(a beginner’s guide to why you’re not rich)
I woke up this morning thinking about money and what it is. I don’t know why but I seemed to be coming out of a dream phase. Anyway I was thinking about inflation – how a pound is now worth about 10p compared to fifty years ago. On the other hand, my income is probably ten times larger than it was then, so that cancels out and economists will tell me that, ‘in real terms’, I’m in fact better off. In some ways that might seem true but it’s worth looking at more closely.
The musings that follow aren’t new, even for me, but have been spiced up somewhat by listening to a radio programme called ‘Promises, Promises, A History of Debt’ written and presented by David Graeber, a well known anthropologist.
What is money?
The standard answer is ‘a medium of exchange’, that is something, whose value can be agreed on, given in return for goods or services. That value, however, is clearly somewhat variable, as inflation shows. But what about the thing itself? Let’s start with the paper kind.
The title of Dr Graeber’s programme seems to refer to a lovely little phrase that the Bank of England’s notes still carry, ‘I promise to pay the bearer the sum of … pounds’. Did you ever wonder what that meant? If you had, you’d have been told that bank notes were originally promissory notes which could be exchanged for the real thing – metal money, ie coins. We were told that this ended when the UK ‘came off the gold standard’, but gold was never the main metal used for money, that was silver. In fact what that promise on our bank notes meant was the Bank of England owed you so many pounds in weight of sterling silver. Sterling is a fixed standard of purity for silver – 92.5%. Whether a Bank of England £1 note ever got you that, I don’t know, but that was the theory. Currently 1lb sterling silver is worth a little over £250 – that’s inflation. Best of luck getting them to cough up at that rate.
But how did metal become a means of exchange? There have been other things used, like beads and shells, but the main feature seems to be their scarcity value rather than their usefulness. Gold and silver were chosen because they were shiny and gold, at least, didn’t tarnish. Other metals are used as well and we still talk about ‘coppers’ and, in some parts of the country, ‘brass’ and ‘tin’. These are very useful materials, so it isn’t difficult to imagine a time when not everyone knew how to mine and refine them from rocks in the ground, even if you had access to those ores. It would have seemed a magical thing, or at least it did to me when I was a kid. Thus a little lump of copper or tin, that could be worked into beautiful jewellery or a tool or a weapon, would be worth having in exchange for whatever you had to offer at an agreed rate.
Whether or not that scenario ever happened, it would have come under the heading of ‘barter’ and the only advantage metal had over other items was that it took up less room than, say corn, and so was easier to carry. This was for many years the standard history of the beginnings of metal money. However Graeber points out that the actual history is different and, for centuries, people traded almost exclusively on credit. Coinage only came into use as a means to pay soldiers and, in particular, mercenaries. So money and war have a common origin. How surprising is that?
Money hasn’t stopped being magical. If paper notes could stand in for real coins, then the next move was that we could write our own notes – cheques. This worked when a bank was holding our money and would transfer some of it to another person when they received that piece of paper. Magic. Then some smart-arse invented the credit card, which did away with the dreary task of writing out a cheque. But that didn’t mean someone would carry a bag of coins, or even paper, from your bank to the other person’s – it was just the numbers that changed in the ledgers and the banks agreed between themselves who had what. Then came computers and the whole process speeded up exponentially and money became even more abstract and mythical, but it was still just numbers flying around on wires and fibres in the form of electrical pulses. So where was the real money?
Banks and exchanges
We’re told that banks were invented in Italy in the 14th century but the business was around a lot longer than that. All you needed was a large or regular supply of cash* and a customer. The people with the money supply were generally big merchants while, as Graeber told us, the customers were usually rulers who had a war on their hands or in their plans. [* the word cash originally meant ‘box’, like the ones money was kept in, then it transferred to the money itself]
Apart from money-lenders, the other kind of dealers were the money-changers – you may have heard of Jesus chasing them out of the temple in Jerusalem. These exchanged gentile Greek and Roman coins for ones that were acceptable to the priests. Presumably they made a profit on the trade. Elsewhere it seems that no-one bothered much where the coins came from so long as you knew what they were worth compared to your local currency. At least that was the case until nation states became more protectionist about whose money was circulating in their territory. That’s when the exchange, the cambio bank, made its appearance.
Karl Marx defined capitalism as the trade in ‘money as a commodity’. Capitalism isn’t private industry, it’s the trade in money itself. As far as I’m concerned, that’s one of the few things Marx got right. Multinational corporations may be richer than all but the strongest countries on the planet, but the real power lies in banking and currency markets. That’s why there was so much resistance to the UK changing from pounds to euros – one less currency for the gamblers to play with.
Credit & Debt
As far as I can see the difference between them depends on class. If you’re working class, what you owe is a debt. If you’re middle class, what you owe is your credit. If you’re ruling class, you don’t care either way – someone else will pay.
Generally it doesn’t matter how much you owe as long as you’re able to keep up the repayments. It was the banks, mortgage companies and currency traders pushing that logic to its extreme that caused the crash of 2008. And who paid for that? The poor of course. All those huge numbers flitting around the memories of computers across the world may have seemed like fairy dust to those pushing the buttons, but the reality came down to who and what it all was based on – real people making and needing real things, like food, jobs, housing. Wealth means having, or controlling, a lot of those real things by whatever means.
So the real source of wealth is people and all that money – cash, credit, debt – means is ‘how much are you worth?’ The answer to that depends on the person asking the question. In other words, ‘how useful are you to me?’ The answer to that is ‘do you have something I need?’ Well, do you? What do you do, find, produce, transport, package or deliver, that I need? If you tell me that there is something and I believe you, then you’re in credit. If I get it, I owe you and I’m in debt to you. I’m promising to give you something in return. Money was invented as just one way to sort out that agreement but it went on before that for as long as humans have been around.
Is there another possible system? A friend of mine used to talk about the ‘cosmic supply company’. What he meant was, if you give somebody something – a cigarette, a cup of tea, a meal, a lift, some of your time – then there was a good chance that somebody else would give you what you needed another time. Sounds fantastical, but how often has that happened to you? Could we run a world on that system? Who knows? We haven’t tried it for a while.