Apparently, it is illegal to destroy a bank note. I didn’t know that when I and a friend ripped two 50€ notes and threw them into the sea. I was just testing that I could do it, because otherwise — I thought to myself — there is a chance that I am psychologically enslaved to money, and I really didn’t want to be. A few years later, when living abroad, I found out on the internet how banks created the money I was working so hard to earn. This felt like an existential revelation.

What is money? One might as well ask, ‘what is God?’ or ‘what is society?’ God has always been talked about in different places to mean different creators and universal sources of goodness. In the secular West, we think we have overcome these illusions, but we often speak of ‘society’ as if all human beings belonged to the same nation-state. The same is the case with ‘money’. Not many people in China will want to get paid in dollars, just as the average American doesn’t think of the Yuan when discussing business. However, at least you can see the items, tokens or numbers that these people call money in their respective languages.

This stuff is not so intangible as God or society. It probably runs your life as much as it runs mine, so it is a good idea to get a real understanding of it. We can start by getting a feel for this ‘money’ we commonly speak of today. In your life, you probably want to accumulate as much of this stuff as possible, or perhaps you have given up on such an illusion of freedom. In any case, we can assume that if you had enough money, you would just not need to worry about going to work and doing so many things you don’t really want to do. This probably is quite true.

So, let’s look at a typical response to the question of why, say, the ten dollars you have just earned have any value —other than ‘because people believe they have value’. The response goes as follows: ‘the issuing bank owes you $10’. Many people are satisfied with this answer. Yet if you have read this much of the present article, you probably aren’t satisfied. Indeed, how can a bank owe you the same ‘thing’ — if we can call it a thing — that someone has given to you? You will see that the so-called reason is to be found, simply, in the magic of the words, ‘the bank owes’. The bank ‘issues debt’. The $10 themselves ‘are debt’.

Isn’t it pretty weird to speak about debt like that, without any reference to who exactly owes anything to you as a creditor? Still, the truth is that people do it all the time. This is how they create not only money but also the bank, the government, and of course God and society. These are not identifiable individuals but institutional or religious facades to whom many people feel they owe even their own existence. Officially, in the U.S., the dollar is ‘backed by the full faith and credit of the government’, as they say. But the government is no one in particular. Its representatives change constantly and all citizens owe allegiance to the abstract entity of the nation, the ultimate master and creditor for whom they must work. In this way, the debt represented by all the money that banks have created, including your $10, will be paid — assuming it wasn’t you who paid when you provided goods or services for those $10.

Let’s now suppose that you have succeeded in accumulating $1mm — one million dollars. Maybe the military has given these tokens to you, fresh from the central bank, for your services to the nation. Yes, people are willing to give you their goods and services in exchange, because that way also they can get goods and services. Ultimately, however, having $1mm means that through their allegiance to the U.S., certain people — probably not Chinese! — owe you a number of goods and services for these tokens. For one thing, these people need them because they owe them to the government in the form of taxes. The nation created this stuff but wants it back. Thus, you can rest assured that you do not have to work ever again because other people are sucked into this crazy spiral of debt and desire. Or can you rest assured? Well, it gets complicated because not only are the words ‘the bank owes you’ magic. Also the symbol ‘$10’ is magic. Who knows how much value this number represents, or how much people are willing to give for it at any moment — if they are allowed to decide that themselves.

Moreover, because the banks constantly create this money, there is one thing you can be sure of: your $1mm will constantly decrease in value. The banks have been made to work for the nation. Unlike other producers, they cannot produce different kinds of money and offer them to their customers. They have to issue new dollars only, so that ‘the economy’ will grow for the benefit of ‘society’. But once they have created another $1mm, mathematically, your money is worth half as much. Nothing that is made up at will and that becomes so abundant, so easily, can retain its value for long. One may certainly treat it as though it were precious, again, by wanting it back. One may lend it and charge an interest as banks do. One may fix the prices of things to keep them from inflating. Eventually, though, the system will crash, and this abstract, eternal creditor will have to admit its lack of credit, get very upset, and possibly go to war as it has done in the past following a recession.

Hence, you are going to have to invest this money into something else that will keep its value more, especially if you want to leave some to your children. Alternatively, you can vote for presidents and policies that will prop up the value of the dollar, as a right-wing person. You can make sure that the U.S. has preferential access to the world’s oil, for instance, by defending a ‘war on terror’. Or you can vote for the other party, as a left-wing person, in order to just get ‘more money’, or ‘more credit’, or ‘more debt’, or whatever it is that will keep others providing for you.

Money proper

It generally helps to make a distinction between the things we can see and those we cannot, or between what is real and what is imagined. I cannot see society or God and probably nor can you, but many will say that you’ll see it when you believe it. Likewise, we either believe that money is a means of exchange that works everywhere, such as gold, or we believe in a means of exchange that works only in a certain geographical area. Even if you believe that the value of gold is still only a matter of belief, there must be a reason most of the world’s gold has ended up in the vaults of national banks. There are beliefs and beliefs.

Indeed, gold is a safe store of value because it cannot be issued at will by any government or financial system. It has to be mined and worked to the point that it can be used as a medium of exchange, besides having other uses as a commodity. Other things have served the same function throughout history and prehistory, for example, flints, teeth, shells, beads, barley, salt, copper and silver. These things are naturally scarce. This means something entirely different from the artificial scarcity of today’s fiat ‘money’, which is a mere number typed into a bank account. When someone holds any of these things, you can be sure that either (i) they have made a previous effort to obtain them, or (ii) obtaining anything like them would equally require a previous effort. Compare this to the case of the above ‘money’, which requires no effort to create and is made for the purpose of getting a good or a service from someone else.

If you have read this much of the present article, you will probably agree that the previous distinction is important. We need to stop using the same word for those two very different things, at least so that we can avoid the confusion I illustrated in the introduction. Let’s try to call the first thing credit and the second money from now on, though this is surely difficult.

Clearly, credit is made to be a medium of exchange for certain people, actual or potential, who believe in the institutions that make it — or who are otherwise forced to believe and pay tribute to them. Only after this fact do people begin to save credit for their future needs, even though saving is not necessary because they can always use those institutions to produce more credit. On the other hand, money is made to store value for any kind of social circumstance, to trade with all human beings regardless of culture. Unlike credit, money becomes a medium of exchange only because other people are equally preparing for the future.

Confused experts

Bernard Lietaer was an economist and engineer who worked at the top of the financial system. I won’t bore you with his extensive curriculum. Let’s just say that he knew very well what credit is. One of the ways in which you can tell is that he was able to explain it to the layperson. In his book The Future of Money he wrote:

Our prevailing system is an unconscious product of the modern Industrial Age worldview, and it remains the most powerful and persistent designer and enforcer of the values and dominant emotions of that age. For instance, all our national currencies make it easier to interact economically with our Fellow citizens than with ‘foreigners’, and therefore encourages national consciousness. Similarly, these currencies were designed to foster competition among their users, rather than cooperation. Money is also the hidden engine of the perpetual growth treadmill that has become the hallmark of industrial societies.

Another way in which you can tell that he knew what credit is is that he was concerned: ‘Deep in our hearts, we all want to leave a better world for our children and we cherish the hope that we may experience this for ourselves in our own lifetime.’

However, Bernard’s proposition revolved around what is called complementary currency. He still regarded credit and money as the tool of governments, only to be complemented by tokens that function locally. He gave working examples of this, such as ‘caring relationship tickets’ in Japan, where people receive these tokens in exchange for something like taking care of old people. This clear example of how credit works shows that not even someone like Bernard Lietaer could escape the usual confusion of credit with money. Because it is moral to help the elderly, there is not only an incentive to ‘make money’ by caring for them, but also a duty that can be exploited by anyone who feels they ought to be helped. In this way, we are back to square one, like addicts who believe they control something that in fact controls them.

At the other end of the spectrum, there are people whose platonic belief in economic value concerns substance rather than morals. Mathematicians like David Orrell go so far as to claim that the nature of money and credit is quantum — yes, meaning quantum physics. To Orrell, if you and I decide that the letters which make up the present article are money — each with the numeric value of their place in the alphabet — and we use them to mediate our exchanges, we have established a quantum superposition between the ‘virtual’ value of those things and the ‘real’ value of the numbers. This is a most remarkable viewpoint — and I am not joking (p. 56) that what I am saying follows from it: It isn’t that human beings agree on the value of a house through numbers. Rather, the number itself ‘is’ the value of the house. Electromagnetic waves also come to monetary agreements when they reveal themselves as concrete particles that fly. Perhaps the electromagnetic field is divided into different cells, which sometimes go to war with each other for their respective values… (anyway, I’d better get back to writing).

As I write, the first result that comes up in a google search for ‘what is money’ speaks of another illusion that works. The author is another top economist who has become a writer. His article does consider explaining something like inflation in the manner I did above — as the result of the printing of credit. Yet at the same time, credit is ‘essentially a good’ because it has a limited supply, so people can use this good ‘to purchase the goods and services they need and want’ (sic). You’ll see Orrell’s quantum duality pop up repeatedly in this kind of discourse, with media-of-exchange being goods and not goods at the same time. To this author, it is seemingly not important to make a distinction between what is limited in supply as a result of policy and what is limited as a result of its being real; or between goods that can be magically created and goods that cannot, such as what we have for breakfast.

In this light, our environmental troubles should not come as a surprise, as our economists and politicians believe that the planet should catch up to their magic, that resources should flow in exchange for these symbolic ‘goods’ created by nations of millions. No religion or political system believes their pretence in and of itself. They always back it with arguments and facts, such as the fact of a good or commodity, or the fact of the assets they hold in their churches and treasuries. Similarly, economists like the author of the above article back their own argument for the value of credit with the ‘fact’ that, if it weren’t for credit, we would inevitably resort to barter. Lietaer, too, based his proposal for the future of money in the idea that barter is at the heart of all economic transactions.

This dichotomy between ‘money’ and barter is part of an old myth that economics textbooks reproduce without a second thought. As Orrell himself has echoed (p. 26), it has been utterly disproven by anthropologists looking at what, in fact, happens in human societies without a market economy. However, this is not because anthropologists can generally tell money from credit. On the contrary, debt is all there is and ever will be. For many people, there is just no way on earth to have a functioning economy but through the institutional imposition of a system of exchange over a certain area, whether it be tokenised or not.

Thus, there is no need to dwell in the confusion of those who believe in the value of credit; we can turn to those who believe in the value of money, such as gold or silver, and see if there remains any confusion. The champions of this more realistic view are the Austrian school of economics. These thinkers have had the ‘audacity’ to ascribe creativity and decision-making ability to individual human beings instead of societies. Yet they are still drawn into a heated debate with the other team. This is again due to the old dichotomy of credit versus barter. Unfortunately, Austrians still buy it because they believe that money itself arises from individuals who barter. I know these emotional difficulties from experience, though I never quite felt like an Austrian. When one rejects the institutional origin of money, it feels like the only refuge is ‘the individual’, the maker of all nations and institutions. Otherwise, one is prey to all sorts of demons forecasting meaninglessness and doom.

Biology and Bitcoin

Eventually in my search for an answer to this central problem, I realised that I had to give up all ideology. I still have trouble realising how ideological I am by being against ideology. The birth of my first child proved invaluable. Things are just how they are, not how we want them to be. You can read the words of the previous sentence, but it is something else to experience their meaning. The value of money is similarly rooted in our everyday experience, like all biological value.

When people think of biology, they tend to think of things that do not quite exist, such as selfish genes or Mother Earth. They believe that extreme accuracy amounts to extreme realism, and forget they live in a world of animals. They don’t realise the difference between what is and what we believe ought to be. They underestimate our obviously strong instinct to imagine what exists, which we imagine precisely because we so want it to exist, because we ‘love it’. Thus, either these people dismiss biological theories of money as ‘purely theoretical’ or, like the quantum economists, they embrace the bizarre reality that nothing is real — if such a reality can be embraced. But biology starts at the level of the individual looking at living things, interacting with them, giving them intelligible names and functions. Biology is the only branch of study that has something scientific to say about human existence, as it aims to explain how apes associate with each other — also in loving ways.

Photo by Roberto Nickson on Unsplash

The biological theory of money on which I have based this article says that money is a token of cooperation. I am not going to elaborate on it here, though it suffices to say that cooperation is not what people do when they support the value of credit with their work — that is altruism. When people use money, they are indirectly cooperating and building something together. If you look at the most advanced form of money, Bitcoin, you will see that this is exactly the idea behind its functioning. Even though bitcoins are only numbers, they are not assigned value through some institutional consensus but through a real kind of consensus. Bitcoins have value because some computer running a program — itself run by human beings — has spent energy to find the solution to a hard mathematical problem, and in doing so, provided proof of a previous investment to other computers on the internet. These computers are the voluntary nodes of a network, all of which validate and build on those previous investments to create, essentially, electronic value.

The cooperative, non-altruistic nature of Bitcoin is elusive even to those who understand its technicalities. Many of them, such as Vijay Boyapati are fans of Austrian economics, even though the very existence of Bitcoin is a blow to their theory that money is ‘the most liquid good’ which emerges from barter. Because bitcoins have not yet established themselves in the way a 20th Century mind would regard as ‘generally accepted’, bitcoins are not regarded as money. But Menger, Mises and Hayek were all pre-internet human beings with a strong national consciousness. Bitcoins are money precisely because they transcend such an old social context, because they encapsulate the desires of people to cooperate regardless of where they were born.

The future

Right now, there are hundreds of cryptocurrencies on the internet. Years ago I predicted that governments would join this frenzy, but I did not realise that something like Facebook would, of course, do so as well. Not all of these coins are like Bitcoin but they are all inspired by it. All of these coins compete for users. They are characterised by different technical traits, which essentially represent different visions of what money is. As I have explained, there cannot be many such visions. One either believes that value comes before the money or that it comes after.

The internet has no frontiers, even though it was started by the U.S. Department of Defence. Its users do not have to follow the same policy or system of spelling if they disagree with it. They simply go and join another network in the production of different words, numbers, money or credit. Bernard Lietaer could see it coming before Bitcoin was invented, so he imagined this worldwide revolution would happen in the production of ‘complementary currencies’. What happened was far bigger than that. Folks are even making currency out of gender and parenting roles. Of course, it is not so easy to move residence than to become someone else, but in a global economy the dominant money will necessarily be also global. It is therefore understandable that people have been so fond of producing their own coins, and that these coins give rise to the same old political battles between the right and the left. We want to conquer the world. We want to put the value after the money and channel our innate drive to create new gods and societies.

Nothing is more revealing of the narcissistic nature of society than ‘money’. It doesn’t matter what people say or defend because everything boils down to it. Credit is the fuel of ‘the economy’ — your country’s economy. It is issued by a central bank for the purpose of ‘growing’ this economy. Yet it doesn’t seem that this growth results in a progressive accumulation of wealth from one generation to the next. On the contrary, everyone has to keep working to earn more credit or pay the debt left by the previous generations!

So, what exactly grows if it is not wealth? I think it is the reproductive success of the members of the society in question, when measured over a period of many lifetimes. Certainly, the wealth of some does increase, and they probably leave more descendants. But they depend on others from the same society, actual or potential people who will provide goods and services for said credit; and those poor people will only do so if they, too, leave descendants — especially when compared to how many descendants other societies leave.

I cannot think of any other way to account for such a confusing phenomenon that no one is really to blame for. If you can, please let me know. The unconscious nature of this evolutionary process also explains why nobody seems to understand ‘money’; why we love it and hate it as we are controlled by it; why there is always a domestic tension between the political right and the left; and why economists sound like some kind of secular priests.

The 20th Century has been a time of conflict between expanding societies vying for planetary control. It is over. Its growth was no doubt enabled by technology and industry, but it was rooted in competing monopolies of ‘let it be money’ or fiat money. Now the species is in the aftermath of such madness, suffering its environmental consequences. What are we going to do? As always, it is your choice.