I regard money as a beautiful concept that has been corrupted by governments and banks.
I’d like to explain why.
At its heart, all money is social, as it provides a way to transfer value between two parties to a transaction.
Thus, if I pay you £3 in return for a cappuccino, I’m getting the delicious cup of coffee (value to me), and you’re getting the money (value to you).
It is flexible too as there are denominations.
So a £20 note, for instance, denotes a certain amount of value in terms of goods and services: probably enough to buy me half a dozen or so cappuccinos, based on the scale we all have in our heads about what a £20 note is worth.
Thus, money is deeply convenient. It allows us all to sign on to a shared benchmark of value, as, in so doing, we can all share in the benefits it provides.
Without money, I’d be left having to swap my stuff directly with you for your stuff and it would all end up being incredibly inflexible, especially if, say, you don’t want my stuff.
We could, I suppose, try to find a third party who wanted something from me and then try to work out a three-way trade… but that’s only going to work if you happen also to want his stuff.
You get the idea; bartering might get very cumbersome very quickly and it isn’t going to work in all cases.
Money is thus a form of ‘frozen value’. And we all sign up to a shared, consistent idea of what it’s worth.
So far, so very convenient.
But the problem then becomes; what shall we use for money and who will issue it?
And, at this point, if you and I were in a bar and were discussing the matter over a drink, someone would no doubt pipe up with something about the “government” being the natural issuer as they could ensure that money has value, by backing it with… well, what?
Well, not very much, frankly.
We used to have a so-called gold standard but that’s long gone.
In principle, a gold standard basically said you could swap your banknotes for a certain amount of gold by popping into the Bank of England. Well, good luck with that one.
No, the closest thing we have to a government guarantee for money today is: you can pay your taxes with it.
And this is a pretty big deal as not paying them would drop you in hot water. So, from this point of view, government is ‘backing’ the money.
But you probably sense that this isn’t the same as a gold standard and you’d be right.
In practice, government is extending the shared social delusion that says “money has value because we all agree it has value” by adding the threat of violence.
It says to you, in effect, “Recognise my idea of money and settle your taxes with it or I’ll incarcerate you”.
Now if you think I’m being paranoid about government, consider… isn’t it odd that we should bother paying taxes at all?
Government, via the Bank of England, issues our money. So it doesn’t need your money to build new hospitals. It can just create fresh money as and when it chooses to. So why bother going to all the trouble of working out how much of yours it should take from you?
Seriously, do you think government departments wait around for tax receipts to arrive before deciding whether to stick a spade in the ground and lay the foundations of a new operating theatre?
Of course not. The money received through taxation doesn’t go anywhere; it’s just taken out of the economy whilst other new money is ploughed back in.
Seriously, what a game!
Why not take out no money at all and just put in a bit less new money, to compensate?
Think of all the public servants we could get rid of at HMRC. Think of all the joy we would create across the country.
Why not do this?
By taxing money back out of the economy – whilst also spending and lending new money back into it – government creates the myth that money has intrinsic value.
1. Any government can create new money whenever it likes and so doesn’t need taxation. But the threat of incarceration, implicit in the act of taxation, gives money actual value.
2. All forms of government lending, investment and taxation sub-communicate the consistent message that cash is inherently valuable, rather than just a convenient social fiction.
Thus fiat currency is backed by the threat of violence – and we dutifully get our tax returns in on time. And thus we come to believe that money is ‘valuable’, even forgetting to ask where it comes from, as if it were a gift of nature.
Seriously; just try it sometime. Ask your friends where money comes from.
Almost certainly they’ll not tell you that the bulk of our money is created as debt when banks make loans and is subsequently destroyed when those loans are paid down.
They’ll probably mutter something about the Bank of England or the government but they won’t begin to understand how that ties up with the cash in their wallet.
And so we end up with the control cycle of modern centralised money; with the government and the banks entirely responsible for its creation and destruction and the rest of us playing along to their tune.
Can you really wonder why politicians, civil servants and bankers get the best pensions?
And they tell you Bitcoin is a scam!