the role of conventional money

Since mutual credit money is truly valueless, it cannot BE a unit of measure. It must USE a unit of measure. This means that there must be something with which to set the price of things. You could use chickens or bales of tobbacco or kilowats, or hours as your unit of measure in which the mutual credit money is denomitated, but you can’t really do this because the “value” of any of those things varys across and within communities. Instead, the proper unit of measure is a conventional money, which is determined by an arbitrage market. So in fact, I think what I’m claiming is that the true role of conventional money is to determine aggregate value of things, skills and time, to be a unit of measure. Once we have that (which we allready do), then we can do the bulk of our exchanging using mutual credit money.
[tags]money,mutual credit,LETS,price,value[/tags]

2 thoughts on “the role of conventional money

  1. francois

    Conventional money, or money as we know it today, is an aggregation of so many functions that it is difficult to have a useful and precise discussion using the word money. There have been various functions attributed to money: means of exchange, unit of measure, store of value, deferred means of payment, etc. However since the very beginning of my investigation on money, I felt something was missing. I always felt money was playing an important role at a higher level.

    All the functions commonly attributed to money do not really reflect its role as a tool to manage our collective activity and creativity. If I put 15 millions on the table, the social housing gets built. Why? Because money is a tool we also use not only to exchange goods and services, but also to collectively manage our activity and direct it. Money can magnetize our energy towards certain goals, simply because we put money behind these goals. The process of choosing these goals has several names: typically investment, capital, or loan. However I would prefer using other terms to describe this role of money, simply because without being an investment tool money can direct our activity towards certain purposes. For example local money directs our activity towards the local economy. So instead of using the term investment or loan (as Steiner does) I would prefer the role of a means to direct our collective energy.

    Not many people in the money world gives much important to this role of money. Many can recognize this function intuitively or indirectly, but not many can name it for what it is. I would argue that all functions that we attribute to money are derived from or related to the following 2 major functions of money:
    1) a medium of exchange,
    2) a means to direct our collective energy.

    The functions of unit of account and of unit of measure relate to the major function of being a medium of exchange because we need to know the price of things and keep track of how much we exchange. However the function of store of value is related to the ability of money to be stored and released just like we can store energy and release it towards a certain goal. Money as a deferred means of payment is kind of both 1 and 2, since payments refers to an exchange, but also to the ability to pay later a debt that is a form of investment.

    I would also argue, as a consequence of my previous proposition, that any form of money can be described as a composite of these two major functions. The example I gave earlier was a local currency which is only used for exchanges but also as a means to direct our energy towards the local economy. LETS and mutual credit are more geared towards the exchange function, but it does not mean they do not direct or encourage our activity towards certain goals. Loan and other forms of investments are more geared towards the need to direct our collective energy towards specific activities and endeavors. But in the end money invested in a particular activity ends up being exchange money through the payment of supplies, wage, and the latter becoming exchange money for plain goods and services. Separating both functions is sometimes difficult, and it is rare to find them completely separated from each other. Such distinction is more an abstraction useful to understand the dynamics of our economic activity.

    Finally, I would compare such distinction to what Bernard Lietaer calls the Yin and Yang type of currencies, or to what some people have described as micro-economics and macro-economics functions of money (see
    I have not fully explored the validity and solidity of my propositions, which is why I call them so. But my observations in the last couple years only confirm their validity.

    A year ago Christopher Houghton Budd gave me even more substance to chew upon when he presented his view on the monetary phenomenon. In a video that Tim Murphy shared with me CHB distinguishes two types of money, one which is used for exchanges, and the other for investment, except he does not call it so, he calls it “ingenuity/creativity” money. More importantly, he also describes how the dynamic between these two types of money is now crucial because we have reached a point where we have a global economy. No longer can we hope to offset imbalances by trading with other partners or extending our reach. Since everything is integrated into a single global economy, understanding and mastering the dynamic between exchange money and ingenuity/creativity money is becoming crucial. Also he explains how we started from tribal economies in the past and end up now with a single global economy. CHB explains we now have to go through the other side of the curve and find ways to integrate local economies together into a greater whole visible to all.

    To come back to the original topic, with the development of complementary currencies (CC), I can imagine how conventional money can now take a role more geared towards the second function of directing our collective energy on a more national and global scale, while CC take the lead in terms of exchange money.

    This is turning out to be a bit more than just a post…

  2. Will

    >1) a medium of exchange,
    Having a well-defined value
    Being able to be transferred according to how transactions work (1:1 for scare goods, 0:1 for free goods)
    >2) a means to direct our collective energy.
    Having the ability to restrict actions
    Through: having the ability to prevent transactions

    It seems to me that what transactions are prevented is a key defining factor in a transactional currency, as this logical analysis of your system thingy shows.

    Transaction-prevention can be encoded at various levels.
    -The basic rules of the currency [you cannot spend money if you don’t have it]
    -Societal/trust factors [community currencies only]
    -Laws [you cannot spend money on cocaine]

    This opens the question of whether two currencies are linked. If currencies are linked, transactions which are prevented in one are prevented in the other.

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