Tuesday, December 25, 2012

Reflections on money

I'm taking a couple days off my analysis of Wenzel's 30 Day Reading List for Christmas, but I want to write a brief reflection about money and the State.

Money, as I've written before, is really hard to understand. Indeed, no one really understands money, in the sense that scientists really understand evolution, relativity, or even quantum mechanics. Everyone has different theories, but no theory has gained the kind of wide acceptance that good scientific theories gain. There are a couple of reasons for this. First, the problem is complicated. Second, money, considered as a "thing," is an inherently political instrument. Money is not something that just is; money is political, ideological, social, cultural: money is what we think it is. So different kinds of people think about money in the same terms they think about politics and social institutions in general. Socialists construct socialist money. Libertarians construct Libertarian money. Capitalists, fascists, mercantilists, feudalists, and slave-owners construct capitalist, fascist, mercantilist, feudalist, and slave-society money. Money is, in essence, a political institution just as are a congress, a president, a judiciary, a dictator, a ruling elite, a body of law, and a constitution.

Money differs from other political institutions because money seems objective, because money seems to reside not in our minds but in the pictures of dead presidents printed on paper or stamped on metal, bars of silver and gold, bank accounts, etc. Money is, first and foremost, countable, and we're conditioned to believe that countable means scientific and objective. But money is, essentially, the pure abstraction of counting: money doesn't actually count anything; it's just, in a sense, a Platonic ideal of counting itself. It's a curious inversion: in science, we count actual physical things; in economics, we instantiate physical things such as dollar bills to concretize the abstraction. But it is clear: despite appearances to the contrary, money is a pure political, social, and cultural construct, symbolizing nothing but itself.

Thus we have the curious fusion and tension of money and stuff in economics. To the extent that economics is about real stuff, physical things that take labor to produce (goods), or labor traded directly (services), economics is a science, a study of objective reality indifferent to our preferences. Regardless of now much pizza and beer we want, if we want more pizza, we have to settle for less beer. As a scientific economist, based on your subjective preferences, I can tell you the optimum amount of beer and pizza to produce. If you want more of both pizza and beer, I can tell you the optimum amount of both you should forego today to invest in making both pizza and beer more efficiently to have more tomorrow. Classical economics seems (at least so far) to be quite sophisticated and effective at answering these sorts of questions.

Although there's a subjective component, our preferences, these are questions and answers about purely physical things like pizza and beer (and human labor). Economics, however, is really confused, when it is not silent, about money itself. Half the time money is simply abstracted away, as when we divide out by the price level to get "real" quantities, such as real gross domestic product or real income. Half the time, money is itself real: private and government debts, which are just money, are ardently proclaimed by some to have a crippling effect on the economy, and just as ardently proclaimed by others to have a salutatory effect on the economy. Both are, or can be, right, because money itself is not a physical thing like a hat, a haberdasher, or a hat factory: money is an idea. If we believe that debt will cripple the economy, then it will; if we believe that debt will improve the economy, then it will. This is not superstition, just political psychology: economics is, fundamentally, about what people choose to do, and people really do choose based on what they believe.

Marx introduced to economics an interesting term derived from primitive sexology*: fetishization, an attitude towards an object that is substantially at odds with its real nature or intended purpose. Marx referred to "commodity fetishization," by which he means valuing a commodity not for its use value but for its ability to gather more money. But I think Marx's notion is more powerfully expressed as money fetishization: instead of money's true or intended purpose of optimizing the production, distribution, and consumption of commodities to maximize use value, we see money as an end in itself, which subsumes the production of commodities.

*I use "primitive" advisedly here. Early sexologists considered reproduction to be the real nature and intended purpose of sexual activity; sexualization of non-reproductive activity was therefore pejoratively referred to as a "fetish." More objective modern notions of scientific sexuality largely abandon the term.

In an emerging capitalist economy with expensive labor, the fetishization of money seems an inevitable side-effect of the high social value of investment, the reallocation of labor from the satisfaction of desires to consume today to the development of more efficient production to satisfy the desire to consume more tomorrow. People act on what they want today; we cannot, I think, really act on what we want tomorrow without translating that desire into wanting something, such as money, today. (It's an obvious truth of psychology that to construct a long-term goal, it is crucial to construct short-term goals and rewards that will lead to that long-term goal.) Money fetishization, then, is the result of wanting to build an industrial infrastructure: it is the short-term goal and reward pointing to the long-term goal of making our productive society vastly more efficient.

There's another psychological tendency, though, that works to our disadvantage: moral inversion. We construct short-term goals and rewards to instrumentally achieve a long-term goal, but then we assign an intrinsic good to the short-term goals directly, which often inverts our judgment of the long term goal. In Zen and the Art of Motorcycle Maintenance, Robert M. Pirsig explains the concept in his (probably apocryphal) story about the sacralization of cows in India: these cows are incredibly useful, therefore they must be gifts from the gods, therefore they are sacred, therefore we must not use them. The moral value of the cow has been inverted from valuable because they're useful to useless because they're valuable.

Similarly, we value money instrumentally because valuing money helps us build an industrial economy. Then we start valuing money intrinsically, and sometimes, to preserve the money, we must sacrifice the industrial economy. At a more sinister level, consider material immiseration to be intrinsically bad. We value sacrificing some consumption today to build an industrial economy because it will relieve material immiseration. We start valuing building an industrial economy intrinsically. Therefore come to believe preserve, rather than relieve, material immiseration, because immiseration is the justification for the intrinsic good of building an industrial economy.

Moral inversion is not always so malignant. For example, we might start off deprecating theft to preserve property, but after not stealing has become habitual, we start disliking theft intrinsically, and simply become a society of people who do not typically steal, not directly because of the broader social and economic consequences, and not even directly just because we might get caught and be humiliated or imprisoned, but because we are just not the sort of people who steal. In essence, we have fetishized not stealing. It is arguable that all our social and cultural conventions (that are not pure accidents) come about due to moral inversion. So moral inversion is by itself neither good nor bad, but we have to carefully and skeptically examine instances of moral inversion to determine their value.

So what can we say about the fetishization of money? Is it a case of irrational attachment to an ad hoc instrumental goal that has outlived its usefulness, or is it the kind of cultural norm like not stealing that fundamentally makes our society better? To a certain extent, it's a little of both, but more the former, irrational, than the latter. And when taken to Libertarian "gold standard" extremes, it is much more irrational.

Indeed, the fetishization of money is very similar to the fetishization of religion. Religion used to be the basis around which we built social trust; its actual truth was not really relevant. Now, we build social trust economically, politically, and socially; religion is no longer necessary and useful for social cohesion, and attachment to its superstitious and arbitrary claims to truth are without any value. Similarly, the fetishization of money, once useful for building an industrial economy, is no longer necessary or useful. And, like religious apologetics, the defense of money is becoming, as we're already seeing in the examination of Wenzel's canon of Libertarian thought, just as bizarre and dishonest.

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