What is Money?

Money is power in its liquid form, and power is the ability to do work. People having power are therefore naturally interested in money; and the economics profession has come into being to assure that these interests are serviced. This much is trivial: we all want powerful people to do the work we think needs doing.

Today’s post offers a definition of money that consolidates my recent musings on foundational microeconomics, i.e.: micro- and macroeconomics are governed by unrelated forces, and must therefore be analyzed as separate causal systems that are complete within themselves.

If macroeconomic science were to accept this premise, then it might then do well to re-ground itself on the many naturally-occurring macro economies that have been in continuous existence for 500,000 or so years. Familiar examples of these systems would be the termite mound and the ant colony, both of which are instances of what social biologists call ‘superorganisms’.

To be sure: individual members of the termite mound and the ant colony all have their intimate bodily organizations. But the superorganism has something of a ‘biology’ as well. Individuals have internal organs that must cooperate in biological homeostasis for the animal to be healthy. By analogy, the superorganism presents us with a division of labor, accumulations of capital in different forms, and an array of intermediate products whose output rates must be somehow regulated so as to maintain order in the hive.

Biologists explain ‘order’ in terms of a drive toward a homeostasis that might be expressed in terms temperature, acidity, blood chemistry, etc. In examining naturally occurring superorganisms, it is difficult not to see homeostasis in terms of a general economic optimum – a harmony among contributions from distinct labor specialties that eventuates in best conditions possible within an available technology.

If a superorganism is to maintain internal order, it must continuously circulate some sort of ‘information-carrying particle’ to convey where the system is in relation to its homeostasis and what is needed to adjust the system in that direction. Biologists have identified insect societies’ information-carrying particles as chemical pheromones, and have even decoded some of the information passed by smell among citizens of these societies.

(Analogizing human societies to insect colonies will labeled as inhumane for its failure to account for homo sapiens’ respect for their own and others’ individuality. Accepting this critique as worthy of address at some point, we proceed to draw our analogy as if the individual were just one more potato in the bin.)

Man, as Aristotle said, is a political animal. He has no more chance surviving outside of society than has a termite who wanders away from his mound. Higher primates, by contrast, can survive as individuals in isolation from their troops. Unlike termites, apes do not rely on complicated divisions of labor that individuals would be incapable of mastering if survival depended on it. In this respect, the chimpanzee is to man what the highly individualistic cockroach is to the termite: an immediate but asocial ancestor to a eusocial descendent. Human society is the primate’s way of achieving the efficiencies of a hive for an animal having the power, range, and dexterity of an ape.

History’s record of societal collapse shows that human beings are still trying to get the hang of living together in a superorganism. Indeed no animal having more complexity than the mole-rat has ever succeeded at this endeavor for any span that might be significant in evolutionary terms. Man’s self-awareness of his individual personality, which gives rise to his immemorial discomfort with his artificially-created social leviathan, is undoubtedly at this problem’s root.

As evolution has yet to create a natural pheromone with which humanity might organize the superorganisms it calls cultures, man must invent an artificial information-carrying particle for that purpose. Nominating ‘value’ for this role is obvious enough because rival cultures most typically distinguish themselves in terms of the values shared among their populations.

Taking values as the pheromones of a given primate superorganism leads immediately to an operative definition of money as humanity’s information-carrying particle: prices express value; and money calibrates prices. Money’s artificially then gives us an account of societal collapse: monetary corruption falsifies the information that is carried by prices; and when prices cease to express value, the superorganism collapses in chaos.

Thus economic science is deluded by money as its focus of study because money prices are inherently corruptible manifestations of the deeper reality expressed in the notion of value. But economists generally reject the possibility of objectively measuring value because values are the expression of an individual personality. In doing so, economists refuse to attempt that which their discipline might most usefully accomplish. So it will be while macroeconomics thinks it must rest on a micro foundation.

A self-contained science of macroeconomics would express commodity and labor values in concrete units of measure that are no more variable than the board-foot, the troy ounce, or the short ton. Where economists have determined that the computations behind such measures of value would be complex beyond the possibility of human comprehension, the SFEcon system that I espouse exhibits these computations operating continuously over time in a general, global, and physical input/output context.

SFEcon continuously recalculates values on the basis of nothing more than physical asset levels, the shapes of sectors’ underlying technical and utility tradeoffs, and the premise that commodity and labor values are the markers by which an economic system directs itself to a general optimum. Values are expressed through money prices in this system. But, absent external meddling, money is nothing more than the accumulated stocks of savings and investment that are the current resultant of past physical transactions and the prices at which they occurred.

This normative model is expressed through instructional video games that can be exogenously meddled-with in the manner of monetary authorities. If economists were to offer such models in the classroom, the public would become entirely capable of independently evaluating monetary initiatives for themselves.

But would that be good for the economics profession? If you also think not, then we have arrived together at one reason for economics being the dismal science that it is.