NB: This post is part of the “Piercing the Monetary Veil” symposium. Other contributions can be found here.
Imagine that I incur an obligation to you – an ‘affirmative’ obligation, let’s say. Perhaps it’s through violating some ‘negative’ obligation to you, wronging you in a manner that triggers a right to redress. Perhaps it’s through promising you something. Perhaps it’s through membership in some group, the members of which are expected to ‘pay dues’ of some sort.
In virtue of this obligation, I, the ower, am now ‘liable’ on the new obligation. You, the owner, now ‘hold’ a new asset – the asset that’s my liability. Here is the start of accounting. Of shared ledgers. All accounting at bottom is obligation-accounting, justice-accounting – tracking what’s due and by whom and to whom.
Liabilities that come into existence ex nihilo – by my promising you something ‘gratuitously,’ for example – give salient rise to a two-sided danger, something a lot like the Janus-faced monetary risk of ‘inflation’ and ‘deflation.’ For one can in principle promise more than she can deliver, thereby devaluing her promises in time. Or, fearing this prospect, she can ‘not make any promises,’ thereby impoverishing her life by depriving it of the rich fabric of association and shared action that lends and brings value to life in communion with others.
Promissory inflation and deflation, through devaluation or contraction, deprive life of much of its obligatory content. And life without obligation would be life without liabilities, life without assets. It would in that sense be life without worth, without wealth, without value. It would be life without any vindicatable expectation – life without ‘rights,’ without ‘wrongs,’ without ‘right or wrong.’
How dismal that would be.
Life with real value accordingly requires, not gold (more on which below), but observance of some ‘golden mean’ – the mean between wronging and not acting, the mean between over- and under-committing. And this is as true of us in our collective capacities as it is of us in our individual capacities.
But back to my story, first returning to you and me, then inviting a third – we’ll call him Jean-Jacques – to join us … Suppose that the obligation I mentioned above stems from some promise I’ve made you. If it is understood by us both jointly that I will discharge my debt later, we’ll likely memorialize this fact somehow. We might ritually ‘commit it to memory.’ Or we might use some mnemonic device – a book entry or token, say. In such case I will have ‘issued’ what our law calls an ‘evidence of debt.’ And this will then serve as a ‘claim’ that you have upon me.
Our agreeing to my deferring discharge and memorializing the same with some entry or token I ‘issue’ now makes my future discharge in a certain sense ‘current.’ It draws the future into the present and thereby earns the name ‘currency.’ My current formal acknowledgment of my future obligation – my ‘promissory note’ – is my currency. Your ‘accepting’ this currency – your ‘extending me credit’ (Latin credere – to believe) – enables us to transact diachronically, binding our present and future selves together with the adhesive of time-spanning obligation.
I might ‘accept’ your currency too. If I do, and we then allow ‘offsets’ between obligations owed one another, we will be led by that allowance to start commensurating our obligations and currencies. This can be easy or hard, simple or complicated. ‘I scratch your back, you scratch mine’ … that’s simple and easy enough. But if we bring haircuts and foot massages into the picture we shall have to set rates of exchange, and in no time at all we will find it quite helpful to develop some scalar metric whose units now measure the ‘value’ of all ‘vector components’ that we ‘exchange.’
Once we do this, we will have to begin to ‘denominate’ our two ‘currencies’ in the mentioned units as well, and the two monies will effectively merge into one ‘measure of value’ and ‘medium of exchange.’ Our practice of ‘offsets’ has now set the stage for much ‘circulation’ between us, then others, as well. It happens the moment we generalize ‘offsets’ to more than two ‘currencies’ or parties held liable on ledgers. The minute, that is, we bring in Jean-Jacques, whom we might allow to discharge his obligations to me by discharging my obligations to you.
There’s money. There’s ‘that which pays’ in its most general form. There is what discharges ‘all obligations, public and private.’ And so there is what ‘circulates’ through ‘the monetary circuit’ in any ‘exchange economy,’ or indeed any ‘system of exchange,’ of more than but minimal complexity. In their essence, such systems are all very simple – as simple as obligation and discharge themselves. But that essence can be buried and hidden from view by accretions of practices over time.
Like many social ‘systems,’ money systems give rise to additional, ‘emergent’ properties as the groups that develop them grow in both size and complexity. We can track these developments by attending with care to two mutually complementary dimensions along which they proceed. I call these the horizontal and the vertical dimensions.
A society develops along what I call its ‘horizontal’ monetary dimension as its population grows beyond the capacities of its members to retain ongoing acquaintance and affective relations with one another. Development along this dimension places constraints upon social members’ capacities to enter into and, more poignantly, discharge obligations with each other.
Bring strangers into a monetary circuit, and the cooperation and mutual trust that keep such ‘horizontal’ monetary arrangements humming won’t do what they’re meant to do – viz., aid in deferring material discharge. Exchange will devolve into barter – i.e., into synchronic rather than diachronic exchange. At least that is so absent development along what I call the vertical monetary dimension along with the horizontal.
A society develops along what I call its vertical monetary dimension as it further formalizes, regularizes, and strengthens the vindicatability of those forms of obligation latent in all exchange.
The larger and more inclusive our ‘we’ becomes, the more formal and ‘regularized’ our observance and vindication of the normative binding at the core of that ‘we’ must become. Our ‘norms’ become ‘rules’ and ‘laws,’ our ‘exchanged promises’ and delicts become ‘contracts’ and compensable ‘civil wrongs,’ and our little norm-bound group or community becomes our ‘state’ or our ‘polity’ – the formal expression of our collective and normativity-constituted ‘we’ at its most inclusive degree of horizontal inclusion.
It is scarce wonder, against this backdrop, that all ‘modern monies’ are state-issued liabilities. Your issuances, my issuances, and Jean-Jacques’s issuances become our issuances – our money, our means of memorializing obligation and facilitating deferral of discharge. We – our little group – come informally to make of our distinct currencies, hence to use and to issue, a common currency. The currency of our communion.
E pluribus, unum. Out of many, one.
Once ‘we’ become, not just the three of us, but all who now constitute our polity, ‘our’ money finds formal expression in our state’s money, and ‘our’ tender becomes ‘legal’ tender. But it’s still credit at bottom. It is still obligation. All that changes is that it’s now our obligation rather than just your or my obligation.
It is thus no surprise, when the political ‘we’ is embodied in the person or will of a monarch, that coins bear the stamps of our rulers, or that some coins come to be called ‘sovereigns.’ Nor is it then any mystery how ‘precious metals’ came to be ‘precious.’ They became ‘precious’ because they were sufficiently malleable and corrosion-resistant as to be mintable into enduring tokens of collective obligation, not because they were, pursuant to some inexplicable alchemy or semantical sleight-of-hand, ‘intrinsically valuable.’
This is also why private banknotes with private logos and regionally resonant imagery, ‘backed’ by such sovereign mintings, were gradually supplanted by state-issued notes and certificates stamped with sovereign inscriptions and nationally resonant images. It was the sovereign stamps on the coins, not the materials of which coins were made, that ‘backed’ privately issued paper monies. Once sovereign publics began stamping the paper itself, then ‘recognizing’ and ‘accommodating’ payments made out of ‘accounts’ that were no more than ledger entries denominated in papers’ units, there was no need of metal at all. And so all monies became patently what they’d been latently all along – ‘fiat’ monies, socially recognized tokens or ledger entries.
Of course, just as it’s possible for individuals to over-promise or over-issue, hence to ‘inflate,’ so is it possible for peoples and states to fall into such troubles. And the same’s true of deflation. Hence the contested domain of central-bank-liability-implicating ‘monetary policy,’ and its relations to a putatively distinct realm of treasury-liability-implicating ‘fiscal policy.’
But note what this means. It means we as a people must determine how much promising is redeemable, and how little is impoverishment. It means that ‘sound money’ is to be found in, not ‘gold,’ but a ‘golden mean’ – the course between too much and too little. And this in turn means that the public must attend, not only to the modulation of credit-money aggregates, but also to the allocation of those aggregates.
For the redeemability of the promises that monies are rides on the uses to which they are put, in their capacities as claims upon resources. (We call money ‘capital’ in this capacity – ‘finance capital.’) Productively deployed claims or ‘capital’ – productively employed resources – grow the wealth that’s their own redemption. Unproductively used claims only undercut claimability – they ‘inflate.’ The ultimate worth and utility of our money, then, rides not only on how much we issue, but likewise on how we collectively direct it.
Let us then never forget that our money is our money – the flowing form of our obligatedness to one another, the transferable tokens of our productive communion. The material relations that both (a) require that money for their operation and (b) generate it as an ‘emergent property’ – that is, ‘the economy’ – likewise is our economy. It is for us to make of them both what we will.
Robert Hockett (@rch371 ) is Edward Cornell Professor of Law at Cornell Law School.