Explore the nature of money and identify it as positioned bank debt

Topic 2: Money

2.1 What is Money?
Note that money has long been regarded as being mysterious by social theorists.

Identify the nominal properties of money

Discuss the notion of value

Money as an enduring mystery
Social scientists have long recognised that money has long resisted adequate theorisation:
“let me then raise once more the vexed question – What is money? …[there is an] ‘intellectual vertigo’ which has been said to attack all writers who approached this fatal theme” (Henry Sidgwick, 1879)
The conventional economic theorist Frank Hahn acknowledges:
“The most serious challenge that the existence of money poses to the theorist is this: the best model of the economy cannot find room for it” (Hahn 1982: 1)

The nominal properties of money
We identify a kind of thing X by its nominal properties. The nature of an X is that set of properties that account for these nominal properties. The nominal properties of copper include its ability to conduct electricity well, explained by its ionic structure. Dog behaviour is explained by its genetic code, etc.

Turning to money there are two obvious nominal properties of money:
It possesses the power to be used throughout a community as a general means of payment, the power to discharge any debt
When successful, money also possesses purchasing power. That is, community participants are willing to allow others to become indebted to them, knowing the money will be used to discharge the debt. This is a capacity that requires money to be trusted as a reliable store of liquid value.

Money is successfully constituted where it is accepted throughout a specific community that a thing or stuff of value is positioned as a generalised form of value, functioning as a general means of payment.

Payment value
Clearly, value of the relevant sort must be something that exists apart from (and indeed that existed historically prior to the emergence of) money. But what else?

First note that the nominal features of money are fundamentally bound up with the creating and discharging of obligations. The activity of discharging an obligation is basic to the very meaning of payment. The very notion of payment arose from the sense of pacifying or appeasing one to whom an individual (the payer) has an obligation.

The discharging of an obligation is also at the heart of market exchange, the latter being but a special case. Consider an exchange of two objects, but with a significant lapse of time between the first object being transferred and the second being moved in the opposite direction.

With the transference of the first item an obligation on the part of the receiver is created, and this is discharged only with the full exchange being completed.

But most exchanges are made with some lapse of time occurring between the two transferences, with obligations thus being formed however temporarily. The idea of spot exchange is then but a degenerate special case, and can be thought of as an obligation or debt being simultaneously made and discharged.

So the notion of value relevant here, just is the ability or potential to discharge or create obligations.

We can refer to this latter notion as payment value.

Payment and use value

Where, in contrast, something is said to have value because it is useful (in directly meeting needs and wants) we can refer to it as use-value.

The two notions of value—payment value and use value—are not unrelated.

In early communities, certain material objects (e.g., animals or crops) of limited availability were used to meet very basic obligations, whether of the community as a whole to its ancestors and/or to the deity of the cosmos, or to representatives of the deity in form of the priesthood, and, at some stage, of individuals to each other. Where so, it will have been objects of significant use value that were employed, so that use and payment values became associated.

Concluding Remarks
The nominal features of money are its debt discharging and purchasing powers.

The second nominal feature, related to purchasing power, requires money to have payment value.

2.2 A Positioning Theory of Money


Outline the recently developed social positioning account of the nature of money.

Highlight how the social positioning theory provides us with an explanatorily powerful and compelling account of the nature of money.

Recap on social positioning

The constitution of everything social is via processes of social positioning. These are developments whereby certain individuals or things come to be formed into components of wider social systems or totalities.

In each case, a space or position is at some point created in a manner such that some individual or entity, in being allocated to it, typically acquires a status, but also has one or more properties or capacities, already possessed, harnessed in a manner to serve in the functioning of the wider system of which the individual or item is incorporated as a component. Money can be seen as being one particular instance.

When human individuals are positioned they gain access to positional rights and obligations that determine how they function in some system or totality. Recall the example of university lecturers and students.

When an object is positioned within a community the rights and obligations regarding its use accrue to members of the community in which it is positioned. Think of a headmasters’ office in a school or a plastic card used to obtain access to College buildings.

Remember, there is a distinction between position constitution and positional allocation.

On the positioning theory, money is a position that has certain rights and obligations that fall on community members when an element is allocated to that position.

Depending on historical and other factors, different elements are allocated to that position more or less successfully, depending on the capacities that those elements have.

The nature of money

Remember, we identify a kind of thing X by its nominal properties. But the nature of an X is that set of properties that account for these nominal properties. We have already identified the nominal properties of money. Now social positioning theory can help us to explain the nature of money:

The first nominal property of money is that it possesses the power to be used throughout a community as a general means of payment, the power to discharge any debt. This comes about through position constitution and, in modern communities, most often through legal tender laws.

The second nominal property of money is that, when successful, it possesses purchasing power. That is, community participants are willing to allow others to become indebted to them, knowing the money will be used to discharge the debt. This is a capacity related to the thing positioned as money and requires the thing positioned to be trusted as a reliable store of liquid value.

Constituting the money position

Remember the first nominal features of a successful money: It possesses the power to be used throughout a community as a general means of payment, the power to discharge any debt.

This can be explained by position constitution, a process that brings into being rights and obligations. Essentially, those participants holding it acquire the right to use it to discharge any existing debts. Those to whom any money holder is in debt acquires the obligation to accept this money if offered as payment. Money is a generally accepted means by which debts can be discharged within a community.

In modern communities these positioning rights and obligations are often laid down by legal tender laws. And the positioned object (money) is referred to as legal tender. Thus, according to the Bank of England:

“Legal tender has a very narrow and technical meaning, which relates to settling debts. It means that if you are in debt to someone then you can’t be sued for non-payment if you offer full payment of your debts in legal tender.” (http://edu.bankofengland.co.uk/knowledgebank/what-is-legal-tender)

So nominal property [1] is explained by a process of social positioning. The totality within which the relevant positioning occurs is a community’s system of payments and value accounting. And the relevant property of money that accounts for nominal property [1] is that it is positioned as legal tender and so subject to legal tender laws.

Positional allocation and successful money

The second nominal property is that money has purchasing power, that participants will willingly agree to become creditors knowing that the community money must be accepted to discharge any debts. The condition for this is a communitywide trust that whenever a participant accepts the money in payment, they will be able to pass it on to others without a noticeable loss of value.

If we are to have a successful money then community members must trust that the positioned item will maintain its value over time and at any point be easy to transfer to others, to exchange for other things without apparent loss of value. In short, community members trust it will be a reliable store of liquid value.

The property, then, of being trusted as a store of liquidity is the second aspect of money’s nature, complementing the property of its being positioned as a generalised debt discharger e.g., the legal tender in a particular community.

The positioning theory of money makes two additional claims that are contingent and empirical; they are not essential to money’s nature per se.

These are that 1) a kind of thing positioned as money will have the capacity to induce the required level of trust only if it was itself a relatively reliable and liquid store of value prior to such positioning; and 2) positioned occupants (with these properties) have (historically) included commodities and forms of debt.

According to the positioning theory currently money is constituted as positioned bank debt.

Value and social positioning

Things acquiring value is also a case of social positioning, wherein sets of items (that were limited in availability), because possessing of use value, were (occasionally and perhaps in very localised cases) positioned as forms of payment value in order that they be used to discharge actual or presumed obligations.

Whatever the precise path and details of the early historical record, it is clear enough that with time, particular items that constituted individual forms of (payment) value became (further) positioned as generalised forms of (payment) value, thus serving as the general basis for meeting obligations throughout the community in which they were so positioned.

That is, at various stages in history, certain items were, in different communities (perhaps taking material forms specific to each community), positioned as forms of generalised obligation dischargers.

Payment value is the ability or potential to discharge or create obligations. Payment value is attributed through processes of positioning.

Use value is when something is useful. Most often, that which gets positioned as having payment value previously had use value.

Concluding remarks

Explaining the nominal features by reference to social positioning theory

The first nominal feature helps us to understand the constitution of the money position

The second nominal feature helps us to understand the type of thing that will be successfully allocated to the money position, that is, one community members trust such that the item positioned as money will be a reliable store of liquid value.

2.3 Money as Bank Debt


Explore the nature of money and identify it as positioned bank debt

Outline the nature of debt

Discuss the manner in which bank debt acquired the required capacities to be positioned as a successful money.

Note that the positioning perspectives opens up the possibility of making a meaningful distinction between money and cash

Money as bank debt

The question of which stuff has actually been positioned as money is one to be explored through historical research.

Lawson argues that, currently, in countries like the UK, money takes the form of positioned (commercial or central) bank debt (which can be interpreted as an enduring promise to pay).

“Currently, certainly in the UK, that which occupies the money position was, at the time of its positioning, a form of state-backed bank debt. And as a form of debt, when it was initially positioned as money, it was already recognised as a stable store of liquidity” (Lawson, 2019, p.161)

What is bank debt?

Debt is a relationship of rights (credit) and obligations (debt) viewed from one perspective.

“Technically and legally speaking, ‘credit’ means a specific right to payment or satisfaction. It is a right, held by a creditor, that is internally related to an obligation − a ‘debt’ − held by a debtor to satisfy the creditor. Credit and debt, then, are two aspects of the same social relation: a credit/debt (or debt/credit) relation, connecting a creditor and a debtor; you cannot have one aspect without the other. Credit is simply this relation viewed from the perspective of the creditor; it is debt from the point of view of the debtor.” (Lawson, 2019, p.167)

Bank debt, then, is the relationship between banks as debtors and customers as creditors.
“[C]ommercial bank debt per se is a relation between a bank as debtor and a customer as creditor, this bank debt being credit on the bank from the perspective of the latter.” (Lawson, 2019, p. 161)
How did bank debt get positioned as money?
In the case of the UK it can be shown that it was just because this kind of debt already functioned as a relatively liquid apparent store of value prior to its originally being positioned as money that it (qua a kind of thing) was at that time so positioned.

Originally, this relationship developed in a situation in which there was a item, gold, that the holders of deposit receipts could redeem:

“I return briefly to a time and place, the early seventeenth century Britain, where goldsmiths mostly worked on precious metals, and loaning gold out was a minor activity at most. At that time the Crown, nobles and the generally wealthy used gold for a variety of purposes but not least to finance their armies’ expenses, or to purchase foreign products. The goldsmiths, in virtue of continuously working with precious metals, as well as their activities involving their making loans of gold, had constructed deep and protected vaults. Noting this, the wealth owners started entrusting their gold to the goldsmiths for safekeeping. Soon enough everyone else put the coins and valuables there too. In taking possession of the gold, the goldsmiths gave a deposit receipt (or claim check) to the depositor, and charged a fee for storing it safely. The possessors of these receipts in the community soon found that so trusted were the vaults of the goldsmiths, that the receipts, marking in effect an obligation of the goldsmiths to return gold to the holder of the deposit receipt if requested, could often be passed to third parties and thereby used to discharge a debt in the wider community. That is, these receipts in effect marked a form of goldsmith’s debt considered redeemable in gold in the community at any time, and thereby were treated in numerous quarters as a reliable means of payment, and form of purchasing power. (Lawson, 2018, p.1174)

Over time, the relationship between the goldsmiths and the community became so trusted that the simple promise of the goldsmiths to pay, backed up by deposit receipts, was enough to engender trust in the community. Therefore, loans that were not backed up by a redeemable item, like gold, were able to be made:

“Loans not backed up by gold came to be used as a means of payment, etc., and eventually even positioned as money. How could this be? The next significant step was for the goldsmiths to realise that, with the depositor’s gold being rarely reclaimed or even inspected, the goldsmiths could lend out deposit receipts against gold belonging to depositors as though it was the goldsmiths’ own (at an interest—and which they had no legal right to do), and no one would notice the difference.” (Lawson, 2018, p.1175)

Modern money, Lawson argues, is a similarly positioned form of bank debt where the relationship positioned as money is between the banks as debtors and the community as creditors.

When a bank makes a loan to a customer, it promises to advance them a given amount of money and, in doing so, creates that sum of money through the constitution of the obligation the bank has to the customer.

In this modern situation, there is nothing really that is redeemable.
“although a form of trusted state-backed debt has been found to maintain its capacity to induce trust well after its initial positioning as money, it is clearly no long useable in various other ways, or to possess certain properties usually considered to be characteristic of debt. Thus, it is not the case that in all instances the holder of modern money qua positioned debt is able to enforce that it be redeemed with, or converted into, something other than itself (say, commodities or liabilities of third parties etc.), which is the essence of debt. Indeed, modern debt money per se may be more, or mostly, or best regarded as, a form of net wealth of its holder rather than a credit over its issuer (whatever the legal interpretation and/or manner in which money may figure in modern accounting). To interpret money so constituted simply as debt is certainly likely to mislead.” (Lawson, 2019, pp.161-162)
Modern money and cash
It is the positioned bank debt itself, not any token of it, that is able to serve money’s functions. When a community participant requests, and is granted, a loan from a commercial bank, the latter credits the participant’s deposit account by the amount agreed. The record shown marks a debt of the commercial bank to this participant, and it is precisely this bank debt itself that the participant can transfer to another to discharge a debt with this other. That is, bank debt, positioned as money, is used by its borrower to cancel a personal debt with some third party, i.e. to make a payment, resulting in the bank being now in debt to this third party.

Currently, in being constituted by (positioned) bank debt/credit, money is not continuously observable. As a result, instances of it must be identified indirectly. This is achieved by linking them to additional items that are (or can be easily rendered) observable; items that thereby serve as their markers. These can take the form of appropriately branded physical tokens, computer records/entries, or whatever.
“[I]f bank debt is positioned as money, then, because it is unobservable, there equally clearly needs to be visible markers of it. These markers record the amount of bank debt involved and so are in effect IOU documents; they are IOUs from the commercial bank to the public in the case of electronic records, and IOUs from the central bank to the community in the case of cash.” (Lawson, 2018, p.1171)
Where physical tokens are impersonal and exchangeable by hand, they are usually called cash. The nature of the current system is such that any items of cash in circulation identify a debt of the central bank to its holders. In contrast, electronic entries in the bank accounts of individuals in the community identify the debt of the relevant commercial bank to those that hold it. These are certainly fundamental, if contingent, features of the current monetary system. However, both types of identifier just discussed are in effect IOU records; they are markers of money and not money itself. There may be little harm in calling items of cash something like money tokens. But, strictly speaking, money proper is something else; currently it is the positioned state-backed bank debt.

Concluding remarks

Lawson argues that the thing currently positioned as money is state backed bank debt.

This debt is a relationship between banks as debtors and customers as creditors

Modern money is such that this debt relationship is sufficiently trusted for it not to require the existence of a redeemable item.

This positioned bank debt, as unobservable, requires markers such as cash and electronic representations. But bank debt is money, not the markers.

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Approximately 250 words