As every amateur of economics knows (fellow cranks gather round!), money is a mystery that no classical or neo-classical theory has ever solved. Or rather, given the usual fictions of perfect markets with zero transaction costs, there would be no need for money. Thus, the hired, petty visionaries of the capitalist system have devised a model of that system that does not distinguish money from barter – a most embarrassing situation.
Whether Marx did any better is a much disputed question. Keynes, on the other hand, does seem to have grasped the nature of money more fully than others. In the General Theory, he wrote that “the second differentia of money is that it has an elasticity of substitution equal, or nearly equal, to zero; which means that as the exchange value of money rises, there is no tendency to substitute some other factor for it; - except, perhaps, to some trifling extent, where the money-commodity is also used in manufacture or the arts. This follows from the peculiarity of money that is utility is solely derived from its exchange value, to that the two rise and fall pari passu, with the result that as the exchange value of money rises there is no motive or tendency, as in the case of rent-factors, to substitute some other factor for it.”
What this brilliantly points to is that money is the socially materialized form of the principle of substitution itself, and in this way, the money system does compete against the barter system. The latter, of course, is far from a primitive form of the economy – it is, in fact, in millionfold daily use in the U.S.A. Whenever a man says to a woman, I went to see x film with you, now you have to watch x tv show with me; whenever a child says to another child, I gave you half of my M and Ms, now you have to let me play with your game; etc., the barter system is alive and well. It is an adhoc system of socialization, and it is certainly as important as money. The competition between the money system and the barter system also goes on a millionfold daily. At a certain point, one ‘feels’ the threat of the money system to our identifying social acts of barter, which is why such rule of thumb adages about not loaning money to relatives and the like float on our breaths.
But more to my present purpose – the advent of the money system as one in which the substitution principle enters as the unsubstitutable moment was felt to have something alchemical or uncanny about it. This is captured in Faust the second part. And it was also a significant dimension in the discourse about Freedom that became so important in the eighteenth and nineteenth century. On the negative side, there is no substitute – no alternative – to the principle of subsitution. On the positive side, this frees us from the bondage of the various, infinite and intimate forms of the barter system. Simmel, in the Philosophy of Money, makes a crucial distinction between “freedom from” and “freedom to”. He uses the example of a schoolboy who, graduating from the gymnasium, steps into the freedom of his college days – a freedom that is “quite empty and almost unbearable” – and so quickly throws himself into other activities, for instance student organizations, that enforce a whole new set of rules of behavior upon him – in contrast to a businessman, who works to receive freedom from a regulation because, once that regulation is dissolved, he can expand his business in a certain way – the “freedom to” is defined by expectations that will concretely materialize upon the moment of ‘liberation”, while the ‘freedom from” is defined by the lack of any clear expectation beyond the point of liberation.
“In brief, every act of liberation shows a specific proportion between the emphasis and extension of the overcome circumstance and that of the one gained.”
Introducing the principle of substitution as the universal rule of the economic sphere does create freedom from, but – as Simmel points out – it also creates a certain alienation. I’ll end this note with this bit from Simmel (who I hate to translate – his language is almost impossibly hooked together in German so as to make translation a drag):
Beginning with the peasant who wins his freedom by the extension of the money system: “Clearly, it was freedom that he gained; but only freedom from something, not freedom to something; evidently, a seeming freedom to all – because it was simply negative – but actually without any directive, with any determined and determining content and thus disposing to that emptiness and lack of restraint, which is produced by every extension without resistance of that accidental, delusive, and seductive impulse – corresponding to the fate of the unfettered person who has given up his gods and thus won “freedom” only to give space for making an idol out of every arbitrary momentary value. It isn’t any different with many businessmen, for whom, burdened with the care and labor of his business, makes it his cherished goal to sell it. When he finally, with the price in his hand, is really ‘free”, there ensues often enough that typical boredom, that sense of the pointlessness of life, that inner disquiet of the rentier, that drives him to the most wonderful, and to inner and outer sense most irrational business ventures, by which he only constructs a substantial content for his freedom. It is just like the bureaucrat, who wants only to reach a stage as quickly as possible where his pension will allow him a “free” life.”
Links for 11-21-17 - Tax Reform - IGM Forum Tax Cuts, Growth, and Leprechauns - Paul Krugman Will Artificial Intelligence Recharge Economic Growth? - Tim Taylor Key assumptions...
15 hours ago