Money Makes The World Go Round!
Money attracts great passion. It is a key to changing our world for the better not an obstacle. You choose what you do with it.
What is Money?
Money is an agreement within a community to use something as a medium for exchange. The agreement may be voluntary or coerced, conscious or unconscious, and may fluctuate with time or remain fixed. All kinds of communities - large or small, local, national, international, or virtual, cooperative or competitive - may create such an agreement. The money itself can be issued en masse by a central authority or created ad hoc by consenting parties in a mutual credit system; it may store value or merely mark transactions; it may be backed or valued with something tangible or merely by the issuing authority; and it may take any shape - coins and bills, hard or electronic records.
Currency systems are usually created by fiat (community agreement) or by reference to a benchmark or backing commodity (like gold). Both approaches attempt to standardise the agreed valuation of the currency. Creation by fiat is prevalent today. For example a country issues a currency under agreed standards, like the USA dollar, standard legal tender, which is controlled by the central bank, the Federal Reserve, which decides how much is in circulation on behalf of the government, which acts on behalf of the people.
A community (or complimentary) currency (“CC”) is a currency that operates within a community. It is "open money". National currencies are CC's of nation states - the Euro is a CC of Europe. It is often used to distinguish a community which fosters cooperation and sufficiency rather than competition and scarcity.
Money equals value.
Money is simply a record of community agreed value. It is a standard of value. Money has been created to facilitate barter - the exchange of assets, including time.
The liquidity (ease of use) of money relies on standardisation (Archimedes), stability and reliability (Florentine banking). This standard is used to facilitate exchange of value within a community that has agreed to play by the rules. Instead of agreeing that 15 minutes of a lawyer's time may be exchanged for a fine meal at a top restaurant, we can simply see that the lawyer's time is valued at $ 300 per hour and “le menu de hôte” with wines at Le Pierrot is $ 75.
The value of time and the cost of risk.
Interest has aroused passions throughout history – usury has been condemned by religions and pursued by financial entrepreneurs. But it has always been a part of life - borrowing has always had a cost, even in 1800BC - pigs were borrowed and repaid with (pig) interest! The interest, or return on asset, reflects the value of time and the risk of the asset.
The longer one borrows the greater the cost of borrowing. Humanity's value for time underpins the cost of borrowing. If time had no value to us, interest for risk free borrowing, eg US Treasury bonds, would be zero. (The other ubiquitous example of humanity's value of time is our time based salary.) It seems naïve to expect that people are going to become so altruistic as to give up their time for nothing, so practical suggestions for changing economic systems should allow for interest.
Interest also measures risk. This is critical for entrepreneurs and investors alike. The “sure thing” commands a low interest because risk is low, the start-up venture demands higher “expected returns” because otherwise “why risk the resources (cash), when I can get the same return for low risk?”.
This balance of risk and return is finally
attracting the diligence of capital markets as they overcome the complacency
of “following the hype” to do some critical thinking. The debacles of
recent years, like Enron, Parmalat, MMC etc, signal the evaporation of
complacency among regulators and investors/depositors. Investors are asking
more diligently about the risk associated with the returns they are being
In future money is likely to be intangible as e-money achieves the standards required – it is already happening. The contentious debate revolves about the currency unit – dollars, euros or joules.
As money's role in communicating value among humanity becomes more accepted, it will tend to a singular unit (rather than many currencies) because whole systems design reflects global values.
Our economic dynamic must follow the rules of nature as the closed system of the biosphere is recognised and priced into human behaviour. Only energy is exchanged between our world (the biosphere) and the rest of space. Only energy enters the biosphere (as sunlight), anything that does reflect or radiate immediately is converted to chemical energy by plants (photosynthesis) and starts circulating the food web, from which it may be converted to other forms, like a table, car or house. Everything we price today can be resolved to its basic building blocks of energy. Energy fulfills the requirements of a currency – standard, stable and reliable – and even better its behaviour directly reflects the laws of nature on earth. And thus energy will become our currency within one or two generations.
The Value of Intangibles, Virtual Wealth and Happiness
Intangibles are a critical component of our life experience and plainly have value.
The notional growth of material assets on earth can only match the capacity of plants on earth to convert solar energy to chemical energy. All the additional economic value must be virtual. It is important to consider virtual value because this is the realm that is now driving human behaviour. The booming application of technology has presented us with a virtual world in which most of us live – air-conditioned buildings and cars, TV, telephone and internet, and so on. Today ethics is increasingly a determinant of value as we address personal and institutional responsibility.
And ethics brings us to the realm of happiness.
Money does not equal happiness. But a wealthy spirit does. The technology
for achieving this is ancient and represented in many cultures. Yoga is
perhaps the oldest and has been practiced by,
among others, the founders of religion like Siddartha, Jesus and Mohamed.
The key system change required is to cooperate instead of compete. A system
built on the natural interdependence of cooperation allows wants and desires
to be met in body, mind and spirit; a system whose primary ethic is competition
is self destructive. Enlightenment is reaching out to us all.
Markets, Money and Sustainability
Money is a critical tool for whole systems change.
It is only in the last 500 years or so that the concept of private property has taken root in human social systems and the legacy of this is that millions of consumers around the world decide what world we live in. Our consumption and investment decisions drive markets.
It is a fallacy to portray companies as evil doers exploiting the weak. They, like any organism, respond to their environment – if we buy junk food, the market for junk food will grow, if we buy local food, the market for imported food will decline; if we deposit capital in ethical banks the demand for ethical banking will grow; if we buy sweat shop clothes the market for sweat shops will grow.
Because money is merely an interpretation of our opinions and values its characterisation on the world stage reflects humanity's opinions and values. We are not in the business of changing nature, except to the extent of our own behaviour. Our values drive our actions which have consequences. We make change happen by changing our investment and consumption patterns.