Money and technological evolution. Transformation of functions and forms
The research paper aims to study the technological evolution of humanity and analyse its impact on the transformation of the functions and forms of money. Predicting socio-economic changes, the development of money, the development of a new type of currency and a universal settlement system.
The evolution of money in Bernard Lietar’s The Soul of Money
Bernard Lietar (7 February 1942 – 4 February 2019) was a Belgian economist and writer, engineer and professor. He studied monetary systems and promoted the idea that a community could benefit from creating its own currency circulating alongside the national currency. He taught at universities in the United States and at Louvain in his native Belgium; advised South American governments on financial matters; and was an employee of the Belgian Central Bank.
In his analysis of B. Lietar’s book “The Soul of Money”, D. Kalyuzhny wrote: “It turns out that our modern money has been widespread since XVII century: it contains an interest component. And interest accelerates competition for money and feels good only when there is a general lack of money. This is the kind of money which everybody is used to, and cannot even imagine that the parameters could be different! In fact, interest-free money was prevalent until the 17th century, and before that there was a system of currencies with negative interest! People behave differently when the parameters are different… This is the subject of the book written by the great scholar of finance, B. Lietar…
In contrast to our era, there were times when interest-free money was used, when charging (interest) for lending someone money was forbidden. There were also periods in which negative interest was used, and when demurrage was taken from the owner of the money because he saved it, but didn’t spend it. If you think about it, such money is arranged on natural (natural) grounds, or laws…
Bernard Lietar has found two major historical moments when negative money was used for a long time in large territories. These are the central period of the European Middle Ages (X-XIII centuries) and dynastic Egypt…”
In this book the author examined the archetypes of money and the psychological causes of wealth, poverty, wars and stock market crashes.
Б. Lietar wrote about currencies not subject to inflation: “Currencies which are not subject to inflation, but have a storage fee, are of unusual interest because they give rise to very different patterns of collective behaviour generated by money than those with which we are familiar today. Logically, such currencies do not encourage the accumulation of that currency. Such currencies would be used as a pure medium of exchange and would not be convenient for hoarding, thus avoiding the familiar negative effects of inflation that spoil social relations. Stability makes such currencies relatively rare examples of what I call Yin currencies, encouraging their circulation and making them available to all segments of society.
It must be stressed that the systems of the Middle Ages were only a “crude form” of systems with storage fees. Compared to the Egyptian system, the European system had several shortcomings, which led to abuses in the fourteenth and fifteenth centuries. But in the tenth and twelfth centuries, in regions where the system was not abolished, Yin currencies produced a significant economic effect…”
In this multi-faceted work, the author notes the high level of prosperity of the western world between the 11th and 13th centuries: “…between the 11th and 13th centuries, the western world experienced a high level of prosperity, as demonstrated by a population explosion unprecedented in history…The time between 1150 and 1250 was a time of extraordinary development, a period of economic prosperity that we can hardly imagine today.”
Lietar goes on to write the following about the fee-paying currency: “The key to the unusually high standard of living of ordinary people was storage fee currency. An unknown reason, neither to the lords nor to the people, helped to create the extraordinary successful economic changes in Europe. And what is the reason? Because the storage fee currency itself has motivated human behaviour.
Consider two predictable directions of this motivation:
– There was no point in saving money in cash form. Cash was used exclusively for exchanges, and those who had savings were automatically forced to spend or invest them.
– Instead, savings were invested in tangible, productive goods which were kept for a long time. The ideal investment was the improvement of the land, or the high quality maintenance of equipment such as wells and mills, for example”.
The author also mentions the misuse of the demurrage system: “…some of the lords were greedy for money from the income derived from recoining. One of the first examples of this excessive greed occurred in England when Harold I re-minted coins in 1038, just three years after Cnut had done so, and Garthacnut repeated this in 1040, two years later. Both the nobility and the general population reacted in such a way that the English kings were forced to slow down the process and observe more reasonable recoining intervals from now on.
The recoining procedure was kept longer in Germany and Eastern Europe”.
In the book we find the following information about the depreciation of money: “Depreciation of money is a process by which the amount of precious metal in a coin is significantly decreased. This allows the issuer of money to make more coins from each mark or pound of precious metal. Consequently, it is possible to pay more – per mark or pound – for the precious metal brought to the mint, including old coins that are already in circulation. This is why subjects who had precious metals or old money may have thought it profitable to bring them to the mint for recoining. Of course, this illusion was short-lived, and inflation soon set in. This depreciation of money is a disaster for those who live on fixed incomes, such as landowners with their long-term rent. However, the advantage of a reduction in the value of money is that it is not immediately noticeable. The inflation which it causes is in fact a tax, but a “hidden tax” which does not feel like a tax at all.
In contrast to a depreciation of money, demurrage – if applied correctly – does not change the value of a unit of currency. However, a serious disadvantage of demurrage is that it can easily be confused with a tax.
“The “good” monetary period ended first in France, when King Philip IV resorted to the depreciation of money instead of demurrage in order to meet his needs without delay.
Bernard Lietar further contrasts the depreciation of money with demurrage: “Depreciation is a different way of making money from its issue into circulation than demurrage. It is certainly not a new method; the Sumerians, Chinese and Romans already had recourse to it. Because the devaluation of money is less noticeable than the levying of taxes, it is more difficult to resist. But a reduction in the value of money implies inflation, i.e. a fall in the value of money itself, while demurrage currency does not.”
The author concludes, “The gradual destruction of all national currencies through inflation during the twentieth century shows that the same temptations still exist.”
Б. Lietar focuses on the decline in the velocity of money: “In the analysis of the causes of the emergence in the late Middle Ages known “deficit money” can not be overlooked one of them has a key importance – a significant reduction in the velocity of money caused by the transition, even if gradual, from currencies with demurrage to “normal” money. For obvious reasons, demurrage money circulated faster than normal money, which was put aside for reserves.
The phenomenon of “scarcity of money” in the later Middle Ages, well known to experts on this period, was probably caused not so much by a physical shortage of silver and gold, as by a decrease in the speed of money circulation”.
So how was the scarcity of money created? In the book we find the answer to this question: “The disappearance of demurrage created a money deficit in two ways in aggregate:
– it reduced the velocity of money;
– and it concentrated wealth in the hands of the urban elite.
With the concentration of wealth in the upper echelon of the social structure – members of the royal family and the nobility – their lifestyle gradually became more and more luxurious. It is here, perhaps, that the roots of the economy that gave rise to the Renaissance of the fifteenth and sixteenth centuries can be traced.
For the common people, on the other hand, the disappearance of the demurrage meant a sudden increase in the scarcity of the means of exchange for a long time”.
The author writes about the dominance of the city: “By the seventeenth century, the concentration of wealth in the largest cities had become a phenomenon that swept the entire Western world. The same system of concentration of money, though more refined, but with broadly the same consequences, is still at work today, with ‘cities’ becoming the financial centres of ‘developed countries’ and ‘the countryside’ the rest of the world.”
Bernard Lietar’s The Soul of Money offers fascinating excursions into history, unique observations as well as interesting facts about the evolution of money. Recommended reading!
Bernard Lietar’s predictions in The Future of Money
In The Future of Money: A New Path to Wealth, Fuller Work and a Wiser World (completed in 1999), in the form of a bestseller of sorts, Bernard Lietar emphasises the importance of rising above the familiar environment to understand the nature of money and see possible scenarios for its development.
It should be noted that the author collected material for this work over a period of 25 years. Bernard Lietar’s book is not obsolete; it is becoming more and more relevant.
А. Griaznova, Doctor of Economics, professor, highlights the uniqueness of this book, paying attention to the methodology and style of presentation of the material:
“The world in which we live is literally permeated by money relations. We “swim in the waves of money”, often without thinking about the essence of what is impossible to live a day without. Very early on we begin to realise that money is essential in our lives. Undoubtedly, it is important to have enough of it to meet our needs, but, in fact, the nature of money remains an unsolvable mystery to many people. Moreover, it begs the question: will we always ‘float in the waves of money’? And if money is to be used by people in the future, what forms and what kind of money will it take?
We offer you a unique work, in a style unaccustomed to the Russian reader. What makes this book unique? In my opinion, in the methodology and style of presenting such complex topics as the essence of money, the specific features of the modern monetary system and the forecast of its future changes. The basics of the theory of money are given in the form of a dialogue with the reader, who is just beginning to delve into their “mysterious world”. Bernard Lietar’s book is perceived as a kind of bestseller. There is none of the rigid academic rigour usual in Russian economic literature, which sometimes leads to a rapid loss of interest on the part of the reader, the novice researcher. The special terms are explained in a way that is easy to understand even for the inexperienced reader. For a better understanding the author offers many different kinds of stories, from real ones to completely fictional ones. The main text is accompanied by brief excursions into history; the recollections of the author, a financier with a rich past, are interspersed with interesting sayings of famous people about money and sometimes even with anecdotes. The style of the presentation of the material allows this book to be considered as a textbook for beginners. At the same time, it is the unique “stories about money” that make this book interesting for professionals as well, allowing them to enrich their academic knowledge.
The book “The Future of Money” consists of four logically following parts: a description of the essence of money, a description of the characteristics of modern money, the informatisation of society and the changing role of money, and scenarios (forecasts) of the future of money.
In the first part, entitled “What is money”, Lietar, not being a supporter of any of the theories of money known today, expresses the generally accepted view that money is primarily an asset, compares money to other assets, shows the causes and possibilities of currency speculation. He writes that a country’s currency “plays the role of a central nervous system, which determines the value of assets of all classes in the country”.
The author goes on to note that money is not a thing, but “an agreement, usually unrecognised”, and gives the following definition of money: “Money is an agreement within a community to use something as a medium of exchange”. The author does not deny other functions of money, but views this function as primary.
Having considered the important role of money in the modern economy, Lietar moves on to the institutions that regulate and control the stability of this ‘central nervous system’ of the economy. Banks are defined by the author as “fragile” structures. “Whenever there is trouble with money, whole societies can collapse” (from ancient Sumer to modern Yugoslavia). Hence the need for “fire services” – central banks.
The author rightly points out that the communications revolution has changed the way we think about money. The cybersphere is an ideal space for the creation and application of new money. What about the future?
Liétar envisions the following scenarios for money in the period up to 2020:
“The Millennium of Multinational Corporations” – “private” money replaces familiar bank debt;
“Closed Communities” – local currencies issued by local communities apply;
“Hell on Earth” – the formal monetary system is destroyed, no new monetary order has been created;
“Sustainable Abundance” – various types of monetary innovations are being developed that form a system of successful preventive measures against monetary crises.
These scenarios are accompanied by colourful descriptions of the economic processes that the author believes will occur in real life when a particular direction of monetary systems is chosen, such as the use of “complementary” currencies (an expression introduced by the author).
Certainly, not with all theoretical conclusions of the author it is possible to agree, many questions are sharply disputable, some descriptions of economic processes have more likely a philosophical emphasis (for example, the reasoning of the author of “manly” and “female” principles in economic systems: Yang – financial and physical capital, Yin – social and natural). But the unconventional formulation of problems generates new thoughts, forcing researchers to look at familiar phenomena and processes in a new way.
To sum up, in this book Lietar has consistently outlined a strategy for the introduction of complementary monetary systems”.
I would also like to note that, according to the author, “The Future of Money” combines the views of several disciplines involved in the study of money: systems analysis, economics, history, socio-political sciences and even psychology. Only from the point of their intersection does a true perspective emerge, and the observer has an idea of the new potentialities of money, of the ability of money, if properly used, to create and sustain a world for everyone, where cooperative and competitive spirit are blended into a harmonious, self-organising system”.
This system is what Lietar calls sustainable abundance. The author writes that we can achieve it if we use different resources: “I propose that we continue to use libraries, computers and all other resources – and we can achieve Sustainable Abundance in one generation”.
Bernard Lietar emphasises the link between monetary exchange and sustainable abundance: “The link between monetary exchange and sustainable abundance is almost direct. I argue that if we give people a stable currency in sufficient quantity, they will move towards sustainable abundance as clearly as clearly as water flows down a mountain. Stability of currency and its availability is the first prerequisite for sustainable abundance. Without stability in the monetary system, no society can prosper.”
The author writes that “the greatest threat to new experiments and successful problem solving is that the continuous growth of additional currencies will be seen by central banks as a dangerous contagious disease.”
The Future of Money rethinks barter: “Because of its ancient history, barter is often perceived as an ‘inferior’ or ‘primitive’ form of exchange and is even sometimes associated with the shadow economy. But this has completely changed in recent decades. Barter News, the leading print organ in the field, estimates the annual volume of barter at $650 billion. Much of this amount is corporate barter, both domestic and international….The barter industry now includes two major trade organisations: the International Mutual Trade Association and the Corporate Barter Council…”
Bernard Lietar, in this unique work, writes the following about the “money wave”: “This whole book is, in fact, just about this ‘money wave’, i.e., about the possibility of shaping our future in a new way by complementing national currencies with other types of currencies – specifically designed to solve our most serious problems. So it’s up to us alone whether or not we choose to remain locked within the walls of the monopoly of official currencies for all kinds of exchange…”
The author also reveals the purpose of the integral economy: “…the purpose of the integral economy is to make ‘the universal wealth of the world’ available to people. By “universal wealth of the world” I do not mean the accumulation of money. This ‘wealth’ is only achieved when all four types of capital – natural, social, financial and physical – are properly balanced. By mistakenly understanding ‘wealth’ only as financial capital, we risk assuring ourselves that we can neglect natural capital or social capital.”
Bernard Lietar notes: “One of the reasons that prompted me to write this book is to encourage the academic community to appreciate the importance of non-monetary economies, and especially complementary systems of currencies. This is still a largely untouched area of scholarship; we need to know much more about how dual currency systems (whether they are local or corporate) will affect economic processes.”
We wish you new discoveries with Bernard Lietar’s The Future of Money and gain useful knowledge and a new perspective on the nature and world of money!