Citizens needs two monies

December 2014

Whether money is real or facsimile, ‘hard’ or digital, the question that needs addressing is who issues money and who creates credit – if not the banks or the state? And do our habits in regard to money change merely because it can now be given electronic form?

Many things are said about digital money, crypto-currencies, and the like. What is said is interesting: “We need no longer rely on trust.” "We have found tomorrow’s gold.” “We are free of the banks.” But is this true and was this ever the real problem?

Monetarily sovereign

What makes as unfree is ignorance. What makes us dependent on the thinking, or financing, done by others, is our own inability to act in a monetarily sovereign way. That would all change if we thought in terms of money, as means of exchange, being issued only to buy the goods necessary for material existence; and of credit being created in reflection of human capacities, initiatives and so forth. 

For then we would see that sovereign human beings issue money and create credit in ways that are at once individual and collective. My demand for capital is a call on humanity’s overall liquidity. My need for money, as yours, is to enable me to lead a material existence worthy of human dignity.

Because we have bodily needs, perennially, and because we are forever inventive, money and credit exist – not as such, but as a reflection. The fact that, until now, this reflection has been embedded in external financing structures or systems is no different in kind to the fact that there used to be far fewer labour-saving machines. Or that bookkeeping used to be done by actually moving goods and chattels or precious metals across the face of the earth.

The question is not whether money and credit can be given electronic form, with scientific cryptography replacing cryptic gold. The question is whether we can separate the two – both in our minds and in our institutions.

Glass Steagall V2

In 1933 the Glass Steagall Act sought to do this by separating retail and investment banking – something that was only ever possible because of the localized, ‘physical’, and highly regulated nature of US banking. Such a device (and any like it) is bound to be an anachronism now that finance and financial technology have gone global and universal, escaping the bounds of national economies at the same time as they escape box-bound, brain-bound thinking. 

The clue is in the notion that such finance, if not subject to a centralised system, amounts to ‘distributed ledger technology’. That is to say, today both money and credit can be tracked by accounting – requiring transparent, non-hegemonic currencies, much like Keynes’s bancor. Or the money used by Local Exchange Trading Systems and their kin (provided neither begin with a ‘float’ in any way). Both use distributed ledger technology.

The question is: In terms of which understanding of money? If we would take a real step into the future – real or electronic – we need to rethink the three functions of money, and store of value in particular. Instead of being deferred means of exchange, the second function needs to be seen as capitalising capacities.

In short, we need to learn not to use means of exchange (money) to acquire assets. And not to use store of value money (credit) to buy goods. We need to think and act in terms of two distinct, almost separate, functions of money, more precisely money and credit; that is to say, income and expenses and balance sheet. Then we will see that in accounting we already have the perfect instrument (because objective universal and practical) to perceive and to modify our monetary existence – both conceptually and institutionally.


Thereby, too, our monetary problems will become tractable. However, tractable means able to be taken hold of by monetarily sovereign citizens, with the consequence that monetary 'authorities' of all kinds will become redundant. At least they will for those who are monetarily sovereign. They already are!

This may disappoint those who would give a new lease of life to bank-created credit, or who advocate state credit instead, or believe that local currencies, as they are generally conceived, can be a match for today’s conditions in which credit comes from all over. Or those who think that by going digital we can ‘hey presto’ change our habits of life times. In particular, the egotistical use of money (of whatever kind), or the idea that money is a thing among things, not a proxy; or that gold can be restored to its ancient place in the heavens, some kind of event above the fray of human greed and other vices.

As Max Weber once pointed out, in Renaissance Florence, when all was abuzz with commerce and art, all the active ‘players’ knew how to do accounting. What, he wondered, happened that in our time few people know this art, and how telling that we have a money system in the hands of experts. No wonder there is a call for financial literacy. Sadly, that all too often simply means knowing how to work the system or that there is a system to work. It does not include questioning the merits or ethos of that system. Nor does it ask if it is the system that is at fault, or human egoism?

Pace Milton Friedman, it may be true that company directors are hired to do the bidding of their shareholders, but does that bidding have to mean ‘profit maximising’? Indeed, is profit maximising the best strategy for shareholders? Yes, if their only interest is the egotistical one of immediate financial gain; but no if they are mindful of the damage such gain may have caused. In a single global economy there is less and less time delay between when a cost is externalised and when the effect of doing so bounces back on the externaliser. The savvy investor will think twice before throwing his garbage over the neighbour’s fence, because in a one-world economy he is also his neighbour.