attempt to convince ordinary coin users that they were getting value for money. For, as long as value was based on the measurement of metal content, there were still many ways of illegally altering that measure (clipping, counterfeit and so on). Moreover, the price of gold and silver was itself subject to fluctuations of market supply and demand. In consequence, a century later, the British government, following several Scottish precedents, decided to take the step of counting money rather than measuring it, going for a purely nominal approach, the five-pound note. They hoped to persuade the public that the power of government was a better guarantee of stability than variable metal content. And with this, one of the great steps in the history of digitalisation, they succeeded… for a time. Within half a century, the pendulum swung back and the Victorians rediscovered the virtues of the Gold Standard, a measure which, as Keynes pointed out acerbically, only lasted as long as it did because supplies from the South African mines were able to match the expansion of the world economy. Whether we have reached a stage when we can break out from this ruinous alternation between metal and paper, markets and states, remains to be seen in the sections that follow.

Ours is a time of unprecedented change in the form and organisation of money. Most of us have access to six kinds: coins, banknotes, cheques, savings accounts and a variety of plastic credit and debit cards. The relative significance of all of these is constantly shifting. Money is an index of our relations with society; it measures, to an important degree, the viability of our social connections. Becoming unemployed, for example, is a personal disaster from many perspectives, such as disposable income, public recognition, the opportunity to practise a skill and much else; but the loss of a regular source of money is its most tangible manifestation. When the very techniques of paying and receiving money are in flux and each of us is continuously forced to learn a new monetary repertoire, more is at stake than just earning a living. We have to redefine our whole relationship to society almost on a daily basis.

An outline history of the money form may be summarised briefly for our present purposes. The traditional money form, known as “specie” (coins containing precious metals equivalent to their nominal value), now survives only in a specialist hoarders’ market for gold coins. For two and a half thousand years the only alternative to specie was the note of credit, which took the precise form of bills of exchange in Europe about 600 years ago. Coins were first mass-produced in Britain around 1800. At much the same time, national paper money emerged as a widespread substitute for both specie and promissory notes issued by private banks. Base metal coinage was introduced after the second world war, so that both paper and metal versions of the national currency now became equally worthless, being distinguished largely by function rather than by cost of production. In the meantime, private individuals have continued to issue cheques against their bank accounts; and this source of liquidity has been augmented recently by the issue of plastic credit and debit cards. These are the forerunners of electronic payment systems whose use has been boosted enormously by the convergence of telephones, television and computers in the 1990s (smart cards, e-money, banking by phone etc.)

From the mid-19th century credit was based on the convertibility of money to gold. As we have seen, the gold standard broke down between the two world wars; and it was replaced just over fifty years ago by the agreement known as Bretton Woods. This was a system of state-guaranteed money with fixed exchange rates tied to the main reserve currencies, especially the American dollar. In other words, international trade rested on confidence in the world’s strongest economy, the United States. Bretton Woods broke down in the early 1970s as a result of the convulsions in world commodity markets and associated shocks to national finances brought about by the first OPEC oil price increase. This led to a hesitant acceptance of a free market in money, a process which was accelerated by the development of markets dealing in money futures. These were invented in Chicago in 1975, partly on the initiative of the liberal economist, Milton Friedman, who wanted to teach governments the lesson that “they could not buck the markets”. Before long speculative buying and selling of currencies became the leading activity of international traders, a category which now embraces central bank governors, the treasurers of multi-national companies and pension-fund managers.

Nor is money standing still on the home front. The virtue of traditional money forms — coinage and later banknotes — was that they could be spent anonymously in a wide variety of commodity transactions. Since their value was apparently objective, there was no need to introduce questions concerning an individual’s creditworthiness. Moreover, governments levied the bulk of their internal revenues on transactions involving this kind of money. But all of this is being undermined by developments in electronic communications. It is now easier to evade state control at all levels of the economy and money has become less anonymous, more attached to persons. The communications revolution offers the best chance to escape from state-made money since medieval merchants substituted private bills of exchange for coin of the realm as the preferred instrument of long-distance trade.

To sum up, the state monopoly of money has, in the late 20th century, been subjected to pressure from above and below. Globalisation of markets, including markets for financial instruments of growing complexity (“derivatives” and the like), has eroded the power exercised by governments over their national economies. In addition, internal devolution of state control over finance has been made inevitable by what are essentially decentralised instruments of credit. So, in a world which has seen national currencies become the plaything of increasingly erratic market speculation, we must look elsewhere for the source of money’s value. What about the banks? What supports their claim to keep our money safe?

Offshore banking can afford to offer interest rates on average one percent higher than those banks who are subject to national regulation, because of the reduced costs entailed in avoiding the necessity for deposits. What then is the basis of the Eurodollar banks’ credit? Not gold or state power, to be sure. Their credit is based on the probability that they will recover outstanding loans. Default on any major loan would call into question the creditworthiness of all the offshore banks, which are, of course, often subsidiaries of the main domestic banks. The banks hedge against such a contingency by spreading each loan between a large number of them, so that the risk of any of them being declared bankrupt in isolation is reduced; and they make it known that they would seize the trade goods of any country involved in a major default . But this nightmare scenario could trigger off a run on the bank which would make the financial failures of the Depression years look trivial in comparison. No wonder then that the high Third World debts incurred in the 1980s are endlessly rescheduled. Neither side can afford a confrontation, although large countries like Brazil have contemplated it from time to time.

This brief attempt to introduce a measure of historical realism to the discussion of money should be enough to show that the pursuit of its objective foundation is illusory. Money is a measure of social interaction; no more, no less. We make it up; but most people prefer to think of it as already made. Above all, the consequences of examining what money really is are so shocking (because more metaphysical than physical) that the world prefers, for the most part, not to think about it. And the struggle for supremacy between states and markets is still very much with us.

In a century which has seen three world wars (two hot, one cold) fought over the form of state best suited to human economic progress, which is more important in determining the value of money — the state or the market? There are at least four contending answers to this question: states and markets may be seen as inherently opposed and in conflict (the Cold War); states and markets may be seen as being complementary, with one or the other definitely in the driving seat (mainstream socialism and liberalism respectively); or the state and the market may be seen as equally indispensable and forming a dialectical unity (German and Japanese nationalism, for example). The symbolism of the two sides of the coin (heads or tails?) provides a point of entry for an enquiry into the relationship between politics and exchange as the principal source of money’s value. What then is the relationship between coins in particular and money in general?

Keynes held that modern money was as old as the invention of cities and, with them, the State (which he always capitalised), that is to say, as old as agrarian civilisation:

The right to re-edit the dictionary! Keynes, a master of the art of writing who knew more about money than anyone in his day, was intimately aware of their connection as means of communication. He also knew of the state’s jealous monopoly of the currency used by its citizens, the same monopoly which is called into question by the developments of our day. Language and money are both intrinsic to a society’s collective memory or culture. But Keynes’s aim in downgrading the significance of coinage was to establish that, as a social creation, money did not have to wait until coins were struck; and it is this aspect of making money rather than finding it in the form of natural objects that he wanted to stress. Money is a thing, but it also has to be named and it is the act of naming with is more truly creative and social than manufacturing per se.

There is an obvious tension between the two sides of the coin which goes far deeper than appearances may suggest. For Victorian civilisation made a concerted effort to base its market economy on money as a commodity, gold, whose value was allegedly immune to interference by states or any other social agencies. In our century, very much under Keynes’s influence, political management of money became for a time normal and then again anathema. Now there is talk once more of “the markets” reigning supreme and of states losing control over national currencies in a process of globalisation. At stake here is the project, repeatedly espoused by bankers and businessmen, of trying to liberate market economy from the political institutions which give expression to people’s general social interest. Yet the evidence of our coinage is that states and markets are or were each indispensable to money; and some nations have long recognised the value of treating the two sides as symbiotic.

Most anthropologists, contrasting their own society with others they claim to know professionally, speak of “the West” or “Euroamerica” as if its economic culture were monolithic, being based on market logic alone. In this timeless version of the modern world, nothing has changed since the Victorians tried to impose the gold standard on the rest of humanity. Which is a pity; for it is precisely in the diversity of monetary theories and the historical conflicts they represent that the possibility of finding new ways forward lies. What states and markets share, despite the personal symbolism of heads, is a commitment to founding the economy on impersonal money. If you drop the coin and someone else picks it up, they can do exactly the same as you with it, whatever they like. This absence of personal information from the money itself is what recommends cash to people who prefer their transactions to be illegal: it conserves their anonymity. Yet, as I will argue, a more effective route to economic democracy lies through people participating in exchange as themselves, not just as the anonymous bearers of cash; and for such a move we need to examine the antecedents in monetary theory and history.

The commodity theory of money has been labelled metallism, as we have seen, for the reason (illusory as it turned out) that a reliable medium of exchange should be based on the precious metals it cost to produce the coinage. This ancient practice was elevated to the level of economic theory when the British argued in the 1850s for an international standard linking national currencies to the price of gold. But adherence to the gold standard made it impossible for governments to protect their citizens from wide fluctuations in markets. It did not escape notice that unemployment could be reduced and public misery alleviated, if governments spent money they did not strictly possess (i.e. by printing more of it). Indeed the Wall Street crash of 1929 and the subsequent economic slump forced the British to abandon the gold standard in the early 1930s.

At the core of these opposed theories lies a contrast between the imaginary and the real. If only money could be tied to an object, a grain of gold for every dollar, we could all rest assured that our money is “real”, a thing like the other objects we can touch. But what determines the price of gold? The answer lies in intangibles like how much some people desire it in relation to how much of it others choose to put in circulation rather than hoard it. An old conundrum asks why diamonds are more valuable than air, since we can live without them and not without the latter. We know now, of course, that diamonds maintain their price as a result of a complex international conspiracy organised by the South African firm, de Beers, in an uneasy alliance with the Russian government and rebel forces in Angola. And that is not to forget the subliminal effects of all that advertising reminding us that a diamond is a permanent guarantee of love.

The idea of money as merely a commodity depends above all for its credibility on a spurious realism. All the other theories of money acknowledge that the value of anything is inevitably symbolic. Society is something unknowably vast. Even the social networks that each of us enters reach a level of complexity which we could never document objectively. So we rely on symbols — words, ideas and things which stand for what we would like to convey. A red rose symbolises the unfathomable depths of my love for you… Banks would not have to occupy impressive buildings if they contained the real resources adequate to meet their financial obligations. As we are constantly being told by the representatives of capitalism, it is confidence that rules the markets and that can be lost for the most imaginary (or perhaps, imaginative) reasons. We have only recently discovered the idea of “virtual reality”; but in the world of money, we have been living with nothing else for a long time.

In truth, the pursuit of objective certainty in the monetary sphere has wrecked many a modern economy, just as the stabilisation programmes of the World Bank and International Monetary Fund (“structural adjustment”) have brought many Third World economies to their knees today. The interest of increasing international flows of commodities and money is impaired if individual states give priority in their financial affairs to internal political considerations. When impoverishment and chronic indebtedness drives these governments to the international agencies (“undertakers” might be a more appropriate expression than “bankers”), the price they pay to be bailed out of bankruptcy is to “stabilise” the currency by bringing spending in line with what they can afford. The medicine is more or less the same as that administered to any individual debtor or loss-making firm, despite the fact that the livelihood of millions hangs on the outcome, which is invariably very painful.

In Chapter 7, I will explore a scenario in which the communications revolution reintroduces greater personal flexibility to economic activities. The link between production and consumption through exchange would then be provided by money made by each of us. Money would then no longer be left to impersonal agencies, to the death struggle of the disembodied twins, states and markets, heads or tails; but rather would become a question of subjective judgement, a skill to be learned by persons capable of making and remaking society through the exercise of their own judgement of probabilities. In short, money might become more meaningful than it has been of late.

The meaning of money

This formulation is not wrong, but it does not go far enough. Like his main opponents, the economists of our day, Buchan emphasises the subjective wants of individuals and the way these are made temporarily objective in acts of buying and selling. Money may well be evolving towards just such a condition. But it also expresses something social, about the way we belong to each other in communities. We need to understand better how we build the infrastructures of collective existence, or culture, if you like. How do meanings come to be shared and memory to transcend the minutiae of personal experience?

It follows from this that money considerably expands the capacity of individuals to stabilise their own personal identity by holding something durable which embodies the desires and wealth of all the other members of society. An aid to memory indeed. I would go further. Communities exist by virtue of their members’ ability to exchange meanings which are substantially shared between them. There seems little doubt that money is an important vehicle for this. Commonwealths (or communities) communicate common meanings. It is worth exploring briefly the etymological roots these words share.

But now centralised states are in disarray to a variable extent, even though their bureaucracies remain powerful. The word is out for devolution to less rigidly organised “communities” or regions. The networks of market economy, amplified by the internet and cheap transport/telecoms, offer more direct access to the world at large. Cheap information allows relations at distance to be made more personal. Now we have to think again about how societies can be organised for their self-improvement or development. And it may pay us to consider money as part of this process of building communities. If money comes from the mother of the muses, it follows that it is an instrument of collective memory, not far in fact from meaning. It is certainly an important means in several senses noted above. I wouldn’t be surprised if communities, in their linguistic origin, once held money in common too, as a special kind of meaning. Even if they did not, there is nothing to stop us running with the idea now. But that requires us to overcome the legacy of alienation which still bears heavily down on how people think of money.

He tells a story from the 1960s about a member of Kennedy’s administration being paid off with a directorship of a bank. After his first meeting as a director, he was seen walking down Wall Street in a daze, muttering “I never knew. I never knew.” What hadn’t he known? Galbraith surmises that he may have learned the first principle of modern banking: take money from one party and lend it to another, then persuade both that they still have it. Perhaps money truly is a phantom conjured up by unscrupulous wizards. In which case, most of us would rather not know. We prefer to think that we are standing on solid ground, that the money we live by is real and will not go away. Failing that, we pay experts to look after the problem and are reassured by the sound of their technical jargon. In either case, understanding is unnecessary. It appears that we are not ready for a vision of society as the infinite flux of our own highly subjective encounters, preferring rather to see money as a stable foundation in a transient world of constantly shifting relativities. That is why inflation is so upsetting: when the value of money refuses to stand still, what else is there to rely on? Fear of the unknown leads us into a crippling search for certainty in monetary affairs; and this is as much of an obstacle to effective understanding as was the old-time religion it so closely resembles.

So what marks out money, according to Simmel, is that, in this shifting world of relativities, it is the common measure of value uniting all the independent acts of exchange. It thus stabilises the volatile world of commodity exchange in much the same way that Durkheim, following Plato, Kant and other idealist philosophers, thought the central ideas of society (God, the family and similar sacred notions) lend stability to the fluctuations of everyday life. Money, of course, is itself relative and, as we know all too well today, its value changes also; but Simmel held that it represents an element of coherence in a world of constantly shifting prices. In other words, we are not yet ready to face the complex relativity of the real world and take comfort from money’s symbolic steadiness. Most people prefer to believe that there is something out there that we can rely on. If God is dead and Society has been killed off by the economists, then let Money be something real and enduring.

The meaning of money is thus what each of us makes of it. It is a symbol of our relationship, as an individual person, to the community (hitherto more often singular than plural) to which we belong. This relationship may be conceived of as a durable ground on which to stand, anchoring identity in a collective memory whose concrete symbol is money. Or it may be viewed as the outcome of a more creative process in which we each generate the personal credit linking us to society. This latter outlook, however, requires us to abandon the notion that society rests on anything more solid than the transient exchanges we participate in. And that is a step few people at present are prepared to take, preferring to receive the money they live by, rather than make it. This preference is also revealed in popular ideas concerning the history of money. Perhaps, if we can loosen the grip of these ideas, we may prepare the way somewhat for practical progress.

The most elementary conceptions of history rest on notions like now and then, here and there. It is one of the features of our world that such simple paired contrasts are no longer as sustainable as they once were. Accordingly, questions concerning the origins of money and its spread between societies at different levels of market economy evoke the ideological premises of contemporary economic practices. Although any attempt to answer the question “Where did money come from?” is inevitably based on historical speculation, it does require us also to look at non-market exchange in the contemporary world, at exchange from which the medium of money is absent. And the impact of modern money and markets on societies which were until recently without them extends this enquiry into how to conceptualise the distinctive properties of exchanges based on money.

This origin myth is plausible, but closer inspection reveals that it assumes what any rigorous history of exchange would have to demonstrate. Note especially that primitive barter is here represented as an exchange between individuals each having private property in whatever they seek to dispose of. Yet we have seen in Chapter 5 that this is a highly implausible assumption to make about original economic conditions. Rather small groups would be likely to exercise political influence over the participants in exchange, since the kind of security offered traders by an invisible state apparatus is an exceptional and historically evolved context for commerce. Smith and Marx appear to be trying to represent certain key elements of modern economy as natural by making them aboriginal and therefore eternal. (Although in Marx’s case it has to be said that money is subsequently given a contradictory social history of its own.)

It is remarkable how deeply inserted into the popular consciousness of western societies is this idea that markets evolved from primitive barter. Yet there are strong grounds for thinking that barter or exchange without money is a phenomenon linked to the cutting edge of modern commercial development. Even Adam Smith’s original example of natives bartering animal skins takes on a different aspect when seen in the light of the North American fur trade of the 18th century which gave him the concrete example in the first place. Far from being the product of intermittent and isolated encounters between savages, this was a lucrative trade driven by a global mercantilism originating in England and France. Money was scarce on the frontier, but the exchange ratio of hides was calculated on the basis of known world prices back home. Deerskin was sometimes used as a unit of account, which is why the U.S. dollar is still referred to as a “buck”. None of this would have been possible without the previous historical expansion of markets and money.

There are two notable aspects of the modern phenomenon of barter. First, shortage of cash is not in itself a limitation on trade, especially when the parallel existence of markets makes it relatively easy to calculate what the trade items are worth. Second, barter disrupts the ability of states to regulate markets and levy taxes from them. Money is an unambiguous means of payment and standard of value; but how can the Internal Revenue Service assess the value of paint and hotel rooms which otherwise would not have found a buyer? Seen in this light, barter is increasing in response to restrictions imposed on exchange both by markets requiring payment in cash and by political authorities seeking to capture taxes from cash transactions. Which of them then is “primitive”?

Clearly there is more to heads and tails than the Cold War idea that states and markets are opposed principles, each with their separate myth of money’s origins. Seen from the perspective of barter, the two sides of the coin are symbiotic and equally restrictive of the possibilities for exchange. In the 20th century the dialectical unity of states and markets has been embraced by Germany and Japan with some success, as well as being endorsed by Maynard Keynes. It matters whether markets based on money issued by states are seen as the end-point of economic evolution or just as a transient phase of world history. And it matters whether barter is thought to be a quaint, outdated and inefficient form of exchange or a growth point in a new era of greater economic freedom.

So, in the Trobriand Islands economy, there are both political authority of a sort (big men) and markets of a sort (barter). The exchange of valuables erects a temporary framework for trade which, under conditions of peace, gives way to individuated transactions with greater affinity to competitive markets. This example furnishes an interesting point of comparison with 20th century political economy, as Malinowski intended, but in a way that lends support to Mauss’s insistence that individuals and society (read, markets and states, if you like) are each indispensable to exchange.

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