3) Money is – becomes – a tool for planning (obligations and claims).
4) Money, in the form of capital, becomes a means of mathematically modelling possessions (or wealth).
Everything else follows from these features.
Historically, but also conceptually, money serves to pay debts to the state. The state issues IOUs (acknowledges debt by issuing credit) in return for goods & services, which its payees can then use in order to obtain goods & services from other citizens (or subjects). The IOUs are accepted because they are needed to pay taxes. This is the defining feature of money.
Once in place, this circuit expands as it proves useful to replace barter (e.g. with precious metals or commodities) and to replace relationships of reciprocity. In contrast to barter and reciprocity, money enables fine-tuning, i.e. precision, plus a vastly wider circle of exchange. Relationships of reciprocity involve the implicit understanding that good turns will be returned some time in the future. It is here that the planning aspect comes to the fore.
Money must circulate. None the less, it inevitably also serves as a store of value. More precisely, as a temporary store of value. Money stored long-term deteriorates, eventually becoming dead money, like perishable grain and unlike socially or practically precious metals or indeed, in bygone times, salt. So it is better exchanged for farmland or a factory, which takes it back into circulation. Hence money (banknotes, coins, or fiat on a bank ledger) is converted into capital. Capital is not money, or rather, its relationship to money (i.e. cash) is complex. Capital can be converted to such fungible money, but only at the margins and in accordance with due diligence and procedure. All the holders of “capital” might change or perish overnight, for example in a revolution, but only a marginal amount of capital can be converted into money (cash in hand, cash at bank) at any one time. If, say, a state were to expropriate everyone but compensate them with money, the value of the currency would collapse.
This is one way in which money as a concept (rather than money to spend) becomes a tool for mathematical modelling. Another is the familiar creation of fiat money by non-state banks. In order to purchase a tractor one might mortgage the farmstead. That is, the bank accepts the farmstead as collateral and issues fiat money, confident that the tractor will increase productivity, which will generate money, that can be returned to the bank (with interest). On its return this “money” is removed from the ledger and is therefore destroyed. Hence money is being created and destroyed all the time, which is perplexing for many people. Neither the tractor nor the farmstead are destroyed, but without the intermediary the tractor might never have been created. The “money” here is an accounting device. What it maps is nonetheless real, or is a future which may be considered to be sufficiently certain.
Having set the conceptual scene, we can now proceed to reformulate matters. When the news media and politicians talk about debt, they are talking, abstractly, about plans and the commitments (obligations) which go hand-in-hand with planning. Planning is always future-orientated. Think of an appointments diary. One for years ahead, with more and more time slots taken. As events unfurl, circumstances intervene necessitating some rescheduling. If the appointments diary is none too full, this is manageable. No longer so if every last time slot is taken.
As we cannot live day-by-day and do not relish hand-to-mouth, we provide for contingencies, create projects and make commitments. So some debt is good. That is, it is wise to use money to plan ahead, which means issuing credit or accepting debt. The problems arise when we overreach ourselves.
At a macro-economic level they arise also from using one way of thinking, which works perfectly in a micro-economic setting, in a wider context where it breaks down. The logic of totalities is quite different to analytical logic, which applies only to individual members of a set. Something which is superbly reasonable at one level runs counter to reason when generalised. For example, in times of austerity the government may try to make savings, and, rationally, individual households, too, might be tempted to follow suit but, as is well-known, the real recession would come if everyone stopped spending.
Mathematically, but also in general reasoning, as things are scaled up or down, the proportions mutate so that factors which at one level are negligible become decisive and therefore game-changing. This is a key insight of Chaos Theory (which seems to have been re-named Complexity), although already long familiar from higher mathematics. It also points to the fatal error in much philosophy from Descartes to Kant. Just because any one thing can be doubted in isolation, does not mean that everything can be doubted. Just because universal mendacity would be inconceivable, this does not mean that occasional lying is wrong.
When a figure of a trillion is put on the cost of some grand project, such as combatting climate change, or in 2020 a pandemic, this may be rhetorically clever, but it is conceptually meaningless. Other figures, too, should be treated with great scepticism, for instance, when there is talk of global GDP. (Quite apart from GDP being contested as a modern measure of economic well-being.) In such cases all that is happening is that a greater portion of the human world (present and projected) is being mapped mathematically. Thought is idling.
When money is seen as mapping possessions it may be better described as locked-in capital. All maps involve abstraction, which is to say filtering out some aspects in order to achieve transparency or clarity elsewhere. (E.g. In order to make it easy to use, a map of a rail network may ignore distances. A map which modelled everything would have to be as big as what it was modelling.) An abstract example is the fact/value dichotomy, which breaks down since the “facts” must be selected, and this selection can only proceed by valuing some things – aspects – more than others.
You might alternatively map possessions by giving them names instead of figures. This is less useful, but illustrates the ad-hoc and sometimes obsessive nature of the mapping. It was satirised superbly by Saint-Exupéry in his children’s tale Le Petit Prince.
To recapitulate: The core feature of money is that it is legal tender for the payment of taxes. Taxes must be paid periodically, so taxpayers require a steady supply of money. This is what gives money credibility. Subsequently, money proves useful as a replacement for barter and for implicit promises or reciprocity. Hence it circulates. Problems arise from the scope and speed of circulation. As its speed of circulation decreases, money comes to resemble a store of value, but long-term it is unreliable as a store of value. It is then wise to convert it into capital, which is illiquid except at the margins. Capital involves a (mathematical) modelling of possessions. Until such time as there are taxes (e.g. property taxes) to be paid, or debt to be repaid, the modelling is superfluous, at best an exercise in curiosity. Like assigning names to stars other than for purposes of navigation.
A parallel currency could be made to work by allowing it to be used for taxes which are not yet due. For example, a land or household tax might be upheld or imposed in order to pay for (improved) local amenities. This year and next it must be paid in the standard currency, for example, the euro. However, as from the third year it would be possible to pay that tax in the parallel currency, perhaps named after the local (national) predecessor of the euro. One option would be to go further and require the tax to be paid in the parallel currency. This would have interesting ramifications.
Meanwhile the (local or regional) authorities would issue banknotes in the parallel currency to those whose new employment was to provide the improved amenities. These amenities could include, for example, a museum or public gardens, a childcare facility or one for the old and infirm; and so on. (In order not to complicate matters, in this illustrative example we imagine traditional banknotes being used, and without the option of placing them in a bank rather than a wallet or a domestic safe.) Others in the community will accept the banknotes as payment for local produce or services. Such services might include music lessons, hairdressing, baby-sitting, private gardening and minor household repairs, even the waiter component of a restaurant meal. Everyone can now afford these small luxuries without having to keep track of reciprocities or being restricted for their provision to family and friends.
One objection which would be raised, especially in the European Union, is that this would circumvent the collection of Value Added Tax. It is here that we would likely see political ideology wrecking a viable solution. The simplest would be to end (not reduce, but abolish) VAT on all services of a personal nature: hence on such as those listed above. The administration of such VAT has long been a disproportionate imposition on small-time entrepreneurs, i.e. individuals who cannot find and perhaps do not want state-defined employment...or to live on benefits. Since, in a cash economy, many of these service transactions cannot be tracked, the requirement to register and pay VAT is an open invitation for people to join the grey if not the black economy. This kind of VAT is indefensible, and in a seriously democratic Europe would be quickly ended. Sadly, we have, true, a liberal, but not a democratic or rational dispensation, a matter discussed at length at www.fuzzydemocracy.eu , where a solution is also proposed.
This said, the surveillance thinking behind VAT and its ramifications is a separate subject. Another topic is the need for ring-fencing of certain categories of expenditure, such as I have made at http://www.klasseverantwortung.de/english/digitalincome.html . This proposal for funding broadcasting and internet offers which are free to access and do not use advertising is an extension of ideas such as parents having a schooling budget, or even the substantially healthy having a medical budget. Much "money" circulates in closed – but not watertight – circuits. These are subjects beyond the scope of this essay, which was aimed at providing a fundamental understanding of the nature of money.