Money can most usefully be understood as a collection of functions.
Functions are the possible uses that something can be put to if you should so choose. You can use a knife to cut cheese or spread butter, they are two different uses of the same implement.
The design of an object determines what its possible functions are. It is possible for the creator of an object to enhance or limit the functionality of any given object by altering the design of that object. If you were to make a hammer out of glass instead of hardened steel it would considerably limit its function to hammer nails!
At the same time it is possible for users of an object to take advantage of, or modify the functionality of an object in ways that were not approved of or foreseen by the creators of that object. A car can be used to carry out a bank robbery or to knock down a tree, neither of which was it expressly designed for.
It follows from this that the total functionality of an object is the nexus of purposes between the creators of that object and the users of that object. Money is no different from any other manufactured object in this respect.
The creator of any given piece of money is in the last resort, the government. This is specifically because any piece of money is a legal instrument. Money is nothing other than a legal instrument, nor can it ever be anything else. It follows from this that the functions prescribed for a piece of money by its creators are limited and defined by law.
Money has no significance outside of these legal limitations. So for example you cannot use money to legally buy another human being. It does not matter even if somebody freely wants to sell himself to you, such a function of money is not permissible. No such agreement would be legally enforceable.
Further, this invalidity is not limited by the amount of money involved in such a transaction. There is no amount of money you can offer for a person that would make such a deal a ‘fair exchange’. This is a simple legal limitation of money.
But money is not only defined by the limitations on its use, but by the positive functionality it offers to its users. This positive functionality means that in some real sense, the use of money is entirely voluntary. If any given government cannot provide a legal framework of functionality that serves the interests of the users of that money, then they rapidly turn to alternatives.
Money is a way of channeling and controlling trade, but where any particular instance of money fails, trade finds a way. Trade (as human interaction) is ubiquitous, like air and light.
Which brings us to interest rates. Earning interest is – was, a positive function of modern money, that is to say it is a positive reason why people wanted the kind of money that is available now.
Interest is validated as an expression of the contemporary social value of money in terms of itself. In other words, interest on money is paid in money to express its value at that specific time. This additional money that accrues to owners of money by virtue of possession expresses the fact that money is valuable. Interest proclaims that all things being equal, anyone within society should/will be able to use money to extract value.
It is a license, a legal permit, to extract value from within the society. ‘Extract’ value is important, as you will see in a minute.
This definition of interest is of central importance because it contains within it a model of the society into which the created money will go. It makes plain that there WILL be opportunities to use money profitably (in a way which can extract value), within the given society.
It follows from this that the interest function is in essence a statement about a given society. And it is fundamental to the way that modern capitalist societies differ from pre capitalist (‘feudal’) ones. Modern capitalist societies will offer opportunities for wealth extraction/ transfer, non capitalist societies do not guarantee this. This is the fundamental rhetoric and ideology of capitalism.
From this positive functionality of opportunity an apparent negative functionality is implied: That it is possible that there might be limited or no opportunity of profitable use that can be made of a given amount of money. This possibility is defined as ‘risk’.
But this can be shown to be a demonstrably false argument by means of a simple illustration:
If there were an infinite number of possible profitable ways to utilise money what would the effect be on interest rates? Despite the fact that there would be little or no risk, interest rates would be high. Because there would be high demand for money After all, what would incentivise the lending out money when there were countless easy ways to directly invest it at high returns?
And what would be the effect of an opposite environment of high risk and few profitable ways to utilise money? Then interest rates would be low because there would be little or no demand for money. In this environment, investment opportunities as opposed to money would be at a premium.
This directly refutes the idea that interest is an expression of risk. It is precisely the opposite. The amount of interest charged is NOT a reflection of risk it is a reflection of the lack of risk.
Further it directly refutes the idea that money produces wealth. Money extracts wealth from profitable opportunities. Without these profitable opportunities money is worthless.
As I argued above, interest is a statement about a society. So what does the MONETARIST refusal to obtain interest from the money they issue- ‘ZIRP’, say about society now?
It says that there will be no ways to profitably extract wealth. It is effectively the end of a capitalist society.
It is worth unravelling this.
I argued that money is a designed artefact.
I argued that money is a legal instrument. It follows from this that the production of money is a legal process.
The charging of interest by central banks when money is issued is part of this legal production process.
Money that is designed to be produced without this initial interest charging process is designed to be different from money that is produced with interest charging.
It is designed to be a different kind of money.
It is a different kind of money.
It has effectively been sabotaged, in the same way that a hammer that has not been sufficiently hardened has been sabotaged.
A sabotaged hammer can be called a ‘semi- hammer’
Sabotaged state money can be called ‘semi state money.’
This sabotage is deliberately carried out by Monetarists
To return to the hammer analogy, the total number of hammers being produced might be the same or even increased. But the quality of the hammers being produced has been diminished. The overall stock of hammers is being progressively corrupted as useful hammers are retired and replaced with ‘semi hammers’.
What this means is that it becomes progressively harder to find a useful hammer to knock nails in with.
Doesn’t this correspond to what you have seen in the real economy? Despite the fact that there has been a record production of money, activity in the real economy is actually shrinking- how else can the deflation we have seen be explained?
How else to explain phenomena like stock ‘buy-backs’ where management use cheap ‘money’ to buy back their own company shares and boost value by increasing the earnings ratio. This is effectively turning shares into a kind of money surrogate.
The explanation for this is that when there are no useful hammers to be found, you are forced to improvise an alternative, (the back of an axe head for example) to knock a nail in. This would be a surrogate hammer, and now since there is less and less useful money around, shares are being used as surrogate money.
The saying goes:
‘To a man with a hammer, everything starts to look like a nail’.
But to a man with a nail to knock in, quite a few things can start to look like a hammer.
To put it another way:
The sea exists over space and time. But the sea is not a totality. The action of the sea is a collection of waves over time. The waves vary in size, shape and force over time. You are encouraged to see money as a totality, but in fact it is a series of legal instruments, that differ in design over time. The interest rate is one of the characteristics that can vary.
Monetarism has built a series of wave breaks and artificial reefs that systematically change the size and shape of the waves that break upon the shoreline. And these modified waves of money issuance are being used to smash up the coastline you have known.
It is not nature.
It is deliberate systematic human intervention.
Breton Fisherman’s Prayer (Anonymous)
Dear God, be good to me;
The sea is so wide,
And my boat is so small.
‘I do not know what I may appear to the world, but to myself I seem to have been only like a boy playing on the seashore, and diverting myself in now and then finding a smoother pebble or a prettier shell than ordinary, whilst the great ocean of truth lay all undiscovered before me.’