One of the authors that really helped me in getting my thoughts about money structured is David Graeber. In 2011 he published the book “Debt; The First 500 Years”. In his book Graeber explores the origin money and explains that, contrary to the popular claims of economists, debt is the oldest means of trade, with cash and barter transactions being later developments. In Graeber’s view the use of cash and barter in ancient times was limited to situations of low trust, involving strangers.
This view helped me a lot with what I was struggling with since the beginning of the financial crisis in 2007. I was a senior policy advisor on payments systems at the Dutch Central bank and an advocate of the transformation from cash to digital and innovations. The more I thought about this transformation, the more I became convinced that society misunderstood the nature of money.
Not to produce or trade due to a lack of money is nonsensical
I was astonished to see how many people believed that a breakdown of the financial system would actually lead to an end situation where no one in society would produce or trade anymore. Michael Linton, a leading person in the world of community currencies, framed my amazement with the following quote:
“to not produce or trade due to a lack of money is as nonsensical as being unable to build a house due to a lack of inches”
Money is nothing but an idea based on the administration of debts (and the opposite: claims). And debts are of all ages. In every type of society, ancient or new, people decide to support families, friends or neighbors by lending them the stuff they need or collaborate to get their work done, trusting that it will be the other way round when they need support or trusting that they will be compensated in a future time when the debtor has improved his situation. Sometimes these debts are being registered by the creditor, sometimes things go without saying.
Anonymity and thinking in exact equivalents work very counterproductive
Money is originated as a sort of a token that proves that you have a positive balance at a bank. The invention of the banking system and the issuance of banknotes gave way to two major trends. First of all, there was no longer the need for the debtor and creditor to know each other. Banks in fact operate as anonymous hubs, where all debts and claims are being registered without a direct link between debtors and creditors. You put your money on a savings account, without knowing who will lend this money. Second, calculus and thinking in exact equivalents was made the heart of every economic transaction.
Anonymity and thinking in exact equivalents work very counterproductive in times where there is the common notion of a lack of money. With the continuing digital transformation we see at the least first trend of anonymity being reversed. Crowdfunding and P2P lending reduces the anonymity between debtor and creditor. (See also the blogpost about how P2P lending can transform the banking system.)
We can reinvent the entire thing
Last but not least, the concept of Bitcoin and its underlying blockchain technology are definitely challenging for the traditional view on the nature of money and how a monetary system should work. In the end, money is but an idea (and we can reinvent the entire thing, like Marc Andreessen said).
Image credit: Franklin Heijnen, Flickr