In a recent paper, Inigo Wilkins and Bogdan Dragos develop the theory of money as a ‘machine’, building on earlier ideas of Mirowski and Cartelier. This theory perfectly dovetails with the arguments presented on money and the technosphere in this blog and in my related writings on the technosphere. If economists discuss technology, they rarely include money in terms of the theory. Applied economics certainly considers financial technology, but that would not extend to include the fundamental institution of money, thus separating the ‘institution’ (law, social relations) from the ‘technology’. Wilkins and Dragos invert that analysis: They start from scrutinizing money as a technology, and then argue that using the technology has social implications, especially regarding inequality and power in society. Strangely, in economics we observe the opposite movement, starting with money as an institution and then neutralizing its implications for power in approaching money as a mere medium that fulfils technological functions, such as being medium of transactions.
Money as a technology combines humans with artefacts in complex assemblages, as in most technological devices. The artefacts are the money objects (such as coins) and the various types of ledgers and accounting technologies, and humans respond to affordances and constraints using these artefacts, such as accounting principles. Even though these appear to be rule-based and hence arbitrary, this is not the case once the idea is acknowledged that money is a flow of a conserved quantity between various poles, hence implying notions such as balances of outflows and inflows. Money is as ‘hard’ as a combustion engine, once set in place.
Wilkins and Dragos mention that they do not make any claims that the money machine enables ‘right pricing’. This points to the other flaw in the economic theory of money, namely, to exclude price theory from monetary theory. In our new book ‘A New Principles of Economics: The Science of Markets’ Christian Hederer and I argue that pricing is part and parcel of the theory of money, whereas the standard theory assumes that prices are relative prices, and money just fixes the level of absolute prices. This stays in stark tension with the Hayekian idea, today maintained by the majority of economists, that prices carry information. As Mirowski and Nik-khah show in their book on the concept of information in economics, the Hayek view on prices has been extremely influential in economics, since the days of the debate over socialist accounting. But can prices really carry information?
If we adopt the money as technology perspective, one of the key applications apart from settling accounts is serving as unit of account. This function is conventionally separated from the economic action of ‘pricing’, which is simply taken as a given when speaking about ‘unit of account’. The Hayekian view neutralizes the activity of pricing in assigning the role to the ‘market’: The argument that prices carry information suggests that individuals just observe price signals and use information embodied therein without understanding its meaning. For example, if prices for coffee rise, they do not necessarily need to know the reasons, but can just adapt efficiently.
In contrast, pricing should be approached as applying the technology of money in assigning a nominal price tag to an object: There is no such thing as a ‘relative price’ without manifestation in the money sign. Conventional economics makes a metaphysical, if not mystical step from ‘price’ to ‘scarcity’, thereby begging the real question. Is there any information transferred in this action, apart from this, namely that someone assigns this price? Nope. First, consider the totem of economics, the supply and demand diagram: If prices go up, does the observer, thinking in terms of that diagram, learn whether the cause is increasing demand or shrinking supply? Second, this means that the observer needs to interpret concrete actions of pricing, such as a supplier raising price, and to reconstruct these reasons and put them into the perspective of market trends: Cost considerations? Views on strength of demand? Just financial straits and the hope to get through? Following the general trend? And so on. The Hayekian view is still infected by the equilibrium view on price-taking in perfect competition. In disequilibrium, prices never carry any ‘objective’ information: Information is only emerging from interpretive actions of economic agents. Are there any economic agents that really retrieve information from mere price movements? I know of only one type, which are the technical analysts on financial markets who strictly focus on price movements of assets to inform their decisions. Economists mostly regard this as completely meaningless and quackery. So far about prices as carrying information.
Separating the theory of money from the theory of prices is one of the pillars of market ideology, aptly called ‘the religion of the market economy’ by the German ordoliberal Rüstow. The market is mystified as universal processor of information, and money is mystified as the phlogiston in which markets exist. If we approach money as mundane technology, pricing is one of its key applications. This has been only recognized by economic sociologists in the wake of the ‘material turn’ (MacKenzie, Callon, et al.), but is ignored by economists.
Following Wilkins and Dragos, what is the information that we can really extract from changes of prices? This is that we must adapt our expenditure plans to our budget. If one item gets more expensive, we can spend less on something else included in our plans. That is, money guides the process of rationalizing our choices (Christian and I analyze that in much detail in our book). Money is a means to know thyself, yet in a very special way. This is how money intrudes in our minds and hearts, as Georg Simmel masterfully analyzed in his ‘Philosophy of Money’, completely ignored by economists. Therefore, money is the key medium of expanding the reach of the technosphere, in the Weberian sense of the ‘iron cage of capitalism’.
Yet, this is by no means a necessary evolution if we approach money as a technology. We are perfectly able and free to judge uses and abuses of that technology, we can define the areas of application, and we can subject it to ethical assessments, and so forth. That would turn the economic theory of money from head to feet: Economists would need to develop a body of knowledge about the appropriate and productive uses of money as a technology in society, and not just take it for granted in mystifying markets as universal processors of information.