The inescapable currency of money

‘Gresham’s law is an economic principle that states: “When a government overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation”[Murray Rothbard]. It is commonly stated as: “Bad money drives out good”.’ ( ) The problem with such broad theories as this is that they are driven by historically contextualized anxieties, leading to question-begging presumptions. There is some historical truth embedded in Gresham’s Law, but there are also over-generalized valuations that are undercut by historical analysis.

The most important problem that Gresham’s law elides is – what is money? Only after confronting that question, which reveals our ability to abstract value in exchange, dare we ask the supplementary question: As abstraction, is currency a mere token of value, according to some agreed standard of value for exchange?

The affirmative would be an interesting theory – if money had just recently been invented, putting an end to the era of barter. Unfortunately, money has been around for many, many centuries; thus it is a social phenomenon fully integrated as signifying system within the communications of any culture in which it appears.

In simpler terms, money is not (or at least not only) token representation of value. In an important way, it functions as a distinct language communicating social power (including the power to enforce the right of exchange, or to alter the terms of exchange, including measurement of value). As a language, it’s pervasive social presence is not entirely reducible to formulas, except at the ends of the spectrum of social activity – the gross level of national economies (studied by economics), the micro level of immediate transactions (studied by behavioral psychology). Everything in between is simply socialization and culture per se – the price of art, grants for education, tax breaks for churches, migration trends among displaced laborers; mating opportunities and marital relations, including divorce negotiations and custody hearings; cocktail parties among the rich, or the ability to hang out in neighborhood bars, etc. etc. If we can find some social exchange where the functioning of money is not somehow explicitly or implicitly involved (defining, to some extent, what we are socially, and therefore what we can do), then we can to talk about “tokens.”

(This causes serious problems for a host of theorists of economics, like Smith and Marx, as well as social philosophers, like Mill and Dewey.)

The distinction between money and currency cannot be maintained. The implication is that there are forms of money that have intrinsic value. Money in circulation, as money, never has intrinsic value.

Gresham’s Law is an archaic expression of the era when businessmen and financiers, as well as government economists, were becoming aware of the necessity to keep money in circulation in order to assure increase of value in exchange. This finally led in the next century to the end of the ‘metal standard’ (silver, gold) basis of national economies, since these were not really needed, and to some extent impeded investment capital.

Gresham’s Law is an expression of anxiety of more conservative businessmen and economists over such developments. There is some truth to it, but it’s real truth is only discoverable once it’s evaluative qualifications are rejected: There is no such thing as ‘bad’ money, nor is there any ‘good’ money. The truth then reveals itself as, that economic communities will tend toward the use of more fluidly exchangeable forms of money as available, and will continue to increase the fluidity of money as wealth increases and increasingly circulates.

This has led to the odd (but inevitable) situation, with which we live today: “Bank money, which consists only of records (mostly computerized in modern banking), forms by far the largest part of broad money in developed countries.” ( )  Money is now not a ‘thing’ representing value, but the numbers exchanged referring to value.  That is precisely what one expects from language; it is not what we communicate ‘about,’ it is the communication.

Making distinctions between face-value currency and, say, lumps of metal in exchange, misses the truth of money – its existence is a social reality, not a set of physical things. The physical thing, when presented, signifies the social understandings implicit in the exchange.


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