MONEYLESS: FOFOA on the Dollar, Gold and the Present Crisis
I am now reading FOFOA’s Moneyness, an epic length blog on the history of money. I was lured into reading it by the title, which I stupidly misinterpreted as tongue in cheek on the order of Colbert’s Truthiness. In fact, it is an attempt to bring his view on money to an analysis of the current global monetary crisis.
FOFOA begins this extended treatment of the crisis with a tangle of questions, all of which are centered on the nature of money itself:
Is gold real money? Or is money whatever the government says it is? Or is it whatever the market says it is? Is silver money in any way today? Are US Treasury bonds money? Is real money just the monetary base? Or is it all the credit that refers back to that base for value? Is money supposed to be something tangible, or is it simply a common unit we use to express the relative value of things?
Is money really the actual medium of exchange we use in trade? Or is it the unit of account the various media of exchange (checks, credit cards, PayPal) reference for value? Should the reference point unit itself ever be the medium of exchange? Some of the time? All of the time? Never? Is money a store of value? And if so, for how long? Is money supposed to be the fixed reference point (the benchmark) for changes in the value of everything else? Or is it simply a shared language for expressing those changes?
To answer these questions, and so set the context of his argument on the present crisis, FOFOA offers a history lesson on what he calls the pure concept of money from the pre-capitalist period. Tracing money back to these roots, FOFOA argues, is necessary because our present concept of money has been corrupted by a long period of conflict between advocates of easy money policies — who favor a debased currency like the dollar — on the one hand, and advocates of hard money policies — who demand a return to some sort of commodity money (gold, or some other commodity) — on the other.
FOFOA admits he cannot really get back to a pure concept of money, but he attempts to construct a close substitute, based, he says, on archeological findings and etymology (with a judicious application of his own predetermined notions):
If we look at the specific etymology I highlighted, we are pretty close to the pure concept which I will confirm from a couple different angles. ‘Money’ is a “unique unit” that we use as a kind of language for expressing the relative value of things other than money. The modern example would be “dollar”. Not “a dollar,” not a physical dollar, but the word “dollar” as it is used to say a can of peas costs a dollar, or my house is worth 100,000 dollars, or you owe me a hundred dollars. If you give me two grams of gold you won’t owe me a hundred dollars anymore. You don’t have to give me actual dollars. That’s just the unit I used to express the amount of value you owed me. That’s the pure concept of money.
According to FOFOA, money is simply a common unit of account that we use to express the relative value of things. With it, we can compare, for instance, the value of a can of peas to the value of a house, because we can use some socially valid accounting unit to express their respective values.
It is unfortunate for his argument that FOFOA does not define the thing being expressed by money — value — at this point, preferring to leave it hanging out there simply as “the thing money expresses”. This is very damaging to his argument at the outset, because we have no way of knowing the attributes of value which logically must be shared by the can of peas, the house and money. Thus, it is difficult to actually ascertain whether money can actually play this critical role in society, as he argues it does.
The attributes of value present in the two items must also be present in the thing which expresses them. Even if we assume money is only a conceptual tool — a language for expressing this value — this conceptual tool presupposes there is something to be expressed through money. Is this value being expressed also conceptual like the money; or, is it a material thing like the can of peas? How do we know a house has 100,000 times the quantity of value contained in one can of peas?
“Because that’s what the prices paid for them says”, FOFOA seems to argue.
Without a theory of value it would seem impossible to have a theory of money, but FOFOA offers none in his argument. Suppose value referred to weight; would it not be necessary to have our money denominate units of weight measure? Would it not be necessary for actual money to come in some fixed weight unit, fraction, and multiple of this weight measure so that during a transaction we could be sure we were getting 1/100,000th of a house in our can of peas, not 1/200,000th of a house.
Likewise, if money is needed to express the value of a can of peas, is it not necessary that this money have actual value of its own? How is the actual money material to express the value of all else besides money if it has no definite value of its own? We can arbitrarily state one unit of value is to be called a dollar, but how is this relationship insured? How can we be sure that a dollar will, in fact, purchase this unit of value in our next visit to the grocery? FOFOA offers no ideas on these and other critical questions.
Next, FOFOA tells us a dollar is money only because we reference it when expressing the relative value of things. He emphasizes money is a product of our conceptions; but the actual material we use as money — e.g., the dollar — is money only because we use it to denominate the relative values of things. If we began using something else when denominating the relative values of things, this new thing would now be the money.
We could be using seashells as money. If we were, then all the seashells available for trade would be the monetary base. That’s the base to which I would be referring when I said you owed me one hundred seashells. A single seashell would be the reference point, the unique unit, but the whole of all available seashells would be the base around which money flowed. You could pay your debt to me with either an item that I desired with a value expressed as 100 seashells, or with 100 actual seashells. So if the total amount of seashells available (the monetary base) suddenly doubled making them easier for you to come by, I’d be kinda screwed. Of course I’d only be screwed if the doubling happened unexpectedly between the time I lent you the value of 100 seashells and the time you paid me back.
Of course, this begs the question: since money is only a concept, why does it need an independent material body? We don’t seem to need an independent material to express the concepts succulent and foul. According to FOFOA, money itself is only a language to express the relative values of things; however, for reasons FOFOA does not explained, this language needs an independent material form. It is not enough to have a common language to express relative values of objects, this language needs an independent common material form. Moreover, the common material form this concept takes is not actually the money, but a mere material referent or pointer. The material object employed as money is just a referent pointing back to our money conception.
Finally, FOFOA offers nothing to explain money in terms of its actual functions: Why does production take the form of objects with value? Why do we compare the values of these commodities? When did such comparison making arise in human history? What natural or social forces caused it to emerge? Certainly commodity production and value comparison is not hard wired in our DNA — so where did it come from?
These questions demand an answer, because later in his post, FOFOA is going to be making arguments against the modern money school that assumes he has answers to them. Arguments like “Hyperinflation is bad” — an argument that just printing money is ultimately disastrous. But, why is hyperinflation disastrous if money is only a concept, a mere language for expressing the relative values of objects other than money? How does adding zeroes to the material that only expresses a conception not like simply switching to yen from dollars to express relative values of things?
Money is a concept, a symbol of value; but, as FOFOA indicates with his dire prediction, it is much more than this.
With all of my objections and questions regarding FOFOA’s basic argument, you probably think I fundamentally disagree with him on the gist of his outline — but you would be completely wrong; I fully agree with his description. Insofar as he has simply outlined his ideal form of money, he has described our present dollar system in an adequate fashion. The problem is not that FOFOA’s description of money is wrong, but that, as a practical matter, he is correct in almost every detail but one: the dollar is not money.
To understand why it is not money, we need only recognize that the monetary system FOFOA describes has only existed in one other place and time in human history: the Soviet Union and other now-defunct centrally planned economies of the so-called socialist bloc. There money was not money as it emerged in history, but a political or administrative tool for enforcing the domination of the party-state over the productive activities of members of society. Far from being the object that became money as the term is properly used — an independent expression of the relations of production and exchange within existing society, and a ruling power over those relations — money in the Soviet Union, and in the world market today, is an instrument for enforcing the despotic will of the state, no different in this regard from the corporate budget which enforces the will of a single capitalist over his enterprise.
What FOFOA describes is not money; it is the expression of the despotic rule of the fascist state.