It must be evident, however, that the mere introduction of a particular mode of exchanging things for one another by first exchanging a thing for money, and then exchanging the money for something else, makes no difference in the essential character of transactions. It is not with money that things are really purchased.....The pounds or shillings which a person receives weekly or yearly, are not what constitutes his income.......The farmer pays his labourers and his landlord in [money], as the most convenient plan for himself and them; but their real income is their share of his corn, cattle, and hay, and it makes no essential difference whether he distributes it to them directly, or sells it for them and gives them the price; but as they would have to sell it for money if he did not, and as he is a seller at any rate, it best suits the purposes of all, that he should sell their share along with his own, and leave the labourers more leisure for work and the landlord for being idle...... There cannot, in short, be intrinsically a more insignificant thing, in the economy of society, than money; except in the character of a contrivance for sparing time and labour. It is a machine for doing quickly and commodiously, what would be done, though less quickly and commodiously, without it: and like many other kinds of machinery, it only exerts a distinct and independent influence of its own when it gets out of order. J. S. Mill, Principles of Political Economy
The Modern Trinity: Mechanical Mind-set, Human Brain attuned thereto, Industrialization.
We can thank (or curse) Newton for widely propagating a view that hitherto few had discovered and nurtured, the mechanical perspective- God made and wound the watch with us in it, left it to run, and gave man the wit to see how it worked (with the caveat that we could only ever view the machine from within, like fish in a fishbowl). From this vantage point many repeating processes could be understood, predicted, and perhaps, improved.
Within a generation of publication, the ideas of Newton's Principia Mathematica began to bear their fruit, England's cotton mills being a prime example. The flying shuttle made weaving so efficient that mechanised spinning became a necessity. These radical efficiency increases soon exposed new bottlenecks, carding and cleaning, the latter of which recalls Eli Whitney's Cotton Gin. And so on and so on- a self perpetuating process that dragged mankind into a new world.
Other fruits grew on the same ideological tree. Modern medical practices flow from the view that our bodies are (reasonably identical) machines. If our individual bodies could be seen as machines, why not our individual minds (psychology), or even collections of people (sociology, economics, government etc.)?
It was from this perspective that Adam Smith famously inquired into the Wealth of Nations, and saw money as "the great instrument of commerce," i.e. a machine. J. S. Mill's quote above expresses the notion more explicitly- money is the machine we use to make trade more efficient. Like all machines, however, it must be kept in good working order, lest it create its own bottlenecks.
Views in our post-modern world seem to me far removed from those Newton propagated. Industry, the State, and Finance, to name a few elements of what is collectively known as "the system" are no longer viewed as transparent, malleable, mechanical processes. They have become inscrutable and in ignorance of their workings many live in a kind of fear.
To this fear, or disquiet, if you prefer, Robert Pirsig addressed his Zen and the Art of Motorcycle Maintenance, which I like to think of as a collection of ideas for surviving in the modern world. In his words: The ideas began with what seemed to be a minor difference of opinion between John and me on a matter of small importance: how much one should maintain one's own motorcycle. It seems natural and normal to me to make use of the small tool kits and instruction booklets supplied with each machine, and keep it tuned and adjusted myself. John demurs. He prefers to let a competent mechanic take care of these things so that they are done right.
How does one maintain one's own motorcycle? By learning how they work, i.e. by viewing them as machines that convert potential energy in fuel into mechanical energy that moves you much more efficiently than you could move under your own steam. That the machine needs to be kept in tune, that you can sense if it is in tune, and that you can tune it yourself are vital aspects of this understanding. Pirsig advised people to "look behind the curtain" and on more machines than just motorcycles. If you can learn to tune a cycle, perhaps you can learn to tune yourself.
This essay is not that ambitious, confining itself to the view of money as machine- monetary instead of motorcycle maintenance.
But, you might be thinking, I don't run the money machine, guys like Paulson and Bernanke do. Marshall McLuhan would argue (with my agreement) that they don't really run the machine either, but that is another essay. My point is that just as one can learn to tell if a motorcycle is running well or not, and thus, if it should be fixed, how long and what form the fix will be, and whether to trust it on a journey (and if one thinks of saving for future, sometimes far into the fuure expenses, as very long journeys, in time instead of space, than this seems a useful exercise) one can learn to make similar judgements about the monetary machine. As we are forced to allow the monetary mechanics to fix that machine, wouldn't it be nice to know if they are on the right track?
Further, and for our purposes, quite important, let us understand what motorcycles (money) do and don't do. Motorcycles (money) move us more efficiently than we could move ourselves, they don't, of themselves, make us more prosperous, happier, or better people, although when they are not working they can cause the opposite.
Monetary Policy is the name we give to the process whereby modern monetary mechanics maintain the money machine. In, The Role of Monetary Policy, Milton Friedman argues: The first and most important lesson that history teaches about what monetary policy can do -- and it is a lesson of the most profound importance -- is that monetary policy can prevent money itself from being a major source of economic disturbance.
Profound indeed. The goal of monetary policy, as he goes on to argue, should be to provide a monetary climate favorable to the effective operation of those basic forces of enterprise, ingenuity, invention, hard work, and thrift that are the true springs of economic growth. While I disagree with Friedman's means to that end, I agree entirely with that end, and the implications thereof. To wit, a masterful monetary policy without enterprise, ingenuity, invention, hard work, and thrift would not generate prosperity. Whether one could see enterprise, ingenuity, invention, hard work, and thrift in rent seeking, by, say, trying to control distribution of a vital commodity like oil, I'll leave to you to decide.
Returning to the converse of the above, which is Friedman's point, don't let a poorly run monetary machine stifle enterprise, ingenuity, invention, hard work, and thrift, because it will. If your motorcycle is not running you can't get to work. If the money machine is not running, new ideas can not be put to work. If your motorcycle is not running you tend to spend a lot of time thinking (worrying) about it. If the money machine is not running, you spend a lot of time thinking (worrying) about that. Normal modes of saving, from which investment funding flows, become less efficient, and in some cases, destructive- like a motorcycle whose engine has seized.
To the extent you have noticed some of the signs of a poorly running money machine noted above, you might be wondering how long and what form the fix will take.
I hope to be adding coherence to some of the ideas on this topic I've been noting, but not publishing, lately in the coming days.
That discussion will be two-pronged: 1) a discussion of my sense of the ideal money 2) a more practical look at the effects of continuing attempts to use money of no intrinsic value.
It seems worth noting that the man who propagated the mechanical mind-set, Isaac Newton, was also Britain's Master of the Mint as the Pound Sterling emerged onto world trade as a standard of value. He put England on a firm gold standard.
And I think we have yet to build a better mouse-trap.