Tuesday, February 15, 2011

The Word Theory of Money

On Star Trek, they don't use money. Sort of like in TV commercials, where you never see people actually paying for the things they buy.

But they work, ya'know, on Star Trek. And they use transporter credits, and replicator credits and other kinds of credits. And one might assume there is some connection between the work and the receiving of credits.

What I think? Of course they use money. They just don't use the word "money."

Also, the fictional economy of Star Trek no longer provides a challenge to policy-makers. Their economic policies work. So there is plenty of wealth to go around, solving a lot of problems that would otherwise "require" money.

In Walden Two, community-members are not allowed to use money. They use labor-credits, which members earn by working, and some of which they must pay to the community as membership dues.

They keep track of their labor-credits as you would money. And they can save up labor-credits, and use them to take a vacation. Of course, the vacation can be no more than a few days of rest at Walden Two, for you have no money to use if you leave the place. Unless they let you exchange labor-credits for money. But that would mean that labor-credits are some kind of money.

I was unable to tell whether they pay interest on saved labor-credits.

At Walden Two they don't use money; they use labor-credits. As I see it, they don't use the dollar as a standard of value. They use labor-credits as a standard of value. So I say they do use money. They just don't call it money.

And again, as with Star Trek, the fictional economy of Walden Two runs like clockwork, so that many problems common in our own society simply never arise in theirs.

William F. Hummel provides The Credit Theory of Money by A. Mitchell Innes. Here's just a bit of it:

The Credit Theory asserts in short that a sale and purchase is the exchange of a commodity for credit.

No. If I pay you with credit, it means I'll pay later. It is something like the Austrian "intertemporal" thing, which itself sounds like something out of Star Trek.

A sale and purchase is the exchange of a commodity for money. If I pay you with cash, you and I are done. If I put it on the credit card, you and I are done, but I have a secondary transaction with my bank, later. And you have a secondary transaction where for some reason it costs you money to get paid from the credit card company.

The Innes thing descends into jibberish:

From this main theory springs the sub-theory that the value of credit or money ... depends on the right to satisfaction for the credit, and on the obligation of the debtor to “pay” his debt.

If I buy a hamburger, wolf it down, pay up, and leave... we're done. There is no other "satisfaction for the credit" to worry about. There is no more "obligation of the debtor." We're done. But that doesn't stop Innes from heading even deeper into the muck:

Likewise it depends on the right of the debtor to release himself from his debt by the tender of an equivalent debt owed by the creditor, and the obligation of the creditor to accept this tender in satisfaction of his credit.

Innes sets up unnecessary complexity by referring to money as credit, and then builds a tangle of words upon that confused foundation.

In theory we create a debt every time we buy, and acquire a credit every time we sell.

No, we don't.

This is what's wrong with economics. They make everything more complicated than it has to be. They make it more complicated than it is.

If you want to understand money, you might start by calling it "money."


Xauri'EL Zwaan said...

The difference between Star Trek credits and money, as I understand it, is that credits are not a medium of exchange; they're a form of rationing. You get your daily/monthly/etc. allotment of credits and you use them for specific types of goods and services that you're entitled to receive; but you can't just go off and spend your food replicator credits at the Dabo table or invest them in duranium futures or buy a freighter with them. You buy food with them, and nothing else.

There is, BTW, a widely accepted medium of exchange in the Star Trek universe called 'gold-pressed latinum'. Its value lies in its inability to be made by replicators. One of my favourite moments in the series is an episode of DS9, when Quark finally gets his hands on a huge cache of gold-pressed latinum, only to find that the latinum itself has been removed, leaving behind nothing but 'worthless gold'.

This very interesting article relates the Federation's economy to the concepts of Parecon (Participatory Economics); I think you might enjoy it.

And yes, I am way too much of a Trekkie for my own good.

The Arthurian said...

Hi, Xauri'EL. Long time. I see your blog is active again. Good. I'll be stopping by.

Thanks for the link. Looks good, but it does want more than a quick visit.

Your picture of the Trek economy is clear. Still... it sounds like food stamps and phone cards to me. I am reminded once again of Hayek: "A 'merely' economic loss is thus one whose effect we can still make fall on our less important needs..."

I watched the original series, of course, and Next Gen. But I was too "grown up" or something when DS9 came along. Then one night I walked past my son's open door when the opening credits were on, and I happened to see that beautiful blue wormhole blossoming.

I never missed an episode, after that.

piet said...

made me chuckle, that 'intertemporal'.
.. matter of fact ...

your blog has been opened on this box neath my digits since another weird spate of matrologist (as i call them) surveying began ... some hours ago ... which itself in turn (on before its turn) started cause the moment i saw the mirror glyph i thought of you.

i tried to strike up conversation with GGardiner and see if he would not read Beckerath (whose work i have been trying to help go viral since 97 without success but he recommended Innes in turn and never breathed a word about 'Bth', same as all the other, mostly lesser minds.

gang8 thinks to big for a solution
others think to big to stop disaster

i think too small perhaps .. maybe i should lay it on thicker .. like ask you too and say:

if you don't either i will never ask nobody again. That should press a little karmic weight into your consideration gland eh????


piet said...

forgot to mention that there is a new commercial for asn (ethical bank) i saw which emphasizes the diversity money serves (not problematizing the contradictions at all)

i have a file called something like 'the six modes of capital' (close) by Craig Hubley from 1999 and then there are the fast growing crowds of money diversifiers .... so that it just cannot be long anymore till we have a diversified state money or at least a range of tickboxes on our taxform, as to what one likes them one's money on. Common decency coming to a statist venue near you soon.

ps: i looked, it's 'six styles of capital' (by an historically early troll)

The Arthurian said...

Piet, hello. I need more names for Beckerath, and maybe the title of a paper to read.

I read soooo slowly, but I would be happy to look at his work.

Ohh, the karmic weight...

piet said...



geerussell said...

I think you hit the nail on the head about the labor-credits and the labor standard of value. They're anchoring the value of a unit of currency in labor the same way that a dollar was once anchored as 1/20th oz of gold.

If I buy a hamburger, wolf it down, pay up, and leave...

Pause. A sale and purchase happened. The exchange of a commodity for money. I know this because there's a burger in my belly, I handed over payment and payment was accepted. I'm so certain of this that I'm willing to walk out the door with no fear the cops will be called and if they are, they'll take my side.

we're done.

Maybe, maybe not. Payment and settlement are discrete actions. Payment was complete when payment was offered and accepted no matter if the thing accepted was notes, coins, check, debit card, credit card or signed cocktail napkin... all of which are money. Depending on the means of payment, final settlement may have been immediate or may involve the passage of time, the use of other money instruments and the involvement of one or more third parties.

This may seem like unnecessary "intertemporal" complication but some level of granularity required for a useful description of money.

The Arthurian said...

Geerussell, I'm not sure what you mean by "some level of granularity". I think you mean "some level of detail", as in your list of types of payment: "notes, coins, check, debit card, credit card or signed cocktail napkin."

But there are many types of detail. An artist might consider the colors and the fineness of lines on a dollar bill or a signed cocktail napkin to be of some importance. A technology maven might consider the material of which money is made to be of great significance. My wife wouldn't care about such things; she would be happy to spend them all.

For me, the detail that matters is whether I have to pay money to use the money, or not. For me, cost is the significant detail. If I don't have to pay interest for using the money, I am happy to call it money. But if I have to pay interest for using it, then I have to call it credit.

For me, this is what economics is all about: cost. Cost and affordability. When too much of the stuff we use for money is stuff that costs interest to use, that cost interferes with growth, profit, and living standards.