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On the illusion of money – An interview with Brett Scott

Brett Scott is a journalist, activist and a former derivatives broker. He is the author of The Heretic’s Guide to Global Finance: Hacking the Future of Money, which he presents as “a friendly guide to taking on the world’s most powerful system”.

This interview was first published (in French) in Socialter.

People tend to think of themselves as exterior to the financial system, ignoring the fact that they are connected to it through their daily use of money. Why is that so?

rsz_brettscott2_largerBrett Scott. I sometimes get the feeling that if you look into the concept of money with too much scrutiny, it will simply disintegrate. Money is a bit like language: you are born in a given system, you grow up speaking a particular language and using a particular currency system but you seldom have any incentive to speculate on the essence of either systems. It is something you simply make use of.

People ordinarily start wondering what money really is when a crisis occurs. I should know: part of my family is from Zimbabwe, a country that suffered a major hyperinflation crisis back in 2008. This is the kind of crash needed deconstruct our most common assumptions about money. When people completely lose all trust in the local currency, you cannot really subscribe to the fairytale of money as some kind of fetish “storing” value.

Truth is, there is a lot of misinformation about money. There are three great myths that we continue telling to each other while confusedly knowing that they are simply not true. The first one: money spontaneously emerged from barter. It is inaccurate: anthropologists have long been describing that, on the contrary, commercial exchanges in small communities take place through reciprocity and informal credit systems.

The second common illusion is about money being thought of as a commodity, an artifact that has an intrinsic value and can be traded like any other good, whereas it is truly nothing but a socially constructed claim on goods & services. The third fairytale concerns the way money is created: many people think that money is created by central banks. Then again, it is inaccurate: State money, which takes the shape of coins and banknotes, stands for a small proportion of the circulating money. The vast majority is electronic, and issued by commercial banks through a mechanism known as fractional reserve banking.

According to you, finance professionals are as ignorant about the nature of money as anyone else. Given their line of business, isn’t it somewhat disturbing?

B. S. But they don’t need to know! Quite the contrary, to be honest: if the illusion of money serves you well as a daily work routine, why would you change it? This is especially true for finance professionals: they must act as if money was a thing.

That being said, I am inclined to think that old merchant bankers of Venice had a much stronger sense of what money really is than their modern counterparts. The financial system nowadays is so fragmented that it can give the feeling that nobody is in control. There is simply too much specialization: you can go through your entire career without ever starting to see the big picture.

To most economists, money is presented as some kind of neutral technology enabling exchanges. As if they really wanted to say to us: “nothing to see here, go back to your business”…

B. S. Classical economics define money as a store of value, a mean of exchange and a unit of account. This is what leads most of us to think of money as a “thing”. It is easy to find people nostalgic of the gold-standard era, claiming that gold, contrary to modern electronic money, had a true value. But was it truly the case? Sure, it is tempting to fetishise it, but how can money actually “store” value? If you find yourself stranded on a desert island, alone like Robinson Crusoe, with a chest full of gold, it will not be of any help: it lacks any form of use value. It is no commodity. But if other shipwrecked people start showing up, then you can build a civilization, and your gold is likely to change into a symbolic token of value.

What ultimately gives money its power is the network effect: there is no opt out

This example tells us something compelling about money: it is nothing but a socially and politically backed symbolic system. It is not the money itself which stores value, but the community using it. The State endorse a currency as a mean to pay taxes, but what ultimately gives money its power is the network effect: there is no opt out. Which leads to another problem: as a facilitator of exchanges, money may well be too efficient…

What do you mean by that?

Heretic's GuideB. S. If money did not emerge from barter as commonly believed but as a mean to help scale up the communities, this does not go without a trade-off. Technology is never neutral, and this statement holds for money as well. What we had originally was an informal mutual credit system. But money is meant to remove the informal reciprocity element in a society by abstracting it, formalizing it and adding a third party, whether the King, the State or the banking system as a trust intermediary.

There is a positive side: while doing so, money breaks some forms of incompatibility and help overcome personal feuds. But on the other side, it loosen traditional bonds, gives birth to a new  breed of institution – the market – and leads to atomization of society. Simply put: money enables a community to scale while simultaneously destroying what makes it a community. It is a psychologically damaging process – much like Marx’s fetishisation – because it conceals the relationships of power.

One of the most common set of criticism among finance activists is about money being created by commercial banks. Is it the core problem with money nowadays?

B. S. Well this is the kind of hidden relationship of power that I was just telling you about. There were time when merchants had their own currency parallel to the official State currency. Nowadays, there is no way to tell State money from commercial bank money. It is a sort of a fiction, and you could almost go as far as saying that banks truly issue electronic complementary currencies which they can legally disguise as State money. But money creation itself is not the biggest problem here.

Commercial banks are using the cover of the State to make profit, and this is profoundly disturbing

The modern era is all about this odd political alliance between the State and the commercial banking sector through central banks. Indeed, the vast majority of the money we use is created by commercial banks lending money they do not have. While doing so, they have the power to decide which sectors of the economy should live, and which ones should be left to decay. The housing sector? Sectors destroying jobs? Ventures that can be environmentally destructive? Commercial banks are using the cover of the State to make profit, and this is profoundly disturbing.

Hence the necessity to hack the monetary system… Any promising prospects?

B. S. Many, actually. There are two way to look at this. First, you can look at individual hacks. Peer-to-peer lending, crowdfunding, complementary currencies like the Bristol pound or cryptocurrencies are all ways to break the old monetary statu quo. They are bringing competition and pluralism into the financial arena, which is a good thing. Of course, some are more compelling than others: my personal favorites are projects such as the Fossil Fuel Divestment Student Network or Robin Hood Minor Asset Management Cooperative, all about politicizing the question of money and subverting the financial instruments used by hedge funds for the latter. This is my kind of “deviant” finance.

The fact that we are passive is way more toxic than the way banks themselves operate

The second way to look at all this is to look at broader trends, and this is what matters most to me, because the fact that we are passive is way more toxic than the way banks themselves operate; It is crucial that we enable a more creative mindset towards financial culture. It is positive that people start perceiving that alternatives exist – from a psychological perspective – because then they will start thinking they can create one of their own. In this perspective, the flaws of each individual initiatives matter less. Think of BitCoin: some of its deep design elements are terribly wrong – its deflationary dimension, its tech-utopian ideology, etc. – but for all the hype it provoked, it paved the way to a more creative attitude to money. And this is really what all of this is about.


Featured image: Quentin Matsys, The Money-lenders (XVth century)