The (In)Significance of Money, Part 2
The Eurozone's in "existential crisis", and physical Gold Bullion is long gone. So where's our metaphysics of money today...?
SO a DOLLAR was still a Dollar, Richard Nixon assured US citizens 40 years ago this summer, writes Adrian Ash at BullionVault, picking up where he left off here...
Whether the Euro will be worth anything next week, who can say? But since Tricky Dicky's "Sunday special" on 15 August 1971, that's all the Dollar has been – one dollar alone, rather than a quantity of rare, indestructible Gold Bullion. That "barbarous relic" of pre-Industrial superstition, so beloved of the 21st century's fastest-growing, wealth-accumulating societies today, was cut from the system.
Does it matter? The day before President Nixon's announcement, only a foreign central banker could have exchanged dollars for metal, demanding Gold Bullion from the US Treasury's hoard with a fistful of what were in effect receipts. (The citizen's right to swap the Dollar for gold had gone four decades sooner, along with that freedom to own or trade bullion finally revived under Nixon's successor, Gerald Ford, on 31 December 1974.) But now the token replaced the metal entirely, and the Dollar became the thing in itself. Instead of representing a deeper, apparently "truer" money in underground vaults, the Dollar was all.
If all this risks sounding metaphysical (meaning philosophical rambling), so it should. The rich world's newest currency, the Euro, today faces "an existential crisis" as analysts and commentators are beginning to guess. Yet they're hardly debating what that crisis means.
"By nature, my friend, man's mind dwells in philosophy," wrote Plato 2,400 years ago, and money is no mere idea within our thinking. It's part of the fabric, the alphabet of how we conceive of the world, second only – if that – to language. Imagine there's no money? It's literally unthinkable, never mind easy. Yet here we are, with barely discussing – outside a handful of websites and chatrooms – how the basis of money has utterly changed inside one lifetime.
Yes, under the post-war Bretton Woods system, the almighty Dollar already underpinned the rest of the world's currencies – the Deutsch Mark, Yen, Franc, Peso, Lira and the rest. But until 1971, that underlying asset was merely a staging post between all those monetary units and what was still deemed the real stuff, Gold Bullion. Swapping, say, Sterling for Dollars, and then Dollars for gold, a central bank could in effect redeem British Pounds for US gold bullion (an ever-more attractive play during the prolonged collapse of Britain's international credit). Closing the gold window at the New York Fed, Nixon put in train that "eliminat[ion] of gold as the common denominator" of money worldwide announced seven years later by the IMF. And without rare, tightly supplied, indestructible gold to restrict it, money has run riot since.
"With all its faults, gold does exercise the only important objective restraint upon that process of evolving a costless and limitless means of payment toward which the banking economy persistently progresses."
So wrote John Henry Williams, then Harvard professor of political economy and soon to become vice-president of research at the New York Fed, in a 1932 essay, The Crisis of the Gold Standard, in Foreign Affairs magazine.
Put another way, 78 years later, "The heavy reliance on cash in most societies [still] represents a huge opportunity for banks and non-banks," as McKinsey consultants said in a special report on non-cash transactions. By their maths, the payment-processing industry had just enjoyed its first $1-trillion year in revenues. Creamed off a global economy generating $63 trillion of business all told, that's one hell of a rent.
Costless money has plain benefits, of course. Today's photons and digits are no less "money" than yesterday's wampum, paper or nickel alloy. Just much more efficient. They're universally accepted too, unlike Bitcoin's tragi-comic stab at creating a "new" money via the magic of computing code alone. But with no limit on money as a means of exchange, its second key function – holding its value, at least between when you receive and then spend it – looks increasingly shaky.
Unlimited and costless, weightless and countless, isn't money at risk of losing its meaning?
"The legend of King Midas has been generally misunderstood," reckoned Nobel economist and Princeton professor Paul Krugman in a 1996 column, just as the death of gold was about to be proclaimed worldwide, together with the end of history.
"Most people think the curse that turned everything the old miser touched into gold, leaving him unable to eat or drink, was a lesson in the perils of avarice. But Midas' true sin was his failure to understand monetary economics.
"What the gods were really telling him is that gold is just a metal."
How true and utterly wrong, too! Gold is "just a metal" on the chemist's periodic table alone (and even there it's unique). In every other sphere of human activity, it has always been very much more than "just" anything, bearing a religious, social and emotional power only an academic economist could dismiss. Silver too has also been used to store wealth since long before the myth of Midas, and also revered as sacred and eternal in every culture which ever mined or encountered it.
But what the legend of Midas really says isn't about gold, however, nor greed. It's about coined money – and how, right around its emergence sometime in 6th century BC Greece, the world was changed beyond recognition.
"However fascinating for us is the culture of premonetary Egypt and Mesopotamia," writes Richard Seaford, professor of Greek at the University of Exeter, in his book Money and the Early Greek Mind, "it remains irreducibly alien.
"The earliest Greek poetry and wisdom, on the other hand, we citizens of a thoroughly monetised society recognise as...somehow more akin to us than anything from those earlier civilisations."
How come? Tracing the role of gold and silver, gift-exchange, plunder and sacrificial rites through the writings left to us, Seaford spots "two unprecedented phenomena:
"...the construction by individual 'philosophers' of impersonal cosmology, and [in tragic drama] the extreme isolation of the individual from the gods and from his own kin."
Any of us can feel those two pull on us today, in just the way that cat-headed ghouls blessing mummified souls on a pyramid's wall do not.
Greek religion was previously built on creation myths, with all-too-human deities on Mount Olympus taking out their spite and passions on the people formed from clay below. Deep social rituals then kept things together on earth, most notably through the equal sharing of sacrificial meat on silver, copper or bronze skewers (called obols, which just happened to become the name of an early Greek coin) and the less-equal sharing of plunder and booty by war parties. Coined money ripped these certainties open, most obviously by making each man a king – metaphysically – able to turn anything he fancied into his personal treasure by presenting a round, stamped lump of silver or gold in exchange.
Hierarchy, family ties and tribal loyalties still counted, of course. But coined money cut across them more surely than a Persian scimitar. It was as a unit of account, however, and a yard-stick for the value of anything and everything, that money really fired synapses in the ancient Greek mind.
"The myth of Midas represents the reaction of the Greek mythical imagination to the novel and startling power of precious metal as universal equivalent," writes Seaford. "[His] touch turning everything into gold expresses early Greek experience of money as a universal means of exchange."
Money means everything in the Midas myth. He even saves himself by washing the curse off in the river Pactolus, from whose alluvial gold the first coins were most likely made. Another Greek legend attributes the invention of coinage to the real King Midas of Phrygia's wife.
China and India also saw coined money develop around the 6th century BC, which surely deserves deeper study. The role of religion and rite in the emergence of Greek money has been noted for over 100 years. And we have plenty of what sound like our own money myths today.
"The Fed believes in a strong Dollar...The ECB will not monetize government debt...I promise to pay the bearer on demand the sum of five pounds."
But these are just lies and absurdities, not parables to reveal anything useful, let alone to someone trying to understand or keep hold of their money.
Meanwhile, the meaning of money in our utterly monetized world – four decades after breaking 2,500 years of human tradition, and with Athens and Rome in crisis – is less studied and more opaque than the ancient Greek myth of a king who, in yet another tale, also sprouted donkey's ears because he upset the god of song.
How the ancient immortals would laugh! If only money hadn't helped kill them first.
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