THE SOCIAL LIFE OF MONEY
Nigel Dodd
Princeton Press
444 pages
In the aftermath of the global financial crisis, one question frequently asked is whether or not we can trust the issuer of money, which is the government. In the latest episode, the financial system, which was largely unregulated, made serious mistakes. Governments chipped in with quantitative easing programmes to bail it out. As a counterbalancing act, governments had to cut their spending on programmes that were directed at the common man. Is this fair?
In this interesting and enjoyable book, Nigel Dodd delves into the sociological aspects of money and puts the pieces together to explain why alternatives to state-issued money could be the future. He argues that the rise of internet money or Bitcoins is primarily a response to the growing impatience with the generator of money.
After all, what is money? It is something that is accepted by everyone for conducting transactions. Should this be the prerogative of the government? How do we move this domination away from governments, which have this right by law? How do we control what governments do? When individuals do not repay loans they are not spared, but when the government defaults, there are different rules.
This is the starting point of Mr Dodd's story and he goes back to the various aspects of money - its origins, relation with capital, debt, guilt, waste, culture, territory and utopia - to provide an understanding of its fundamentals.
Money emanated as a means of exchange and replaced barter that was seen more as either a plain exchange or a return gift. By valuing all goods in monetary terms, the concept of money eliminated emotion and made it a pure business transaction. The American sociologist Talcott Parsons had gone a step ahead and called money a means of "communications" since all social interactions involve communicating with one another and, because there is a price attached to every transaction, money communicated this value.
From these simple origins, money was elevated to "capital" and, here, Mr Dodd introduces a Marxist flavour to the discussion. As long as money served as a medium of exchange it was fine; once it transcended to a store of value, it was held for its own sake, which created the concept of banks and credit.
In Marxian terms, owners of capital had to get the working class to buy more of the goods created by that capital until they became indebted and ultimately bankrupt. Curiously, this theory holds very fertile ground against the nature of the 2008 financial crisis. This was precipitated when "Ninja" loans, or loans with initial low interest rates were made to inflate business, and this indebtedness led to the crash when interest rates were sharply increased because these households were unable to repay their loans.
Mr Dodd also translates the concept of money to the build-up of "debt", which once had a stigma attached to it. People wanted to be free of debt because it was associated with "guilt" and affected the social hierarchy. In the 1970s, however, the United States took the dollar off the gold standard, which meant it could be printed without limits. Ironically today, the United States has to run debt to provide dollars to the world. The growth of money substitutes like derivatives has compounded the problem as we have become overbanked. Mr Dodd calls it casino banking.
Mr Dodd discusses money from the point of view of territory and culture, too. The concept of the euro can be understood as money crossing individual "territories" and covering a larger spectrum of countries. This is probably the way to go as money in this form is no longer constrained by specific governments. The proliferation of globalisation has made it possible for borrowing across countries (euro markets) as well as derivatives that are traded across regions. The Special Drawing Rights of the International Monetary Fund was another invention that did not quite take off, but it was an example of an attempt at creating alternative forms of money. The dominance of the dollar will probably come down as more such monetary arrangements fructify.
But having common money is possible provided it satisfies the other tenet of "culture" - like-mindedness - to be accepted. The concept of the euro can also be traced to the "culture" of the participants. It was the creation of a currency for countries that were culturally aligned, which meant that they had similar characteristics that were stated as economic pre-conditions for joining the euro.
Mr Dodd also explores the value of money from the point of view of "waste" and draws in the theory of Veblen goods, named after the American economist Thorstein Veblen, which refers to goods for which demand increases as the price increases because of their exclusive nature and appeal as a status symbol. Since owning money for its own sake has become a status symbol, it is now being hoarded in larger quantities.
Given the attributes of money and the gradual loss of confidence in government control over it, it is inevitable that new ideas like Bitcoins will germinate. The United States, which has enjoyed global hegemony because the dollar is the most acceptable currency globally, has to pay heed to these new currencies that are coming up and gaining acceptance. The controversy over the United States debt default and fiscal cliff are only manifestations of this growing scepticism.
