Saturday, December 10, 2011

'Money is as money does'

A friend of ours emailed us saying that a friend of his responded to the title and blurb about our book in this way: ‘All societies use money of some sort or other. Think cowrie shells, pigs, cattle, etc. In capitalist societies, when groups try to dispense with official currency, they substitute with barter based on credit which is still a form of money. Most such attempts wind up producing their own form of currency. So I don’t think the downfall of capitalism will be preceded by the disappearance of “money”.’ Our response follows.

Although many non-capitalist societies have used objects or promises in similar ways to the way we use money as a means of exchange, they are all ‘limited-purpose’ monies or currencies. A key distinction between cowrie shells and cattle and a one dollar coin circulating amongst people arises from what you can do with these ‘monies’ in the social context in which they function as a currency. In non-capitalist societies ownership of the means of production, such as land, is not negotiable but rather arranged through inheritance or other social arrangements. Therefore that kind of money buys a very limited number of things and, most importantly, is marginal to the everyday functioning of the mode of production (the way people gain their sustenance and structure power).

In contrast, in capitalist societies money is necessarily ‘general/all-purpose money’ and has much wider uses. In the advanced capitalism of the North many realms of material production and social organisation are run strictly along market-based principles, so a lot of important decision-making incorporates monetary valuations and relationships. In fact money — gold, the British pound or US dollar — is the key building block of power structures and the means and mode of production within capitalism.

From this perspective it is curious to suggest, ‘I don’t think the downfall of capitalism will be preceded by the disappearance of “money”.’ If we focus on money as a unit of account as it exists in capitalism today, this function is absolutely critical to the functioning of our social system. Capitalism and its general-purpose monies that we are most familiar with are conjoined like chicken and egg. The fall of capitalism would necessarily entail the end of money, as we know it. After all ‘money is as money does’ and it is really the social behaviour around money that makes it what it is in any specific context.

The strict definition of barter that we like to stick to in theoretical discussions refers to the direct exchange of one good and/or service for another good and/or service, or unilateral exchange. In fact alternative currencies — alternative to the official/formal tender — generally represent another set of systems again, which try to develop local multilateral trading systems. These kinds of systems have been operating for decades and generally grow to a level where they stabilize and are popular for a limited set of exchanges between limited numbers of people. The operation of these currencies often complements capitalism rather than challenges it. For instance, whether or not LETS are radicalising or stabilising organisations depends how they work. Look at our answers to the FAQ at www.lifewithoutmoney.info

In our book, we discuss a practical example of a community that uses a form of exchange, ‘labour credit’, that can be compared in some ways with money but, most importantly, goes in a completely different direction from the all-purpose money at the heart of capitalism and from most alternative currencies. In our example, labour credit involves devoting a certain amount of time per week to general communal duties in exchange for being provided with one’s basic needs. Because this arrangement takes place in a relatively closed circuit, whereby all the agents have collective decision-making power over the content and form of the exchanges they are engaging in, then what they are doing is quite different from making exchanges based on either limited-purpose or general-purpose monies. Of course, for certain purposes they are obliged to trade with the ‘real world’ at which point the non-market system breaks down by the very nature of the case — we live within capitalism.

9 comments:

  1. "In non-capitalist societies ownership of the means of production, such as land, is not negotiable but rather arranged through inheritance or other social arrangements."

    This is only partially true at best; land in pre-industrial societies could take the place of money as a negotiable instrument in its own right, through an exchange of fealty for land in the case of nobles, or through the provision of coin, corn or corvee labour to the landlord as rent for the case of the peasantry. This of course was not as flexible as money, at least in the UK where Quia Emptores applied (an equivalent principle "cestui a que use le feoffment fuit fait"). But of course, even today under most Tenancy Acts subletting is supposed to be forbidden. But like yesteyear mesne-lords exist.

    "labour credit involves devoting a certain amount of time per week to general communal duties in exchange for being provided with one’s basic needs"

    How do determine subjective values in both the provision of goods and labour? How can you allocate relative value between goods and services in a complex system without a market-based feedback mechanism? Even in a productive capacity where every good was in the same sort of supply as rainwater in Scotland, it would still require relative resource allocations.

    ReplyDelete
  2. Hi Lev

    Thanks for the comments. First, I was using 'negotiable' in the economics sense here, which specifically implies monetary exchange. This means we are really 'on the same page' in our interpretation. Second, 'labour credit' in the Twin Oaks example shows how a community can decide themselves on the relative values of goods and services. Our ideas sketched out in the final chapter of the book show we minimise massive complex trade or (non-monetary) exchange so, again, community-based and individual decision-making takes the place of the market. Similarly with resource allocation.

    ReplyDelete
  3. I understand that you were using "negotiable" in the economic sense, but I was also doing so. Money is only one form of negotiable instruments; since pre-capitalist times negotiable instruments have stood for a variety of promissory notes - including fealty relationships.

    Twin Oaks neither serves as an example of a complex society, nor a society that exists without money. The community of one hundred has an annual income from market-based sales of commodities of some $500,000 (one hundred people, $5000 each). It *does* serve an example of "simple living".

    Whilst there are parts of an economy which are particularly suitable for non-market production and distribution, these are strictly limited to those which do not have a great deal of complexity in the productive process, or a narrow subset thereof.

    To refer to another text, I rather suspect that Twin Oaks does not engage in the full production process of the pencils they use, for example.

    ReplyDelete
  4. But I meant money as it is in capitalism, a general all-purpose means of exchange and universal unit of account.

    On scaling up see the final chapter. Different technologies raise a series of issues, including a preference for small-scale and appropriate technology. Perhaps the Mondragon co-operatives serve as a hybrid mode? Yes, our point is you can't and don't want to seal yourselves off from the rest of the world so you need to network using compacts rather than contracts.

    ReplyDelete
  5. But I meant money as it is in capitalism, a general all-purpose means of exchange and universal unit of account.

    Of course you did, but money is not capitalism. Capitalism is the social relations between capitalist and worker with industrial technology. Now the fact that these social relations are procedurally carried out with a highly flexible means of exchange is not the primary issue. Technically, capitalism could exist with title deeds or any other equally inflexible negotiable instrument.

    Yes, our point is you can't and don't want to seal yourselves off from the rest of the world so you need to network using compacts rather than contracts.

    Which brings me back to the original point; in a complex production process (e.g., making a pencil) how can one determine relative resource allocations for supply and subjective demand through planning mechanisms alone?

    I think it is mathematically impossible. Rather than non-market socialism, free market anti-capitalism is a more valuable trajectory.

    ReplyDelete
  6. What do you mean by 'inflexible'? Money, in capitalism is social credit and a unit of account. It's the latter that is the defining function. Whether it is cash or fiduciary or gold is irrelevant to our argument. We're not advocating mechanical 'planning mechanisms' but democratic decision-making. One problem with markets is that only those who have money can buy so only monetary demand is acknowledged; bugger those without. Also economics does not equal mathematics. Most mathematicians cannot abide the mathematical garb of economics. Economics and money are social, cultural institutions.

    ReplyDelete
  7. Inflexible for precisely the reasons you suggest. Money is "a general all-purpose means of exchange and universal unit of account". As a means of exchange it is extremely flexible. It is certainly much more so than fealty relationships, corvee labour, gold, or land. As a unit of account it is also highly flexible, the only means that can take readily incorporate depreciation of assets, economic activity, and for the calculation of opportunity costs and rates of return. No other technology has managed anything close to this sort of flexibility and scope. Now due our social relations it is imperfect. As has been mentioned in numerous occassions, it needs to be *expanded* to incorporate externalities, and to include non-market labour. Reducing the role of money as a unit of account will led to further environmental degradation and further entrap those who are currently outside of the financial system.

    It is a misrepresentation to suggest that I claimed that economics equals mathematics. However economics must obey the laws of mathematics. Whether planned by highly intelligent bureaucrats or mass democratic input is actually irrelevant to this point; there are simply too many simultaneous equations to calculate, too much individual subjective demand. Relative resource allocation for supply and subjective demand is mathematically impossible in a complex production process. As Leon Trotsky remarked "It is impossible to create a priori a complete system of economic harmony.... Economic accounting is unthinkable without market relations."

    Apologies for the late response. I don't drop by here often.

    ReplyDelete
  8. Do the laws of mathematics cover low quality produce which finds no buyers, bankruptcy, debt moratoriums, inflation, underconsumption, floods which impact on farming production, etc?

    As Leon Trotsky said at the start of Chapter 4 of The Revolution Betrayed: 'State compulsion like money compulsion is an inheritance from the class society, which is incapable of defining the relations of man by man except in the form of fetishes, churchly or secular, after appointing to defend them the most alarming of all fetishes, the state, with a great knife between its teeth. In a communist society, the state and money will disappear. Their gradual dying away ought consequently to begin under socialism. We shall be able to speak of the actual triumph of socialism only at that historical moment when the state turns into a semi-state, and money begins to lose its magic power.' He then makes the point that you can't get rid of money without changing everything else, on which we agree. Like Che Guevarra, he expects there to be a stage where money is just a unit of account. Then, 'In the still more distant future, probably these receipts will not be needed. But we can leave this question entirely to posterity, who will be more intelligent than we are.'

    ReplyDelete
  9. "Do the laws of mathematics cover..."

    Yes, of course they do.

    "As Leon Trotsky said at the start of Chapter 4 of The Revolution Betrayed:..."

    Right, that opening paragraph is very explicitly about an idealised state of affairs where the productive capacity and social wealth is such a great degree that a "deathblow" is struck against "money fetishism" which allows us to forget our "miserly attitude" and "and our humiliating fear about the size of our ration".

    However such a speculation is extremely unlikely. Even, to paraphrase Alec Nove, all goods were as common as water in Scotland, and even if all distribution of water was entirely mechanised, *new* goods, services and transactions would exist in relative scarcity. Either that or the species-being loses its sense of innovation and lapses entirely into satisfied complacency.

    ReplyDelete