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Welcome to Sunday Letters. I’m Larry Maguire, your host, and with me today is my friend and philosopher, Dimitri Belkov. In this episode, we’ll be discussing the role of money in our lives. We’ll look at where money comes from, different theories about its value, and how debt affects individuals and society. We’ll also touch on the history of money and some of the moral questions around financial obligations.
We don’t get to discuss John Maynard Keynes in this episode, but we should have, and maybe we’ll dedicate a future episode to the man who prophesied the three-day week in 1936. I think he was right insofar as that’s where technology was going. Still, work seems to hold a certain moral imperative, so much so that our sense of personal worth is so deeply entwined with working prescribed hours for the best part of our lives that we can’t see the obvious sense in what Keynes predicted.
So here we are.
The Origins of Money
One predominant theory that has circulated for centuries is the metalist theory of money. This theory posits that money originated as a medium of exchange with intrinsic value, often in precious metals like gold and silver. In his seminal work “The Wealth of Nations,” Adam Smith suggested that before the advent of money, people engaged in barter trade, exchanging commodities directly. However, according to David Graeber, the barter myth does not hold up under scrutiny. He suggests that no documented society has relied primarily on barter as a method of exchange. Instead, anthropologists have found that gift economies and credit systems were more common in pre-monetary societies.
Contrary to classic economic theory, Graeber argued that the creation of money was more closely related to the needs of the state than to the inefficiencies of barter. States and rulers created standardised currency units to facilitate taxation and control of their economies.1
Early forms of money included metal coins minted by kings to reflect their wealth. These coins, however, did not always have a value directly correlated with their metal content. Anthropological evidence shows that people often debased coinage; their actual metal content was less than their face value, leading to practices such as coin shaving. One of the most notorious episodes of monetary manipulation in English history was that of Henry VIII in the 1540s.2
The Role of the State and Fiat Money
Contrary to the metalist view, another theory suggests that money’s value comes from its acceptance by the state as a means of payment for taxes and debts. This perspective is captured in the concept of fiat money, which holds value not because of its intrinsic worth but because of the government’s decree. This theory posits that the state played a crucial role in creating markets and stimulating production by issuing money.
The transition to fiat money marked a significant shift. Money became a promise by the government to accept it for tax payments, thus ensuring its widespread acceptance. This system allowed states to control the money supply and influence economic activity without relying on physical commodities like gold.
Debt and Economic Stability
The creation and management of money are closely tied to the concept of debt. Historically, debt has been both a tool for economic growth and a source of personal and systemic risk. The issuance of credit by central banks and financial institutions enables economic expansion but also creates a cycle of indebtedness that can lead to financial crises.
One illustrative case is the issuing of loans based on the promise of future repayment, effectively creating money “out of thin air.” We borrow from our future selves, expecting the resources to be available to repay what was borrowed. It’s speculation—a bet—one that the bank rarely loses. This system can lead to significant social and economic stress, as seen during the 2008 financial crisis. Individuals who cannot repay their debts often face severe consequences, including foreclosure and bankruptcy. At the same time, large financial institutions receive government bailouts to maintain economic stability—quite a contrast in policy. The already rich and powerful are protected using the people’s money, but the people are left to suffer and die under the weight of their moral obligation to pay back what they “owe”.
Modern Monetary Theory (MMT)
Modern Monetary Theory (MMT) has gained traction as a framework for understanding the role of government in managing the economy.
, and are Substack writers who write regularly on the topic. MMT argues that countries issuing their own currencies can never “run out of money” in the same way businesses or households can. Governments can always create more money to fund public spending if they carefully manage inflation and currency value. Proponents suggest that this approach can lead to more effective economic policies, particularly addressing unemployment and underinvestment in public goods.However, MMT is not without its critics. Opponents argue that excessive money printing can lead to hyperinflation and undermine economic stability. The debate continues as economists and policymakers explore this theory’s potential benefits and risks in practice. Dmitri and I hope to introduce you to an expert or two on MMT in a future episode so stay tuned for that.
Social and Moral Implications
The nature of money extends beyond economics into social and moral realms. Money influences social relationships and personal behaviour, acting as a measure of trust and reliability. For instance, the moral dimension of debt has always been a subject of historical and religious debate, with various cultures and religions condemning usury and advocating for debt forgiveness. What happens to the debt when it is forgiven? Jesus Christ, even the term “forgiven” implies a moral breach. And who owes who anyway? If money is created by my signature on the bottom of a contract with a “lender”, then surely the money is mine, and I owe nothing. We hope to have these questions and others answered as we navigate this subject of money in the next few episodes.
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References
Graeber, D. (2012). Debt: The first 5000 years. Penguin UK.
Challis, C. E. (Ed.) (1992). A New History of the Royal Mint. Cambridge University Press.
007 Money Part 1