Most of my life has been spent thinking about money. Not the way many people think of it, mind you – I don’t actually care about possessing money, beyond that which is required to live a decent life in modern society. No, I’ve spent a lot of time thinking about what money is.
Bitcoin has made lots of people think about what money is, but not in a particularly constructive or instructive way. My father asked me a week ago about what bitcoin “is”, and what struck me about the question was how odd it was. Bitcoin is a form of money, I thought, and that should be obvious – just like a dollar, or a pound sterling, or a Loonie or ad infinitum could be a form of money. But he asked his question earnestly, and it reminded me of a friend in banking discussing “cryptocurrencies” and how they were transforming the industry in a conversation we had a few months ago, and when I said “well, they aren’t that interesting except as a form of monitored fiat currency” and he sort of stopped speechless. People don’t think about money; they simply use it, until money isn’t usable anymore, and then they adapt but they quickly resume not thinking about money as quickly as possible.
I’m not like that. I spend lots and lots of my mental and emotional energy thinking about money – again, though, which isn’t to say that I think about “money” in terms of what I have and what I can spend it on, but I think about money as what it is, what its nature is. I also think a lot about what money is not – that is, what happens when money exists but doesn’t behave like what we call “money” every day.
If you do a web search on “What is Bitcoin” right now (I recommend DuckDuckGo, by the way, to prevent Google from extracting value from your search process) and you’ll probably get a host of articles about why it is or isn’t a real form of “currency”, but often those articles will talk instead about bitcoin as a form of “money”. But money and currency are different things, even though they are usually conflated. Gold is a form of money but it isn’t a form of currency. Money is a store of value, and a means of exchanging value across space and time. Money doesn’t necessarily keep a constant “absolute” value over time – it simply acts as a way of storing “relative” value across other assets over time, and those forms of time are usually at least intermediate (many months or years) long – sometimes longer (decades or generations) but shorter time frames are much less important.
Currency is different; it is a mechanism for enabling discrete exchanges of goods and services in rapid constructs of space and time. I say rapid with intent: currency can lose value or gain value over intermediate time horizons, but for immediate transfers – from one transaction to the next – it’s important that the value of currency stays relatively similar. Lots of currencies are also money – the dollar and pound and loonie and yen are all examples. But there are plenty of monies which are not currencies; historically, uncoined gold and silver have all served as “money” between willing parties but not as “currency” for exchange transactions, while lots of things have been “currency” (subway tokens, for example) but have not served as money in a store-of-value way.
Bitcoin is money. It is not currency. The dollar is both money and currency. Subway tokens used to be currency, much as stamps in the US used to be currency, but neither really exist any more as currency. Currencies which are fully distinct from money rarely exist today rarely, but having spent some time with different groups of folks over the last few years, I see “currencies” more and more in subtle forms. Video gamers, for examples, often deal in “currency” – the various exchanges of value they use to purchase stuff “in game”, often in forms which can be converted (at least one way, money to currency) from money to currency. And in non-monetary economies – say in some parts of Africa or in isolated parts of any truly rural place which is divorced from the mainstream of Internet / telephony / air travel connected economy – currency can assume the form of gasoline, or alcohol, or local scrip, or cigarettes or grams of pot or heroin, or even in terms of payment values for mobile phone bills. None of this is really a store of value – except for very short periods of time – but they do allow for exchange, which is all currency asks for.
Money is often described as three things: a store of value, a unit of account, and a common unit for exchange transactions. The thing is, it’s not all three of those at once except in a unique set of social circumstances, which rarely occur simultaneously in history. But in America – and in the post-WWII Western democracies – those circumstances have persisted for long enough that we, as fallible human beings without an embedded ability to see time in motion and expect the world to exist and persist as we perceive it now only, refuse to understand how any different arrangement could, in fact, exist. North Americans, with no historical experience of catastrophic all-encomapssing war, are particularly suseptible to this fallacy, this idea that what we experienced yesterday – even for decades of yesterdays – is somehow blessed and normal. We fail to see that historically, money was simply and only a store of value and occasionally a unit of account – although not commonly at the same time. Common units of exchange, on the other hand – currencies – were highly localized and largely irrelevant to whatever was the long-term store of value unit in money.
We see this constantly in literature, which is probably the best lens to seeing how historical worlds really saw themselves. Take, for example, early 19th century British literature – the Austens and Dickens come to mind. Individuals – even the very poor – bought and sold things for pence and shillings and fractions thereof, and lived without too much doubt as to their next day’s wages or meals or ability to pay rent. Meanwhile, “Pride and Prejudice” and the like spoke constantly about estates yielding “ten thousand a year” (ten thousand pounds, that is) or the need to find a husband or wife who could supply such wealth. But if you actually do the conversions from what a “pence” or “shilling” was to what a “pound” or “guinea” – either in income or in total wealth – was, you’d find that people spent and passed through a far greater amount of “money” than they seemed to be able to earn. As you read Dickens, you’ll be confused by the amount of pennies and ha’pennies spent by the destitute; it seems like they have far more to spend than the historical accounts of what an annual or daily “wage” was back in those times.
But the explanation is simple. Small units of exchange were never, really, hoarded up to convert into the “money” of a pound sterling or guinea; they were simply used constantly, only in relation to small transactions. The common unit of exchange had an only casual – and, likely, socially constricted – relationship to money. My guess is that if a poor hoarder brought their 480 ha’pennies to the teller window at the Bank of England – likely they would be in rags and smelling poorly – and asked for a one pound note in exchange in, say, 1805, they would have been rejected at the vestibule before they got to the teller. The nominal right to exchange coinage for money – currency for money – was related to class, and therefore was not a right per se – it was a class privilege. The separation of value from societal privilege is probably the hallmark of the separation of money from currency. People traded – and stole, and swindled, and lost, and found – exchange units on a regular basis, but because of social boundaries between “stores of ongoing value” and “exchanges of minor value”, no one recognized – or was able to realise – the difference between the two.
Both money and currency, though, are simply social acceptances. There is no abstract or concrete reality to money or currency; both are purely social norms. We see the collapse of social monetary norms on a regular, if disruptive, basis – in extremis, we call it “hyperinflation”, which is just a fancy economic term for “the elimination of social acceptance for a given form of value storage or exchange rights”. We also see the converse – the sudden acceptance of a given form of money for either (or both) value storage or exchange rights – much as the dollar suddenly went from being something that was “traded” only in relationship to gold weights or the pound sterling to something against which all other assets were traded. Both events are sudden and disruptive and involve a massive transfer of economic “rights” which have nothing to do with the denomination of value – rather, they have everything to do with society’s communication of what value is.
Bitcoin is a thoughtfully considered alternative to other stores of value. It is limited by design to a limited number of total units, and cleverly, the theoretical maximum can only be reached by an exponentially increasingly difficult set of mathematical challenges. That means that if – and if is an important word – people start storing value in terms of bitcoin, they will have the comfort of knowing that the denominator of value will not change over time. Gold was somewhat similar – being a store of value with a theoretically finite denominator – except that during the Industrial Revolution, processes for extracting gold became amazingly more efficient, making the denominator expand far more rapidly than anyone expected and without respect to the actual sources of value in human terms. That made gold suspect over time – it took several centuries, however – and led to the emergence of the dollar – regulated by law, and by a legal construct in US constitutional law that seemed reliable – as a replacement store of value. The dollar has been largely successful, but the reliance on “government” has fed those conspiracy theorists who distrust any human construct (even though they fail to see that value endowed in “gold”, a physical thing, is no less social and human as value endowed in a “dollar”, a totally abstract concept), and bitcoin represents a “non-human” mechanistic alternative. Putting aside the fact that endowing bitcoins with “value” is only and purely a human act, bitcoin enthusiasts also ignore the fact that the programming that makes blockchains work is, also, just a human expression of meaning. But oh well: the bitcoin people ignore that and see this new in form but not new in concept “thing” as superior to the organic fiat of US government processes which endow the dollar with 200 plus years of value stability.
That leads to another quandry. People want stability, but the universe is not stable. They seek stores of value which are “permanent” – or slightly better, “reliable” – but the universe is neither permanent or reliable. Stores of value will always be subject to change – the changing whims of human society, the changing background reality of our lived universe, the changing resources available to us on a finite planet. We want “money” forms – or stores of value – which are stable in a universe which is not. This is folly.
I don’t have a consistent or linear argument for this, but I have a sense that the world’s increasingly desperate demands for stability, for reliability in terms of value and exchange relationships, is a sign that we are on the edge of a real revolution. We live in a world of evolution and change, which should be obvious from any cursory examination of our lived environment – and somehow, therefore, any trend towards demanding stability, or consistency, or reliability, must be viewed as a dangerous sign of imminent collapse, in my view. Wishing for stability is understandable, but demanding it – viewing any collapse in stability as an inherent wrong – is to ignore the basic trend of nature, which is one of change and evolution. But as I examine the reaction to bitcoin – as I think about my father’s confusion and terror as he tries to absorb what bitcoin “means” – I worry that we have reached that sort of tipping point, where our ability to absorb and reflect changing terms of value has declined to the point where we will collapse and only change through violent and destructive reinvention.
Money is just a store of value – as long as we describe it correctly. We have no reliable stores of value – and never have had, but with too much value-stability we’ve convinced ourselves otherwise. Right now, as society, we are raging to demand that the dollar stay in that role – hence the violent shifts in “value” of bitcoins and their ilk. We have plenty of currencies, of course, but we’re scared of what that diversity might mean – or rather, we’re reluctant to consider what further diversification of currencies might imply about value itself. I haven’t talked about units of account, but on some level, that’s less relevant as long as we are in terror with respect to value and exchange. We are on a precipice but we’ve already started tipping over. I understand my father’s confusion; he won’t be alive to see the revolution, or if he is, it won’t be entirely relevant to him versus other concerns. I wonder what my son will do, though, and I wonder if I’m helping him prepare for a world in which value, and exchange, are as fluid as we have made identity, or if my own biases and confusions will block him from being able to exist in the new reality of value. We’ll see.