The following essay explores the meaning of money inspired by Modern Monetary Theory [1] and its relevance regarding ecological crises, especially the climate crisis.

1. Assumptions

1. Money consists of statements about human behaviour in the future.
2. The value of money depends on the shared belief of a group of humans.
3. The shared belief is created and regulated by an authority who can apply a form of power to make humans act according to the targeted value of money.
4. The authority can create money by handing it out to participants of the monetary network on its own terms and, thereby, regulate human behaviour and guide it towards a target.

2. Explanations

2.1 Money as future human behaviour

The value of money is a statement about future human behaviour.

To support this argument one can take away any of these features and see that the value of money will be lost. If there is no future, there are no humans, or human behaviour is not affected by the monetary value, money will loose its value.

First, one may argue that the value of money is a statement of past human behaviour, ie the transfer of food from a seller to a buyer or a past service, such as the provision of a hair cut by a  provider to a customer. However, while these past events can serve as an approximation of the current value of money under the assumption of a stable market, the actual value of money, ie non the quantitative value (“numbers of a piece of paper”), but the utility to the money depends on the future time point when the money will be used in a transaction. As an extreme example, one may think of the declining value of money towards the end of one’s life, unless one manages to identify with someone or something else which continues to exist and can benefit from the money.

Second, while one may argue that some forms of money, ie like gold coins or paper, have intrinsic value, this value is negligible unless one needs specific qualities of gold as a conductor to build electronic circuits or paper to light a fire. Usually the value of money depends on other humans  and their motivations to transfer material or immaterial goods or services for a specific quantity of money. If there are no humans to trade with the, money has no value. For example, one may own a billion euros which may buy a life in luxury in current society, however, will not be useful if there are no humans exists to trade with because one is stranded on a remote island or a deadly disease has killed all other humans.

Third, while one may argue that the value of money represents real world resources, eg houses, cars, or food, hair cuts, household work, etc, the value of money depends on human behaviour, which makes those resources available. For example, houses and cars have to be built by human activity. Money used to obtain natural resources seem to deviate from this rule, however, also the purchase of a piece of land, a tree, or an amount of water or air depend on human activity to make these natural resources available, for example, by an authority who defends the property rights, ie rights to use the resource, against other humans. For example, this is illustrated by the history of John Sutter (1803-1880), who owned a large estate in California and lost it during the gold rush, because his workers left and the land was occupied by gold diggers without any authority strong enough to defend his property [2].

2.2 Money based on shared beliefs

The value of money depends on the shared belief in a group of humans.

This means, there has to be a shared belief in a group of humans, that the owner of money can obtain some value (utility) by the transfer of money to other group members. For example, cryptocurrencies illustrate that arbitrary currencies can be easily generated, but as long as nobody else beliefs in the value of this currency, ownership of this type of money will have no value (utility). The shared beliefs also depend on the future development of the value of the money, which are also reflected by the benchmark interest rates indicating how good it is to own money.

2.3 Money is created by an authority

The shared belief is created and regulated by an authority who can apply a form of power to make humans act according to the targeted value of money.

While one may assume that money “just exists and works”, one should not forget the fundamental importance of the authority who creates and regulates the currencies. If a person is using money to buy a product, but the seller does not transfer the product, the value of money is lost and if such events are frequent and publicly known, the value of the currency will be reduced. Therefore, the authority will use its power to force the seller to transfer the product, or if not possible, punish the deceitful seller, or compensate the buyer in some other way by refunding the money  to protect the shared monetary belief system.

Considering that money are statement about future human behaviour and the activity of human behaviour is limited in various forms, eg by the number of humans, their experience and skills, available tools and machines, and available natural resources, a regulatory authority can influence the value of money by issuing more monetary units or influencing the other value-relevant factors named above.

2.4 Money guides human behaviour

The authority can create money by handing it out to participants of the monetary network on its own terms and, thereby, regulate human behaviour and guide it towards a target.

While a regulatory authority is free to decide how to distribute money to people and organizations, it should distribute money in a way which guides future human activity towards a target which is desirable for the state or society. For example, if money is distributed randomly, this will promote inequality and social tension. If all people receive the same amount of money, all forms of human activity are supported equally. If, however, money is given to people who behave in a way which increases the well-being of the group, eg by supporting other humans, caring for animals, or protecting natural resources, more money should be given to them. Practically, this could mean that the state buys such services from individuals or organizations in society, thereby distributing money, but also creating well-being in society. On the contrary, if the state decides to buy services which are useless, eg digging and filling holes in the ground, or harmful, eg building nuclear weapons with an overkill potential to destroy the civilisation multiple times, the well-being in society will be reduced. Here, a positive money (full-reserve banking) model is assumed in which only one authority (eg the state) can issue a currency and use it in a way to promote well-being in society.

However, in our current system intermediate agents, ie conventional banks, can generate “fiat money” (book money), which is usually only backed up by a small proportion by positive money. The generation of such fiat money is rewarded by allowing banks to charge interest rates for lending out book money for arbitrary projects. While a regulatory authority controlled by a democratic system may use its power for the well-being of the society, banks as a profit-oriented institutions may give loans to any project with the best chances of regularly paying its interest rates over the contracted period with a minimal default rate. The banks business model here depends on the long-term success of the loan taker.

In addition, another intermediate agent are investment banks, which give out loans for a specific interest rate, but their business model does not depend on the the regular payment of interest rates over the contracted period, but on the variable interest rates (ie dividends) of the financed project and the perceived value of the financed project by other investors (“the market”). Here, the long-term success of the financed project is far less important in comparison to the perceived short-term profit by dividends and increase of market price. This form of creating money by “investment banks” is even further away from the target of money generation for the benefit of society of the regulatory authority than conventional banks, which creates a large potential for erratic, short-term investments in projects based on arbitrary belief systems about the future, which are guided by social behaviour  phenomenon (eg herd behaviour), which again may result in human behaviour, which is useless or even harmful for society.

3. Conclusion

Money can, should and must be used by the regulating authority to guide human behaviour towards a targets within the planetary boundaries [Ref]. The quality of life can be guaranteed at an at least minimum level by re-distributing the generated resources, which are required by its participants, in “fair” way. All other human behaviour (activity) can be guided towards an arbitrary target, which at present should be primarily be based on re-establishing a safe or controllable natural balance of the global eco-system with the planetary boundaries.

Therefore, the following demands are proposed:

• “Do not sell nature!”: Exclude core eco-system or eco-system features from monetary systems
• “Regulate money!”:
  • Install a full-reserve banking system to give full control of use of money to the regulating authority (based on democratic principles)
  • Prohibit the generation of fiat money by conventional or investment banks

Reference:

[1] https://en.wikipedia.org/wiki/Modern_Monetary_Theory

[2] https://en.wikipedia.org/wiki/John_Sutter