Money, law and crypto-currency

The classical Athenian agora

One thing I learned about Plato in my year of reading him is that he is not just an able philosopher but a great dramatist with a master’s eye for detail, subtlety, irony and nuance. When reading Plato, then, you need to keep both eyes open at all times, take account of the setting and understand the subtext between the characters. In the Republic in particular, you need to pay attention particularly when Socrates is questioning his young learners – and particularly when the two of them are building up their ‘city in speech’. You need to pay particular attention when Socrates is grilling Glaucon, because Glaucon is the one whose very soul is at stake. Adeimantus’s soul is, too, but not in the same way – Adeimantus is a secret lover of comfort and wealth, and not a true ‘dangerous youth’ like his brother.

Let’s talk a bit more about what Plato is exploring for us when Socrates is speaking with Adeimantus. What they are exploring in this early, ‘large-print’ foray into what justice means with the ‘city in speech’, after the challenge from Thrasymachus then taken up by Glaucon about justice being something only instrumental for gain, is precisely the foundation of œconomics. Let it not be said that Plato was ignorant of ‘œconomic principles’; those principles are front and centre for the first part of the Republic’s Book II! Adeimantus speaks precisely about the basis of social life as being in the meeting of basic needs: food, clothing and shelter – hence the need for the ‘city of utmost necessity’ to be peopled with farmers, carpenters and weavers (a division of labour). Smiths arise from the need for those engaged in primary occupations (ahem) to have decent tools to hand for their work. Herdsmen arise from the need for plough-oxen, draught animals, hides and wool. The need for trade between them arises – and thus arises the mercantile class. But only when we arrive here does he use the word ‘market’ (αγορά), and immediately afterward does he use the word ‘currency’ (νόμισμα), which is a play on the Greek words for ‘convention’ and ‘law’ (νόμος). Here the conversation about justice turns precisely away from meeting natural needs and instead toward establishing conventions.

Plato’s Socrates isn’t merely being cutesy with Greek etymologies here the way he is in Cratylus. This is actually an important turning point in the conversation, because it is concurrently with this exchange that what we would consider the state is established in the ‘city in speech’. The need for the enforcement of contract arises only with the establishment of trade. (It is only a few lines later that Glaucon jumps back into the conversation, irritably, to complain that a city in which only basic needs are met is a ‘city of sows’, and to insist on luxury, glory, fame, danger, risk-taking – and ultimately war – as human needs. Tellingly, this happens only after the establishment of the state.) In Plato’s examination of œconomic needs, he places exchange, money, law and thus government all at precisely the same point. For Plato money is not a natural feature of human society, but instead a customary and legal one whose correct purpose is to guarantee a fair exchange between the producing members of the city. Plato insisted in the Republic that the value of money is not natural or intrinsic but instead symbolic (σύμβολον).

As an aside, gentle readers, here’s a bit of historical irony. It’s something of a truism of American life that we tend not to take wisdom from our elders but instead insist on finding it out ourselves. And it’s rather always been this way. Edward Kellogg, the self-taught radical œconomist from Connecticut who started out as a dry-goods grocer and began to write treatises on ‘the currency question’ under the name of Godek Gardwell after the Panic of 1837, came to the exact same conclusions as Plato on the nature of money, I guess we might say, ‘the hard way’.

Kellogg became convinced that for something to be considered currency, needs to have four proper features: it has to be able to represent, measure, store and exchange œconomic value; and it can only acquire these features by the force of convention and law. Markets can only function under the legal conditions set forth by these conventions; subjecting the conventions themselves (that is to say, the medium of exchange, or money) to the conditions of the market in fact introduces distortions and contradictions. Plato (or, say, Saint John Chrysostom) could have told him all this, but credit should be given where it’s due: Kellogg was wise enough to notice that tagging the value of currency to that of a market commodity, like gold, leads precisely to market distortions and speculation on the standards which allow the market to function in the first place. Despite Plato’s convinced elitism, a Pythagorean symbolic reasoning which we can only describe as ‘Platonic’ undergirds the entirety of the œconomic thought of North American populism – and the laws governing money were largely learned through trial-and-error in the same way that Meno’s slave learned the laws governing the areas of quadrilaterals.

Unfortunately, it seems we are doomed to keep learning these lessons by trial-and-error. The Platonic intuition that money given its properties by the force of custom and law is one which has gone completely overlooked through most of modern Western œconomic history; we’ve instead cleaved unto the Aristotelian error that money is a commodity whose value is derived from supply and demand. This is true particularly with regard to digital crypto-currencies, whose values are explicitly derived from the massive computing power necessary to generate the self-referential blocks that in turn serve as transaction records in the currency itself. Discussions over crypto-currency tend to get sidetracked into questions of whether or not crypto-currency is a ‘bubble’ or whether or not it has ‘actual’ value; speculation in crypto-currencies is only a symptom of a much more deep-rooted problem, and the question of crypto-currency market values is a red herring.

Instead, our reliance on checkbook money has given us a false idea of what wealth actually is, and how it is related to the problem of money. Faced with the glaring structural problems created by a system in which money is created and circulated by volume of private loans, many libertarians and conservatives guided by commodity-money logic go looking for a ‘sounder’ form of money distinguished by its scarcity and utility – whether that is gold or a more high-tech commodity like bitcoin. Many leftists and liberals, on the other hand, despite having truly trenchant critiques of the exploitative banking system and the manipulation of the process and factors of production by the hyper-capitalist financial sector, offer little by way of cogent critique of the medium by which this manipulation and exploitation occurs. As that most excellent peripatetic al-Fârâbî would doubtless tell you: if you do not understand the lower-order functions, it’s a foregone conclusion that you won’t understand the higher-order processes that depend on them.

The one place where it seems a critique of money (which amounts to a critique of credit) is being taken seriously is among the post-Keynesians generally and among the ‘modern money’ folks in particular (a subset of the post-Keynesians, from what I gather), who operate from the Platonic-Socratic intuition that money’s sole source is in the power of law, and that the medium ought to be symbolic if it is following its proper function and end. Ultimately, the answer we need to give to the culture is the same as Christ’s answer to the Pharisees on this exact same question. The money used to pay tribute to Cæsar bears Cæsar’s image and superscription. Once this fact is shown, it becomes a bit easier to get disentangled from false ideas about where the ‘value’ is and where our debts are to be repaid.