By Jake Elliott
Something is apparently happening to money. Not that we will notice overnight changes in the actual cash we carry, however, for the shift is occurring in the rarefied world of abstract economics. As Professor M.B. Drapier of the London School of Economics explains, "While there have always been alterations in the form money takes these are usually so slight as to give the illusion of stability. What it is suggested we are seeing now is quite different."
The earliest money is understood to be electrum coins issued in Lydia in Asia Minor around 4,000 years ago. The practise of substituting a representational artifact for all goods and services spread as the system of bartering became impractical due to increasing complexity and population growth. Precious metals - notably gold, silver and copper - became the accepted standard for hard currency (or 'specie') because of their durability, manageability and their steady use value which maintained an equally steady exchange value. This hard money became standardised sometime in the 7th century. By the Middle Ages 'credit currency' arose to obviate the need to move large quantities of coins involved in major transactions. The system of credit currency developed into paper (or 'fiat') money initially in China before France introduced it to Europe in the 18th century.
Standardisation did not emerge without alternatives to metal and paper being tried out along the way: more diverse types of money have been recorded at various times. Primitive cultures sometimes used a system of coloured pebbles as a rudimentary currency. Similarly, marked stones have been excavated in Egypt. The 18th century radical pamphleteer Noah Mounte describes an area of Bohemia in the Middle Ages using dog’s teeth as a form of currency, although this failed after the infiltration of other animal’s teeth into the supply, in an early example of Gresham’s law which states that bad money drives out good. Possibly the strangest type of money was the ‘dhun’ circulated by a Viking tribe: this was actually made from animal dung baked into bean-sized ingots. The tribe was apparently virtually wiped out by disease. "A possible etymology of the term 'paydirt'," says Professor Drapier, smirking.
What is changing with money now is a result of two recent innovations. Firstly there is the introduction of electronics into the money supply in the form of credit and debit cards, which means that the distinction between real and nominal money is superseded by the new category of 'virtual money'. The second, and more important factor, is the move away from the gold standard. When the dollar, the dominant currency after World War 2, was severed from the gold standard under Richard Nixon’s economic policies in 1971, international currency values became linked by a system of floating exchange rates. This decoupling from a real-world equivalent is the core of the problem.
Economic deconstructionist Galia Devoto suggested recently in her essay Buy By Cash? on postmodern perceptions of money, that “the unhitching of money from even the most symbolic of ontological manifestations may bring us to a point where money itself is ultimately abstracted out of the economic exchange cycle.” Others view this extremist speculation as of little value. Canadian economist Daisy Garside, a former colleague of Devoto’s who is now one of her fiercest critics, responded to this claim with an abrasive article called Love Your Money, in which she accuses Devoto of “scaremongering with scant regard for real facts and figures.” Garside asserts “we will always need money in our hands, whatever form it takes.”
Drapier concedes that the break with the gold standard has led to some curious and unforeseen effects that have only recently come to be addressed by researchers. He likens the upheaval to the inflationary crisis caused by the Romans’ sudden circulation of cheap money, or the similar problems experienced in Europe by over-issuing when paper money first became common. “There is more to discuss than observe,” he says.
Most widely acknowledged is the ‘black hole effect’. This controversial theory, first proposed in America over 10 years ago, operates in an incredibly complex area of purely abstract economics which some, such as Garside, claim is entirely illusory. The ‘effect’ suggests that as a consequence of the floating value, exacerbated by EU attempts to draw members’ currencies together, all money is gradually moving towards parity. Writers such as Devoto have elaborated the theory, postulating that eventually the hyper-liquidity resulting from virtual money, whereby finances can be whisked around the world and pass through numerous currencies in a matter of seconds in an effect called ‘fiscal osmosis’, will have a potentially catastrophic effect. As Devoto warns, “The inherent instability of virtual money, an effect of the white heat of technology and the instantaneous nature of electronic financing, has forged a sort of persistence of vision. The global economy rests on monetary values that are simply not there.” The prediction is that all currencies will become aligned in such a way that monetary value will become subject to rampant entropy and, in effect, buy itself out.
Professor Drapier responds to the idea with a smile. “Even advocates of the theory state that it can only happen imperceptibly slowly. Even if it is accurate it will be many years before we see substantial evidence of such a phenomenon.” Could it be true though? “Personally I don’t go along with it,” Drapier says, shaking his head. “I don't buy it, you might say.”