This is a link to 'What is Money?' by Jan van Eijck and Philip Elsas November 1, 2014 from which I extract the passages in italics given below.
It shows why a 'Social Software' approach (i.e the analysis of social procedures by exploring their logical underpinnings) goes nowhere fast. Briefly, social procedures are either protocol bound and buck stopped- in which case they cash out as purely imperative commands- or else they are not buck stopped- in which case there is a sequent calculus which represents the Muth rational solution (i.e. statistically, expected outcomes coincide with the prediction of the correct theory). However, that sequent calculus must feature conditional tautologies such that there is something ideographic outside the scope of nomothetic methods- i.e. there is no 'logical underpinning'. We are speaking of coevolved processes taming complexity. But what is happening is 'discovery', not deduction.
People like me who went into Accountancy or Banking or other such intellectual coolie work soon saw that it would be easy enough to give a mathematical representation to real world Social Choice. But the game would not be worth the candle. Sadly, nobody told the Professors- some of whom were genuinely bright- like Rohit Parikh- rather than cretinous virtue signalers- like Amartya Sen- and so they all ended up in the same boat.
Philosopher: Thanks for agreeing to take part in this discussion. In my invitation to you I mentioned Rohit Parikh’s plea for an enterprise of social software , in which logicians, philosophers, and computer scientists collaborate with social scientists to gain a better understanding in the social mechanisms that make our societies tick, or sometimes cause them to break down. I challenged you to explain to me what money is. I have tried to prepare myself for this meeting by means of a bit of preliminary reading in economics textbooks, but if anything this left me more confused. It seems clear to me that money is an agreement in a community, just like a marriage agreement or an agreement about shared ownership.
This is not the case. Money, under certain specified circumstances, is legal tender- stuff you are obliged to accept in settlement of a debt and stuff you are obliged to fork over to the Tax Man on the basis of your assessed Income or Wealth or whatever. No 'agreement' is involved. It may be argued, by the folk theorem of repeated games, that Money would still exist and so 'essentially' it is an agreement. This is not the case. There is an uncorrelated asymmetry involved- viz. who gets to be the 'stationary bandit'- which can't spontaneously appear in a repeated game- at least to our current understanding (because we don't think there is a way of discriminating pseudo-random from random sequences) and thus no non-coercive mechanism could be rationally consented to such that fiat money comes into existence. Obviously, we could say agents may not be too worried about biased coin tosses. But then we could just as well say that agents may not be too worried about rationality. In other words, the thing has no 'logical underpinnings'.
Money is part of the construction of social reality.
Fuck off! Shit that nobody gets paid to construct aint 'constructed' at all. That's just a silly way of speaking is all.
Yet, most textbooks I consulted treat money as some kind of ‘thing.’
Coz it's the thing you have to hand over to the tax man or your creditor or the ho that sucked you off lest her pimp beat you.
Computer Scientist: I suppose in the days when people still paid their debts in coins made of precious metal, it was quite easy to understand what money was. Just pieces of convenient stuff valued by everyone, and therefore suitable as a medium of exchange.
No. Even in those days, it was difficult to understand why a Court might decide that you hadn't discharged your debt though you paid gold or silver coins of the type and quantity specified in the contract. The protocols surrounding a 'medium of exchange' may passeth all understanding but provided they are 'buck stopped', they may determine what is or isn't money under given circumstances.
Economist: Money whose value comes from a commodity that it is made of, such as gold, silver or copper, is called commodity money. Gold coins have value in themselves as well as value in their use as medium of exchange.
But such stuff may not be money. It depends.
I skip over some sophomoric shite to get to
Computer Scientist: ...you have proposed to us to investigate the concept of money from the perspective of social software. I find it remarkable that a social software treatment of money has not already been done. The closest we got with methods from computer science was to simulate scrip systems to study how they can be optimized.
This is silly. Anyone at all can issue scrip for anything at all- e.g. an I.O.U for kisses- which may or may not be fungible.
Philosopher: What is scrip?
Computer Scientist: Artificial money. Token money. Kash, Friedman and Halpern
whose paper came out when P2P- e.g. bitTorrent- looked like it would eat the world
give a lucid description, taking their lead from the story of the Capitol Hill Baby Sitting Co-op, which issued coupons that were good for baby sitting services. These coupons had to be earned by taking care of babies of other parents. It turns out that there is an optimum for the number of coupons that have to be in circulation for a given number of participants.
Only because of certain foolish assumptions. The fact is there was a substitute for scrip as well as irrationality to do with small population size and the fact that there was an ideological component. Co-operatives have a pathology all of their own. Speaking generally, they are likely to diminish in size by reason of incentive incompatibility leading to allocative inefficiency.
The authors engage in a game-theoretical analysis, distinguishing various kinds of agents besides the standard ones: altruists, hoarders. Having altruists is the same as adding money. Having hoarders has the effect of removing money. Too many altruists or too much money make the system break down. So game theory can be used to analyze how money functions, to some extent.
My wife and I were part of something similar in the mid-Eighties for academics. It folded quite quickly because disposable incomes in the cohort were rising too rapidly.
Scrip can always be created because credit is given to trustworthy people- e.g. the single mom whom you just hired as an associate. There isn't much of a 'game theoretic' aspect to this because baby sitting is not a homogenous service. Also some babies leap out of their cribs and try to eat you. I believe this happens when the parents are vegan.
The notion of money as 'transferable utility' helped get game theory off the ground. But it was a fatally flawed notion. That's why Game Theory is a bit shit- at least in the hands of a nitwit like Kaushik Basu.
Philosopher: But surely this is just one aspect of the role of money. It seems to me that real money, as opposed to token money, acts as a capability multiplier. The more money an agent has, the greater his or her powers in the game. Players without money have almost no power in the game. Players in debt to other players become virtually enslaved.
Not if contracts are incomplete- which is the case for services under Knightian Uncertainty. Money as used on open markets has no multiplier. It may do under incomplete contracts but that multiplier may be negative. I have money but am incapable of making it work for me- i.e. yield an income (which is defined as what you can spend without diminishing wealth). I am dependent on that kind gentleman, Bernie Madoff, who has assured me I'll get a reliable 15 percent return. It frequently happens that creditors have to fawn over a charismatic debtor who has entrepreneurial ability.
Computer Scientist: Ample scope for game theoretic modelling and logical analysis, but it seems to me that we still have to start.
Why? Either you are a good computer scientist and end up getting paid lots of money or you waste your time talking bollocks. The bollocks does not matter. The money making does.
Philosopher: And part of the problem with starting the analysis is confusion about the nature of money.
Philosophers don't get paid a lot but what they get paid for is being as confused as fuck and for confusing the fuck out of anybody stupid enough to listen to them.
In a paper written in 1913 Alfred Mitchell Innes exposes the story of a barter economy that got replaced by a money economy as a myth invented by Adam Smith.
This is like exposing Father Christmas as a myth. At one time debt was linked to slavery- if you couldn't pay up, you discharged the debt through servitude for some specified period unless it was cheaper for you to kill the creditor and pay his blood-price. But, clearly, notions like debt, slavery and blood-price are not essentially linked to that of money.
It got repeated by economics textbook writers ever since, but Mitchell Innes believes that it is false. Instead of bartering, people just kept track of mutual obligations, and if they used money then only as a unit of accounting.
They used stuff like cows which is why the word pecuniary derives from a Latin word for cow. However, accounts are generally incomplete and inexact. Hence the notion of 'materiality' in Auditing. What matters is whether an entity is a 'going concern'. The reason these guys are getting nowhere in their discussion is that they haven't invited a Chartered Accountant who could easily have bored them all to death within the first five minutes of the colloquium.
“Money [. . . ] is credit and nothing but credit. A’s money is B’s debt to him, and when B pays his debt, A’s money disappears. This is the whole theory of money.”
The problem here is that debt is a Tarskian primitive. It might mean enslavement or, for those foolish enough to have lent me money, 'ha, ha- you sucker!'
Computer Scientist: So there was hardly ever a need to exchange coins for goods?
Coins were a store of value. Hordes of such coins keep getting dug up all over the place.
Philosopher: This leads to a different or complementary theory of money. The way Georg Friedrich Knapp explains it, in a book written in the 1920s, money originated from the attempts of states to regulate economic activities.
States directly regulated economic activities. The conqueror assigns land to a feudatory who uses force to squeeze out food and soldiers and so forth out of the residents. Paying money was one way to avoid corvee or conscription or having to hand over your bride for a bit of droit de seigneur.
The state creates indebtedness of its subjects by levying tax on imports and on the produce of farming.
A demand- e.g. that you serve on a Jury- does not create a debt. A tax is a demand, not a debt. However, a Court may turn some demands into a legal obligation to pay. This gives rise to a debt.
Once these obligations exist, the state can rule that they can be paid off in the paper money of the state. This is what gives the paper money its value.
Really? How come dollars have value far outside the USA amongst people who are under no obligation to pay Uncle Sam anything at all? Back in the early Sixties there were some guys who'd get very worked up about Eurodollars coz they believed this sort of stupid shite.
As Knapp states in the first sentence of his book, “Money is a creature of law.”
Everybody else had noticed that the Law is a service industry. Lawyers are mercenary creatures.
There follows a lame account of fractional reserve banking and so forth.
(Ex-)banker: One could argue that institutions like the IMF and the WTO are causing untold misery to people in third world countries, and are now helping to turn countries like Greece into places of misery too.
Poor people having babies who are bound to be very poor cause misery in third world countries. Why blame the IMF or the WTO? True, without them, Imperialism might have made a come back- but that also requires institutionalized Racism, if not the reintroduction of slavery.
Philosopher: Let me ask you an important question. (Takes a 10 Euro bill from his wallet.) Does this 10 Euro bill represent wealth,
or would it be more accurate to say that it represents debt?
I am asking this because I recently read David Graeber’s Debt. Graeber is an anthropologist who argues that money turns personal obligation into impersonal debt: “. . . money [has the capacity] to turn morality into a matter of impersonal arithmetic — and by doing so, to justify things that would otherwise seem outrageous or obscene.”
If Graeber got his cock out and started jerking off and jizzing over his students- that would seem outrageous or obscene. He may say 'I'm paid to lecture on anthropology by the University. I am merely discharging a debt of an impersonal type.' But he'd be wrong. Masturbating in a public place is an obscene and outrageous activity punishable by law. Whether you get paid to do it is irrelevant- even if you are an anthropo-fucking apology for a human being.
(Ex-)banker: Wow! Well, your bill is cash. You can keep it indefinitely, but it will lose its value by inflation. Or you can deposit it in a bank. And the instant you deposit your money, the bank starts playing musical chairs with all but a tiny fraction of it.
Why not buy shares or invest in property?
Philosopher: In itself, that is not a problem. For if the bank creates money, the created money always gets exchanged for an IOU of the lender, isn’t that right?
Suppose you get elected President of the Republic. You are now obliged to govern the country. You may appoint people to help you discharge these obligations and those people may appoint others etc. An IOU is merely an obligation. My IOU is worthless coz I'm poor and stupid. But so is my offer to serve in any capacity above the janitorial level. Scratch that. Any capacity including the janitorial.
(Ex-)banker: That is exactly right. And the big problem right now is that nobody knows what all these IOUs are really worth.
Because nobody really knows who can discharge which type of obligation. This is because the future is unknown. Still a banker can make money if he is good at assessing credit-worthiness while a 'head-hunter' can make money if he is good at spotting who would make a good banker as opposed to anthropo-fucking-wanker.
For that you need to know who owes what to whom, and what else they possess.
That isn't enough. You need to spot the guy who will pay you back by hook or crook. When Banks crash it often happens that some debtors have the capacity to repay but simply don't want to.
Computer Scientist: Wait, wait. Let us go back to the 10 Euro question, for I think we can answer it now. The 10 Euro bill represents credit or debt, for that is the same thing, depending how you look at it.
Depending on how you look at it, it represents a contingent contract involving jizz on your face or your jizz on someone else's face. But this is not a useful way to look at the thing.
You can use it to fulfil an obligation of a very specific weight, to any stranger, for money quantifies obligation and makes it anonymous.
No. A contract or judicial ruling may 'quantify obligation' but that obligation falls on a named party. There is nothing anonymous about it.
And how can this magic occur?
The same way you can get jizzed on or may jizz on another coz your PhD is in Anthropology and this is the only way you can get enough money together to buy yourself a cheeseburger.
By the power of a state — or a community of states — ruled by law, that is behind all this.
Also the Government has installed cameras in toilet bowls. Wake up sheeple! The CIA is watching you poop!
This lame discussion between the terminally stupid ends thus
Economist: The function of money in buying bread is as a means of exchange. The function of money in saving for one’s pension is as a store of value. The function of money in banker’s trading, I am not so sure.
Money is transferable utility. The Banker is an intermediary between borrowers and lenders while other financial services. The function of money, in banker's trading, is to provide the underlying commodity.
Philosopher: I propose to leave that for another occasion. A social software study should at least analyze three different functions of money: medium of exchange, store of value, unit of account. And it may well end with a plea for reform. Advocates of monetary reform usually start with an analysis of how money functions in society, and then move on to how it should function.
These guys are too stupid and ignorant to do any 'analysis'. The fact is 'Social Software' is revolutionizing Banking. Data mining permits the discovery of cheap to verify, costly to fake, signals supporting 'separating equilibria'. But it can also- as is happening in China- be turned into a cheap but very effective method of social control. On the other hand, it may enable something like 'lumpsum' taxation- which have no 'deadweight loss'- such that egalitarian outcomes no longer cause devastating allocative inefficiency.
Sadly, these are idiographic, not nomothetic, matters. If the thing can be usefully done, it would be very profitable to do it. If we can't make money doing it, we shouldn't be doing it- coz we iz too stupid.