In my MONEY CLASS a few weeks back, I ventured into the question of the “nominal and the real.” These are crucial economics concept that often get bungled and confused: The nominal, a word that sounds weird, is the numbers you "really" see, the numbers in your bank account, the price of gasoline or what you hand over to the barista for coffee; The real, the word that sounds like a real thing I can touch, is an invisible, arcane feature of our economic world.
In business press and among midwit academics, real means “adjusted for inflation.” (The adjustment process itself is fishy and deserves separate attention1.) That idea is roughly right but nowhere close to capturing how marvelous—and spiritual!—the cooperative the world of money really is.
We're often told, by religious or leftist types alike, that focusing on money is bad. They usually mean wealth or "greed," rather than the monetary units or the technology that is money itself.
Parker Lewis in his book Gradually, Then Suddenly from earlier this year, obsesses over this idea. And not even he does it justice:
“Money is the good that facilities economic coordination between parties who otherwise would not have a basis to cooperate. It is the good that allows society to function and to accumulate capital that improves our standard of living [, the good that] allows for specialization and the division of labor. It enables individuals to pursue their own interests.” (p. 173)
By having a shared monetary language, we convey information to one another about our preferences, about scarcity of real assets and goods and services, and most importantly human effort and ingenuity. What we have and what we want, what we need and what we can make. The monetary layer—the nominal—operates on top of a real world, a world filled with human desires and wants, and the abilities and knowledge of others to satisfy them.
There’s a Friedrich Hayek quote (cherished economist, Nobel Prize 1974) that goes something like “money is the greatest instrument of freedom ever invented.” And yet, money—most obviously in the case of bitcoin, consisting entirely of digital numbers in cyberspace (well, elliptic curves…)—is invisible and a truly non-real thing. So, says Lewis discussing this topic, “if we strive for money, it is because money offers us the widest choice in enjoying the fruits of our efforts.”
What’s so fascinating about monetary cooperation is that we can extend the division of labor to unfathomable lengths: I can sit in a small village at the edge of the world, surrounded by foods that don’t grow here, materials that can’t be made here, books and tech devices I can't myself make—or even begin to explain what they contain or how they were created.
It’s all made possible by the human technology of cooperation that is money—even as trashy ones as the fiats filling up our wallets and bank accounts. Money allows for the specialization that makes the world so rich in real terms. Money is also created by the desire/need to specialize.
It’s a chicken-and-egg problem, where the division of labor requires money to extend itself and money only makes sense in a complicated economic order of an extended division of labor.
When we step back at look at money as a device for human coexistence, it truly is a magical, spiritual thing.
I kinda love it.
That's today's little money lesson.
Peace,
J
Footnotes
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"On Translating Earnings From the Past" https://authory.com/JoakimBook/On-Translating-Earnings-From-The-Past-a65d0e5bbdf984c7cbcf0e35d8319f239 ↩