Knowing what you count: Money as an Object


Objectified Nature of Money: philosophical assumptions of orthodox monetary economics

Money as an ObjectThe commodity-exchange theory is perhaps the most representative account of the origin and nature of money in terms of an economistic model based on “real analysis”, which centers on the relationship between demand and supply of goods and services. According to the proposers of the commodity-exchange theory dating back to the work of Austrian economist Karl Menger, money is understood as a medium of exchange, which arose in order to facilitate economic transactions otherwise impeded by the ‘difficulties of barter’. The latter is an argument rooted in both classical and neo-classical economics: for instance, A may want something that B has, but B might not want what A has to give in exchange, say swords for ploughs. If B owns a sword but s/he does not desire A’s plough, then there will be no double coincidence of wants. Therefore, the transaction will not take place until A will find what B wants in an often long series of intermediate transactions. In short, barter exchange does take place in a very narrowed set of situations, because the corollary to the argument of the ‘difficulties of barter’ is that a ‘double coincidence of wants’ is not the norm, but it is rather an exception in the dynamics of increasingly complex and growing economic systems like ours.

The second element which contributed to the formulation of the commodity-exchange theory of money comes from the observation that a system based exclusively on barter is doomed to repeatedly break down because not all the commodities implemented as means of exchange are perfectly divisible, ductile, homogeneous and durable. In order to overcome such state of affairs, Marx stressed the necessity to use a ‘universally equivalent’ commodity, i.e. the commodity that “can buy all the others because it crystallized out into the money-form (Marx 1867).”

Thus, classical economists paved the way to the formulation of the commodity-exchange theory by the next generations of economists. From a neo-classical perspective, the final end of this transaction process is the exchange of goods, which have an equivalent use value for both parties simultaneously, in view of bilateral utility maximization. According to the commodity exchange theory based on an objectified and commodified nature of money, men started to trade not only commodities which had use value for them personally, but also commodities having greater marketability rather than one’s preferred ones. Cattle is thus the first example of proper money under the assumptions of neo-classical economics, i.e. individualism, instrumentalism and equilibrium.

More in general, Menger unhappily stresses the neo-classical archetypal principle that naturally led humans to use commodities as money, namely the maximization of an agent’s utility function:

“As each economizing individual becomes increasingly more aware of his economic interest, he is led by this interest, without any agreement, without legislative compulsion, and even without regard to the public interest, to give his commodities in exchange for other, more saleable, commodities, even if he does not need them for any immediate consumption purpose (Menger, 1871).”

According to the commodity-exchange theory, money does not seem to be the result of an agreement, its use is not enforced by law and it is not created by anybody for fostering the public interest. On the contrary, money is the result of the use of the most marketable commodities and, therefore, money ought to be basically an object man uses as a medium in order to facilitate exchanges while reducing transaction costs.

Now, from the point of view of the philosophy of science, Menger’s account of the origin and nature of money is narrowed and weakened by the very set of assumptions onto which it is based: (1) methodological individualism that Menger derived from the rational utility-maximization model and (2) the retention of the model of an essentially barter exchange economy in which money is a commodity among others. From this perspective money is nothing but the standardization of bilateral barter, namely a universally accepted object deployable for lubricating the wheels of trade: it can be a coin, paper money or a plastic smart-card, shark teeth, or still cowrie shells, depending on the historical and geographical set of reference. What matters is that such a commodified view on money does flatten out the nature of money on a singular dimension, i.e. the objectivistic (and philosophically superficial) dimension of the nature of money. Such conception of money corresponds in turn to a reification of the subjects using such commodified money with the ever pending risk to inter-subjectively refer among us to bodies rather than persons in our day-by-day socio-economic interactions.

How to address such state of affairs? The answer is Knowing what you count: Money as a Tool.

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