This is the first of two posts on Money in Context. Read Part II here.
Robert Hockett –
We’ve all heard the adage. ‘Time is money.’ The utterer usually means that time can be spent earning money, so that to ‘waste time’ is to incur a pecuniary opportunity cost. But there’s another sense in which money is time – or at any rate like time. At a remarkable juncture (Book XI) in his Confessions, Augustine notes, apropos the question ‘what is time?,’ that he seems to know the answer before posing the question, but then draws a blank check once he poses it.
Money seems to me similar here, as does number. You feel confident you know what these things are if not asked. But then if you ask, you’re not sure what an answer should look like. And so you are suddenly standing on air. ‘What is money?’ I don’t know what to say. ‘What are numbers?’ Don’t know that either.
I think that there might be a common reason for the strange mix of familiarity and befuddlement in these cases. It has to do with the fact that these phenomena are deeply embedded in practical contexts – so much so that their contexts determine them. And so when you’re posed a naïve question that appears to beckon a simple one-sentence answer indifferent to linguistic pragmatics, you’re faced with a query whose surface syntax is in order but whose underlying semantics are not.
I’d like to elaborate and explore this hypothesis here. Then in a Part 2 post I’ll ‘apply’ a few lessons I think will emerge.
Let’s return first to the ‘what is money?’ question. There seem to be two styles of reply that one typically receives when one asks about money. One is the layperson’s, the other is the expert’s. The layperson’s answer is typically ostensive. She will draw your attention to particular physical manifestations of money – paper currency, metallic coin, plastic card – and say, ‘you know, this stuff.’ The expert’s answer, by contrast, typically appeals to three common functions that money is said to discharge – its functioning as a ‘unit of account, a medium of exchange, and a store of value.’
Neither of these answers is incorrect. Indeed, both are illuminating in their own ways. Money does take particular physical forms, as the lay participant in any exchange economy recognizes. And money does discharge the three functions that experts typically attribute to it. There is nevertheless something missing, I think, from these familiar replies. When we supply what is missing, moreover, those more familiar characterizations prove to be straightforward logical entailments – corollaries, as it were – of the deeper answer.
What, then, is missing from the textbook and lay answers to the money question? I think it is the practical settings in which, or the social practices in connection with, money performs its functions. Let’s call them money’s constitutive contexts. I do not believe money can be fully understood in isolation from these settings any more than a preposition (‘to,’ ‘for,’ ‘about,’ …) can be fully understood in isolation from the sentences in which it is deployed. And this relation is not accidental or a matter of happenstance, but is essential to and constitutive of money itself. One cannot understand money as money apart from these constitutive practical contexts.
What is the ‘practice’ in which money is at home? Isn’t it simply the practice of paying? A money is ‘that which pays’ in a practice or system of discharging obligations – let’s call that a ‘payments system.’ And thus it is also ‘what counts’ in a system of obligation or value accounting. Paying and accounting, in other words, are to money what speaking and understanding are to words and what proving and calculating are to numbers. They are the practices in relation to which money is both employed and ‘understood.’
Money, paying, and accounting, in other words, are ‘a package deal.’ They ride together or they don’t ride at all. They make an organic whole just as words, sentences, understanding, and language make an internally structured organic whole.
This seems so obvious once you think about it that you might marvel you’d not seen it or given it thought earlier. Alternatively, it is also so obvious that you might find it trivial, hardly worth saying at all. But I don’t think that would be right. For many common confusions and conundrums in talk about money are attributable, I think, precisely to our overlooking the money and payment connection.
Consider questions concerning whether Facebook’s ‘Libra’ proposal, for example, would be a money (in particular, a ‘stablecoin’) or a payment platform. People are actually arguing over this now, some arguing that it is the one, others arguing that it is the other – as if it were not both, and as if it could be anything other than both.
Likewise consider Bitcoin, which some are now arguing to be inferior to Libra precisely because it is ‘only a money’ and ‘not a payment system.’ When you grasp the doubly constitutive, ‘internal’ organic tie between money and payments (each constituting the other somewhat as left constitutes right and right constitutes left), you see at once that both ‘sides’ in these debates are both right and wrong. Their debate is a nonsense debate.
What I suggest here isn’t at odds with contemporary monetary orthodoxy but is in fact foundational to it. Recall the orthodox economist’s three definitions of ‘money’ noted above. Her ‘medium of exchange’ feature flows directly from what I’m describing, ‘exchanging’ here functioning as a rough synonym for ‘paying.’ Likewise, the economist’s ‘unit of account’ feature flows from my ‘that which counts’ in a system of value accounting. And finally, the economists’ ‘store of value’ function also flows directly from my ‘that which pays’ characterization, for that which doesn’t retain value cannot convey value – that is, ‘pay.’
Though my definition entails the more familiar definitions, it also adds something crucial. And what it adds is something economists tend to overlook precisely in owing to their just rattling off functional attributes without tracing them back to a single root source. That is the rootedness of all money in social practices, and hence the critical role played by normativity – in contemporary societies, that is law – in constituting it: one pays, and hence requires money, because in voluntary exchanges it’s understood that one must pay. Taking without paying is stealing.
In this sense, paying and exchange are essentially contractual. They are promissory. And both contracting and promising are normatively imbued practices – practices that are so important that large, complex societies always systematize, regularize, and ‘legalize’ the operative norms in law. And since ‘paying’ is in this sense a legal requirement, ‘that which counts’ as payment is likewise a ‘creature of law.’ We have here, in other words, the deep root of ‘state’ and ‘credit’ theories of money alike, not to mention an explanation for why states have legal tender and counterfeiting laws. And here we find also the reason why the currencies they issue figure as liabilities on central bank balance sheets.
One who does not remain mindful of this cluster of mutually linked truths renders himself prone to confusions about money’s being somehow ‘natural’ in a pre-legal or pre-political sense. And in doing that he might then lose sight of the role ‘regulation’ must play in even making, not merely aiding or optimizing, the productive and distributive practices that constitute any commercial society or exchange economy itself.
He might also end up entangling himself in confusions about some monetary medium’s – e.g., gold’s – being pre-legally ‘precious’ or bearing ‘intrinsic’ value, as putatively distinguished from the ‘merely arbitrary’ value of ‘mere fiat’ money. When you stay mindful of money’s always being generated by a payment system and social practices of exchange, you see at once that all money is ‘fiat money’ and thus ‘arbitrary’ in the relevant senses of those words, even if some payment media are operationally preferable to others at particular stages of technical development.
Gold, for example, is both malleable and corrosion-resistant, not to say sometimes scarce and accordingly counterfeiting-resistant. Hence it is well adapted to a stage of monetary development at which coins are the most feasible payment media. But this means that gold’s monetary value was never ‘intrinsic.’ It was derived, rather, from gold’s suitedness to a particular social payment practice at a particular historical time. It wasn’t a money because it was precious, it was precious because it was a money.
In a yet earlier time, when populations were small enough and in close enough physical proximity to enable bookkeeping for all on a single recallable or verifiable ledger, credit and debit entries – either mentally tracked or recorded in literal ‘tally’ or ‘account’ books – sufficed as money.
We are now, of course, entering a period of our technical evolution at which ledger tracking can suffice once again, even in very large, very complex social economies. I allude, of course, to the many ‘distributed ledgers’ and related tally technologies now proliferating across multiple computing networks worldwide. In effect, we are all traveling over an arc of monetary history – an arc that I elsewhere call ‘from ledgers to tokens and back.’
This last observation, I think, highlights the greatest advantage of all offered by my contextual account of money: It enables us quickly to understand what is happening all around us where ‘new monies,’ new ‘digital cash,’ new ‘crypto-assets,’ ‘cypher coins,’ and ‘platforms’ or ‘chains’ are concerned. What is happening is that how we pay is changing. And that means our monies are changing as well. Yet our laws are not keeping up. In Part 2 of this extended reflection, I turn to what ‘keeping up’ ought to mean.
Robert Hockett is the Edward Cornell Professor of Law at Cornell Law School.
Robert Hockett, Rousseauvian Money (working draft, 2018).
Robert Hockett, The Capital Commons (working draft, 2019).