How is money a social phenomenon and why does it matter?
Introduction
Money is everything, some people say. In our world, we tend to see money as defined objects. These objects might take different forms, including notes, coins, precious metals and even abstract items. For any exchange operation that people encounter on daily basis, these objects are used to lubricate the process of swapping one item for another. The observation described above presents a simplistic view of money. Money, in classical accounts, tends to ‘only have the role of a pregiven numeraire’ (Ingham 1996, p.508). The barter economic framework dominates the scholarly realm. The approach looks at money purely as a commodity used for a purpose of easing the exchange process in trading. In such a case, money is nothing more than a tool used to translate qualitative characteristics of an object into quantitative. Money, thus, take a single form with its unique qualities. The form does not change with time or influenced by social processes. Instead, money is a neutral tool.
This dominant account of money is scrutinised in this paper. Money is more than just a ‘neutral tool’ used for the facilitation of trade and exchange. Instead, the paper looks at popular arguments which unfold the complex structure of money. As pointed by Wennerlind (2001), ‘money does not exist in a vacuum’ (p. 557). Rather, money plays a significant role in constituting a complex ‘web of dynamic social structural conditions within which people act and interact’ (ibid, p. 557). Rather than looking from purely economic perspectives, the money will be looked at from an alternative standpoint. In this work, I am bringing those challenging ideas on the nature and notion of money. With the help of scholars’ works such as Nigel Dodd (2014) and Geoffrey Ingham (1996), the paper looks at the phenomenon of money from a social point of view. In one case money is explored as a social relation, as presented by Geoffrey Ingham (1996) in his argument. On the other hand, money depends on a set of social relations between its users as argued by Nigel Dodd (2014). Each of the arguments looks from a sociological perspective which helps to understand how money is a social phenomenon. By standing aside from dominant economic theories, the paper can unfold the hidden side of money. By looking at how money manipulates the social structure around it as well as how daily interactions between people alter the meaning of money, we can detect how social life is constructed. Moreover, by acknowledging that money is a social phenomenon as well as observing how money is located within social processes, we are to detect how money can alter social realities. To demonstrate both approached, discussed in the main body of this paper, the two case studies will be applied. Looking at the phenomenon of local currency as well as emerging digital currency, the paper, using these examples, demonstrate the approached discussed in this paper as well as show the importance why it is important to look at money from the social position.
Main Body
Dominant economic theories, as outline in the introduction, present an obscured view on the phenomenon of money. In his work, Geoffrey Ingham (1996) presents a critique of the mainstream theories of economic which overlook the phenomenon of money in the economic system. Money, as pointed, tend to be presented as some kind of ‘special commodity’ which grew out from the evolution of economic processes which were modifying with time (Ingham 1996, p. 508). The models of classical economic accounts tend to be abstract in their explanations of the nature of money and the role it plays in a social structure. Money is no more than ‘some utility for the rational maximising individual’ (ibid, p. 508). What the author is trying to demonstrate is his critique of the neoclassical economic theories which create ‘the absence of anything resembling an adequate specification of its social structural conditions of existence’ (Ingham 1996, p. 509). A similar point is outlined in the accounts of Emily Gilbert (2005). The author similarly presents her critique of neoclassical economic accounts which separate ‘the economic from society and culture’ (Gilbert 2005, p. 357). With the emergence of economic institutions such as banks as well as the growth of state power in determining all the processes within a society, the neoclassical economic theories give an inadequate explanation for the emergence of ‘credit money’. The form of credit money is one of the most prevailing forms of money used in daily operation. Credit money, however, is not a defined object like tokens. However, it is given the same meaning as more conventional forms of money. The value stored in credit money is also generated through a similar process as for traditional forms of money.
Monetarist approaches devote little to no attention to how all form of money correlates among each other. Moreover, there is little mentioned of how money is socially produced and how they alter the social structure. Instead, the approach takes a different turn. Money is a social construction, or better to say a social phenomenon because money does not originate naturally. Instead, as argued by Ingham (1996) money is a symbol of social relations; ‘money itself is a social relation’ (p. 510). Interactions that take place between people in a given society is a representation of a form of money. Money is a social relation because it mediates the interaction and symbolised them. To expand this point even more, ‘money is what money does’ (Ibid, p. 508). Thus, the meaning of money expands beyond simple economic explanation. Instead, money is a set of social relations that take place between the users. These interactions shape the surroundings of these processes as well as the object, money, in this case, involved.
To restate the argument presented by Ingham (1996) that money is a set of social relations as well as to link the observation of the local currency activism, it is important to state ‘money is the foundation of the modern economy’ (Samuelson 1980, cited in Clayton 2010, p. 257). This foundation is built on various forms of money which include the idea of credit money. The form is supported by social interactions among the users. To be more precise, by a shared belief in a given form. The belief in a ‘promise to pay’ also signals how ‘…the meaning of money derives from the way it is used in practice’ (Carruthers 2010, p. 53). This belief that at some time in the future you can claim for the same value put initially is only valid by reinforcement of social interactions and agreed desire to keep the system running. The money in this case being ‘credit money’ is a reinforcement of a social system that upholds the value of money as well as where money upholds the social system. Thus, money is a constant process of meanings, symbols and interactions which mutually constituted the environment. Money is more than just ‘a neutral tool’ which does not alter the social structure.
The importance of understanding money’s social life can be presented in the analysis of a case study. This paper looks at the trend of the emergence of the local currency which is also known as local currency activism. This trend originated as a mean of tackling emerging problems of inequality and rising levels of poverty of selected regions within a country. The unequal distribution of economic benefits and incentives is one of the root causes for the emergence of local currency activism. Since money is a set of social relations, the establishment of alternative kind forms and systems of money is a way to alter unfavourable social structures. As presented by Clayton (2010), the Jamaican economic system is described as ‘deep-rooted economic underperformance’ (p. 245). The causes for such trend are found in a wide range of social problems, including unemployment, underemployment, persistent poverty, low levels of educational achievement, and an exceptionally high level of crime’ (ibid, p. 245). While these conditions negatively influence the economic performance of certain areas, they are also caused by systemic economic deprivation. The local currency is presented as an alternative strategy to approach these long-lasting problems. As argued, local currency
‘can make a useful social contribution, when embedded in local economic development strategies, as a means of encouraging social cohesion and embryonic economic development’ (ibid, p. 243).
Local currency activism was originated as a way to push back the dominance of the state/governmental influence on the economic establishment. If applying the argument that money is a set of social relations, local currency activism presents the breakdown with the old social structure. The structure is breaking down with the emerging changes in a society and where old ‘social agreement’ is no longer able to maintain cohesion. Money, in such a case, being part of this social system and part of the social deal with a state, money is a mean of alternating the social relations. The importance of the social nature of money is reinforced. This is because money becomes an empowering tool for change. In the case of deprived communities where the local exchange trade system (LETS) as part of local currency activism is implemented sees the effect of such initiatives. The system which ‘has no material basis’ (Clayton 2010, p. 257) can diminish conventional conflict of the dominant banking system which deprives some groups of people while favouring the others. The system where the participants offer their services in exchange for their needs build a personal credit system that is not influenced by economic fluctuations (ibid, p. 257). Similarly, a local currency is designed to manage the problems of a small-scale community. A community that puts meaning and trust money but creates a potential for improvement of a local market by ‘creating multiplier effect’ (ibid, p. 257). This means that the social meaning which is devoted to conventional forms of money can take an alternative form. More importantly, money reinforces the social structure. Thus, the importance of understanding money from a social standpoint is a way to improve the condition of a social group as with the use of money as mutual trust, the structure is shaped and reinforced.
Another way to look at money from a social standpoint is to look at money as something dependent on a social context. Money is not only an all-encompassing symbol of social relations. Money itself depends on the structure of social relations. A similar critique of the neoclassical economic approached on the origin and nature of money we can find in Nigel Dodd’s (2014) analysis of money. The nature of money does not take a homogeneous form. The social meaning of money is constituted by social interactions among users. However, the process by which money is created and injected into a wide use tend to be kept invisible. The argument, in this case, is directed from a different angle. Instead of looking at money as a set of social relations, we have to acknowledge that money and, thus its meaning, is depended on a social relationship among the users. As outline in Dodd’s (2014) analysis, Marxist thinkers may look at money as a way of hiding power relations. Money as previously discussed can take various forms, including intangible forms such as ‘promise to pay later’. As pointed in Marx’s work, ‘every owner carries his social power, as well as his bond with society, in his pocket’ (cited in Dodd 2014, p. 51). Money is used to eliminate the qualitative features of an object, in this case of labour, to stimulate economic activity which primarily benefits those in the power of money. If taking the idea that money depends on a social condition, to be precise on social structure, the capitalist system shapes the meaning of money. In such a case, money becomes a manipulating tool for those in power creating money. Even the argument raised by Karl Marx on understanding the role of money and its nature cannot be distinguished from social character. Taking the point noted in Dodd’s analysis of Marx’s work, ‘for Marx, money is not a thing; rather it is a fetishized social relation…money is not just a single social relation but also a complex and contradictory ensemble of social relations’ (Dodd 2014, p. 62). Money varies on a set of social conditions. The form of money adapts to changes that take place within a given society. The form might alter, but ‘what it requires is not the anchor of its material reality but rather the backing of others’ (ibid, p. 389).
Money depending on a set of social relations can be illustrated by the example of emerging digital monies. Digital money which can also be known more often as Bitcoin currency is an example of an alternative currency. Even though Bitcoin is a digital currency that rests on social perception and trust, it is ‘designed to behave like gold, only better’ (Dodd 2017, p. 241). Digital currency is an example of how money can adapt to social transformation. The qualities it is given are similar to traditional forms of money like precious metals, but with the rendering of trust in the key institutions which are crucial in sustaining the value of that money, new forms emerge. For some, the phenomenon of digital currency signals a change in a social structure and for the breakthrough from a hierarchical structure. On the other, it is an adaptation of the dominant groups to these changes, thus their reinforcement. As stated by Dodd (2017), ‘bitcoin represents a sociologically fascinating paradox’ (p. 242). To some extent, the emergence of cryptocurrencies is a signal of the social nature of money. This is because, with alternations in formats of money, people can detect the changes in a system. Looking at money as it is a social phenomenon, we can reveal ‘money for what it is not…it is not an objective entity whose value is independent of social and political relations’ (ibid, p. 244). Instead, we can detect that money is everything and it is nothing at the same time.
Conclusion
The paper explores the argument of how money is a social phenomenon and why it is important. A mistake that seems to be made by dominant economic theories is sacred in separating money from social context. Money is made to look like a neutral tool. A tool that naturally came into existence through the exchange of goods and the monetisation of objects. The practice, which is addressed by counterbalancing theories, discussed in this paper, rather point at the context of money’s life. This is an important observation to be made. Money is not a neutral tool that takes a homogeneous form and resistant to any changes in society. Instead, money’s meaning, form, and purpose are shaped according to the context. Thus, money is a social phenomenon. Acknowledging money’s social status, we can trace how a given society has been changing.
The analysis presented in this work presented the leading approached to the study of money from a social standpoint. At first, looking at money as being a set of social relations which has been argued by Geoffrey Ingham (1996) in his work, we have explored that money is a social relation because it symbolised the interaction among the users as well as mediates its. Applying the case study of the local currency, we can apply the approach. The local currency activism presents the idea that money presents a social relation of a deprived community. With help of LETS people can alter the conditions of their community.
Similarly, we have explored the idea that money depends on social structure. Any change that takes place in a social system is reflected in the nature and functions of money, like in the case of cryptocurrency. Money should not be isolated from the social and political structure as money is constituted by those structures as well as constitute them Thus, the notion of money is not obscured like it is done by neoclassical economic theories.
From the following pages on how money was reflected in a society and what is the meaning it had, we look at how money changes.
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