The Strategy Of Money Redux

On March 4th of this year, Mr. Porretto published The Nature Of Money And Currency.  In that piece, Mr. Porretto relies on an incomplete definition, an outright falsehood and an appeal to authority in crafting an argument in support of his thesis, rather than the more traditional (not to say honest) method of letting the facts demonstrate the conclusion.

Mr. Porretto says:

Being an old fart, my education included a few items that are, let us say, no longer deemed suitable for dissemination to the impressionable young. However, had those young folks been exposed to a few of those items, quite a lot of our current miseries might well have been averted.
Two of those no-longer-chic items were the original definitions of money and currency:

money n: A medium of exchange and a store of value.
currency n: a proxy for money often employed in commercial intercourse.

I submit that a more fulsome (dare I say educational?) definition of money might be: An entirely imaginary medium of exchange providing both a mechanism for determining, and a store of, value (itself an equally hypothetical and transitory measure). 

Which is not to say that money isn't real or that things or ideas can't have real and lasting value.  But back to Mr. Porretto and his repetition of a common falsehood:

Money shares an important characteristic with language: it was a "crowdsourced" development. No one "invented" money ...

 Even a casual glance at human history will make obvious that the earliest of records from ancient human civilizations discovered so far, all center on recording the assets of the government (often in its function as religious authority).  These records make clear that the items themselves (food animals, agricultural produce, worked items, brewed or distilled liquids, raw land, etc) gradually were replaced by the entirely imaginary human concept of "money" instead of (and often in addition to) the quantity of item(s) being recorded.  Not "crowdsourced" by anonymous "no ones", but through a process of deliberate development of accounting mechanisms in support of a hypothesis toward more efficient (or at least more thoroughly documented) government.

And, finally, the appeal to authority:

Many astute and observant things have been said about money. Some of them are even true. For my money (sorry about that), the most piercing statement ever made about money occurred on the floor of the United States Senate, in 1912. The great financier J. P. Morgan had been asked to testify to that august body on monetary matters. This was the very first inquiry put to him:

Senator: Mr. Morgan, what is money?
J. P. Morgan: Gold is money, and nothing else is.

Morgan's understanding of the properties required of money was clear and unshakable.

Not to mention entirely (and no doubt unapologetically) self-serving.  Can we take it as a given that by 1912 J. P. Morgan had amassed a quantity of refined metals (and more specifically, gold) sufficient to make any other answer financially damaging, if not ruinous, for himself and his many business interests? A less partial or more biased source of opinion seems unlikely to me.

I have given attention to the concept of money before now.  One of the aspects of the construct we call "money" that I have yet to see given much consideration is the distributed network effect the concept creates.

Contra Mr. Morgan (and, apparently, Mr. Porretto), gold and other refined metals are currency, not money.  As such, they provide a physical mechanism to achieve the storage characteristic that money allows, along with being one of the physical transactional proxies of money during "commercial intercourse".

Money is a theoretical expression of transactional value.  It is this which removes any physical material from consideration as being itself money.  Accounting is the documentation of the (however spirited or lethargic) transaction process; money is the idea that permits any object or idea to be accounted at a determined value at any point in the exchange process, and currency is the stipulated unit in which value is expressed, stored and exchanged.  It is this complex nature of currency that also permits it (as a proxy of money) to operate as a distributed network between distant, and even actively opposed, peoples.

One of the great failings arising from this early network effect is the widespread conflation of specific forms of currency with money, along with the equally common belief that value has a fixed or permanent component to its nature (I suspect because almost anything has some value almost anywhere at any given moment, causing the illusion of intrinsic value).  Because money is accounted and denominated in currency values, there is a strong and widespread impulse to manipulate those values (even if only to stabilize them beyond the moment).  Indeed, one of the most prominent claims to legitimacy of any government or nation is the stability and value of its currency.  This points out the fallacy of gold as money, as gold must have a denominated and stable value as currency, but doing so severely limits the value of the money the gold currency serves as proxy for (and thereby limits the hypothetical wealth of nations, so to speak).  Currency is a complex concept, but not capable of the stretch that level of complexity demands.

For the reasons Mr. Porretto notes, refined metals are historically the most common form of currency used in value transaction.  From this facility at commercial intercourse, the monetary network effect also measures, transmits, receives, recalculates and re-transmits (wash, rinse, repeat ad nauseum) information just as well as it facilitates transaction in physical items.  Not to the standards of speed or specificity of data a modern human would expect, but far more quickly and complexly than any individual of a more ancient era could ever achieve directly. 

What is needed still is a non-currency value of measurable, but reasonably directly equatable, quantity.  I suggest the electrical value: erg.  An erg of electricity can be expressed in watts, which are themselves an established measure of "work".  Any nation's monetary value can be reasonably (and surprisingly accurately) expressed in the electric (or equivalent) capability to perform "work", and thus an international value can be assigned to a country's currency entirely unrelated to the local (or even planetary) availability of any given refined metal, or even necessarily the actual quantity of "work" performed (contemplate the electrical concept "potential" as it might be applied in this context).  Regardless of national origin, money is measured as the work capable of being performed by a stipulated amount of electricity (as measured in ergs), and a country's currency is valued by the total amount of work that nation generates (or controls?) over a stipulated time period.  No one needs to enforce this system, as anyone can perform the required calculations from a compendium of recent historical data for that country (the compiling and certification of which is a potential business opportunity all in itself).  As ideas go, this one undoubtedly needs more work. 

Mr. Porretto writes in support of a particular political ideology that appears to feature as a short term inevitability the violent disruption of his and my country at the very least.  He is certainly not unique in this belief, but his beliefs serve as a preconceived outcome to his essay rather than a truly logical conclusion drawn from the facts he presents.  Given the influence his work has on other writers I admire, this is unfortunate and misleading.  Mr. Porretto has written further on this topic here and here, but I expect they are also examples of his pursuit of an ideological aspiration rather than informed economic essays.