The Six Facts
Before about 10,000 years ago, every human society was a hunting and gathering society. As a general rule, the men hunted, and the women gathered. Each band would trade with other bands, though trade was not necessary to the economies of such bands because they could always travel to the sites where the resources they needed were to be found. Trade was an optional convenience though quite desirable.
Then, over the course of several thousand years and in a variety of places around the world, women proceeded to invent agriculture. Agriculture was a whole different ball game. You could not just wander off for several weeks to get needed resources, leaving your fields and flocks unattended. You had a lot of valuable capital tied up in those farms. That capital needed protecting from animals and other people. Trade was the only practical way to acquire those needed goods from other places. Agriculture also meant a much greater division of labor even within the local villages. One would even trade with people who lived close by.
As the importance of trade increased, the need for a medium of exchange likewise increased. Let’s say we are using salt as a medium of exchange. Everyone needs salt. If kept clean and dry, salt will last a long time thus serving as a store of value. One could even compare the relative value of other things in units of salt as in “this item is worth 5 measures of salt while this other item is worth only 3 measures of salt.” Therefore, one might accept salt in a trade even though one already might have enough salt to last for months because one could be confident that the salt could be offered in trade for things one did need. Many things have served as media of exchange such as blankets, measures of grain, pigs, goats, and bottles of wine. In every case, the medium of exchange has always been some kind of physical object (like currency) or something representing physical objects (like units of money in a checking account).
Any medium of exchange is a kind of money. That function is essential for any society with many social roles. The greater the division of labor, the greater the need for a medium of exchange. Without any central authority acting to require it, a medium of exchange will come about if there is an extensive division of labor.
Money evolved before writing and before history. Money transactions have been involved in all human activities that addressed large scale (hundreds of people involved) projects. Money transactions have been involved in most human activities that involved trades.
We cannot understand or explain human societies and their actions unless we understand how money influences society.
What about economics? Don’t economists study the role of money in society?
Perhaps not. If you google for such things as “properties of money” or “characteristics of money” you find lists like the following from chapter V of William Stanley Jevons text “Money and the Mechanism of Exchange.”
1) Utility and value
2) Portability
3) Indestructibility
4) Homogeneity
5) Divisibility
6) Stability of value
7) Cognizability
You will note that these are the properties of the materials used to manufacture currency. What makes a thing money is in the human mind not in the physical properties of some physical artifact. Confederate paper currency ceased to be money without any changes at all in its physical properties. This list by Jevons would be better given in response to the question “What should I consider in choosing a metal to use in minting coins?”
A list of such physical properties is almost useless in understanding or explaining human societies’ forms or functions. The list does not explain human behavior.
If we look in economics for explanations of why various economic problems exist (the Great Depression, for example) we get a description of the event, sometimes in great detail, but why the problems happen is not explained.
Let’s see if we can do better in describing the properties of money by keeping in mind that money is a mental concept. (You might try googling for money as a thing of the mind rather than as a physical object and see what you get.)
Wake up now, we are getting to the good stuff!
The Six Facts about Money
Each of the following six facts about money is based on the observation that people treat money as if it were a physical object (a currency, as in a coin or a paper bill) even though the vast majority of instances of money around the world are bit patterns in computer files. Because we think of money as if it were a physical object, money has the properties of physical objects in how we deal with money. I will call all the various kinds of money used in history POM, for “Physical Object Money” and that includes even “cryptocurrency” like bitcoin.
Fact number one: money can be taken from its owner against the will of the owner. Physical objects can be lost, destroyed, stolen, taken by fraud, taken by threat, taken by the courts, by taxes, by embezzlement and probably in other ways that don’t come to mind just now. Since everyone wants your money, everyone has a motivation to try to find a way to take it, even against your will.
Fact number two: money is amoral. Physical objects can be used for good and for evil. Money can be used to motivate good and evil actions.
Fact number three: the supply of money can increase or decrease with no corresponding increase or decrease in the supply of goods and services for sale and vice versa. Both inflation and deflation are possible with money.
Fact number four: the use of money cannot be controlled. There are thousands of laws in every nation concerning what one may legally do with money and every one of those laws can be broken and most of those laws are broken. Thus, for example, organized crime exists in every nation.
Fact number five: every money transaction is an instance of two-party interaction. Two-party interaction is inherently unstable because the more powerful party can use that power to gain a still greater power advantage. Thus, money will tend to become concentrated in the hands of a few.
Fact number six: money falsely simulates a zero-sum game relationship. In each monetary transaction the money gained by one party is lost by the other party. The relationship between the two is not a zero-sum relationship but if they consider only the money it appears to be zero-sum. In monetary transactions the two parties tend to treat each other as opponents, competitors, rivals, or even as antagonists or enemies.
The above are the six facts that we will use to better understand the problems faced by human beings such as yourselves. These facts apply to all human activities that involve money directly or indirectly.
The process of applying the six facts to human problems.
Human problems can be roughly grouped into three categories: problems from nature (volcanoes, floods, tornadoes, and plagues for example), accidents, and intentionally harmful acts.
Step one: where does money come into it? We describe how money is involved in the problem. This applies to all three categories of problems.
Step two: what would be the optimal or at least better behavior by the people involved? (For problems from nature and accidents.)
Alternative step two: what role does money play in providing means and motivation for evil actions? (For intentionally harmful acts.)
Step three: which of the six facts tend to prevent or make less likely the optimal behavior?
Step four: show how human actions would be different if money did not have these physical object money (POM) characteristics. If money could not be taken from its owner against the owner’s will. If money could be acquired only through moral acts which resulted in net benefit to others. If the supply of money always matched the supply of goods and services available for sale. If the use of money could be controlled. If money transactions were three party interactions. If money made obvious the mutual interdependence of human beings.