Modern money is a tool to distribute future resources based on social conventions. Modern money is essentially a promise that one may access resources in the future. In this money acts to distribute resources between humans. It is a social-technological instrument that connects the way we behave socially with the world we have created. It determines who gets the food we grow, it determines who gets the stuff we make, and it determines who gets to live in the homes we build.
Consider how special money is in this regard. If a friend of mine promises to help me me out next week, I will trust him to do so because he is my friend. I have faith in him. Money is very different from this. Money allows me to trust anyone—strangers—as long as I trust the money; that I trust that he trusts that he can use the money to trade it in a way I just did.
The current recession is simply an emergent decision that perhaps people should not be given access to future resources (be able to borrow money on their homes) simply because someone may be able to pay more for their house in the future under “the greater fool”-theory. What happened was that a large group of people (home owners, especially sub-prime home buyers) had been trusted with a future ability to provide such resources (based on their homes) but then it turned out they couldn’t. In other words, there’s a loss of trust.
What’s important to realize is that the economy is not lost.
However, the economy is often confused with its metric. The real economy is the factories. The metric is an accounting scheme measuring the money being used by those factories. Unfortunately, humans are prone to blindness when it comes to forgetting the difference between their “measure” and what they’re actually measuring. It is very easy to make grave mistakes because people are “wearing the wrong glasses”.
Of course some factories were built based on speculation of future productivity. Lots of homes were built because of the understanding that homes create value. This is obviously not the case, but they did create money. This part of the economy is truly being destroyed in the technological–natural way: Rusting machines and empty offices.
It is likely that substantial parts of our economy, that is, the factories, not the money flows, actually produce nothing of value. They just exist to extract money, that is, trust, from the rest of the economy.
As a corollary, it is also important to realize that since we base our financial independence on people’s trust and more importantly future trust in our money, we are liable to this trust being broken.
From that perspective, it is desirable that one’s values be as real as possible. In particular, modern money is typically based on “the full faith” of governments, since governments regulate the money supply. Money could however also be based on the trust of rich merchants as was the case in Europe several hundred years ago when governments were weak or it could be based on the trust of people’s desire for rare items like gold, pearls, seashells or round rocks.
There are two conclusions from this. You can either accumulate technological wealth, that is, real stuff, such as home, garden, farm land, tools, which will provide you with a good quality of life. Alternatively, you can accumulate social wealth, that is, either a network of people you trust. Or you can accumulate social–technological wealth, namely units of whatever money system everybody else will trust in the future.
Originally posted 2010-09-12 20:47:14.