WHAT IS MONEY?

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Content

1. Introduction.................................................................................................................................................... 3

2. The more realistic perspective ....................................................................................................................... 4

2.1. Sociological ................................................................................................................................................ 4
2.2. Ethnological................................................................................................................................................ 4
2.3. Jurisdictional .............................................................................................................................................. 4
2.4. Signs of complexity .................................................................................................................................... 5
2.5. Cryptocurrencies ........................................................................................................................................ 6
2.6. Historical .................................................................................................................................................... 7

3. Recent heterodox theories ............................................................................................................................. 8

3.1. Property Economics ................................................................................................................................... 8
3.2. Debitism ..................................................................................................................................................... 8

4. Annotation.................................................................................................................................................... 11

5. Sources ......................................................................................................................................................... 12
3 Introduction

1. Introduction

Along my longstanding studies on money theory I’ve come across various views on »money«. Unfortunately,
most of them are incorrect according to actual scientific evidences but nevertheless are commonly taken for
granted by the vast majority.

It was innervating for me discussing this topic in order to gain deeper insights on our economy and how it
would work. But within this process I’ve learned that the coherences are wider than I initially thought.

In order to avoid you wasting years of studying obsolete theories which regrettably still are being teached on
universities I made this overview on what lies beneath when someone talks about money.

So what is the official story how money emerged?

We all have more or less heard about the barter paradigm of »money« where someone invented »money« in
order to simplify the process of exchanging sheep with pigs. Of course, this seems plausible as it must have
been very complicated to bring the sheep to a market, the pigs back in the village and then e.g. to give the
baker a piece of the pig for a bread and another piece to the barber for a nice hair-cut and so on. With
»money« it would be much easier to sell the sheep and then split the amount for the bread, the hair-cut and
other things.

But sad to say, the whole story is utter bullshit. To be able to relate why this is a fable we have to delve a little
into sociological, ethnological and historical research as well as some jurisdictional fundamentals.
 The more realistic perspective 4

2. The more realistic perspective

2.1. Sociological

As we all have experienced, the usual barter operations within our closest circle of relations (family and friends)
is neither based on exact amounts of value nor always on schedule. Instead, our transactions are based on
loose debt relations and we help each other out as long as it is reasonable for our social bonding. Therefore
mothers do not record all expenditures they made for their infants, one does not impose the disabled sibling
and it is absolutely normal that one friend gives »more« than the other gives back. The comprehensive reason
for this behaviour is to know each other profoundly or have a social connection that makes us understand why
we do not need to conclude any contracts on family members or friends.

2.2. Ethnological

Within tribes the members also know each other and are more or less socially bound which lead to a voluntary
social solidarity within their tribe. Therefore they do not need a »standard medium of exchange« as first and
foremost all their interactions are based on loose debt relations like within a family. Accordingly, it is not
surprising that

»Ethnologists who, in their more than eight hundred tribes studied, have never been able to observe an
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endogenous path to unrestricted private property and thus to the monetary economy.«

They merely knew (physical) possession but not (jurisdictional) property and therefore no assets.

The jurisdictional terms of »property« and »assets« (as well as »contracts«, »redemption«, »deadline« etc.) are
completely unknown to communities that do not have established public or private law. There are even tribes
2
that have no concept of »time« which is a fundamental premise for common bargains and for economy in the
most general sense.

2.3. Jurisdictional

There is a huge difference between possession and property regarding contracts. For instance, B rents a flat
from A, who is the owner of an apartment building. While B is living in this flat, B uses it physically for himself
and therefore owns the possession side of this flat. But B cannot sell or take a mortgage on this flat. B is not
able to do any »property operations« with this flat. Only A can do this as A is still the owner of the property
rights of the apartment building and the flat as part of it.

1
Heinsohn (1984), § 17, p. 38 f.
2
http://www.bbc.com/news/science-environment-13452711
5 The more realistic perspective

Property rights belong to the intangible legal sphere while the possession side belongs to the tangible physical
sphere. That are two different layers and alongside »time« extremely important concerning economy,
contracts and »money«.

Every contract has a scheduled due date. May it be the wage payment, rent, electricity bill, tax or whatever you
may think of. The due date and course of time are the most important fundamental factors of economy. Only
with the consideration of time one is able to calculate interest, after all.

Interesting side fact regarding different forms of »money« some historian think they found:

»All the forms of money mentioned so far [such as 'preferred objects of exchange', 'jewellery money',
'clothing money', 'equipment money', 'food money'] are, of course, usually economically different from
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the money customary today in that they could not be borrowed at interest rates.«

2.4. Signs of complexity

So, when someone talks about barter, he actually ignores the effect of time every contract has and he also
ignores the intangible side(s) of the contract as he only focuses on the physical exchange of commodities which
is a special case within the real economy.

Of course, two parties can swap marbles at exactly one point of time but such transactions do not have any
impact on economy let alone build the foundation of it. The basis of the economy is formed by the uncertainty
of reciprocal obligations entered into over the course of time. Even when you buy bread at your local bakery
there is the legal wait of payment. This is no barter. Maybe you can comprehend this better when you think
about paying with EC card at your supermarket. The supermarket expects the payment to be fulfilled by your
bank while the actual payment needs some time to be settled. There is a debt outstanding and both parties
have to calculate with the expected repayment.

Assume someone buys something with a bad cheque. According to law, the purchased commodity belongs to
the vendor till the payment has been settled and if the payment is cancelled the commodity has to be restored
or the »value« of the purchased commodity has to be substituted by »money«. You see, the whole process of
business transactions first and foremost affects the wealth of both parties and the physical sphere only on
second level and sometimes not at all (credit contracts, e.g.).

Now assume further on, A has an outstanding receivable to B and C an outstanding liability to B. A can use this
claim on B to pay something from C as C could use this claim to pay his liability to B. For this purpose and in
order to secure the promise to pay promissory notes have been established. The more parties secure the
promissory note with their wealth (property) the more stable the »value« of this note is. Here it begins to

3
Heichelheim (1938), p. 62 quoted by Heinsohn/Steiger (1996), p. 143 f.
 The more realistic perspective 6

become complex, but to summarize, it can be said that »money« is outstanding debts and not a commodity, as
you may have thought or been taught.

You may ask, why A cannot just emit own debt obligations and secure it with his own wealth (property), for
example. The reason is that those debt obligations are not really secured by a second party. When we look on a
credit there are the debtor and the creditor and both secure the emission by their wealth. Both parties need to
burden their equity. The debtor must contribute liability capital in the form of income or assets to which the
creditor can access in the event of default of payment. The creditor, for his part, must have sufficient assets so
that his emission is accepted or so that it can (historically) be redeemed with him, since his emission represents
direct rights of intervention in his assets. The compensation for the creditor is the interest rate and the
compensation for the debtor is the liquidity. However, it is of course also possible to a certain extent that the
wealthy contracting parties can also issue their own borrower's notes without further contracting parties. Their
assessment is based on the basis of existing obligations to such partners and if such obligations are completely
absent, it is purely an arbitrary issue and no »genuine money«. The more secured the emission is, the more
»genuine« its value has been settled by the free market and not by pure arbitrary. The more »genuine« an
emission is the more stable its value is and therefore it is commonly accepted as contract currency as both
contract parties do not have to fear high volatility that could change the whole contract content in favour of
one side.

Now you may understand why it is disadvantageous to use a single particular thing (like gold) as coverage for a
currency rather than a large number of different types of collateral freely traded on the market like our modern
fiat »money« system is based on. To go into detail, private banks sell mortgages (a contract between a private
bank and a private person) to central banks with a repurchase agreement. The central bank is secured by the
assets of the private banks and the private banks are secured by the assets of the private persons (with they
have settled the mortgage contracts with). The value of the mortgage is settled on the free market and
eventually the value of the emission of the central bank, as well. The currency is »genuine« and widely
accepted.

Moreover, do not get confused by the documentation of debt and the debt itself. One can document debt in
various forms: by writing it in a book, by carving it into wood, by minting coins, by printing bills, by creating bits
and bytes, etc. The coin itself is not the claim, but it documents it and so it is not surprising that one has
confused the thing that documents the debt claim with the actual claim itself.

2.5. Cryptocurrencies

Now you can ask yourself: What does a cryptocoin actually document? Are cryptocurrencies »money« or
things? Are they claims or mere assets?
7 The more realistic perspective

They are digital assets. They cannot substitute »money« as long as they are no debts itself. Of course, they can
be used for private payments but every asset can be used for that. That is nothing special, even when the
settlement is way faster. There may be a crypto that legally documents debt or would be debt itself, but until
then, please say goodbye to the dream of replacing money and banks with it.

2.6. Historical

So what happened that law (and property and assets) emerged in the first place?

Historic evidence teaches us that there were several catastrophic events nearly leading to the extinction of
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mankind. The most famous one is the Toba super eruption about 75.000 years ago that worldwide as few as
several hundred people survived. With the change of the nutritional conditions those humans had to change
their behaviour in order to cope with the new situation and as time went on their brains grew due to the
changed nutrition. The population of the family like tribes grew over time and here it is important to know that
everybody is able to maintain only a restricted quantity of stable relationships, which lies about 150 for each
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human. Thereby the overall social solidarity became instable.

They invented tools and started cereal growing as well as livestock farming which, by the way, made them
realize that the man has a share in the procreation (begin of patriarchy, male gods). Furthermore they got an
idea about »time«. Hunters and gatherers became farmers and shepherds and in between this process there
was also an important event: the discovery of Bronze (Muschiston, Tajikistan) and the invention of the metal
weapon about 3500 B.C. (Bronze Age). The shepherds used those new weapons to subjugate farmers and to
demand tribute. Feudal civilization started.

4
https://en.wikipedia.org/wiki/Toba_catastrophe_theory
5
https://en.wikipedia.org/wiki/Dunbar%27s_number
 Recent heterodox theories 8

3. Recent heterodox theories

Now, there exist two modern theories which have a slightly different approach explaining this »game change«:

3.1. Property Economics

The theory of Property Economics focuses on the distinction between possession and property, property
operations and in comparison with orthodox economic theories a more realistic perspective of how our
economy functions.

Here it is assumed that due to an emergency situation a variety of male warriors have been banished from their
tribes. As the women were in charge of keeping them within the tribe and support them with food they were in
the awkward position of expelling them due to the fact that they just had not enough to food. The male
warriors had to act in order to survive, and so they band together and divided a certain area among
themselves. Each individual had its own parcel of land, which served as a food source and everybody respected
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the borders of those parcels within a common agreement of »free men«. Property has been invented. Now,
with the ability of property operations economic activity arose and »Money« emerged out of debt contracts
which were secured by those parcels, resp. their expected yields.

Here, Heinsohn and Steiger also refer here to an ancient Greece revolution that must have taken to be place
around 800 B.C which once brought the feudal system to collapse. Two thousand years later, around 1381 in
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England, the Peasant’s Revolt led to a stalemate between the peasants and the lords whose land they worked.
Historically, this led to the first wage labour in which the Lords offered the farmers shares of their land for their
work. This set in motion the innovative economic process that would eventually enable England to conquer half
th
the world. At least, until the 19 century, when Germany with its Protestant work ethics became the first tiger
state in the world and therefore a threat to England.

3.2. Debitism

This theory is based on the work of Property Economics but mainly focuses on subjugation and tribute
demands (weapon and time) as economic foundation. Here, »money« is anything that is demanded as tribute
or tax within the »over property« of the ruler. The original »money« debt claim is set by arbitrary and force of
arms. In order to avoid the sanction (of death or any other form of violence) on the due date, the debtor is
forced to procure the debt owed, whatever it takes.

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Let’s look at the legend of Rome in order to describe the agreement process: Romulus drew the sacred furrow that determined the size of
the city and began to build the moat and wall. The defeated Remus mocked him and jumped over the still low border into the facility. This
was a serious violation of law and order, for a city wall was considered sacred. Raised, Romulus killed his brother with the words: "So let it
be done to anyone who leaps over my walls."
7
https://de.wikipedia.org/wiki/Peasants%E2%80%99_Revolt
9 Recent heterodox theories

I like to use the following example to show how the value of gold has been taught to people that did not have a
clue of it:

(Source: http://theoatmeal.com/comics/columbus_day)

In order to install such a tribute system the ruler needs to pledge profit to his minions and has to »pay« for
their living until the tribute finally is collected. This passage of time is extremely important as it shows that the
debt process is a growing spiral in which the installed government and its system eventually must fail as the
actual payment always stays behind the imposed tribute.
 Recent heterodox theories 10

This debitist assumption cannot remain uncontradicted, because in theory the debt system can in principle run
indefinitely, insofar as the creditors occasionally buy (and pay) from their debtors. However, the real-life
experience shows that accumulation effects occur in all economic systems, which can only be counteracted by
temporary stabilization.

The reasons therefore are on the one side that state systems tend to expand and on the other side that
innovation itself requires a motivational drive which can be found within the possible loss and gain of private
property. A high degree of innovation potential is necessary in order to be able to compete against other
(state) economic systems. Using the example of the Soviet Union and the GDR, which effectively abolished
private property, it was possible to observe the corresponding disintegration of innovation potential and thus
of economic competitiveness in recent history.
11 Annotation

4. Annotation

Finally, it should be noted that both property economics and debitism, as very young theories, are not yet
mature and have different weaknesses. What both have in common is that they claim to work with terms as
precise as possible in order to avoid the confusion that has become commonplace in the debates of current
economic schools. Therefore I am sorry that I might not be very precise in English, because my mother tongue
is German and both theories were written by German-speaking authors. Unfortunately, it is precisely in the
field of property economics that the legal concept of assets has now to a large extent been equated with that
of property. The debitistic perspective, in turn, can lead to fatalist worldview like this:

»There is no friendly trading before the homo sapiens became a patronized and taxed tribute producer
(homo oeconomicus). Self-sufficient, anarchist communities don't trade and don't have markets because
they are self-sufficient. They don't produce surplus because they don't have to pay tribute. Their
production growth (and destruction of the environment) therefore is zero. That's the real win win
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situation. Enforced surplus production is a lose-lose situation. It is cancer.«

8
https://bitco.in/forum/threads/gold-collapsing-bitcoin-up.16/page-700#post-24573
 Sources 12

5. Sources

Nevertheless, however, both theories are far superior to the established theories in that they describe
economic reality much better and more comprehensibly on the basis of scientific findings. Therefore I can only
recommend a deeper reading to the prospective customer. The development from farmland as the first private
property and tribute to money, banks and liquidity is explained in detail within the following sources:

 Heinsohn, G. (1984), Privateigentum, Patriarchat, Geldwirtschaft: Eine sozialtheoretische

Rekonstruktion zur Antike, Frankfurt am Main: Suhrkamp.

 Heinsohn, G. and Steiger, O. (1996), Eigentum, Zins und Geld: Ungelöste Rätsel der
Wirtschaftswissenschaft, Reinbek: Rowohlt.

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 Martin, P. C. (2003), Power, the State, and the Institution of Property, Weimar: Metropolis

 Schieschnek, M. (2012), Bachelorthesis: Eine vergleichende Untersuchung der

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Eigentumstheorie als Grundlage des Wirtschaftens, Burgstädt.

 Steiger, O. (2008), Property Economics: Property Rights, Creditor's Money and the
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Foundations of the Economy, Weimar: Metropolis.

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To gain even deeper insights I highly recommend the ANEP blog: https://blog.anep-economics.org

Thanks for reading.

Share it with others if it had helped or pleased you.

Mario Schieschnek
Burgstädt, Germany
th
17 of February, 2018

9
http://www.metropolis-verlag.de/Power,-the-State,-and-the-Institution-of-Property/11572/book.do
10
http://www.dasgelbeforum.net/sammlung/Schieschnek,%20Mario%20(2012)%20-%20Bachelorthesis%20-
%20Eine%20vergleichende%20Untersuchung%20der%20Eigentumstheorie%20als%20Grundlage%20des%20Wirtschaftens.pdf
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http://www.metropolis-verlag.de/Property-Economics/482/book.do
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Academy for New European Political Economics