Preface

Money Parables: From Coin to Edict to Crypto

For a very long time the story of money was straightforwardly told through coins. Digging up old coins as artifacts of previous civilizations seemed to reveal a thing called "money," understood as bits of metal of certain weights. In the typical tale, the metal was "rare" and thus thought to have some intrinsic value, and in turn the coins - the money - had value because they contained a specified weight of the metal. Because money itself possessed value, and because it was generic and standardized and would not spoil, we could exchange it for the wide variety of other things we needed or wanted - things that were of value precisely because they satisfied those needs or wants directly (in a way money could never do).

But money, as this story goes, was very much like those other things (commodities) in that both money and commodities were thought to have fundamental value. In this narrative, shoes have intrinsic value (a value in their use, use-value) because they keep your feet warm and dry, or they protect you from rocks and glass when you go for a walk; money has intrinsic value because it contains valuable metal. We want the shoes so we can wear them, but we want the money so we can buy the shoes (or anything else we might prefer). In this tale, money is a commodity (just like any other) with direct and positive value. The story could be rendered more complex by the issuance of credit (a promise to pay money at some point in the future), but one need not worry much about those complications because at root money itself was essentially coins, and therefore relatively simple to understand in its nature. The moral of this tale: money has value because money is, and should be, a commodity with its own intrinsic value; money should therefore be "sound money" in that it should contain the value it says it does.

I cannot overstate this next point: though that story has been told throughout history (and repeated especially forcefully since at least the eighteenth century), it has never been true. Never. Even in those historical periods when coins seemed to preponderate, money was never a weighted quantity of metal (with intrinsic commodity value). Rather, the coin was a token or symbol, a claim ticket within a relation of credit and debt. It mattered not whether the ticket itself had any value. The money token could just be a piece of paper; the money symbol could be mere lines on a clay tablet, marks on a paper ledger, or digits on a computer spreadsheet.

There were particular societies, of course, where the object used as token of money - say a gold or silver coin - was itself a good that had both some intrinsic use-value and a market exchange-value. Gold can famously be used to fill dental cavities and has sometimes played small roles in industrial production, while most precious metals can serve as raw materials (production commodities) in the making of jewelry. Thus anyone wishing to buy gold or silver for those productive uses would have to accept the going market price. However, in those cases where a commodity served as the money token, its commodity value (as a metal) was always less than its money value (as a claim of denominated credit/debt). Within a properly functioning coinage system, money-gold always has a higher denomination (and thus seems to be "worth" more) than the market price of commodity-gold. For just this reason, the monetary system breaks down the moment that relation inverts, for if commodity-gold is worth more than money-gold, no one will continue to use gold coins as money; they will hoard them for their commodity exchange-value. This means that money can never be sound, because to be "sound" is no longer to be money. Hence we can refer to these coinage systems as having or using "commodity money" only in the very limited sense that their money tokens were composed of a commodity, but the nature of their money was not that of a commodity. Money is not and has never been a commodity in this sense - and money's nature would not change if those societies substituted paper money or any other symbolic representation for the coin tokens.

Money as a commodity proves to be the oldest, most dominant, and most frequently told story about money. It forms the backbone of the treatment of money by modern economics, and this book will engage in great depth with that narrative, along with a strong series of criticisms of it. But for now we set this story aside in order to move to the more recent and quite dramatic turn, by which a new narrative of money has quickly started to take hold.

Over the past fifteen years, people have been abandoning this old yarn (about bits of metal) in droves, and though it still survives intact in the skeletal structure of neoclassical economics, many have been surprised by the speed with which some writers and thinkers have moved on to a radically different account. In the ongoing aftermath of the great financial crisis (GFC) of 2008, there have been many new course corrections in the tale of money, but all largely orbit around one particular rejection of the old narrative. The new account of money dispenses with the commodity story in the starkest manner, by proclaiming the following: money is not bits of metal with intrinsic value, because money is nothing more than fiction.

One could generate countless examples, both popular and academic, that defend this thesis, so we can pick almost at random. Take Jacob Goldstein's 2020 book, Money: The True Story of a Made-Up Thing. The title says it all: money is fabricated, nothing more than a story we tell. But in case any readers miss the point, Goldstein titles his preface with the declaration, "Money is fiction." At its core, this new narrative re-grounds the value of money by substituting social value for commodity value: money has value only if and insofar as everyone believes it does. A 2021 New York Times article presents the new common sense by quoting an ostensible expert on money, Neil Buchanan, as follows: "Monetary systems depend on 'a leap of faith.' People accept it because others accept it, making money one big 'group delusion'" (Coy, 10 December 2021, quoting Buchanan 2013).

Here we have money as nothing more than a kind of shared faith - hence ephemeral and precarious. This new narrative resonates with so many readers because it rises to the surface amid the tumultuous wakes of both the GFC and the coronavirus pandemic; it captures the important sense that whatever money is or has been in the past, money today feels both mysterious and conspiratorial - manipulated by shadowy figures, important but intangible, beyond our control. It also resonates with broader ideas about a historical change in money, a shift from sound metallic money to so-called "fiat money" - a putative type of money that depends solely on the decree or edict of the government. As societies have abandoned faith in a variety of governmental institutions, they have in turn lost trust in money itself. At this same moment, they begin to tell a tale of money as itself nothing other than a made-up bedtime story. The moral of this second narrative: money has whatever value it is believed or decreed to have. Money is therefore no longer "sound" (or never was) because all money is mere fiat money.

This recent tale of money has roots in the past, and I freely admit that it better conveys certain elements of money's nature; it captures more of the history of money practices than the old story. Moreover, it is a basic fact of markets that the prices of both commodities and financial assets can be moved by the collective beliefs of market actors (e.?g., meme stocks). Nevertheless, money is neither mass delusion nor simply shared faith, and no government or other issuing agency can establish value in money by fiat. Governments, of course, have played and continue to play an enormous role in monetary systems; as with so many elements of the life of a society, governments have enormous power to shape and impact money. Yet neither money's origin nor its end lies with the government, or any other central authority. Chapter 4 engages in depth with state theories of money and explores the complex relation between money and state powers. For now we only need to underscore that money is not made up - it is very much real - and this means that we cannot change money (and money practices) either by abolishing it or making it up anew.

At this juncture we come face to face with bitcoin and the larger project of cryptocurrencies, whose original and very much explicit goal was precisely to create a new form of money. While crypto seems like (and in some sense is) a brand new story of money, we must first understand it as a momentous wrinkle in the post-2008 narrative. The invention of crypto would arguably have never occurred were it not for the undoing of the old tale (money is bits of metal, with real value) and its replacement by the new (money is fiction, with value decreed by the government). Our second money story serves as a condition of possibility for crypto's rise: only in a context in which large swathes of people believe that money's value is nothing other than an index of what people think money is worth, might we witness the results we have seen over the past few years with crypto - people paying increasingly large sums of real money (bank credits denominated in dollars,...