Abolish Money
I have started to consider that money is not necessary for our society to function, and in fact there are benefits that could come by ‘abolishing’ money. To illustrate this, first we need to consider what ‘money’ is, and what functions it serves.
To begin, I define money as any form of commodity, or representative or fiat currency, in physical form or recorded electronically. This definition of money therefore includes coins and notes issued by any reputable central bank, balances in bank accounts which correspond to such currencies, cryptocurrencies such as Bitcoin, and commodities such as gold, silver, diamonds, etc. where such commodities are used as payment in transactions.
We usually ascribe four functions to things which we call money1 and conversely, any thing which can serve all of these functions could probably be considered as a form of money, hence money is at least partly defined by its observed use in the real world. The traditional four functions are:
- a medium of exchange – is this thing conveniently traded with people whom I need to pay?
- a measure of value – can I use it to measure how much things cost, or how much they are worth?
- a standard of deferred payment – are my creditors willing to accept it as a form of payment?
- a store of value – can I hold on to it in faith that at a later date it will still be able to serve an equivalent function as it could today?
The lines between some of these functions gets a bit blurry, as it is hard to imagine an object which could be a medium of exchange but not a standard of deferred payment, and the ‘value’ in “store of value” is predicated on the ability of the hypothetical money-object to provide the other functions. Nonetheless, these four functions have stood the test of time in helping us elucidate what is and is not money.
These functions seem fundamental to the operation of an economy, so how can I possibly say that we should abolish money? The key lies in an analysis of the context around and assumptions behind these functions, particularly the notion of ‘exchange’ or ‘payment’. I will avoid a lengthy analysis of ‘value’ in this article because there is a long history of thought on this issue2 and it is still not resolved.
Quid pro quo exchange is heavily ingrained into our modern economic behaviour. Why would any person or company provide goods or services to a stranger without securing some form of compensation in the process? Any material that can be traded – time, food, steel, … – exists in finite quantity, and any person or business that wants to survive has a list of needs that must be constantly satisfied – I need shelter, food, water, and TV shows; my company needs my time, computers, and so on. In order to secure access to the things we need, we use money as an intermediary, because it is very probable that when we sell a good or service to someone, they will not have something that exactly fits the specification of what we need, and we may not need it at that time. Money is therefore both convenient and efficient, in that it allows its users to satisfy their needs at the most opportune time with the most suitable commodities available in the market.
However, money is not required to provide agents with access to a market in this way. Agents do not want money itself, instead they want what money embodies, which is security of access to future goods and services. We only require the exchange of money as part of a transaction because we know that it will be required as part of future transactions. A single agent in an economy could not willingly start trading goods or services without repayment in the form of money and hope to survive for long, because no other agents would be willing to provide them with their goods and services without receiving money in exchange. In contrast, if you take a group of agents and remove money from the entire network, then nothing about the economy has to change: people and companies can still provide the original levels of goods and services to others in the knowledge that they will be able to obtain the original levels of goods and services they were consuming. This is an example of a gift economy3. One explanation of this change is that we have moved from a network where agents do not trust each other at all to one where trust is implicit, although this is not completely true: particularly with fiat currency, each agent must trust the issuer to maintain the value of the currency, and trust other agents to accept the currency as payment. Both a gift economy and a money-backed market economy are dependent on a shared narrative. Hyperinflation is an example of what happens when this narrative collapses, and people start to see the currency as worthless4.
The obvious criticism with the gift economy setup is that it can lead to unbridled instances of the free-rider problem5: if there is no restriction on how much of a resource each agent can consume (in the form of how much money they have which they could use in an exchange to pay for the resource) then what would prevent rampant over-consumption leading to resource exhaustion? This objection reveals an additional function of money which I have yet to see explicitly mentioned in any literature, which is as “a form of access control”. In a quid pro quo economy, where agents can only obtain goods or services in exchange for money, consumption of a resource is limited by the amount of money available to the purchasing agents and the price of the resource; people cannot buy more than they can afford. The intuitive idea here is that money provides balance, and ensures that people cannot ‘take out’ more from the economy than they have ‘put in’. However, reducing this problem of access control to a simple check of “do you have enough money” for every commodity in the market eliminates essential complexity in the context of each of these exchanges, because access control is as much a moral and ethical issue as it is an economic one. If I have enough money to go to every supermarket in my town and buy all of the bread, depriving other people of bread in the process, there is no law to stop me, but that doesn’t mean that this is moral behaviour. Conversely, if someone is so poor that they cannot afford a loaf of bread, is it moral to withhold bread from them so they have none to eat? Rather than an essential commodity like bread, consider something more controversial such as firearms: should I be allowed to own as many guns as I want, solely because I can afford to buy them, or should there be restrictions on the number or types of firearms I can own, or additional conditions that I need to meet before I can own them? These are issues which cannot be solved by prices alone: the availability of a resource limits any potential distribution of that resource, but the question of if a particular distribution is fair or is to be allowed is ultimately an ethical issue.
Returning to the fundamental issue of the free-rider problem, which is overconsumption and/or underproduction, we see that it is an instance of the allocation problem: given finite resources, how should they be used? I am not convinced that this is a solved problem in money-based economies, because although governments and investment firms can pump money into selected enterprises and areas of the economy, such stimulus is not effective if the recipients cannot source the necessary materials they require for production. In the case of road maintenance for example, if there is not enough labour, bitumen, or equipment available in the market then the amount of money available to the maintainer is irrelevant. Economic stimulus only serves to remedy a problem which is created by money in the first place, which is this function of access control arising from the necessity of money in each transaction. In instances where an agent could produce outputs but is unable to because it does not have enough money available to purchase the necessary inputs, the money is imposing an artifical restriction on the agent, and actually slowing the economy. Any real solution to these problems requires an analysis of the flows of different materials through the economy, and ways to shape these flows, an answer which can be found in the footnotes of the history of socialism in the form of Otto Neurath’s idea of calculation in kind6. Under this concept, rather than using a single quantity (money) to discuss and solve economic questions for all goods, we consider separately the quantity of each good, and model different goods as incomparable. Thus rather than talking about the turnover in the agricultural and automotive sectors in dollars, we would instead look at the total quantities of grain or cars produced and distributed. Note that such a radical shift away from money and prices does not necessiate a move towards centralised planning, demand and supply can still be ‘signalled’ through an economy in a distributed way by talking about quantities instead of prices. Additionally, firms and households already carry out reasoning about the availability and flow of their material requirements, so removing money from the equation does not introduce any additional complexity in how economic agents manage themselves.
I hope I have demonstrated that it is at least possible to envision an economy functioning without money, but would transitioning away from money provide any benefits? In fact there are several. Obviously it is impossible to counterfeit or launder money which does not exist, so these criminal activities are eliminated by definition. The need to fund the sciences and arts – outside of securing access to specific materials – is also eliminated, because the artificial requirement of money is removed. Additionally, without prices defined in monetary terms, we can eliminate systems of artificial scarcity7 such as copyright, because there is now no need for a creator to be renumerated every time a copy of their work is produced, an issue which is of particular importance in an age where digital copies of a work can be produced at zero material cost. Perhaps most importantly, the profit motive which drives many firms today would be eliminated or fundamentally changed, as it is no longer possible to ‘make a profit’ in monetary terms. Instead the primary objective of most businesses would be to serve as many customers as possible as efficiently as possible. Due to this shift in focus and the lack of need to appeal to different sets of consumers with different levels of purchasing power, I believe we would see a reduction in the number of imperfect substitute goods8, as consumers become free to choose goods based on intrinsic factors like quality without consideration of price. For example, there is little difference between various brands of cornflakes, and in particular there would be no need for a single manufacturer to produce multiple versions of essentially the same product at different price points and with different branding to appeal to different markets. Following from this, we may also see changes in the scale and purpose of the advertising and branding industries.
There is one more question to address, as to the practicalities of a transition away from money. Earlier we considered the effect of removing money from a set of agents so that they can continue to exchange goods and services without the use of money. Such an approach alone is not sufficient to allow a complete transition from money, however, because over time it is inevitable that agents will encounter strangers outside of their moneyless network with whom they wish to transact. Indeed this is exactly how commodity money arose in the first place: one person would meet another who they may never meet again (thus there is no potential for later reciprocity) and without a shared narrative of trust (e.g. they are from different tribes, or registered with different banks, and lacking a common central bank) so in an exchange it was necessary to pay the other party with a commodity with inherent value, such as gold. Given this caveat, I do think it would be possible for groups of agents to start to form closed moneyless networks which can be gradually expanded to include new agents and federate with other moneyless networks, on the proviso that there are shared or private reserves of money to faciliate trading with agents outside of these networks. Such an approach is seen in some intentional communities, and would lend itself well to the co-operative movement.
If you have any feedback or counter-arguments to these ideas, please write to me at abolish-money@jpreston.xyz. Until then my conclusion is thus: let’s get rid of money, it’s one less thing to worry about. 😉