Archive Nota Bene Steven Wedgeworth

Analogue Economics and the Nature of Currency

Wes Baker has an insightful post on economics, arguing that the Austrian School improperly commodifies money and thus fails to understand the constitutive nature of a society. He writes:

I have often referred to Austrian economics as “analogue economics” (as opposed to “digital”)… What I mean is that this school of economics tends to treat money essentially as a commodity (e.g., thinking of gold or silver as the only “real” money) instead of viewing it as a socially constructed symbol enabling human beings to relate to each other in networks of collective intentionality. I’m borrowing the terminology here from John Searle’s work on language, consciousness, and human institutions. He argues that lots of things that we take for granted every day like parades, marriage, football games, corporations, governments, cocktail parties, board games, and even money are ontologically subjective entities that exist as a product of human consciousness (as distinct from ontologically objective entities like mountains, trees, and tectonic plates). All of these things are human institutions: the most basic institution is language itself but from there we can develop institutions like friendships, supper clubs, credit unions, international corporations, etc. Again, institutions are social facts (unlike the aforementioned mountains, trees, and tectonic plates, which are brute facts), that is, they exist only because we call them into being through language. They exist because we agree that they exist. We create (and sustain) them, on the most basic level, by means of language.

Continuing from this premise, Mr. Baker says:

The economy of a nation (or the world) works the same way. Collective intentionality can be as simple as the implicit agreements between two people in a friendship, or a chess game, or it can be as complex as the implicit and explicit agreements between 300 million people in the USA. Consider some of the things that can affect the economic collective intentionality of such a nation: the ebb and flow of confidence in leaders; adverse weather (e.g., Hurricane Sandy or Katrina); a military invasion or terrorist attack; inadequate transport and communications systems; water or food or energy scarcity; etc. Many of these involve brute facts, but they affect the economy precisely because the affect the ability or efficiency with which people relate to and interact with each other.

When we recognize that a national economy is an ontologically subjective entity that exists only as a product of the language and mental states of the collection of people who are interacting with each other, then we begin to see why money cannot be merely a commodity like sea shells (some cultures use these as money) or gold or even paper. Money is a symbol of the level of collective intentionality that exists among a given society. When a given society has optimal conditions in areas like we just mentioned then collective intentionality is high and the wealth of that society is high. Their money is not fundamentally a commodity with an intrinsic value, rather it is an ontologically subjective symbol for quantifying the wealth of a society inherent it its relationships.

But when the chosen symbol of our economic collective intentionality is something like a sea shell or silver or gold, although we are tying the economy to something that is relatively easy to count, it also tends not to be very flexible. Its function as a symbol for denoting wealth is often affected, not just by the subjective considerations within our collective intentionality, it is also affected by the physical limitations of sea shells (or gold or silver or paper). Gold or silver coins had an advantage in trade over mere measures of weight in gold or silver because the standardized forms of the coins facilitated its symbolic function (people could see it as more than just a commodity), but the physical availability of gold or silver limited the number of people who could acquire the agreed upon symbol of wealth and thus participate in the collective intentionality. Paper worked better, because it is not so scarce as gold or silver or sea shells, and by making the symbols of wealth available more broadly it had the effect of bringing a greater number of people into intentional economic relationships. Now our money is almost exclusively registered as magnetic traces forming ones or zeros in our banks’ computers. The ability for these symbols to include ever greater numbers of people into our economic collective intentionality allows for tremendous growth. As these networks of relationships become more extensive, wealth grows. But if the fundamental symbol that we use to quantify that collective intentionality is limited by the physical availability of (say) sea shells or gold or silver, then we have limited the growth or efficiency of our network of collective intentionality, and thus we limit the growth of the economy.

Be sure to read his whole post here.

By Steven Wedgeworth

Steven Wedgeworth is the Rector of Christ Church Anglican in South Bend, Indiana. He writes about theology, history, and political theory, and he has taught Jr. High and High School. He is the founder and general editor of The Calvinist International, an online journal of Christian Humanism and political theology, and a founding member of the Davenant Institute.