Harari on Money

He writes,

Money. . .involved the creation of a new inter-subjective reality that exists solely in people’s shared imaginations.

money is the most universal and efficient system of mutual trust ever devised.

This is from his book Sapiens that I am currently reading.

I like to say that money is a consensual hallucination, using the phrase the William Gibson coined to describe cyberspace, a term that he also coined.

I want to push back against the materialist idea of money, in which its value is determined by the “quantity of money” in relation to other goods. Think of money as a protocol for exchanging goods, the way that TCP/IP is the basic Internet protocol for exchanging information between computers. The concept of a three percent increase in the supply of TCP/IP is nonsense.

What about the Fed? Think of the Fed as a big player in the repo market. It is a peer of Goldman Sachs.

What about hyperinflation? Think of that as the government needing to pay for its deficit spending through an enormous counterfeit operation, one that ultimately undermines the trust in money and wrecks the protocol for exchanging goods.

3 thoughts on “Harari on Money

  1. I recall an anecdote from a remote Alaskan town that saw few shipments of cash to the local bank. Stores started using personal checks in the till as cash; and it seemed to work okay, even if some of the checks were from insolvent accounts.

  2. Arnold King: “I want to push back against the materialist idea of money, in which its value is determined by the “quantity of money” in relation to other goods.”

    Are you saying the 30+ year decline in the value of the dollar is not related to the increased issuance of the dollar with no substantial current asset to support its value?

    Maybe you are saying that the value of a dollar is not “entirely” determined by its quantity?

    If a corporation issues stock to buy worthless or risky assets, and the stock declines in value (is diluted), should I see this as not affecting the “stock protocol” used for transferring ownership in the company?

    What is the fundamental difference between stealing 3%/yr of value by issuing money compared to stealing 20%/yr by issuing lots of money in a hyperinflation?

    Money has no intrinsic value now, other than for paying taxes. This is not natural, but results from a predatory government and an ignorant population.

    It is amazing. When a bank is rumored to be insolvent, people rush to withdraw their cash because they want the backing of real assets for their accounts.

    If you tell them that their money is backed by the “full faith and credit” of the government, they are reassured that the government cannot go bankrupt. They don’t understand that FF&C refers only to the unlimited power to take real assets from people in the future (taxes), and that this means nothing if the government is diluting the currency to escape the usual understanding of its promises.

  3. Arnold:

    Your, “Think of money as a protocol for exchanging goods, the way that TCP/IP is the basic Internet protocol for exchanging information between computers. The concept of a three percent increase in the supply of TCP/IP is nonsense. ”
    … is a wonderfully useful analogy. And I do think of money that way, not to mention trying to convince others to think of it that way.

    A Note: By “money”, I’m referring to Federal Reserve Notes, not U.S. Treasury issued paper. Federal Reserve Notes are just “legal tender”, they are not debt obligations as U.S. Treasury issued paper are. Too many people tend to conflate the two concepts.

    Maybe to “push back” a little bit against your “push back”, would you consider a slight modification to your second sentence: “The concept of a three percent increase in the supply of TCP/IP is nonsense. “? I actually agree with it, by the way – as stated. But I don’t think it’s stated in a way that is a valid logical extension of the “exchange protocol” analogy.

    Would you consider instead …

    “The concept of a three percent increase in the use of TCP/IP is not nonsense. ”

    … given both Federal Reserve Notes and TCP/IP only have value-in-use/value-in-exchange – consistent with your analogy?

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