Friday, January 23, 2004

Discussing on Alternative Money tribe.

Sure, everyone can get behind the idea that money evolved through various stages of abstraction out of some kind of commodity.

But the money we have now *isn't* commodity backed. And yet it still works as money. It's still perceived as money. So today's fiat money doesn't have it's value simply because of the past value of commodities backing it.

That leaves open the question, what is sustaining the value of money *now* as opposed to the idealized money as Misesians think it ought to be?

I'd suggest we can say that the value of money has 3 inter-related bases :

1) history : it's based on what people remember money being worth before, ultimately back to the commodity.

2) culture : people value money because they believe they can spend it tomorrow.

3) faith in the future stability of society and the economy : people believe that next year, the system will hold up.

This last is very obvious. When people stop believing this, the currency collapses, so this faith must be doing some work in sustaining the value of money.

Now I believe that government has some role in maintaining 3). People believe that there'll be a civil society next year because they trust the government to maintain certain pre-requisites of civil society such as the rule of law, security from foreign attack, services to cope with emergencies, welfare to help the unfortunate cope with economic disaster etc.

I don't believe it *has* to be government that maintains these things, could be companies or NGOs or local communities or internet mediated social networks. But there has to be *some* political and civil infrastructure which is itself not the market, and this is *causal* in maintaining people's faith in, and therefore the value of, money.

A good book to read on this is Keit Hart's "Money in an Unequal World".

Hart was an anthropologist studying the evolution of the market in traditional African society. It's a good book, which challenges almost every standard political position on money, and changed many of my earlier preconceptions.

Alternative Money and Economics : How does money acquire it's value?

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