I’m nearing the end of David Graeber’s Debt: The First 5000 Years (don’t tell Brad DeLong) and at the very least it is most certainly an interesting book, and on that basis I can highly recommend it even if I’m not sure what to make of some of its generalizations and conclusions. One of the most important and lasting contributions I think the book will make is in its discussions of the origins and purposes of money, but to some extent I think Graeber himself doesn’t quite get what he has. Let me explain.
Money is classically defined by its use, not by its nature; it is some thing, anything really, that can be used as a unit of account, medium of exchange, and store of value. By these lights, anything can be money – coins, surely, but also livestock, shells, cloth, cronuts, anything. Indeed, defining anything as definitively “money” at all can be tricky, which is why one of the best contemporary thinkers on the subject, JP Koning, has focused instead on money as a spectral phenomenon, in which various things have differing amounts of “moneyness” over time. “Moneyness” is, in fact, the name of his blog, and its tagline stresses the adjectival nature of money over its nounitude.
Graeber spends a good deal of time at the beginning of the book deflating the myth that money arose primarily to serve as a medium of exchange to alleviate the inefficiencies of barter, and noted rather that exchange happens nearly everywhere as a credit-based processed and that money arose as a unit of account to tally those credits. He notes that coinage appears much later, usually in periods of instability, and is often induced into circulation by the state, who concurrently pays soldiers wages with it while simultaneously demanding it in taxes.
This dual embrace of the credit and chartalist accounts of money, though, are a little muddled, because it confuses two very intimately related but ultimately distinct concepts – money and currency. Let’s disentangle them. Money is anything that is used as money, that humans imbue with moneyness to facilitate relations, and therefore really is more of a category or an adjective than a specific noun. No one thing is, quite, definitively, money. But currency is most definitely a noun; it is a definitive, definable thing that is used as money. So overwhelmingly has currency become our money, in fact, that we often use the latter term to refer interchangeably to both concepts. It’s this confusion that I think makes one of the key passages in Graeber’s book, where he outlines the credit and chartalist accounts of the origins of money, less clear than it ought to be, since the credit theory explains the origin of money, and the chartalist account the origin of currency.
Let’s tie this back to something I wrote recently, something that makes a little more sense when wrapped into this insight:
I think trying to sort those and the myriad other solutions to the money problem into “fiat” and “backed” is as irrelevant as it is obscurant. In each of those schemes there are two identifiable foci from which value regulation derive and distinguish various schemes from each other:
-The algorithm – the rule governing the value path of the currency.
-The credibility – the likelihood of the currency following the value path promised by the algorithm, and the accountable party for those outcomes.
It’s not so much that this isn’t true – it is – as much as that it is an equally good way of describing debt, which makes sense since money – and currency – are, essentially, debt instruments. Debts are contracts, and what are contracts if not algorithms, nested and intertwined sets of calculations and if-then statements that govern the interaction of inputs and outputs? And what determines the value of debt more than credibility – the belief that a debt will be redeemed as promised? This view of debt as an algorithm-credibility matrix can go back to the earliest virtual credit moneys, those that existed solely as units of account to quantify and record credit relations.
The algorithm & credibility heuristic described in my post and repeated above, though, refers specifically to currencies - state-issued debt instruments designed and intended to serve as society’s money. Money predates currency, and currencies were introduced by states because they induced forms of socioeconomic organization that were hospitable to state aims under prevailing conditions. Currencies are, and always have been, impersonal, interchangeable increments of state liability. And in spite of the oft-prevailing metalist fiction that metallic backing meant the nature of the state’s currency debt was a quantum of metal, currencies have always, in fact, been totally self-referential. A dollar bill is an instrument that entitles the bearer to one dollar. What is a “dollar?” A purely abstract quantum of economic value. And the state owes it to you. If you go to the state and give them your dollar bill and try to claim your dollar, the state will comply and gladly give you…another dollar bill. Or maybe a coin with Warren Harding’s face on it. The point is that the state pays its bills with dollars, and demands taxes in dollars, and therefore the money-space in society is most effectively inhabited by currency under those conditions.
This is what squares the credit and chartalist theories – money is credit and emerged as such, currency was induced chartally because when society uses currency for money it benefits the state. It also explains the bonanza of secondary currency-denominated instruments that make up our broader “money supply,” such as commercial paper and T-Bills. It also explains the unifying thread between debt, money, currency, and algorithms.
This, of course, leads to one final question – what about cryptocurrencies? If all money is debt, and state currency is a liability of the state, whose liability is a Bitcoin? Technologically, of course, Bitcoin is a major step forward in distributed trust and secure decentralized transaction; but in some ways Bitcoin is also a return to something older. Bitcoin is almost a reification of Graeber’s note that, if money is fundamentally a unit of account, “[y]ou can no more touch a dollar or a deutschmark than you can touch an hour or a cubic centimeter. Units of currency are merely abstract units of measurement, and as the credit theorists correctly noted, historically, such abstract systems of accounting emerged long before the use of any particular token of exchange.”
Bitcoin, and cryptocurrencies in general, are liabilities of the code itself, and in that way are pure liabilities of the social system. Bitcoin leverages the most advanced and modern of technological innovation to create a currency that occupies the most archetypal space money can occupy. Yet at the same time, its volatility works at cross-purposes. And while it is possible to solve the volatility problem in using Bitcoin as a medium of exchange, it’s at the expense of using Bitcoin as a unit of account. But if accounting, and not exchanging, is the original genesis of money (as opposed to currency) then cryptocurrency’s potential, barring further innovating, is handicapped.