Our prevailing monetary system encourages competition which in turn motivates innovation. And that’s a good and bright side of things. We have so many financial engineers (or economists) who proffer economic solutions, in good faith, while being oblivious of its elusive repercussion to society. I believe a deeper understanding (that is not obvious in textbooks) helps us in proffering more sustainable solutions to our society. I will share two illustrations of the elusive nature of money.
Some economic professionals who study the commodity theory of money insist that money is an accounting measurement tool and not a commodity. That is, it was created to keep track of pre-existing credit relationships. You may have heard people say “money is not real”. This also means units of currency are merely abstract units of measurement. Historically speaking, such abstract systems of accounting emerged long before the use of any particular currency. Accounting is a form of communication.
Communication is one of the most basic attributes of living things (organisms). Money itself was invented to help us communicate deeds and obligations – IOU. A deep look at the history of money shows that financial market professionals are the ones who chiefly build the architecture of civilization.
As an accounting measuring tool, what then does money measure? Debt. A currency, is effectively, an IOU. Conventional economic wisdom holds that a currency is (or should be) a promise to pay a certain amount of “real money” (like gold, or whatever). See The King of Civilization: Monetary System for a look at how loan creates money.
At a time a currency was simply a promise to pay something of the same value as an ounce of gold. In Elusive Innovation : A Tale of A Community, there is an illustration where the black jacket stranger recommends that a piece of stamped leather represent the value of a crate of eggs.
Conceptually, the idea that a piece of coin is really just an IOU is rather difficult to comprehend. But this must be true because even when the world used precious metal coins and later the gold standard, they almost never circulated at their bullion value. They never ever did anywhere in the world. We can still see that play out today in a way as different national currencies have different values based on supply and demand. The debt in our prevailing monetary system is power chiefly because there is no logical end to it.
IOU illustration I
Money is the crowbar of power.
– Friedrich Nietzsche, 19th-century German philosopher
Let’s say Okon were to give Idara his wrapper, and, rather than Idara owing Okon a favour, Idara promises Okon something of equivalent value. Idara gives Okon an IOU (a document acknowledging debt). Okon could wait until Idara gives him something useful and redeem it. Then Idara would tear the IOU and no one owes anyone. Case closed.
But say Okon were to pass the IOU on to a third person – Bassey – to whom he owes something else. He could tick it off against his debt to a fourth person – Meyene – now Idara will owe that amount to Meyene. At this point, money is born. Say Bassey now wishes to acquire a cap from Kufre; Bassey can just hand Kufre the IOU, and assure him that Idara will handle it. Provided that people have faith in Idara, the IOU could continue circulating around town. It can continue that way and they all forget about the issuer, entirely.
Debt is powered by faith. This is one key reason a country needs to build people’s faith in its economy and currency. We like to be paid in a currency that other people value and accept. There are many ways to do this. Media and psychological tactics can be applied to build “faith”. The US, for example, has the largest debt in the world yet the faith in the US gives its currency strength. The demand for dollars for international trade is high. Faith in the US at work. Hollywood and the media does a good job at building trust. Today the USD dominates international trade. Many currencies get converted to USD first. Cryptocurreny exchanges make it possible to use other non-dominant currencies to access some cryptocurrencies.
Let’s still have in mind that money is effectively a debt or IOU. Let’s leave the textbook definition for now.
Many agree that most national accounting system treats the earth as a business in liquidation. Especially professionals who push the “green-earth” narrative. The myopic focus on monetary exchanges in spite of the big picture and long-term consequences for society has always been a cause for concern.
IOU illustration II
To say that a state cannot pursue its aims, because there is no money, is like saying that an engineer cannot build roads, because there are no kilometers.
– Ezra Pound, American poet and economic historian
If all debts are repaid money would cease to exist and deposits will dry up. Even the central bank’s money will evaporate. Don’t believe me? Let’s leave economic jargon and all those inflation rates, GDP, or whatnot for now.
Meet Okon, Idara, Bassey, Meyene, and Kufre who are merchants in a shopping plaza in a small town. There is a recession in the town, everybody is living on credit because they are all in debt. They have a cumulative debt of NGN 5,000.
A traveler with a black leather jacket visits the town and stops at Okon’s bar where beer and wine are sold. The traveler keeps NGN 1,000 under a cigarette hash tray on his table in the bar, saying he has a runny stomach and would like to use the toilet first before returning to order a drink. Okon quickly takes the cash and runs to the neighboring shop to repay his debt to Idara, the restaurant owner. Idara takes the NGN 1,000 and rush to repay her debt with Bassey, the tailor. Bassey is excited, takes the NGN 1,000 to settle his debt with Meyene, his material supplier. Meyene runs to pay her debt with Kufre, a single father, who has been depressed from also facing difficulties and had bought a drink on credit. Kufre rushes down to Okon’s bar to pay off his debt. Okon is happy and optimistic. He majestically went to return the money under the harsh tray. The traveler comes out of the toilet, says he isn’t feeling too well, thanks Okon picks up his NGN 1,000 and leaves.
They are all now out of debt and no one rendered a service or produced anything. Out of thin air is money created and to the air, it evaporates.
It’s very important to note that, the “thought and need to possess money was keeping them depressed. If they all forgave each other’s debt they would have been liberated. However, it took NGN 1,000 cash from a visitor to clear their NGN 4,000 debt. Yet no one earned the NGN 1,000. It’s looking like a trap, right? Like the Matrix
It’s like a game where every fighter is encouraged to compete for other people’s principal. This makes it easy for people in an unfair environment with fewer skills and opportunities to go deeper into poverty. For now, creating a society where people have access to education and basic amenities is crucial to distributing wealth.
We hope science and technology will improve the lives of people. Some countries allow the use of commodity-based money and complementary currencies. In recessions, these alternatives go a long way in sustaining lives.
About TechAssembly
TechAssembly is a technology development company that works on digital transformation, tech skill acquisition, and tech talent acquisition. TechAssembly specializes in communication solutions, economic tech, FinTech, business solutions, Web and Mobile development (One Stop Shop for all technology development needs).
Our clientele includes funded start-ups and SMEs, some of which are within and outside Africa.