Blood money, digital fool’s gold, and the second law of thermodynamics
September 25, 2016 § 110 Comments
The subject of money is pervaded by all sorts of unreal mysticisms. If you want to better understand economic reality it is important to hunt down these unreal mysticisms in your mind and kill them.
All economic exchange is barter. If you get nothing else out of this post, take this one concept to the bank. All exchange is barter.
Attempts to segregate property bartered in marketplaces into ‘money’ versus ‘other property’ is one of those fuzzy social conventions which is fine as long as it isn’t taken too seriously. Taking ‘money’ as something categorically distinct from property in general distorts and obscures reality. Any property at all might be used as money (sunk in exchange); and even property conventionally thought of as “money” — coins, bills, and the like — can be displayed or put to other uses than exchange. This was all perfectly obvious to Aquinas, but modern people are frequently incapable of seeing the obvious when it comes to the subject of money.
We typically think of money as a special kind of thing which can be easily transferred and exchanged. That is fine as long as the term “money” denotes property with the further connotation that the property is easily transferred and exchanged. Money can be thought of as a kind of property fuzzily distinguishable from other kinds of property by its ease of exchange. But it becomes insanity when “money” is viewed as categorically distinct from property in general.
The term “money”, then, does not really describe a specific thing or class of things. It describes a role that some property takes on, some of the time, in economic life. Some property is more suitable in this role than other property. If you transfer or spend some property – exchange it for different property – that property takes on the economic role we call “money”.
The property actually exchanged in barter falls into one of two categories: securities and non-securities. (As it happens, securities are for the most part very easily transferred and exchanged versus most non-security property).
Securities derive their value from the property they impair and the rights involving that property which they assert, as opposed to ‘the paper they are written on’. Yes, ‘the paper it is written on’ can be a kind of property in itself, or a sort of meta-property. But you can’t drive your car’s pink slip to work.
Non-security property derives its value from its own objective attributes.
Bitcoins and other cryptocurrencies are not a security. They are like virtual gold, except that unlike actual gold they have no useful objective properties at all other than the value intrinsic to authenticated records of wasted computation. Bitcoins are a kind of digital fool’s gold, entitling the owner to nothing other than the pleasure and bragging rights of virtually possessing them, rather like the high scores on your favorite video game.
Now it is true – because human beings are both ignorant and irrational much of the time – that you can often trade worthless things for valuable things under the ‘greater fool’ theory, based on fad and fashion and deluded/false economic theories and the like. Whether someone wants to apply the label ‘money’ to the worthless things traded to ‘greater fools’ is neither here nor there when what we are after is an accurate understanding of reality: it doesn’t turn those actually worthless things into actually valuable things.
Like the market price of gold, the market price of bitcoin is radically distorted when measured against its objective attributes qua property. The difference in the case of bitcoin is that the market price has even less reality baked into it: at least gold actually has objective attributes which anchor its economic value in reality, and has been used as a raw material for making artifacts for thousands of years. Cryptocurrencies are not an escape from the moral and ontological anti-realism of modern finance: they are its apotheosis.
This brings us to the subject of workers and wages. All exchange is barter, and the exchange of work for pay is no exception.
As I explain in the Usury FAQ and elsewhere, a worker is owed wages not simply for time elapsed but for what he, through his own powers exercised under agreement with his employer, makes actual. Because we are finite beings and can only do so many things in our lifetimes, one might poetically refer to wages as representative of human life. It is true enough that cheating workers out of their just wages is wickedness several times over, an unholy combination of robbery, dishonesty, fraud, taking advantage of the good will and often inferior position of one’s fellow man, and destroying his chance to do something different with his finite time alive in this world. (A sudden calamity preventing payment of wages is a different story of course).
But poetry about money representing human life probably obscures more than it reveals here. Burning cash or destroying other kinds of property isn’t murder.
Consider a car mechanic. He works on your car for agreed rates. Until you pay him he retains (whatever the positive law may assert) the moral equivalent of a “mechanic’s lien” against your car, the property into which he put his labor.
Consider a barber who just cut your hair. The tacit agreement is that you have money in your pocket to pay him. If you don’t, then see Question 49 of the usury FAQ for the different kinds of scenarios.
Examples can be multiplied, but note that none of this imparts mystical spiritual human qualities to some particular kind of financial security (e.g. fiat dollars), or to some other etherial being labeled “money”.
Setting aside assertions of the positive law (taxes, etc), there is no moral requirement for a worker to barter for fiat dollars in exchange for his work. Any property – or even trading one kind of work for another – will do. The idea that there is something super special about certain securities labeled ‘money’ that make them ‘wages’ and thus ‘a fungible representation of human life’ is really just errant nonsense, if it is taken literally.
Finally, we come to the idea that inflation or deflation in the market price of currencies versus other kinds of property is a moral travesty, a sin against workers, an offense against the common man: in short that people (as long as they are not wealthy) are morally entitled to have the purchasing power of their property preserved over time as long as that property is of the mystical class ‘money’. This atrocious idea really needs to be hanged in the city square where everyone can see, its broken and destroyed body beaten and desecrated to make it clear how utterly stupid and destructive it is. (It does not follow that ‘currency debasement’ is never immoral, of course).
In general people who think that they are entitled to the magical preservation of the buying power of their own property against the relentless tide of the second law of thermodynamics are in the grip of usurious entitlement. Someone ought to slap them out of it, for the sake of both the common good and their own good.
 This of course is not (and is not intended to be) a complete characterization of, or even a particularly adequate partial characterization of, economic value. It is merely an observation that any attempt to characterize the economic value of property accurately must take into consideration the objective attributes of that property. In general, economic value cannot be reduced to nothing but subjective human preferences as expressed in current market prices.