What is money?

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Submitted by admin on Sun, 28/10/2018 - 09:44

Money and the fragility of contemporary value creation

The question, what is money, is essential in understanding the distribution of power in today's world. The simple question is surprisingly difficult. Ask any politician dealing with the finances of your country and most probably you will receive confusingly different and diplomatically escapist answers. How can a question that simple be so difficult to answer in today's world, even for those who deal with macro finances determining lives of millions of people?

First of all the historical connection between money and its tie to a certain amount of gold reserves or other resources has vanished and changed drastically. Money has become speculative. So what then does speculative mean? It means that the entire value of something is based on the social contract that determines its value.

If your post in your blog becomes popular, or your whole blog gets attention online, it gains speculative value, although nothing has changed in terms of material reality. Because of our agreed social contracts, this speculative value can be translated to financial value and all of a sudden you can make money out of nothing. Something similar happens when you go to a bank to get a loan.

Banks today can create value, money. Only a small proportion of financial transactions today is done by cash exchange. When you go get a loan from a bank, they can just create the amount you have borrowed by accounting, even though they do not possess that money in cash or other material value. That is why it is so difficult to take cash out of a bank, unless it is small sums that falls into the range they have reserved to have in cash payments. Thus millions in different currencies are created by accounting methods. The customer, you, pay interest of that created and borrowed value and thus create more money to the bank. All of this is based on social contracts. The mythical machine Sampo, that mills money and power out of thin air in the northern mythology Kalevala, has finally been discovered (link: https://en.wikipedia.org/wiki/Sampo).

What then is a social contract and how can they be so strong as to determine a large part of the whole set of power relations in the economy? When two people agree on something they create a social contract. But they don't always have to agree and write a contract, they can also measure their social contract by popularity, future prospects etc.

Let's take an example from the art world. We did a project with an artist friend that ended up in the Venice Biennial art festival, known for being one of the world's top art market places in the world. The art work included two videos. They were played in the exhibition from home made DVDs, which had production costs of around 1 Euro each. As the work was selected into the renown biennial and the artist I was working with was a promising young artist, an Italian collector offered to pay 5 000 Euros per DVD copy for these videos. For him their value is connected to the careers of the artists and how the value of their works go up in the future as they become mystified or popular in other ways. This of course is value that is based purely on social contracts determined by the popularity and thus demand of these artists. He pays 5 000 Euros for home made DVDs because he thinks that the social contracts around the 1 Euro discs will change in such a way that their value will go remarkably up in the future. The entire art market is based on the same principle. The works themselves have no or little actual value. Everything is based on value created from nothing through social contracts.

Development and maintenance of social contracts of course have patterns and agreements. However unlike material value of vital resources, social contracts are psychological arrangements that are re-arranged if the set of values or social relations of a particular social circle or society changes. Thus value is fundamentally arbitrary. In theory art works can loose all of their value over night if that particular group that maintains their value chooses, feels or agrees so. So, what in the end was its value?

In our bourgeoisie society and economy based on almost completely of exchange value, very few aspects of life have any other value than social contracts. Thus we enter to the sphere of ideology. However sometimes it appears that aspects of life have other values, it only holds until you take a closer look.

In our contemporary ideology based on bourgeoisie principles, a tree grown for the paper industry has an exchange values of its price in paper. It has no other value. And this includes most trees, at least in Finland where 95 per cent of forests are planted fields of trees for the industry instead of old growth forest with intrinsic value. Of course a value of a tree is primarily material and intrinsic even if it is planted and growing only for the use of the paper industry, but only until it enters the ideological sphere of our society where we construct and determine the value. When you follow the production line and consider the entire ideological and economic sphere where this tree has its value, in the end you discover that demand of paper, how paper is valued as material and other social economical aspect determining its value is based on a set of social contracts.

Of course for many other aspects of our increasingly service based and digital economy in the rich countries, the role of any sort of material value is diminishing. The role of material is becoming infrastructure supporting the value creation based on social contracts. As is the case for example with the booming economies of cryptocurrencies, social media, online marketing, etc. Thus increasingly the economy is based on directly social contract based value. And as demonstrated with the example of art, this value is always very fragile. It can disappear if we just change our minds.

Again in theory also money can loose its value over night if the people of a nation state that maintains its value chooses so. In practise these changes happen most of the time slower. When the values of a society start to change all the social contracts start to change. And this is an ideological struggle based on media attention and social influence.

The same goes to other aspects of life in pure consumerism. If consumers amongst themselves decide to stop valuing a certain product, the product disappears, looses its justification of existence, which was based on pure exchange value. In the value creation of our contemporary social contracts, if it does not exchange it has no reason to exist. And this is a free choice for us in our consumer, bourgeoisie ideology.

This opens a question if this sort of fragile social contract based value creation is desirable for a psychologically, socially and economically steady and sustainable future society or should other forms of value creation be thought of?

However all of this is made possible by an excess energy source, fossil fuels. But that is a another story, tackled in the next article “Money and energy”.

article series by Zachary Larsson