On the human nature of money

I wrote in my last essay in passing about a belief I have, that value will become decoupled from money in the foreseeable future.  What that decoupling will consist of was left unstated, but I got a couple of requests for more detail, and then I read a collection of essays, The Wisdom of Money by a French philsopher and writer, Pascal Bruckner, and what struck me about the book – which examines recent historical and contemporary attitudes towards “money” in modern capitalist societies – was how money, wealth, and the measurement of relative value is almost universally conflated when people think about money.  And that made the strange lock mechanism that is my thought process shift, and twist, and align, and I realized I was ready to describe what I meant by “decoupling.”

At its core, Bruckner’s argument – and most discussions of money in our current Pinketty era of inequality – perpetuates a core confusion.  That is, they collapse the very different concepts of the pursuit of wealth and the process of translating labor or intellectual effort into money. That is, they posit that when we pursue wealth,we actually pursue the accumulation of money.  This creates a definitive confusion, which I think most of us experience when we try to talk about “money.”  On the one hand, when we rail against value disparity, we are talking not about the normatively false differentiation of value between a CEO and a schoolteacher, but rather about the different amount of moneythey make.  And when we talk about money itself, we rarely clarify what role it is playing at a given moment – that is, is it a store of value, a transmission device of relative value between actually realizable goods and services, or is it a point-in-time comparator between different value regimes as it expresses itself against other forms of money or value transmission devices or potential stores of value.

Bruckner regularly conflates meaning across these three dimensions, and he’s smart enough to occasionally realize what he’s doing, but by and large he can’t escape his own confusion.  I don’t find any fault in this; he’s doing what we all do, and if he were extremely precise in his understanding, I think the essays would suffer in their role of trying to understand how we have come to have a fraught relationship between ourselves, both as individuals and as members of overlapping societies of people, and money as a dynamic social construct.  But our relationship is going through a time of massive transition, just as the information revolution is destroying long-held notions of “society” – built-in geographical spaces and subject to normative constructs of race and dialect – and creating instead dynamically created and destroyed “societies” which exist and die both in time, space, and virtually.

It should be no surprise that money – existing as a means to allow societies to transmit within themselves commonly held notions of value, to store and move that value through time and space, and to convert that value in trade and in competition with other societies, depending on its role at any moment as store, transmission medium, or comparator – would need to go through a similar redefinition.  Money is, after all, the supreme abstract creation of any given society; its use is in effect the purest mirror of the norms and expectations of a society, far more natural a portrait than anything put on canvas or sculpted in stone or bronze.  Perhaps only the law as a construct can match it, but even that has a kind of conscious intent to it; money, on the other hand – as revealed by the inability of economists and philosophers to pin down a common way of discussing it but nevertheless being forced to observe it and comment on it – is an unconscious abstract. It is defined by its use, which is itself defined only indirectly, through how society chooses to use it.

As a monolithic and reliably static notion of “society” breaks down, however, it’s not surprising to see money as a construct also start to fragment.  Take, for example, money in the form of a store of value.  Fundamentally, money no longer plays a role in storing value except in small quantities and for very short periods of time.  Rather, ownership interests are the primary store of value.  Equity – be it in the classic legal form of common stock, or the very traditional older form of real estate title, or ownership of unique items of artistic or cultural value – has more or less completely replaced money and money equivalents (bonds, which are nothing more than rights to future money) as value stores. And we observe this in financial markets, where equity valuations are now decoupled entirely from any future money generation and instead are based on newly ephemeral concepts such as brand value, the ability of an enterprise to accumulate data or user hits, or in the case of real assets, the likelihood of future demand value increasing due to population, decay of existing stock, or scarcity.

This phenomenon has been observed in the financial press but only indirectly through the recognition that “equity valuations” no longer reference dividends or cash flow, and that accounting profit and loss (which defines enterprise value in terms of money as a unit of account and reference to a primary unit of value) no longer drive the actual market price of a company.  That valuation decoupling is what allows the value of financial assets to skyrocket without any noticeably impact on the prices of use goods – but the idea that the reference point no longer serves as reference point has largely been ignored.

What I’d posit is that the market for ownership of real assets now exists in a separate society, consisting of a defined set of actors – mostly corporate actors, including pension funds, mutual funds, and other cooperative players which dip into the world of “real” individuals, but also including some individuals who by virtue of their ownership of sufficient assets or access to intangibles now largely express value in this separate world.  This society always existed to some extent but is now more or less completely decoupled from the actual requirements for survival and daily living.  Oddly, many of the “real” people – you know, physical people named Larry or Melanie or Greg – live lives which look very much like “ordinary” middle class people.  They might have better houses or better cars, but they aren’t living like the robber barons of the last time we went through this round of wealth accumulation, where the Rockefellers and their ilk constructed the estates and ranches of the New World – or married into or bought the formerly feudal estates of the old world.  They have no pressure, as do the rest of us, to budget carefully, but by and large their wealth lives in a world fully decoupled from the items that they might purchase in the “real” world.

The only time most of us come up against this world is when we purchase an equity object like a house – indeed, a home purchase is effectively the only time most of us encounter this new decoupled world of value storage.  And fewer and fewer of us are encountering that world, because like all value store objects today, the valuation in terms of value of money in its role as a short-term value exchange item gallops ever higher. Our use-value wages, the prices of use goods (food, clothing, immediate shelter such as a room overnight or a monthly rent, Legos), have remained largely constant, which is a good thing when you think about it because we’re humans, temporal, real, concrete – massive disruptions in prices have a consequently massive emotional and physical impact (ask the people of Venezuela).  But the end result is that there has already opened up a world where the same unit of account has almost entirely eliminated its ability to play a role in intermediating transactions between two distinct societies, the society of entities who own future ownership value and the society of individuals who exchange current use value.

With this decoupling, I’m increasingly of the opinion that the society of owner-value transactors will develop a much more direct barter economy.  Why bother converting into the unit that describes use-value when it’s so much easier to trade ownership interests directly for one another? Indeed, even temporarily using the unit of account of use-value makes one’s wealth dead for a period of time, and no one wants that.  There is even historical precedent for this, albeit the inverse of what I think will occur today in a world of informational efficiency.  Throughout much of the Middle Ages, coins and bills of exchange were only used to facilitate trade over distances (confined to luxury goods in large measure or in goods used in war, ie., state goods), while use-value exchange was conducted entirely in kind.  “Money” only existed in the real world when real estate or civil and state penalties were involved (including levies for war); only then would the “average” citizen encounter pricing in the form of shillings or pounds. Prices in pounds, indeed, would be absurd to most people, much as the idea of exchanging pre-IPO non-SEC registered ownership interests in Uber or Pinterest or whatever non-publically tradable ownership right would be absurd to most people.

In that historical world, “money” existed only for those large purchases between state or quasi-state actors who would deal in items which implied ownership or the potential for future ownership in productive assets, and it existed because the ability to exchange in kind was limited due to the spatial and geographical limitations on transfer.  In our modern de-materialized world, fully abstracted, there are no limits to transfer, and few limits on information – the only differentiations are on demand preferences and opportunity sets.  Similarly, in the medieval world, small-scale transactions were extraordinarily limited in variety, making barter and in-kind exchange actually quite simple – whereas today, individuals are faced with effectively limitless choice, even among those living at or below the poverty level.  In-kind exchange is impossible when choices are unlimited and in constant flux, making an intermediary descriptor of stable valuation in the form of a dollar essential.

I’m not at all bothered by this bifurcation of exchange societies; it is what it is. Historically, I’m pretty confident that the world of ownership exchange will periodically be destroyed, because human beings show an amazing capacity for slaughtering one another in war and revolution.  The losers in such events invariably – although not obviously – are the holders of ownership interests; the markets, state structures, and exchange norms upon which they depend to make ownership worth owning are the prime casualties of war, even if the most obvious casualties are the people who own nothing who are killed.  I don’t like the fact that the ownership class – owing to a different but no less human yet inexhaustible demand for pleasure and satiation and the sensation of control and power – tend to misuse their wealth, to take advantage of the bifurcated worlds to occasionally translate their ownership value into baroque displays of use value, but “not liking” that fact doesn’t mean I’m exercised about it.  Humanity, in a word, sucks; to get upset by it does nothing but upset ones digestion.  It certainly doesn’t result in a change in human nature.

Ah, there’s a term I’ve been avoiding – but now that I am forty-four, I am completely convinced that there is a human tendency – not an absolute behavioral imperative, but definitely a tendency – towards selfishness and narcissism.  I’ve seen too much of it in others, including those who purport to being “enlightened” or “awake” or “conscious”, to think otherwise.  And that includes me, and I make no pretence of thinking that I’m particularly enlightened at all.  I think about morality – the art and science of how we value one another as intangible and indefinable objects, or beings, or worlds – but that doesn’t make me moral. If anything, it just focuses a lens on my own immorality and failings.  I see in myself my own tendencies towards selfishness and bias, and while I might try to rise above them, I see every day how I find new ways to wallow in my own desires. Human nature is to fool oneself.

And human nature has very little to do with money.  Money is simply an expression of how we value things within our worlds, our societies – the clusters of human beings that share a critical mass of commonalities such that they create the ability to define a clear and internally understood notion of purpose and meaning.  Money is created wherever such communities form – which is why online “communities” of gamers take so readily to the creation of in-game money forms, and readily exchange real-world dollars for them – and I think that will only proliferate, only it will increasingly involve exchanges of real world goods as well as online virtual stuff.  But the more isolated money circulation pools that are created – whether it be of ownership value exchange, or online virtual rights exchanges, or scrip among small businesses in a given community, or in-kind exchange in areas where state decay or local hyperinflation induce it – the more every such community will still want what’s called a numeraire currency, a comparator object – that third function of “money” – that facilitates cross-border transactions by providing a stable and more or less universally acknowledged denominator.

In our world today, that is the dollar – and I see no reason why it will be anything but that in the future, mostly because the United States remains the place which, unique among nations, seems able to balance the seeming contradiction of dynamically creating societies while at the same time facilitating both ownership rights and the ability to create new notions of what is own-able, and yet can proliferate choice among use objects without limit.  In every other country that I’ve lived in (with the exception of Canada, but proximity may prove the concept here), either a lingering sense of the stasis of tradition, or the inescapable lure of the will-to-power of the totalitarian state (or both, China), effectively means that the equilibrium that seems to exist in the dollar economy doesn’t and can’t exist in other potential comparator units of account.

My father and I once had a long argument about what makes a country, and I said a “country” is by definition a coherent body of law coupled with the infrastructure to enforce it.  It’s not a geographical construct – although often that infrastructure requires geographical coherence to enforce the law consistently and efficiently.  It’s also not a people, or a race, or a group of people united by common cause.  In that regard, Rome was truly the first country, coming about at a time when geography supplied ample limits to its ability to enforce its law, but defined truly by the concept of “citizenship” and the legal rights that entailed.  Because of what money does – as store of value, as transmission of value, and as comparator of different conceptions of value – it needs to have some connection to legal rights to “work” in a sustainable way.  The only major currency in the world that has that linkage is that of the United States.

And that, in its way, has made the philosophical concept of money that much harder.  With the numeraire currency also effectively the sole currency for ownership value, and with the US economy being the one that produces most of the economic research and financial innovation, with American economists consistently producing the most research into monetary theory and what limited bits of the philosophy of value that get produced, it takes a supreme act of self-consciousness and self-criticism to examine a system in which the researcher has been embedded since birth, in language, transactional norms, and in observable history.

Bruckner, on the other hand, is from France, a country which has lost its currency – excuse the multifaceted meaning of that phrase – while being unable to lose a kind of quintessential need to impose a single definition of “society” and “culture” on itself, in a way which American society couldn’t care less about.  It’s unsurprising that coming from such a place, Bruckner would be able to identify the tension points in what money is today, even if he can’t escape the linguistic, cultural, and academic ambiguity when one starts to use the term “money” with rigor.  But I think understanding the next stages of evolution for money’s role in society – and for understanding what forms money will take in fulfilling those roles – we as humanity will need to become more self-conscious, will need to be aware of how we can abuse the notion of money even as we acknowledge the fact that we’ll continue to abuse it.  Complaining about inequality or about wealth accumulation or the like will get us no where; thinking about what we want money to do for us, as opposed to how much or what kind of money we want, is the only path forward.

That’s a facile way to end, however.  Ultimately, there is no path “forward” – at least so far as I can tell.  Unless we see an evolution of human motivations that shifts definitively away from the unconscious bias towards physical and emotional gratification, we’ll just cycle back and forth between a now fairly routine rotation of money as value store, money as use value representation, and money as translator. The path forward would decouple value from money entirely, and release “value” into the space spiritual. Our physical use needs would be recognized as secondary, and our representations of value – and our most diligent and imperative needs to trade that value – would be based on a set of moral needs which would have little, if anything, to do with simply gratification.

My sense – especially reinforced over the past few years, of both self-criticism but especially a kind of observational critique of those who claim spiritual truth – is that we are quite some distance from that.  That is to say, that particular decoupling of value and money is not in our foreseeable future.  In our lifetimes – and in the “lifetimes” described by the modern press, enamored of the time scales of the internet where today’s world is declared obsolete once the IPO gets past the employee lockup date – we have nothing to look forward to except the proliferation of money spaces, and a resulting dissolution of the money concepts of ownership value storage and use value exchange.  The authors of this site are trying to live by example for our children (and everyone’s children, frankly) for what a more complete decoupling might look like.  We are neither optimistic, nor are we declaring defeat.  Pragmatically, we just continue to live, and write, and reflect.