Is It Even Real? On the Conflation of Money and Things

Walk down any street and look around. The buildings you see will vary in their construction: one, two, or many stories; made of wood, brick, concrete, and steel; heated with oil or gas, cooled with fans and air conditioners; with doors, windows, flat, or peaked roofs. You can give a physical description of them— casual for most of us, more detailed if you’re trained as an architect or engineer. If you could disassemble them, you could put numerical values on the buildings’ differences—so many bricks, that much length of wire and pipe, different quantities of tiles and glass.Article continues after advertisementThe construction and maintenance of these buildings requires the coordinated activity of an enormous number of people, spread over space and time. Different people dug up the clay, shaped and fired it into bricks, carted them to the site, and mortared them in place. Human beings laid the wires and pipes, and others kept watch in the power plants and sewage treatment plants to ensure that the electricity and water kept flowing.Part of the identity of the thing is what it means in terms of money.All of these activities, linking people who will never meet or even be aware of each other, have to take place in sync. If you watched long enough, from enough vantage points, you could see all this activity take place just as you see the buildings today. Perhaps, if you have small children,you have stood by a construction site and watched and watched it. Each of us often has, with our own children.But these same buildings have another set of qualities, which are not visible to the senses. Every building has an owner, a party with exclusive rights to it. Each building has a price, reflected in some past or prospective sale and recorded on a balance sheet. All of these buildings generate a stream of money payments— some to the owner, including from tenants to whom some of the owner’s rights are delegated as well as to mortgage lenders and tax authorities, whose need for payments keep people laboring so they can afford to live in the building.Like the bricks in the building’s walls or the water flowing through its pipes, these qualities are quantitative: they can be expressed as numbers. But unlike the differences in those physical quantities, all of these can be expressed in the same way: as dollars or other units of currency. Part of the identity of the thing is what it means in terms of money.

Article continues after advertisementIt is impossible to observe this second set of qualities in the physical building, no matter how microscopically you examine it. These qualities are invisible, immaterial—no physical examination of the building will ever tell you who owns it or how much it cost. But these invisible qualities shape our relationship to the building as much as any of its physical properties. Where you carry out your daily activities of life and work depends entirely on who owns which buildings, which in turn depends on the invisible price tags they carry. And the collective activity of creating new buildings, and improving and maintaining existing ones, is guided by beliefs about the flow of money payments the buildings will generate.These invisible qualities also involve coordinated human activities, including our collective capacities for coercion and violence. (This part becomes clear if you try to ignore the property rights attached to a building and someone calls the police.)We take it for granted that our world has this double nature. Like most human societies, we all know that an invisible network of forces lies behind and directs the material world. But as much as medieval Christians or any premodern people, or many people of faith, we believe that we live at the mercy of invisible forces, that the objects around us have both a profane material aspect and a sacred immaterial one. If we listen to historians and anthropologists, this kind of belief is normal, even universal—a long-standing human shorthand for the necessary exchanges of life on Earth. But when we think about it as part of our own social universe, it also seems very strange.The first answer is that the money world is not an independent reality but simply a convenient shorthand for describing the material world.It is strange, isn’t it?In daily life we don’t think much about the separation between the world of concrete reality and the world of money. If you pick up a real estate listing, you’ll read about a three-bedroom brick house for sale for $500,000 in the suburbs, or a flat in Mumbai for Rs. 20 crores. The size, location, and price are, it appears, a set of ontologically equivalent facts about the building, all on the same level. This is perfectly reasonable at the level of the individual participant, because monetary and material facts appear equally objective: The price of something is as black and white as the materials it’s made of.

But when you look at the system as a whole, from the outside, the existence of these two superimposed worlds is far from natural or obvious. It’s a puzzle, and a problem.Article continues after advertisementTo those whose vocation it is to understand the money world—economists and the like—there are two quite different answers to this puzzling coexistence of a money world and a material world.The first answer is that the money world is not an independent reality but simply a convenient shorthand for describing the material world. In this view, you can in fact learn the price of the building by a sufficiently careful physical examination of it. The price simply reflects the building’s capacity for satisfying human wants—with the latter as well as the former physical facts about the world. Nor does who owns the building represent a distinct fact— the market system will ensure that whoever initially owns it, it will end up owned by whoever gains the most satisfaction from it, with satisfaction again conceived of as a material thing. So there is no distinct immaterial world of prices and money payments, there are simply physical activities satisfying physical needs, whose content is unaffected by the fact that we happen to use money values to describe them.If barter and money produced the same ends, then why do we use one at the almost complete exclusion of the other? Are we really to understand that money reflects the physical world without changing it?The second answer that an economist might give for the existence of a money world on top of the physical world is that the network of money values and payments coordinates the concrete physical activity that produces the building. Without a system of money payments, there would be no way for the anonymous labor of the clay diggers, the brick-makers, the carters, and the masons to take place in harmony, no way for them to work together without an inflexible, coercive authority from the top.It is the homogeneity and anonymity of money that allows for productive cooperation between strangers. And it is the money prices and values on balance sheets that allow that productive cooperation to be directed toward its most valuable use. Without the lure of prospective rents, who would know whether to build an apartment building, an office, or a factory, or where to site them? It is, in this view, only thanks to the fact that we follow voices from the invisible world, that we are so successful in shaping the visible one.

There is a tension between these ideas— one that holds that money doesn’t matter, the other that money is useful or even essential. In economics, this tension is present from the first economics textbook students read. Students are taught that money is a great advance over a system of barter and that a world of money produces exactly the same outcomes as a world of barter. But both things cannot be true at once: If barter and money produced the same ends, then why do we use one at the almost complete exclusion of the other? Are we really to understand that money reflects the physical world without changing it?Article continues after advertisementThese frictions are generally kept out of view, and the two perspectives cohabitate peacefully as orthodoxy in economics and public debates. But the contradiction remains. It’s something we have been struggling with since our earliest years as economists.Sometime in the fall of 2001, while in our first years at graduate school, the two of us drove in a typically rickety graduate student car (a third-hand Ford LTD, built around 1983) across the breathtaking Berkshire mountains of western Massachusetts to Bard College, home of a think tank called the Levy Institute. There, tucked in a small liberal arts campus in the Hudson Valley, the most important figures in the Post Keynesian school of economics gathered to celebrate the life and work of Hyman Minsky, an American economist whose work on financial crises— and especially the role of debt and speculation in their formation—was foundational to the Post Keynesian tradition. The conference featured leading lights from academia, policymaking, and business.For young graduate students, it was a fascinating and dizzying set of discussions. It also made clear how deep questions about money lay at the heart of other debates in economics—and how contradictory and unsettled the answers were.At the time of the conference, the US economy was in the midst of an extended period of stability— a “Great Moderation,” credited to Federal Reserve Chair Alan Greenspan by some media (and some economists). This made the proceedings of the meeting— a discussion of financial crisis in the midst of extended financial stability— a vivid illustration of the tensions inherent in prevailing views about money.

A presentation by an economist from Bank One (a retail bank acquired three years later by JP Morgan Chase) cheerily forecasted continuing good times despite what the economist described as “frothiness” in the stock market— assets rapidly increasing in value at unsustainable levels. (The US would go into its first recession in a decade about six months later.) The hero of the economist’s talk was the Federal Reserve, the US central bank, and in particular Greenspan. The economist’s description of the Fed chair was admiring, almost tender— comparing him to a kindly gardener who knew just how much sunlight to bestow upon the plants, or to a father figure who could keep his profligate and dissolute children on the right path.Article continues after advertisementThe turn of the century was the high noon of the central banker. Alan Greenspan’s long tenure as Fed chair and his helmsmanship of what was widely seen as a robust economy made for a hero worship that is hard to describe a quarter century later. Bob Woodward’s worshipful biography Maestro came out that year.2 In 1999, Time magazine had put the Fed chair and two others (Robert Rubin and Larry Summers) on their cover as “the committee to save the world” (the turn of the century was also the heyday for unabashed US triumphalism). The business magazine The International Economy went even further, putting him on its cover in full papal regalia, as “Alan Greenspan and His College of Cardinals.”Dissenting perspectives on the economy were scarce in the early 2000s; the economist Marvin Goodfriend’s widely cited “How the World Achieved Consensus on Monetary Policy,” published in one of the American Economic Association’s flagship academic journals, is characteristic of the debates (or lack thereof) of the period.3 This new orthodoxy was centered on the absolute power of central banks to control a target interest rate and, with it, financial conditions throughout the economy. Macroeconomic policy, then, could be reduced to the question of how the central bank should best use this power.As with all such settlements, the contours of the consensus became apparent only after the fact. But already by 2003, this policy approach was formalized by Michael Woodford, perhaps the best-known macro-economist of his generation.