A few thoughts on Currency & Markets

This is the first draft of an essay I’m working on comparing different types of currency and markets.  It’s all kinds of not done, but I wanted to post it here to hopefully get some feedback.
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A few thoughts on Currency & Markets

There are three fundamentally different types of currency, there is social capital which is real and important and invisible and largely unconscious, there is also currency of convenience – gold or cacao beans or some other easily mobile product with an intrinsic value that is used as a convenience in order to make barter between multiple parties more convenient. The third form is representative currency, that is to say paper money and/or its various digital and abstract representations.

Convenience currency is just that, it’s a simple convenience that allows for people who do not have an established bond of trust to exchange value. Two people may not trust each other but they both trust that the cowry shells or cacao beans or gold ingots or whatever have value and so they are able to trade goods and services. Convenience currency exists everywhere, the use of cigarettes as currency (for instance) within prisons is well documented. Up until the rise of paper money (a very recent phenomenon) this was the second most important currency and has been used in virtually every society in history, even ones whose internal economies were functionally communist. To think it can be eliminated is naive, it serves a critical function in allowing for the exchange of goods and services over long distances. Assuming we are able to abolish nation states at some point in the future we can expect to see convenience currency re-asert itself.

Representational currency, which so-called “anarcho”-capitalists dismiss as “fiat currency”, can either be state-sponsored paper money, a local currency, or the ‘labor notes’ advocated by many mutualists. In all three cases it amounts to the same thing, a sort of formalized social currency where value is based not on trust in the person who gives it to you or in the papers own intrinsic value, but in a belief in the organization or group that issued it. It is thus a hybrid of the other two that gains strengths and weaknesses from both. Because it is more convenient then most convenience currencies – dollars are lighter and easier to move in large quantities then cowry shells or gold ingots after all – it has largely supplanted those currencies. In recent years paper money has largely been supplanted in turn by credit. In theory credit cards (for instance) are simply a means of exchanging state-sponsored dollars back and forth, but by allowing millions of people to spend billions of dollars that they don’t actually have, credit card companies have been allowed to dramatically expand the supply of money available, thus functionally creating a new type of fiat currency. The cards continue to be accepted because merchants trust that visa will transfer the money to them, and the banks and financial institutions trust that most of their debtors will pay back what they have borrowed. Debt thus becomes the anchor of this new type of currency and is effectively transformed into wealth – at least until the economy and spending slows. This phenomenon is the fundamental problem behind the recent global economic meltdown and why it continues to accelerate, as more and more people default that fiat currency is transformed back into debt and suddenly financial institutions that appeared solvent disintegrate. Since representational currency is based on trust in the issuer of the currency, the less trust people have in the governments and financial institutions that issued it the less that currency is worth. Capitalist economists like to argue that this the primary factor in inflation is how much money is in circulation, and that’s true to an extent, but trust is far more important. When a government falls only a fool would accept the currency it printed in exchange for something of value.

Social currency is actually the most important type of currency and the one that gives others value. People don’t kill themselves working for scraps of green paper because they want the paper, they do it because they need the things that other people are willing to trade to them in return for that paper and for the respect of ones peers and social status that is awarded to people who successfully amass large amounts of that otherwise worthless paper. It’s the status and the influence gained by the possession of the paper1 – the social currency – that is important, not the paper itself.

For an example of a society based purely on social currency, we can look at any of the thousands of indigenous anarchist societies throughout history that practiced what Marxists would call “primitive communism.” When a tribal hunter returns with a kill and shares out the meat, each piece going to a different member of the tribe with who gets what being determined by their relation to him, they pay him in social capital. That is to say, he is exchanging something with physical value – the meat – for social status, or social capital. On a day when he is unable to catch food but his cousin does he purchases his share of their meat with that same social capitol. Should he spend all his social capital without regard for the consequences – by refusing to share his kills but taking a portion of other people’s kills for instance – he would not only be unable to continue purchasing meat but would most likely be ostracized from the tribe. So we see that while it is a completely money-less society on the surface it is still market-based, but it is a market wherin the primary currency is Trust. That market works under different rules then the Capitalist Market, but it is a market no less.

Understanding this, we have to re-envision communism, and particularly anarchist communism, as a movement to replace convenience currency or State currency with social currency and create a society where people share with each other because they trust that others will share with them in return. This assurance is only possible in a system built on trust where social currency is functional. Removing trust in other members of the society from the equation destroys the value of social currency for the same reason that the erosion of trust in government erodes the value of State-sponsored paper money.

This is not purely a matter of academic interest – it gives us valuable insights into the fundamental differences between Marxist economics and anarchist economics. Marxism can never create true communism because it is imposed from above by force, the opposite of trust, and thus destroys the invisible threads of trust and mutual aid that social currency is based on. Instead of a marketplace of trust Marxism creates a marketplace of fear where the power maneuvers of the coordinating class as its members vie with each other for power within the State structure serves to mask what is, again, fundamentally a market. Again it is a market based on social currency and status, but here the currency is coercion instead of trust, power over instead of power with. Projects with powerful backers (like the military and secret police) get the go ahead while others languish and die on the vine, and the return on investment for the successful completion of these projects is an increase in power, status, and other forms of social currency for their backers. Just because this currency is invisible does not mean it is not real, just look at the kleptocracy that followed the collapse of the Soviet system. Powerful factions and players in the old invisible marketplace cashed in their favors, spent their social currency, and traded it in for ownership of all the engines of industry built under soviet rule. So it is that a tiny minority out of the Oligarchy was able to buy off the means of production. On one level it was done with mafia money and stolen funds and things of that nature, but on another more profound level it was done using the social currency that those elites had amassed as members of the coordinating class. By concentrating social currency into the hands of a tiny elite Marxism legitimized the long-term anarchist critique of it as State Capitalism.

The soviet system is also a good example of the way that different forms of currency can coexist, the official state currency worked for most individual transactions, and social currency predominated within the state/market. Whenever and wherever one form of currency is blocked another takes its place.

Moving on from the USSR and Soviet-style “communism”, the question for anarchists becomes – knowing what we now know about the importance of social currency – how do we create a truly egalitarian society and implement an economic system based on egalitarian trust-based social currency? We cannot eliminate the Market, as long as there are two people who need to exchange with each other there will always be a marketplace, but we can decide what sort of market we want to see and this analysis of currency and market types is useful because it allows us to analyze our choices. Since our aim is to create a free and egalitarian society it makes sense to make social currency the cornerstone of that market. The question then becomes how to do so in a large modern society where trust is not so easy to obtain.

Posted: February 22nd, 2009 under economics.
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