What Are The Functions Of Money – Money is therefore a system of mutual trust, and not just a system of mutual trust: Money is the most universal and most efficient system of mutual trust ever created. (Yuval Noah Harari 2011, 180)
Money has long fascinated me, and not for obvious reasons. Although I would like more, my interest is mostly philosophical. It is the ontology of money that has always bothered me. Since I was a kid collecting old coins and hoarding my wallet change, I’ve wondered why some physical tokens can act as money and others can’t. What do you get paid for? What is it about? Why do some monetary systems fail and others succeed?
What Are The Functions Of Money
For years I put these questions aside, confident that I had a basic understanding of how to answer them. But in the last year they have re-emerged. I have started teaching a course on monetary and bankruptcy law. And as usual, I can’t teach it without trying to address some deeper philosophical questions. Some of these questions are purely political or moral, while others are ontological. In particular, I found ontological questions relevant when trying to assess the nature of cryptocurrencies like Bitcoin.
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This post is my first attempt to write down my thoughts on the ontology of money in general and Bitcoin in particular. It is set at an introductory level, again compiled from notes I have prepared for my lectures. There may be some misunderstandings or misunderstandings. I welcome the reply. The post is an attempt to gain some insight into the writing process; not an attempt to reproduce well-thought-out views in written form.
I will divide the discussion into four main parts. First, I want to talk about the social function of money. Second, I will discuss two different ontologies of money – a naive realist ontology and a sophisticated subjectivist ontology. Third, I will talk about the five steps of the social development of money. And then fourth, and finally, I want to talk about Bitcoin and how it fits into my favorite subjectivist ontological theory.
I don’t think that the ontology of money can be understood from the social function of money. So I have to start. I can’t remember where I got this idea from (I think it might have been from this podcast), but I like the analogy between money and a computer operating system. Money can be seen as the operating system of the economy: the software program that oils the engines of production and exchange (I guess it’s a mix of metaphors).
Money means exchange. We all face the same basic existential problem. We are mortal, fragile, biological beings. We need certain things to ensure our life: food, clothing, shelter, etc. We also want some things to make our life better. How do we get what we need and want? There are two basic strategies. The first is self-sufficiency, ie. that you as an individual can acquire and produce all the things you need to survive and (if you have the time) all the things you want to live a more comfortable life. The second is expertise and communication. Instead of spending all your time on all your needs and wants, you specialize in producing a specific product or providing a specific service, and then communicate with others who are experts in other areas.
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While the self-sufficiency strategy appeals to some, most societies have chosen the specialization and exchange strategy. And this is where money comes into play. Although money is not strictly necessary for exchange (one may have altruistic or communal sharing systems), it is the most common method of facilitating expertise and exchange. Because money performs three basic functions:
Medium of Exchange: It provides a medium for exchange of various goods and services. In other words, it provides a means to convert one type of good or service into another type. Perhaps this is the most important social function of money.
Store of value: An asset that retains its value (to some extent) over time. In other words, if you have cash in hand on Monday, it can still be a useful medium of exchange on Friday because people still accept it as having equal value. If money loses its value quickly—as occurs in hyperinflationary cycles—it ceases to be a useful medium of exchange. If its value rises too quickly, the following negative effects occur: people may stop using it as a medium of exchange and hoard it instead.
Unit of Account: It provides a way to accurately calculate various prices and services. In other words, it is not very strict in their value. This is important because it is believed that an efficient pricing system is essential not only for facilitating transactions, but also for facilitating competition and efficient use of resources.
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This is the standard economic calculation of money functions. It will be familiar to all first year economics students. But it is related to the ontological question that I find more interesting: what are the “things” that perform these three functions?
Ontology is the study of what; what kinds of things are there and what they are made of. When it comes to the ontology of money, I tend to think that there are two schools of thought. What I think is clearly wrong is the naive realist theory of money. This is what I, and I suspect others, found interesting in our youth. The second, which I believe to be true, is the sophisticated subjectivist theory of money. Of course, the labels “naive” and “sophisticated” are valuable, and I could probably do without them. However, I think they are worth discussing, primarily because I believe there is a naïve subjectivist theory that we should seek to avoid. More on this anon.
Naive Realist Ontology: Money is any physical commodity with intrinsic value that can be used as a medium of exchange (ie, it is a valuable asset but also fungible, divisible, difficult to counterfeit, etc.).
I call this a naive realist ontology because it maintains that money is “out there” in the natural world, a world beyond human imagination and culture. It is similar to other realist ontologies in that it believes that the phenomenon of interest does not depend on human observers for its existence (ie it believes that money is mind-independent). This is a view that I think many people find interesting in their youth. I know I did. I used to think that coins, especially those made of precious metals, were considered money because some mystical value was attached to those metals.
Different Types Of Money And Its Functions
This view is naive and obviously false. History proves this. People have used many things as money over the centuries, from tea leaves and cow hides to pieces of paper and lines of computer code. Many of these things have no intrinsic value (whatever). In fact, most of them lack the value of tools (beyond the value they provide as a medium of exchange). This is as true for precious metals as it is for colored printing papers. Obviously, a piece of paper with numbers and symbols has no intrinsic value, but when you think about it, it’s pretty clear that gold and silver have no intrinsic value. They simply have the value that certain cultures attach to them (eg for jewelry and jewelry). If such a diverse and apparently essentially worthless set of phenomena can be considered money, the naive realist view must be false.
But this then raises the question: how can such a variety of phenomena function as money? The answer lies in the sophisticated subjectivist ontology of money:
Sophisticated Subjectivist Ontology: Money is anything (physical or non-physical) that people are collectively willing to represent and intend to serve as a medium of exchange, store of value and unit of account.
Returning to the software analogy mentioned earlier, money is not some physical device “out there” in the real world, but rather a software package that all economic participants simply agree to run on their brains. I think it was Terence McKenna who once said that “what we call reality is really nothing more than a culturally and linguistically enhanced hallucination”, and while I wouldn’t accept this as a general description of reality, I think that’s for sure. right when it comes to the truth of the money. It’s really just a collective hallucination.
Meaning And Classification Of Money
Therefore, we should not fall into the trap of subscribing to a naive subjectivist ontology. It is not that we can easily and easily