§5 - Reciprocal or circular definition is abysmal – or groundless – and thus traditionally considered suspect, if not prima facie evidence of hopelessly defective reasoning. Unfounded circuitry is naturally disconcerting, when identified in the world, let alone in our thought processes. [1] Under certain circumstances, however, characterized by cumulative bootstrapping, it can be an exceptional index of theoretical productivity. An especially remarkable example, from the perspective of this book, is provided by the intertwining of the questions ‘Is Bitcoin money?’ and ‘What is money?’ In holding these two questions open simultaneously – suspended within the abyss of what we do not know about either – the prospect is opened of learning something about both. What Bitcoin teaches, at a very early stage of apprehension, is that we do not yet have a confident answer to the question: What can money do? [2]
§5.01 - An economical list of essential monetary functions is exhausted by just three indispensable entries. Money provides a medium of exchange, a store of value, and a unit of account. [3] In other words, money facilitates commerce, preserves wealth, and sets a standard for economic calculation. According to a preliminary apprehension, it is a functional trinity of flow, stock, and metric. [4] In support of these functions, money typically possesses a number of predictable qualities, most prominently the characteristics of scarcity, durability, verifiability, divisibility, portability (or communicability), and fungibility. Of these six qualities, the first three are essential to the preservation of monetary value, and the remaining three to commercial convenience. These aspects are reciprocally reinforcing, mutually establishing a standard unit of account (or of credit).
§5.02 - Attempts to establish a robust conceptualization of money’s functional trinity soon run into intricate difficulties. What appear to be merely formal differences, when captured at certain moments, and from limited perspectives, appear amid other circumstances as substantial distinctions, dense with historical contingency, and lacking even minimal ontological integrity. Consider, initially, the unit of account. As Braudel explains:
… these were imaginary units, used for reckoning, for estimating the relative value of coins, for fixing prices and wages and for keeping commercial accounts which could later be translated into any kind of currency, local or foreign, when the time came to move from the ledger to actual cash payment. … One would have to go back a very long way to find the coins corresponding to the money of account – but all such moneys had at some point in the past been real money. [5]
§5.03 - No pure analysis of money, we can immediately see, is able to take us far on its own. A monetary regime is a synthesis – we might want to say an assemblage – consisting of heterogeneous elements mutually composing a functional whole. Insofar as a single monetary medium is able to integrate these elements, in a way that seems to facilitate a subsequent formal decomposition into neatly interlocking functions, a complex achievement has taken place, whose partial invisibility attests to its success – without detracting from its historical precariousness. It is only very late in the real process that a money system is able to appear as the near-perfect incarnation of a simple idea, internally differentiated by a logical structure.
§5.04 - The tension between money flow and stock – corresponding closely to that between commerce and wealth – is no more tractable to confident philosophical apprehension than the (partially abstract) unit of account. It, too, is a complex of ambivalences, wavering uncertainly between formal and substantial distinctions, and subject to dynamic swirls of cross-dependency. It is not only that each of these functions is also partially logical and / or semi-empirical, in itself. The inter-connections between them add further oscillations between logical disjunction and empirical difference. The functions of money as a means of payment (currency, flow) and a store of value (asset, stock), cannot be considered entirely in isolation, since the distinction involves both adjacency (real differences of media, in a relation of complex complementarity) and substitution (switchings between assets, guided by the intensity of ‘liquidity preference’). Money’s logical aspects and its multiple media cross-connect in theoretically inconvenient ways.
§5.05 - For example, the divisibility of money, a purely formal (arithmetical) relation from one regard, is incarnated in a substantial heterogeneity – between distinct metals – from another, and subject in this latter to variations in exchange rate across time. In the European economic tradition, gold ‘divides’ into silver on the basis of an ideal value relation of twelve to one. Yet, in actuality, this ideal was only occasionally, and – once again – precariously realized. The same distinction between monetized metals which played such a crucial analytical function within the monetary system (as an order of divisibility) simultaneously preserved its synthetic characteristics (as an exchange relation between different commodities). Historically, the difference between ideal and actual exchange values generated variations in ‘pressure’ comparable to meteorological conditions, as relative scarcities of gold or silver drove currency units across and beyond continents in storms lasting decades, or even centuries. Formal tokens of accountancy were at the same time the particles of substantial bullion flows. Mathematics mixed with metal, indissociably.
§5.1 - The functions of money will be under continuous examination throughout this chapter. What can money be reliably broken-down into? That is the question techno-frozen into every change machine. When grasped at a sufficient level of abstraction, the philosophical inquiry is not so very different. The logical pieces of money – its qualities – are therefore worth limning, tentatively, in advance. Since it is philosophically discomforting to rest a central analysis wholly upon consolidated empirical generalization (which is to say, upon tradition), the temptation is to search for a relevant principle. Can ‘the six qualities’ of money be convincingly rationalized, from a ramshackle list into a categorical structure, sub-divided in strict accordance with a conceptual principle? [6] Since no unambiguous draft for such a schema is to be anticipated from historical evidence, it can only be supplied as a ‘regulative ideal’ or teleological model – to be excavated from the virtual, on the diagonal path of synthetic a priori construction.
§5.11 - Durability, at its most basic, is mere existence, or actual reality, insofar as this is conceived as occupation of time, or the possession of temporal characteristics in general (participation in duration). The monetary excellence of high comparative durability is an empirical feature, but one that is asymptotic to indefinite persistence, or non-locality in time – the limit of constant existence, at which it re-connects with the transcendental. Concrete currencies tend to closely approximate to this ideal. Precious metals, for instance, are indestructible (for all purposes of practical economic calculation). Ledger entries – while necessarily bound to physical incarnation – manifest an intrinsic idealization that approximates even more exactly to an absolute durability (identified with a substrate-independent institutional memory). Perishable goods disqualify themselves from serious consideration as monetary media (unless under very exceptional circumstances). [7] For any store of value, extreme durability is a necessary, if not in itself a sufficient, condition.
§5.12 - Scarcity grounds economic value in general. Nothing that is freely available without the inconvenience of trade could conceivably have commercial worth. Abundance begins where economy ends, and Cornucopian thinking is not a type of economics, but rather its general denial. Scarcity finds its mathematico-philosophical outer limit in the concept of ‘finitude’ (since the division of infinity is economically incalculable), but this determination is too expansive to capture it well. Greater purchase is achieved by the notion of difficulty, especially as this is employed by the Bitcoin Protocol. The concept of scarcity is the complement of commercial trade-offs or industrial effort, and thus of economic activity. The scarcity of money presumes a solution to the DSP.
§5.121 - In combination, durability and scarcity provide the foundations of being and value, constituting an – as-yet generic – permanent asset, or (to reverse the order of determinations) an economic substance. At this elementary level of definition, it remains notably non-specific, encompassing such non-monetary assets as real estate, or stocks of imperishable commodities. To acquire a commercial function, as an essential step towards its operation as money, economic substance has to provide for convenient re-allocation. Money has not only to be valuable, but also distributable. (We will see a little later, and finally, that it has also to be credible.)
§5.13 - Divisibility enables money to match prices. [8] The divisibility of the monetary medium sets the range of retail pricing options (and the subtlety of potential price competition). While money is only ideally continuous (or infinitely divisible), this condition is practically approximated by an acceptably fine granularity. The smallest unit of money in circulation corresponds to the point of commercial indifference, beyond which variation is considered irrelevant to economic decision making (as mere ‘rounding errors’). The trade-off between standardization of units and delicacy of quantitative differentiation sets an equilibrium point, to which the atoms of the currency approximate. In other words, coarseness is an imperfection relative to ideal money, tolerated for practical purposes. (The massive economic applicability of the calculus does not imply a significant appetite for monetary infinitesimals.) This feature of money acquires a new prominence in the era of digital-electronic micropayments. Already in the early decades of the computer era, it was anticipated that the friction afflicting minuscule monetary units would be electronically eliminable. Ted Nelson’s attention to the question is especially notable. [9] Under these conditions, the zone of commercial indifference – where monetary quantities become ‘negligible’ – has the potential for transformation into a positive attractor. A massively expansive, monetarily hyper-sensitive agora opens distinctive commercial possibilities (extrapolated from those long developed within industrializing consumer capitalism). Minute margins become economically tolerable (in principle), due to the volumetric re-scaling of microscopic sums into significant quantities within Internet-globalized markets. [10]
§5.14 - Communicability (techonomically supplanting ‘portability’) measures the degree to which money is transmissable. It is division, or distribution, apprehended not only as an arithmetical property, and a contractual consummation, but also as a physical transfer. Transmissibility is an implicit characteristic of the economic sign. To be in one place, rather than – any longer – in another place, is the irreducible material substrate of every notional re-allocation within double-entry book-keeping. A commercial transaction is always a process of reciprocal transference, requiring – on both sides – a real redistribution (of matter in space). Semiotic subtilization cannot fundamentally compromise this necessity. Even the mere revision of a ledger is never less than a physical event. [11] Nevertheless, asymptotic dematerialization is a real feature of signs under conditions of techonomic escalation, exemplified by electronic information, and the satisfaction of commercial transference by a (micro-physical) revision of accounts.
§5.15 - Fungibility is a feature of the economic commodity in general, in the strong (and prevalent) sense of a tradable good undifferentiated by (significant) qualitative variation. By collapsing all dimensions of intrinsic comparison between instances of the same good onto a single quantitative axis, it optimizes the conditions for commercial computation and price competition. The extreme relevance of its application to money strengthens the case for confidently defining the latter as a general commodity (even if such a definition remains incomplete). [12] Without fungibility of money, economic calculation would be drastically impaired – to such an extent that this characteristic is necessarily attributed to the abstract unit of account, as an ideal. This claim attains greater cogency if reversed: It is in order to fulfill the functional requirements of the unit of account that implemented concrete money systems acquire fungibility as an indispensable criterion for even minimal adequacy. Commercial quantities presuppose equivalences, or at least commensurabilities, even if between strictly ordinal-differential preference schedules (of the marginalist type), since they could not otherwise be arithmetically tractable. [13] It is worth noting that weighing already assumes fungibility, and the correspondence of many monetary units to (forgotten) measures of weight is widely recognized. The elementary economic option involves a comparison, with some definite baseline of assumed fungibility providing a condition of calculability. Indeed, the basic concept – and practical institution – of price assumes fungibility. A system of ‘money’ whose instances were in any way better or worse, other than by being more or less, would be unable to compute settlements – even within modest transactions – without the introduction of complex supplementary information (about the monetary medium itself). Since, once again, perfect fungibility is a limit ideal, this problem is by no means entirely hypothetical. We might refer to qualitative interference in money systems as ‘Gresham noise’, [14] especially as this applies to friction within their concrete processes of circulation, and thus to integral illiquidity. The entire techno-political problem of monetary standardization applies here. The practical idealization of money, within digital registers of pure quantities, retains implicit reference to a model of perfect fungibility, appropriate to the mathematical tool, or calculator.
§5.16 - Verifiability can be rigorously conceived as a practical extension of fungibility, or as an operational annex to it. It references some definite, practical checking procedure that qualifies money as credible. Dubious money cannot be confidently counted as any definite sum whatsoever. Across the vastly preponderant part of monetary history, the model verification procedure has been assaying. The assay underwrites monetary value determined as a quantity and purity of metal. In the age of paper money, verifiability refers primarily to protection against forgery, or counterfeiting. This characteristic binds money essentially to the production of trust. Money is able to redeem a promise, and thus validate it.
§5.17 - As an aside, at this early stage in our discussion, it is notable that Bitcoin possesses all six of these qualities, super-abundantly. [15] Its durability is – in principle – absolute, although Bitcoin can in fact be lost or destroyed (see following note); it is rigidly and quite exactly [16] scarce (to a fault, its critics object); divisibility is also unlimited in principle; [17] its communicability is extreme, based on Internetworked digital electronics; its fungibility is also absolute, given any set of realistic assumptions about user incentives; [18] and it is verified automatically in its reproduction cycle. It would be difficult for Bitcoin’s status as money to be more secure, insofar as ‘the six qualities’ are applied as a criterion.
§5.2 - To entertain money as an explicit object of philosophy is immediately to question the conceptual interconnections between its essential qualities. A threshold of controversy has already been crossed, therefore. From the perspective of a certain mode of empiricism, the neglect of this topic expresses a positive intellectual virtue (with the presupposition of systematic order as its corresponding vice). As a matter of objective irony, or something that effectively masks itself as such, those cultures most conducive to the reign of money have been those most instinctively dismissive of its transcendental dimension. Money does not seem to favor philosophical attention. In this, one might suspect the crypto-current at work. Empiricism casts subtle shadows, whose darkness is deepened by a secondary occultation. [19] Quite imaginably, philosophy enters this terrain as a disruptive intruder, whose gaze is damage. Yet, in the end, whatever is denied access will simply not pass the gates. The secret secures itself.
§5.21 - Any modern philosophy of money proceeds as a transcendental deduction, guided by the question: How is economic calculation possible? [20] The foundation for an answer is comparatively solid. Money is the condition of possibility for the existence of prices, and therefore for the commercial object (in general), by definition. Insofar as objects of economic intelligence exist, money is presupposed as a calculative principle, an ideal, or virtual machine-function, irrespective of its more-or-less adequate concrete incarnation. When talking of ‘ideal money’ in this context, reference is not being made to a superior – still less a perfected – type of money, yet to be actualized, but rather to the abstract money emulated to a greater or lesser degree by any actual currency system (in the way any actual computer emulates a Universal Turing Machine). Any concrete monetary system necessarily draws upon an abstract idea of money, which is operationalized in advance of its explicit theorization. This relation has effectively foreshadowed – and even predetermined – the fundamental problems of philosophy.
§5.22 - As Whitehead famously noted, philosophy subsides back into its characterization as “footnotes to Plato” as into a sucking equilibrium. However it advances, the primordial captivation is unbroken. The temptation, always, is to refer sensible actualities to their ideas. What is the truth of things? Such a problem exists, compellingly, from the moment there is an economy of prices, and perhaps not before. The priced – or commercial – object models the elementary provocation to philosophy, because any such entity has been converted into an accident of its own value. It thus, intrinsically, suggests an Idea, of which it is a mere instance. Concretely – and ‘sub-philosophically’ – every priced object implies a virtual relation to ideal money (which acquires definition to a greater or lesser extent in the unit of account). While ideal money is scarcely less elusive than the Platonic Forms, it is nevertheless able to support realistic teleological expectations. It exercises effective selective pressure upon any actual monetary system, under the guidance of inevitable, distributed preference for those that incarnate the tokenization of value at a superior level of ideality (as exhibited, prismatically shattered, in the six qualities). In comparison to money, the Platonic εἶδος is no less durable (eternal), scarce (singular), divisible (or, at least, distributable among particulars), communicable (teachable), fungible (self-same across all instantiations), and verifiable (or philosophically demonstrable). It is tempting, therefore – regardless of the irony involved [21] – to understand money as the model of idealization. By practically defining that which remains equivalent across a transaction, money cannot avoid making abstraction a cultural topic.
§5.23 - Money is the sign that names, or denominates, price. Unlike a signification, or designation, this semiotic function is allocative, which is to say that it is executed in the process of payment. Money ‘speaks’ in being spent. When saved, or reserved, its meaning is virtualized, and is even constituted in being virtualized. Abstraction – from the concrete item of expenditure – is expressed as a definite potentiality, or set of quantitatively-delimited economic options. Money’s spontaneous logical medium is modality. Within it, the potential conversion of property finds distinct expression (‘as such’). Whatever finds itself priced is marked by commercial contingency (or formal exchangeability). Extracted automatically from the dull domain of the merely given, any such priced-object now manifests an Idea, peculiarly, and precariously. Its concrete reality is now reduced to a mode. Thus, factuality is spontaneously subverted by commercialization, in becoming a more-or-less liquid instance of a general abstract substance. Being acquires its philosophical dimension. [22] At the extreme, therefore, an identity is ventured between the ‘invention’ of money and the origin of pure thought. The concept belongs to commercialism.
§5.24 - Broad consensus concerning the essential properties of any monetary medium has been consolidated over the course of millennia. The initial enumeration of these properties is best represented among the ancients by Aristotle, who recognized durability, divisibility, convenience, uniformity, and ‘intrinsic value’ as qualities of money. By the time Adam Smith wrote his The Wealth of Nations the distracting metaphysical error of intrinsic value had been discarded, while the essential properties of money were simultaneously abstracted (into ideal qualities) and concretized (through their exemplification in historical monetary media). He writes:
In all countries, however, men seem at last to have been determined by irresistible reasons to give the preference, for this employment, to metals above every other commodity. Metals can not only be kept with as little loss as any other commodity, scarce any thing being less perishable than they are, but they can likewise, without any loss, be divided into any number of parts, as by fusion those parts can easily be reunited again; a quality which no other equally durable commodities possess, and which more than any other quality renders them fit to be the instruments of commerce and circulation. [23]
§5.25 - For Smith, as for Aristotle – and indeed, later, for Marx as for the Austrians – the abstract conception of ideal money was scarcely to be distinguished from the concrete virtues of precious metals (and of gold and silver in particular). Money, insofar as history had certified it, was metallic coinage, only subsequently – and trivially – supplemented by its paper representations, or contractual appendages. Between the questions ‘what are the qualities needed by a monetary medium?’ and ‘why have precious metals been selected to serve as money?’ there was only the most insubstantial of differences. To understand why gold made good money was to understand what good money is. [24]
§5.251 - Why, then, do precious metals make good money? The entire list of qualitative monetary virtues can be mined from this question. Due to their chemical characteristics as pure metallic elements, they are durable, divisible, and fungible, since they are stable across time, and homogeneous in space (down to the atomic scale). This substantial consistency also makes them conveniently verifiable, as simple, measurable objects of chemical science, and of practical metallurgical assaying. Finally, but no less importantly, their comparative rarity makes them economically scarce, hence potentially valuable, and – in close proportion to their ratio of value-to-mass – also portable.
§5.252 - Yet, despite its close approximation to the ideal type of a monetary medium, precious metal is not – in itself – money. [25] To become money it has to be minted, or converted into a sign. A concrete example is provided by the silver penny, the most widely-accepted monetary unit of the European pre-modern period. [26] The direct descendant of the Roman denarius, dating from 211 BC, the English penny (containing 1.3-1.5 grams of silver) was introduced in AD 785, during the reign of the Mercian King Offa, and persisted with only superficial changes for over nine centuries. It is of particular importance to note that the penny was – to modern eyes – an extraordinarily self-referential sign. What it signified was at the same time what it incarnated. This was captured in the perfect – and to pre-moderns simply tautological – equivalence between the expressions ‘one pound is worth 240 silver pennies’ and ‘240 silver pennies weigh one pound’. Silver did not back money, but was rather directly minted into money. The subsequent dissociation of monetary value and precious substance was essentially alien to the pre-modern world. It was only through the debasement of the currency – the archaic monetary manifestation of the DSP – that the difference gained episodic purchase, and then only as a blatant corruption of the currency in question. Coinage is primordially a medium for conveying precious metals into commercial circulation. It shares the economic principle of packaging. In both cases value creation is non-negligible, but also incidental. To see in coining an anticipation of money production of a modern type and scale is thus to entirely misconstrue it. Despite its extreme abstraction, the return of coinage in the mode of crypto-currency is the carrier of a deep conceptual revision, and even a reversion. In its new sense, no less than its old one, a coin is a regular sub-section of an asset-reservoir, sized for commercial convenience, which is to say that it is an actual part of a qualitatively-consistent resource. In neither case does the coin acquire this character simply by saying what it is. Allocation is its irreducible, and non-derivative, semiotic function.
§5.253 - Questions concerning the essential nature of money find themselves slipping backwards, unconsciously and automatically, into a description of the historical instantiation of money, which is a topic dominated – massively – by the function of precious metals within complex societies. It is only through appeal to paleo-anthropology, exotic ethnography, or the history of established modernity, that such questions can refer themselves concretely to anything else. Money has been gold, silver, and copper coinage, [27] with only primitive, anomalous, and sophisticated exceptions.
§5.3 - The narrativization of monetary history which has come closest to gaining mainstream acceptance is the evolutionary model of Carl Menger, which describes the emergence of money – or ‘indirect exchange’ – from out of a primitive barter economy, as a solution to the ‘double coincidence of wants’. [28] Menger emphasizes the specific coordination problem involved in transactions by barter, which is the combinatorial explosion of ‘direct’ (and terminal) exchanges. “These difficulties would have proved absolutely insurmountable obstacles to the progress of traffic,” Menger insists, [29] “and at the same time to the production of goods not commanding a regular sale, had there not lain a remedy in the very nature of things, to wit, the different degrees of saleableness (Absatzfähigkeit) of commodities.”
§5.31 - Commodities are not equally ‘saleable’ or commercially disposable, and it is from this diversity that the differentiation of money from the world of commodities takes place. The transitional stage, within Menger’s account, corresponds to the rise of a special commodity, marked out by its peculiar Absatzfähigkeit. The ready acceptance of such intermediate goods within systems of barter exchange, due to their convenience for re-sale – i.e. their liquidity – spontaneously anticipates the monetary function. [30] To re-iterate the kernel of Menger’s analysis, at the risk of redundancy: the Absatzfähigkeit of precious metals “is far and away superior to that of all other commodities” (and, compared to this virtue, their traditionally-recognized merits are theoretically relegated to mere “concomitant and subsidiary functions of money”). The genesis of money is thus attributed to a self-organizing process of commercial abstraction, in which liquidity plays the supreme role.
§5.32 - Liquidity cannot be extracted from its commercial context. It translates with great fidelity into acceptability, and thus conceptually converts an extrinsic feature – the degree to which an item of whatever kind encounters general market receptivity – into an intrinsic property. Liquid assets will be readily ‘taken off your hands’. They constitute the negative of commercial friction, or resistance, which approaches its minimum in money. (“Everybody needs money. That’s why they call it ‘money’.” [31]) Since markets – whether comparatively concrete or abstract – are nothing but zones of asset liquidization, they tend to convert everything they touch into ‘money’ at some level of intensity. Anything that can be marketed has a monetary aspect, which is to say that it could – under counter-factual conditions determined by the absence of any superior commercial medium – become money. We return, always, to cigarettes in concentration camps as a reality anchor. Money, fundamentally, consists of market-participation tokens. It need only be swappable. What demotes any such thing, below the threshold of monetary status, is not its own essential deficiency, but always and only better money. It is better money that defines money effectively, while retro-projecting an original idea. [32]
§5.33 - Examples of extreme social relapse – accompanying the destruction of monetary systems through hyperinflation – are regularly invoked in support of Menger’s story, because they resuscitate its basic features through regression. When money dies, societies appear to recapitulate its primeval forms – seizing desperately upon candidate ‘general commodities’ such as cigarettes – on their path of descent back into the dysfunctional tangles of barter relationships. It is especially notable that under such conditions it is the promissory aspect of money, as credit (corresponding to a liability accepted by another party), that leads the way into worthlessness. Hyperinflation is a catastrophic break-down in trust, when the value attributed to the solemn word of the issuing authority is rapidly re-set towards zero.
§5.34 - The Austrian narrative corresponds to an anti-politics, in which the legitimate domain of concentrated public action is subjected to systematic constriction, in accordance with a radical skepticism regarding both its theoretical sufficiency and its practical efficiency when compared to the history and prospects of spontaneous coordination. Inevitably, therefore, the most significant antagonists of the Austrian orientation are those committed to a defense of politics – one that is equally, and reciprocally, both descriptive and normative. In recent times, the most influential account in this vein has been advanced by David Graeber. [33] The basic tendency of Graeber’s historical reconstruction, which folds economics into the politics of debt, makes it emblematic of the anti-liberal philosophy of money in general. It can therefore be taken as exemplary.
§5.341 - Rather than tracing the origins of money back to a process of spontaneous order, in the Austrian fashion, Graeber binds its history to the state. The primordial linkage of money to a ‘universal commodity’ is de-emphasized relative to its political-economic functions of taxation and debt accountancy. According to this narrative, the principal historical secret of money lies not in the facilitation of trade, but in economic exaction by social elites. Standardization is the essential feature, reflecting – and reinforcing – concentrations of power. The large-scale production presupposed by an oecumenic currency depends upon a monetary manufacturing capacity that can only be provided by royal mints, or their modernized equivalents. Abstraction – or formal mathematization – of the primitive social obligations within what Graeber dubs “human economies” leads to a radical intensification of oppression and violence.
§5.342 - The axis within which Graeber’s analysis unfolds is determined not by (commodity) trade, but by obligations, stretching from the fluid reciprocities of primitive societies – and residual “everyday communism” [34] – to the cyclopean power structures of centralized states. Within the latter, as recorded already in the excavated tablets of ancient Sumer (c. 3,500 BC), cash money has been consistently marginalized relative to financial credit. It is this construction that supports Graeber’s inverted sequence of monetary history, which is no longer conceived as an abstraction from commercial traffic, but instead as a commercialization of formalized obligations, beginning with credit as the primordial phenomenon. It is from debt that money is subsequently developed, with barter appended, at the end of the theoretical sequence, as a mutant, terminal annex. Credit and not barter, then, or obligation and not trade. This is, for Graeber, the political matrix in which money is born. An innovation in social hierarchy is its midwife, introducing it to the world through the “military-coinage-slave” complex of the Axial Age civilizations.
§5.343 - It is notable that Graeber considers the Axial Age [35] to be an essentially unmitigated historical calamity. Where Karl Jaspers drew attention to an incomparable cultural awakening, occurring in the centuries around the middle of the first millennium BC, Graeber derives its efflorescence from a revolutionary advance in the machinery of social oppression. The ascription of values is reversed. Yet abstraction is the consistent key to both accounts. Concrete existence becomes calculable on an unprecedented scale. Something like a ‘question of being’ arises. Graeber earns his role in this discussion through participation in the hypothesis that monetary innovation – operating as a spontaneous stimulus to abstract thinking in general – is the basic phenomenon. During the Axial Age the world begins to learn what money can do.
§5.344 - Graeber’s analysis is consistent with a far wider cultural tendency to conceive debt as the principal instance of economic domination (supplanting the classical role of mere destitution in this role). [36] Social contestation over economic flow (profits versus wages) is displaced by a central image of class war between creditors and debtors, radically and fundamentally financialized. This is not a socio-historical construction to be lightly dismissed. The model of political revolution as an insurrectionary extinction of debt, in particular, is productively suggestive. It embeds into itself a theory of post-revolutionary social memory – or strategic amnesia – in obvious accordance with large swathes of historical evidence. The revolutionary ‘Year Zero’ symbolically wipes the slate clean. Evidently, the financialization of capital and its revolutionary negation have modernized in parallel, if not at tightly-bound velocities.
§5.3441 - While the complex historical entanglement of modern revolutionary politics and ancient eschatalogical religion is a well-worked topic far exceeding the scope of this book, it intrudes inescapably at this point, in the specific guise of the jubilee. [37] ‘Redemption’ is a term cutting across the registers of religious and economic discourse, sustained by a consistent appeal for absolution, or forgiveness. From Prophetic Judaism to Graeber’s Debt: The First 5,000 Years, via The Merchant of Venice, Das Kapital, and countless additional examples of anti-usurious polemic, the voice of the debtor has been bound to an apocalyptic promise of forgetting. The obliteration of the secular ledger in the name of a higher accountancy has been the insistent theme. For roughly a century, administrative inflation-tolerance has provided a moderated expression for the same popular clamor. Inflation strikes a compromise with the demand for financial tabula rasa, by erasing debt values incrementally. It is revolutionary redistribution on an installment plan. The veil of the ubiquitous credit system allows inflationary macroeconomics to reach beyond debt, and make the abominated ‘liquidity preference’ of cash accumulators its target. Money as a ‘store of value’ – as economic memory – is brought into the arena of programmatic erosion. In this way a chronic, or normalized, war on money offers a concession to populism that epitomizes the compromise-formation political economy has become. Socialist revolution is forestalled by a continuous debauching of financial signs, but in this way it is also executed. Macroeconomics delivers eschatological communism in slow motion. An explicit attraction of discretion-protected crypto-currency is making such deals unobtainable. [38]
§5.345 - Initially at issue here is the sanctity (or sacrilege) of the free contract – an essential pillar of the liberal social order from the perspective of the right, an objectively-merciless formalistic extravagance from that of the left. Supporting these contrary judgments are diverse ethnographic orientations inclined, respectively, to the naturalization or denaturalization of commercial life (with Smith’s “propensity to truck, barter, and exchange one thing for another” [39] at one end of the spectrum, and Graeber’s “everyday communism” at the other). Providing consoling doctrines, respectively, to the ‘haves and have-nots’, this axis of variation reflects an antagonism no less durable than the human species itself (and quite possibly more enduring by far). There is a liberal and a socialist End of History, and neither unambiguously approaches. This is what any social animal – poised between the tiger and the mole-rat – should expect. Persistence of ideo-political conflict is the safe prediction, with the corollary that partially-insecure property is the socio-economic norm. Projects to strengthen or weaken property security – that is to adjust its degree of political insulation – mark the PPD like traffic indicators, illuminating its basic axis, and describing the great games.
§5.35 - Without seeking to wholly efface the novelty of Graeber’s construction – still less its remarkable pertinence to our contemporary political-economic concerns – it is important to note the extent to which its theoretical stance is prefigured in crucial respects by the German Historical School of economics, [40] and thus, in turn, anticipated in considerable detail by the Austrian thinkers. Menger, in particular, defines his enterprise in explicit contra-distinction to those who place the State at the origin of the monetary phenomenon, which he conceives as the dominant economic error of his time. Since a functional unit of account already presupposes a prior settlement of the value question, through a process of price discovery, Menger confidently maintains that:
It is not impossible for media of exchange, serving as they do the commonweal in the most emphatic sense of the word, to be instituted also by way of legislation, like other social institutions. But this is neither the only, nor the primary mode in which money has taken its origin. … Putting aside assumptions which are historically unsound, we can only come fully to understand the origin of money by learning to view the establishment of the social procedure, with which we are dealing, as the spontaneous outcome, the unpremeditated resultant, of particular, individual efforts of the members of a society, who have little by little worked their way to a discrimination of the different degrees of saleableness in commodities. [41]
§5.36 - Despite their strategic mismatch, or ideological divergence, the motivated narratives of Menger and Graeber nevertheless converge upon a precise conception of the stakes in theoretical play. For both, there is an application of historical story-telling to a liberal theory of money, seen as essentially bound to the status of precious metal coins. That Menger writes in defense of this theory, and Graeber in opposition to it, does not affect the invariable associative core in the least. Both agree entirely about what it is that the valorization or denigration of money – as minted metal – means. Far too much socio-historical ballast underlies this construction of the controversy to allow for its casual dismissal.
§5.4 - The controversy is significantly deepened by a third narrativization of monetary history, outlined in Nick Szabo’s remarkable essay ‘Shelling Out’. [42] Szabo extends the investigation into the origin of money far back into prehistory, where it hazes out into evolutionary time. The essay takes as its initial clue a peculiar pattern of linguistic interference between money and marine molluscs, as evidenced in the “shelling out” of the title, and in the persistent colloquial naming of dollars as “clams”. [43] The source of this association is found in the ‘wampum’ shell-money of the native tribes encountered by mid-17th century New England colonists, which provided the settlers with their first “liquid medium of exchange” and subsequently their first legal tender (from the period 1637-1661). The opportunistic shell currency of the New England colonists finds numerous ethnographic echoes up to present times, and dating back into the deep Paleolithic, 75,000 years ago. Szabo categorizes such shell currencies among ‘collectibles’, noting that such types of ‘proto-money’ or ‘primitive money’ were “the first secure forms of embodied value very different from concrete utility”. Recognizably, they were a response to the problem of ‘value measurement’ (with no profound distinction required between ‘goods’ and ‘obligations’ [44]) facilitating the crucial innovation of delayed reciprocity. Systematized exchange serves as a proxy for resource storage. “Like fat itself,” he writes, “collectibles can provide insurance against food shortages.” The hook they offer to consolidation through natural selective is therefore considerable.
§5.41 - Compared to Homo neanderthalenis, Homo sapiens was Homo economicus. This was a species that carved out a competitive advantage for itself relative to other hominids of similar – or even superior – individual intelligence through the partial commercialization of its environment. A distinctive genetic endowment, expressed through attachment to collectibles, enabled spontaneously-coordinated social action to arise with unprecedented sophistication. By providing – for the first time – effective incentives for activities oriented to regular exchange, collectibles normalized trading as a quasi-continuous, characteristic human behavior. Social existence acquired a commercial dimension, with corresponding stimulus to cognitive advancement beyond the horizon of immediate utility.
§5.42 - Time was not only the medium of change, as this was accumulated through adaptive genetic modification of hominid species, but also its driver, or prompt. More specifically, modern man’s prehistoric ancestors were compelled to adapt to the concrete irregularity of time. [45] Seasonal variation compels rudimentary specialization. Outside tropical latitudes, it was simply impossible for primitive man to engage in a consistent pattern of activities across time. Food sources were not constant – or even continuously available – throughout the annual cycle. Winter, in particular, set its own challenging demands, which could be met only by running down food stocks (provisions). Hunting large herbivores accentuated these conditions of episodic glut, and the corresponding need to organize time. The template for division of labor and trade was therefore already laid by climatic adaptation, prior to any significant extension across space, and into elaborate social specialization. Economic incentives had necessarily to be scaled beyond immediate needs. (Much space for differential anthropology is opened here.)
§5.43 - At the level of maximum abstraction, money – already in its most primitive instantiation – enables the commercial disintegration of time. This is captured at the level of hominid ethology by the facilitation of delayed reciprocity. (It is only through pedantry that ‘reciprocal altruism’ can be significantly differentiated from ‘trade’, abstractly conceived.) Monetized trade tolerates de-synchronization. Accumulation of collectibles within a circuit of exchange is equivalent to a transactional non-simultaneity – complementary to a primitive ‘borrowing’ of the specific good in question [46]– which allows for the commercial exploitation (arbitrage) of variation in time-preference over an asset. To repeat the critical point: Money – already in its most primitive inception – formalizes time-disintegrated reciprocal altruism, by providing the condition for its simultaneity. The receipt of money now substitutes for the persistence of a debt.
§5.44 - Szabo’s analysis returned money to the comparatively neglected semiotic function of collection, or allocation, within which value exchange (circulation) and storage (accumulation) find a common root. Collected signs are irreducible to signifiers and indices. Their value is not soluble within semantics. The economic category of scarcity is essential to them. It is only in collection that the ‘economy’ of signs ceases to be a metaphor. Collectible value tokens cannot be loaded from a dictionary. They have to be economically acquired.
§5.45 - It might easily seem, under conditions obscured by the creditization and politicization of money, that collectibles are – from the moment of their inception – a prototypical mode of saving (and therefore – by iron reciprocity – of debt). It cannot be sufficiently emphasized that this path of interpretation is profoundly erroneous. This is a point that merits explicit comment precisely on account of its elusiveness, which reflects structural factors of great historical consequence. Money, whether in Menger’s sense, or in Szabo’s – and even in Graeber’s, once allowance is made for his historical inversion of the credit-money relationship – extinguishes debt. Any monetary transaction substitutes for the persistence of a liability. Acceptance of primordial or non-credit money, whether in the form of a ‘collectible’ or (more specifically) of a precious metal coin, is the alternative to persistence of a credit position. In such cases, receipt of money erases an obligation, rather than confirming, memorizing, or reproducing one. Historically, at least, ‘paper’ or credit money is the anomaly. It is only in this case that monetary assets correspond to another party’s debt, that is, to a preserved obligation. Monetary exchange does not intrinsically involve a credit-debt structure, prior to its financialization. It appears to imply such a structure only when the reality of money as a (comparatively abstract) positive asset has been dissolved, until it appears as no more than a surface effect, or epiphenomenon, of its registration within the ledgers of a banking system. Debt is the conceptually and institutionally convenient interpretation of a more obscure social phenomenon. Market acceptance of money is systematically reconstructed into the recognition of an obligation, as if it exhibited dependence upon an implicit contract. The conceptual imperative at work here is gregarious. Its orientation is to socialization. [47] The tendency is to obliterate all trace of an asset that isn’t already a recording of debt. Liquidity is reconfigured as an entitlement.
§5.46 - Employment of a single word – ‘money’ – for these very different types of valuables lends itself to systematic theoretical disorder. The depth of this confusion is indicated by the fact that not only ‘money’, but also ‘assets’, and even ‘cash’ have been progressively assimilated to the concept of credit [48], in accordance with a general financialization of economic categories that has been consolidated – at an accelerating pace – over recent centuries. Since the concept of money tends to accommodate itself to the dominant pattern of actual monetary usage, it has increasingly been identified with a positive financial balance in a bank account, recorded in the bank’s ledger (where it is registered as an institutional liability), and even – beyond this – with the notion of a credit limit determining spending power. Money has come to seem increasingly like something banks do, through trusted record-keeping fundamentally. On this track it tends to become the name for a complex of banking services.
§5.47 - In order to control these semantic instabilities, it is worth provisionally introducing – in lieu of enduring technical terminology – a distinction between A-money and C-money. [49] ‘A-money’ is a positive asset, or collectible, uncorrelated to a liability. In the case of Bitcoin, it consists of DSP-proof (or non-duplicitous) ledger entries. The value of A-money is not in any strong sense ‘intrinsic’ but depends – as all commercial value does – on market receptivity. It varies, therefore, between zero and some arbitrary magnitude, when denominated in any other medium whatsoever. This variance, however, has no element of credit risk (or sensitivity to default). No one is under an obligation to redeem A-money for anything. Like any other collectible, it has value in anticipation of market acceptance, and not on the ‘basis’ of any promise made by an issuing authority. It is a commodity, in the broad sense. Redemption is intrinsic (or immanent) to it.
§5.48 - C-money, in drastic contrast, is credit (corresponding to the obligation of another party). It has no value at all separable from the credit quality of the individual or – far more typically – institution that has registered its issuance as a liability. If a depositary accepts A-money for safe-keeping, and thus ‘on loan’, the signed receipts it provides to guarantee restoration of the funds in question are already germinal C-money. This was, as a matter of historical fact, the transactional mechanism that catalyzed modern monetary transformation, from precious metal coinage, to promissory notes, and eventually to credit accounts. The value of C-money is based upon institutional guarantees. Trust is a mathematical coefficient of its value. Trustlessness is therefore essentially intolerable to it. At trust degree-0 C-money necessarily becomes worthless. In each such case, as a matter of historical factuality, an episode of hyper-inflation would then have consummated itself. This is how (C-)money dies. [50]
§5.49 - Evidently, Bitcoin is a variety of A-money, and not a C-money (or credit) system. Its currency units do not index obligations. They are positive abstract assets. As Szabo insightfully concludes, Bitcoin is a system of digital collectibles. While it is certainly possible to be owed bitcoins (like any other asset), in owning bitcoins one is not thereby owed anything further. The application of the credit relation to bitcoins has necessarily to draw upon institutional resources extraneous to the Bitcoin protocol itself. Crypto-currencies perfectly simulate precious metals in this respect. No promise is inherently attached to them. They can be the substance of wagers, but they are not bets on the word of another agent.
§5.5 - Conceptual conversion of A-money into C-money has been an automatic outcome of modern financial history. It can formally, but only artificially, be disentangled from the development of banking procedures and institutions. The credit (or reputation) of the financial institution supplants the positive asset value of money, as it replaces the monetary commodity with authorized notes. This financial reconstruction of exchange introduces an element of non-simultaneity. A moment of indebtedness is inserted into the synchronous swap, a period – however fleeting and notional – in which payment is owed. Even a simple purchase can be formally elaborated in this fashion. Payment need only be preceded by a ghostly double – a liability – arising in the non-instantaneous space of commercial reciprocity. A pseudo-consecutive schema insinuates credit into exchange. It is only on the basis of a systematic social hallucination of a decidedly metaphysical type, however, that it can be considered always, necessarily, to have been there.
§5.51 - Credit money, then, presupposes a suppression of simultaneity. We are returned to generalized spacetime, although now on the other side. If arithmetic is the formalization of time, in accordance with the Kantian understanding, simultaneity translates to zero. It is the temporal determination of space (or the pure form of non-separation in time). Events occur simultaneously when no time separates them. Under such circumstances, the credit relation is impossible. The critique of monetary financialization is thus bound to the philosophical – and even, by strong analogy, cosmo-physical – problem of simultaneity. If the very notion of the same time, in its global application, is judged irredeemably delusory, then the financial model of transaction is vindicated, as a universal truth. Relativity and fundamentalist credit finance share a metaphysics, in which the absolute occurrence of instantaneous transactions is de-realized, and subordinated in principle to qualification, or mediation. “Simultaneity is a convention,” Poincaré insisted. The subsequent relativistic revolution in physics has trained readers to invest this statement with a maximum of intrinsic skepticism, as if it amounted to the claim that simultaneity could not – in principle – ever be actually realized, unless as a standing social illusion. [51] The inversion is then total. Since it is the function of (positive) money to restore simultaneity, the very possibility of any such non-credit currency is in this way dismissed. Hard money contradicts generalized financial relativity, and that has become our common sense. A return of hard money, as anything beyond a relic, can only be manifested as an alien invasion.
§5.52 - Transcendental aesthetic is exhausted by the blockchain. In restoring absolute time (pure succession), Bitcoin recovers simultaneity at the same time. The term blockchain already tacitly says as much. The block is a chunked unit of simultaneity, just as the chain is an order of succession. Each is reciprocally determined by the other, despite their real difference. Critically, a block is validated as a whole, at once. It contains no internal temporal articulation. Each block is all space, in the temporal sense, or non-decomposable duration. It is a true moment, or a ‘now’, even when sedimented (chained) into the past. Transactional simultaneity is thus realized. As we have seen, this is the negative of financialization, and its actual condition of impossibility. The credit relation has no reality on the blockchain, even though all of its associated signs can be recomposed there. [52]
§5.53 - Profound historical tendencies ensure that this point will be misunderstood, even as it stubbornly – and with at least equal necessity – re-asserts itself. Bitcoins are not credits. Furthermore, and still more controversially, none of the items of economically-significant information embedded within the blockchain are, or could be, credits, unless from a perspective, which is also to say an apparatus, that transcends the blockchain. The temporality of the ‘block’ ensures this. Nothing unsettled survives the automatic editing process. Only positive signs persist.
§5.531 - Consider a simple safety deposit box. It physically and institutionally protects anything placed inside it. ‘Intrinsically’ precious items (collectibles) are the neatest examples – gold or silver coins, jewels, antiques, or works of art. As with the blockchain, however, complex semiotic objects – such as contracts of any kind – can also be safely deposited. The critical question now arises. Does this mean that such a secure storage facility protects promises to pay?
§5.532 - The answer is not entirely straightforward, since it depends upon the obscure undercurrent of the question. What does it mean to keep a promise? If all that is required is to remember it, then safety deposit boxes can certainly help – and the blockchain vastly more so. If it is further required that the promise be fulfilled, or settled, what is demanded is the time-sensitive elimination of a discretionary factor. In keeping a promise, a tacit betrayal option is cancelled. This is not something a secure deposit, or blockchain, can maintain, because neither is able to hold such an option open. [53] Potential defection (‘default’) does not require risk-pricing in such an environment, because it cannot occur. Whatever risks there may be to Bitcoin transactions, this is not among them. On the blockchain, no difference between a ‘deposit’ and an ‘account balance’ can exist. Credit risk is necessarily zero. There are no negative balances, but only positive holdings, recorded as a history of mining events and transactions. Anything running on a blockchain inherits this characteristic. Smart contracts, for instance, insofar as they are fully-immanent to the blockchain, cannot be credit instruments. They are, instead, hard commitments. The future is effectively pulled forward, and metalized as destiny. (This is a point to be more adequately engaged shortly.)
§5.54 - When attempting to grasp what, through Bitcoin, money ceases to be, the relationship between credit money and fiat currency merits particular attention. This relation is certainly not simply analytical, despite the intimate historical connection between monetary financialization and politicization. [54] Over the course of recent centuries, the problem of trust – as dramatized by episodic banking crises – has functioned as a relay. As previously noted, [55] the spontaneous evolution of paper money (from warehouse receipts) profoundly exacerbates the double spending problem. Considered as the most economically intimate field of media development, it subsumes forgery into printing, on a path that leads to electronic digitization. Within the modern history of money, however, this semiotic main-current is a side-stream. Deliberate fraudulence, involving cynical fake-money production, has not been the principal trust problem generated by financialization. Credit creation, through fractional reserve banking, has been vastly more consequential as an engine of trust catastrophe, precisely because it separates the question of trust from suspicion of criminality, and thus from the sphere of traditional law-enforcement mechanisms. A banking crisis is not – unless contingently, or under the aspect of polemical extravagance – a crime. More generally, those socio-cultural forces disposed to consider inflationism in all of its aspects as essentially criminal have been so thoroughly defeated that their objections have lost all engagement with effective mechanisms of legal enforcement. [56]
§5.55 - To recapitulate the discussion from Chapter Three (§3.06), when fractional reserve banking turns bad, it is exhibited as a double – and in fact multiple – lending problem. Any bank deposit can be loaned out multiple times, with the proportions of potential bank credit to assumed liability decided by the reserve ratio. (A reserve ratio set to cover 10% of loans outstanding permits a ten-fold credit multiplication effect, prior to inter-bank lending.) Under conditions of general financial confidence, this facility is welcomed as a business opportunity for banking institutions, as a quantitative relaxation of credit restrictions for borrowers, and as a general adrenalization of the wider economy through increased liquidity. Historically, the resulting incentive structure brought banks, borrowers, and governments into alignment, in the direction of financialization (or compressed reserve ratios). The attractions of money creation are so self-evident they obliterate the counter-factual case. [57] How could the financial alchemy of fractional reserve lending, with its seemingly magical multiplication of profits, borrowing opportunities, and commercial stimulation, conceivably have been resisted? And once it had ceased to be resisted, what could possibly have gone wrong?
§5.56 - On the opposite side of the ledger, multiplication of credit money through fractional reserves was balanced by the unplanned invention of a new type of credit risk. Local default was now potentially amplified to the level of the global bank run. The credit multiplier, when toppled into reverse, became an engine of financial catastrophe. Quantity has a quality all its own. [58] Systematic banking crisis posed an existential threat to political regimes. [59] The risk involved, therefore, tended – as a matter of sheer magnitude – to escape narrow economic categories. Confidence sets out on its long journey into becoming an explicitly-recognized macroeconomic variable. At a certain threshold, sheer aggregation of private actions transitions into a public event. Banking crisis comes as close to capturing the fulcrum of political-economic interchange as any conceptually-isolable event can. The deep tendency of modernity to encapsulate the empirical plays out into economic institutions.
§5.57 - Political recognition that a banking crisis cannot be permitted to happen finds its institutional manifestation in a central bank. [60] A central bank is the authoritative model of a trusted financial institution. Trust conservation is its principle responsibility. In one direction, it guarantees the credibility of government paper. In the other, as ‘lender of last resort’ [61] and provider of deposit insurance it delegates trust to subsidiary banks, in exchange for submission to regulatory oversight. The buck stops here, metaphorically applied to the desk of America’s Commander-in-Chief, is more appropriately conceived as a functional definition of the central bank. While embedded, in principle, within administrative and judicial hierarchies supporting super-ordinate authorities, in practice the central bank’s concentration of competence (and information) immunizes it against further transcendence. It is, in effect, a final court of appeal, or last ditch. In the sphere of economic trust, which is also that of modern economic virtual catastrophes, anything the central bank cannot stop, cannot and will not be stopped. The peculiar status of the central banker appears, to skeptical observers, near-Messianic. This is an impression that reaches far beyond trivial coincidence. In the end, which it incarnates, financial trust – ‘confidence’ – is the central bank’s sole specialism. All of its functions converge upon this, as upon a compact telos. Implicitly, savers trust their local bank because they trust the central bank, and they trust the central bank despite their distrust of the national government. Notably, it is a structural component of modern political ecology that governments expect their national central banks to be trusted more than they are trusted themselves. They in fact come to depend upon this, as the first convincing modern substitute for divine sanction. Government deference to the central bank serves as a credogenic ritual. Through the pseudo-transcendence of the central bank, administrative politics is able to gesticulate beyond itself, to a superior source of credibility. Practical metaphysics is thereby exemplified.
§5.571 - Central banks do not (of course) monopolize the status of the trusted third party, but they provide its most concentrated and perhaps also most self-conscious example. The function of transcendence in socio-economic systems has no superior illustration. The central bank is a part of the financial process that is at the same time deemed above and outside the process. Integral to its identity and operation is the presumption that it transcends the constraints and incentives generally characterizing the financial sphere. Central bank profitability, for instance, is remarkably discreet. The public profile of the institution is incompatible with a commanding drive to make money. Something like radical altruism is tacitly insinuated, as if in pre-emptive repudiation of Public Choice cynicism. Reciprocally, resource limitations on central bank discretion are strategically de-emphasized. While not positively pretending to infinitude, or an unlimited capability for monetary intervention, some rough functional facsimile of such is not strenuously discouraged. Because the central bank is effectively a final institution, those wastes of potential financial catastrophe lying beyond its scope can only be populated by dragons, and are therefore rendered in certain respects unthinkable. The end of the world is re-articulated. There is a theatrical and ceremonial dimension to all of this, which has not gone unnoticed, or unmentioned. [62] Central bankers are – in the strictest possible sense – modern magicians.
§5.572 - Every central bank is an amphibian, or a Janus-faced being. Operational pseudo-transcendence requires this. The central bank mediates between the public and private aspects of the economy – and even defines the distinction between the two – drawing upon the institutional axiom that aggregate confidence in private commerce is a legitimate, and inevitable, target of public policy concern. Trust, in its distributed economic manifestation, is taken as the object of a mass social technology. The great macroeconomic conception occurs, pre-programming much of what then follows. The critical point is the recognition that money issuance is a policy tool, precisely insofar as it is a channel of public communications. It is no longer that money merely bears a message, in the manner of a minted coin adorned with various politically significant inscriptions. A Federal Reserve note still carries such signs, but their seriousness is entirely eroded. Money-making, as such, is now the message. Aggregate liquidity management is no sooner adopted as an administrative responsibility than it flattens upon its own public enunciations. Signal and substance are one. A teleological transition occurs here, that might easily be missed. ‘Public’ (i.e. state) revenue maximization, an obvious goal from at least one perspective, yet one that has been evidently instrumental in regards to the obscure practicalities of historical installation, is absorbed into a more complex structure of purposes. It becomes the opportunity for a public demonstration – for publicity. Hence the distinctive emphasis placed upon the central bank statement, an address not only about, but to the market, spectacularly totalized from above. This is already to say that irrespective of its intentions, or self-comprehension, the central bank inherits responsibilities that are strictly magical. [63] Vivid ‘materialization’ of the impossible – i.e. of free risk relief – is its central obligation. It is not only illusionism that is at work here, then, but medicine, or therapy, in accordance with the archaic role of the witch-doctor. The public utterances of the central bank are a mass psychological talking cure, but inverted from an exercise of attention into an incantation, and thus a spell, or placebo. We hear in these words the technical ideal of the confidence trick, in its super-legal and pseudo-metaphysical configuration. Practical efficacy is tacit. Like credit money itself, the truth of the central bank statement is created – ab nihilo – in being believed. The reality is ideally exhausted by the phenomenon. It is what it is thought to be, and no more. Confidence, in the end, has no ulterior derivation. It is miraculous. [64] Half a millennium of demystification has led to this, clearing the stage for business-suited new magicians. The performance is underway. A tranquillized collective economic sphere is to be conjured into existence. As it entered its advanced maturity, The Great Moderation named it well. The Great Moderator – Mighty Macro – is a more valuable name still, for the One at the End who Looks Both Ways to Make Peace. That’s the Magician-God in the Bitcoin cross-hairs.
§5.573 - On the empirical plane, a trusted third party functions as an intermediary between a pair of agents. It is the mutual relation to a common intermediary that formally determines the agents concerned as peers. Virtual lines of evasion (route-arounds) cross the plane, linking the mediated agents in innumerable alternative ways. When plotted upon this flat expanse, the trusted third party appears as an interception – something like a successful hunt, an act of capture, or captivation. On the plane, every overseer is exposed as avoidable, if not in actuality avoided. There is always another way. Excessive impositions prove repulsive. Every moment of mediation has therefore to strike a bargain. No hint of the universal is found here. It is not upon the plane, but upon the pseudo-distinct, pseudo-orthogonal, and pseudo-metaphysical axis transecting it that the exorbitant authority of the overseer is ‘for the first time’ expressed. The horizon of supervision extends into the infinite. If not explicit in its claims to omniscience, omnipotence, and omnibenevolence, it makes no effort to dispel such theological encrustations. An implicit invocation of God-like powers follows from the conspicuous assumption of God-like responsibilities. In wherever the buck stops we trust. The aura of infinitude is essential. No limit can be drawn. Whatever lay beyond the outer boundary of central banking power would be the lair of crisis, by definition. A formal delimitation of the supreme third-party powers is indistinguishable from a program for financial catastrophe. [65] Agreeing not to go there closely coincides with the new social contract, drafted in the 1930s. Critique of authority henceforth meant Great Depression. To the titles of Macro can then be added: The Unscrutinized Scrutinizer. That which sees all should not be excessively challenged by inspection. [66] This is how asymmetry has been put to public work. Apparently exempted from immanence, the overseer is fed by the impression of exceptional rules, and sublime incentives. It seems to hover above the fray, as if released from mere empirical difference into a superior milieu. Amphibious by essence, it is at once an efficient, individualized, economic agent among others and simultaneously nothing at all of the kind. The effect works best when no one looks too closely.
§5.58 - Central banking did not begin with the Bank of England, in exactly the same way that terrestrial capitalism did not originate among the Anglophone Powers. This is to say that a comparable ‘usurpation of destiny’ – in the full ambivalence of the term – is evident in both cases. Fate was settled on an English path, which took work. [67] An obscure opportunity for supra-national influence was captured, and became self-consolidating, through convergence. Which is to say: the occasion for financial elaboration found its strongest expression on the supra-national line. It was, from the beginning, world-historical. [68] In the final analysis, it has happened to peoples more than from them. Teleological instrumentalization of the English-speaking peoples, as agents of global process, has been no less basic than their adoption of new financial technologies. The two developments have been one. Central banking has been nationally functional to the exact extent it has been internationally competitive, and thus globally compelling. It won wars that mattered, first for the Dutch, then for the English. By the time the United States inherited managerial responsibility for the world order, its principles of financial sovereignty had been firmly set in place. The task of managing the national debt was, as a matter of concrete practicality, a military logistics function. It assured war-fighting capability at the highest level of strategic abstraction. Whatever was needed was made affordable. The consequences were consistently dramatic. Because the states that quickly took the lead in central banking were – not at all by coincidence – the successful vehicles of a supra-national (or global-revolutionary) undertaking, nothing like a simple nationalization of money was ever actually happening. Rather, the production of international reserve currency was becoming reflexive, and institutionally self-aware. This does not make monetary nationalism a mere illusion. The organizational level of the nation state did in fact become increasingly dominant, and all the more so when international adventure was at stake. It did not, however, control its own context. The supra-national process preceded, exceeded, and catalyzed all national developments, because the battlefield was the arena of selection. The history of central-banking is bound far more tightly to the production of world-money than happenstance could account for. The global revolutionary mission was primordial (i.e. essential, or intrinsic). In contra-distinction to the financial myth, sound domestic money management did not simply come first.
§5.581 - The Bank of England was incorporated by the 1694 Bank of England Act. However much centralized monopolization of bank note issuance now looks like the basic destiny of the institution, it was only very gradually established, over the course of more than two centuries of subsequent legislation. [69] It was not, therefore, a guiding project (in anything other than an obscure teleological sense). Monetary nationalism was only a slowly emerging outcome. It was fiscal nationalism that provided the primary imperative. Twin agendas were originarily complicit, directed at once to domestic financial stabilization and to state revenue-raising with a definite outward, geopolitical orientation. The incorporation of the Bank, then, marked a further step in the integration of modern banking with sovereign political power.
§5.582 - The much later US central banking Federal Reserve System is far more arcane than the Bank of England. It dates back only to the final days of 1913, as a creature of the Federal Reserve Act, through which Congress announced an American public (i.e. national) monetary policy. The institutional origin of the Federal Reserve is explicitly inseparable from a post-liberal ideology of money, which conceives it as an administrative tool, to be placed in the service of national economic objectives (the macroeconomic suite of full-employment, stable prices, and moderate interest rates). [70] The British experience had been educational, in this regard. Money had been re-minted as an imperial project, with twin global and domestic faces. Where the Pound Sterling had found itself elevated by fortune to the status of imperial scrip, the US Dollar now ventured onto the same path of geopolitical fatality with greater self-consciousness. The relation to war economy was effectively deepened. By the early 20th century it was obvious to all observers that the primary Anglophone world power could have no (merely) national interests that were not immediately matters of global geostrategic and ideological competition. The US Dollar could only be an architectural pillar of world order. To trust it was direct psychological investment in a planetary destiny. [71]
§5.583 - Under conditions epitomized within the era of matured central banking, but by no means restricted to it, monetary value reduces ultimately to a political substrate, where confidence is maintained by evidence of effective power. This registers a critical inversion. The capacity to protect property begins to ‘appear’ – i.e. to trade – as its essence. Recognition of the ‘protection racket’ as a mode of criminal enterprise closely coincides with this development in time. Investors – including even mere holders of currency – have been re-sensitized to regime risk, which sub-divides into two broad (but intricately inter-articulated) categories. Firstly, the 20th Century has dramatically featured sheer expropriation, of the nationalist-communist type. In response, assets of any kind now feature some degree of Marxist discount. They are priced with a measure of definite regard to their vulnerability to government seizure, or ‘revolutionary redistribution’, which automatically increases yields in the most hazardous cases. The antithesis is practically assimilated. Secondly, and more subtly, political authority has been increasingly formalized as an asset class. No longer merely devoted to the protection of property, whether to a greater or lesser extent, it has itself become an object of comparatively direct financial investment. Government bonds offer a share in imperium. They securitize regime resilience and demographic purchase, or geopolitical capability. [72] Under conditions of global stress, most conspicuously, the lender of last resort transitions into a debtor of last resort, and thus a savings facility, socializing deferred private consumption through the medium of public financial obligations. The Federal Reserve Note is nothing less than a wager upon the future of America, its central government, and – most specifically – its taxation power. By extension, the exceptional global acceptance of the US dollar is an investment in American world order. All these relations are analytically reversible. Geopolitical crisis implies currency crisis, or – still further – potentially follows from one. The coin has two sides, and can be easily flipped. ‘Derealization’ into pure credit only accentuates money’s ambivalence. As it is incrementally demetallized, money takes the form of a promise, whose credibility is founded upon the public image of state power, as fully-expressed within both domestic and international contexts. Under such circumstances – especially when a global hegemon is in the spotlight – the stakes of a ‘monetary revolution’ are not easily over-estimated. Nor are its positive implications readily anticipated. The nature of money has long ceased to be separable from the order of the world. [73]
§5.59 - As financial modernity advances, ‘printing’ becomes an increasingly unreliable metaphor for money creation, even as paper continues to support its metaphors. The engine of currency production is no longer any kind of minting or printing, but (fractional-reserve) credit. At the limit, the formula of the Macro epoch is an equation of money and debt. Its foundations are as old as Modernity, but no older. Mere centuries sufficed for it to fabricate the illusion of something more archaic, or even eternal.
§5.591 - Political economy is an apparent identity, but a real synthesis. It requires a coupling mechanism. Concretely, the crucial communication medium has been the bond market. [74] Given a fixed coupon, the effective interest rate will vary as the reciprocal of the bond price. The yield on government paper thus articulates a ‘market verdict’ on the political regime. It expresses something far more valuable than ideological affection, namely pragmatic confidence. The question addressed is only: Will this work? While stated confidence in government is communicated through a variety of professional channels, media, and electoral processes, revealed confidence is expressed through secondary markets in public debt. The bond market has provided such automatic commentary since the beginning of the modern period (already operating in the city states of Renaissance Italy), and can even – again concretely – be identified as an essential or defining component of modern political-economic governance. Capitalism might – quite sensibly – be taken to mean precisely this, at least up to the point currently reached. Political regimes make themselves an object of economic investment, inviting private wealth-holders to ‘go long’ government. Because this mechanism enables – to some effective degree – private markets in public policy, it provides the Macro regime with its most important feedback control. We meet Janus again (as with every social regime). Political-economy is only Janus’ modern name. The ambivalence is the engine. A hinged singularity produces effects of pseudo-universality on its public face, and intelligible incentives on its private face. Continuous temptation to resolution, in one or other direction, adds camouflage as a supplement. There’s a simple story you want to tell, which is how it hides.
§5.592 - Money has fully absorbed the ambivalence of political-economy. This has made it cryptic, quite beside it becoming cryptographic. It invites misapprehension. Of course, it is no secret that, historically, the promissory value of paper money has been very specifically tied to the prospect of redemption in precious metal. It is in fact almost, though not quite, the precise opposite of a secret – an anti-secret. With the consolidation of Macro, this has matured into a type of tolerated hypocrisy, and something like an inside joke. A concession to tradition is made where it appears most harmless. Much more is happening here, though, than a joke. The persistence of this image of value advances metallic durability into an abstracted dimension. Whenever money is momentarily jolted from its constitutive – cash-like – amnesia, it grates upon metal memory. Sheer semiotic inertia would suffice to ensure this, in the absence of any additional considerations. The Mises Regression Theorem acknowledges the same track-marks. Despite the appearance of anachronism, at no stage has this concrete definition of monetary obligation been formally updated. It has merely been repudiated. The commitment is restated without being maintained. This preserves it as a dramatic violation. To describe it as ritualistic sovereign transgression is not an excessive stretch. The repudiation of metallic obligation has been politically spectacular. Overt contempt for a nominally enduring formal constraint was itself sold as a viable – and indeed overwhelmingly dominant – socio-political position. The mass psychology of the New Deal remains entirely unintelligible until this is understood. The abuse was the attraction. In this way, as in so many others, the New Deal was classically fascist. When unleashed executive power is the selling-point, there is no inclination to conceal the broken leash. It takes the trampling of old constraints to legitimate a Caesar, and it takes a Caesar to master popularity. Only hopeless naivety would recognize FDR as anything else.
§5.593 - Ever since the gold standard was ended, the principal support for monetary value has been the state guarantee of its acceptance for the extinction of tax obligations. [75] By denominating their exactions in the national currency, and thus authoritatively defining their medium of internal revenue, governments are able to support a very substantial demand-floor for their own paper (whether currency notes or bonds). Within this arrangement, socialist and nationalist themes are merged, without significant remainder on either side. Government market-making of this kind – in which the state operates as a customer – fulfills an important mercantilist function. In most modern societies it has a wide domain of application, extending typically across business sectors more-or-less plausibly classed as ‘strategic’. Nowhere beyond the monetary sphere, however, is such a mercantilist program comparably cloaked by the purity of administrative fiat. The barrier posed to the adoption and spread of alternative currencies by the normalization of state-centric monetary nationalism vanishes beyond the horizon of public perception. It is only on the global periphery – among economies that are to some considerable extent ‘dollarized’ – that the nation state’s monetary power remains naturally conspicuous (and thus susceptible to refusal).
§5.594 - The spontaneous cosmopolitanism of the precious metal coin exposes – through contrast – the historical peculiarity of ‘globalization’ in the age of monetary nationalism. Metal maintains an exteriority in relation to the minting regime. Its value indexes a substance outside political dependency. [76] Government paper, in contra-distinction, requires additional institutional support. The decentralized verification process of the assay is not available, or relevant. What matters for verification now is only the authenticity of the statement, whose negative is forgery, or counterfeiting. The currency unit is irreducibly invested in its regime of issuance. Thus, forex operations become an institutional subspecies of international relations. Acceptance of a currency now implies substantive – rather than merely formal – political recognition. There can only be foreign exchange once the right to make promises has been granted to all relevant regimes.
§5.6 - Once extracted from a domestic competitive environment, through establishment of a state monopoly of currency issuance, money supply is exempted from commercial spontaneity and becomes a macroeconomic problem. This is to say that it acquires the status of an overseen aggregate. Money is no longer conceived primarily as a kind, or as a distribution, but as a whole. It is envisaged in entirety.
§5.61 - It might be asked whether the term ‘macroeconomics’ has anything reasonably described as a common usage. The word is intrinsically extraordinary. It implies a very specific structure of professionalization, and credentialized expertise. In its maximally-reified sense – as it is employed here – it also has a designation that might escape familiarity, and certainly seeks to. Macroeconomics is not merely an intellectual domain, or its corresponding social object, but a regime. [77] Positive institutions are essential to it. These cross, consistently, between the realms of academic research and social administration. The theoretical procedures under consideration here are essentially managerial, shaped originally by policy orientation. The model macroeconomic thought-experiment takes the form: What if the government did X? Thesis and recommendation are one. Macro never speaks, then, without a side-address – at least – to the state. Power is endogenous to it. The ambiguity between Macro the thing and macroeconomics as a research domain naturally – and strategically – elicits confusion. Macro is a singular catastrophe in the technical sense, which is to say a systemic phase transition, but also – from certain inherently fragmentary and now systematically marginalized perspectives – an actual socio-historical disaster. The clue to Macro, so telling as to pass almost for a synonym, is oversight. It is lodged in that part of the social organism tasked with supervision of the whole.
§5.611 - Between the whole and its parts lies something more than a difference in scale. In no case does one simply scale-up to totality. The whole appears only to oversight (or is made to seem so). It is thus tempting to conceive macroeconomics as a structure of visibility. [78] Its essence is defined by what is called to appear before it. Any tribunal is like this. The economy is to be brought before Macro for inspection, judgment, and correction. Macro, then, is a massive, complex, pseudo-transcendent operation in the name of the whole, conducted upon the axis of trust, or confidence. It is the metaphysics proper to the economic realm. In the alien language of German idealist philosophy it might be characterized as central banking for-itself. In this respect, among others, it could not be anything other than the mainstream magical tradition.
§5.62 - On the singular path actually taken by the world, money is recomposed as a Macro aggregate, the money supply. Under retrospective consideration, some such thing has long existed. In the same way, volcanoes erupted with a bang before anything with ears could hear them. But it is only in this way that Macro aggregates pre-existed the managerial structures which formulate them. The model of money as debt has limits, and thus provokes critique. Neither precious metals nor crypto-currencies can be assimilated to it. Positive monetary assets (collectibles) are its unthinkable outside.
§5.63 - According to the quantity theory of money, money supply determines the general price level. The economic consensus on this point is so broad it approaches recognition of a tautology. [79] After all, it would be strange indeed if money – the model object for economic estimation – were to be exempt from elementary principles of supply and demand. Although meeting a reception in popular culture appropriate to a tendentious claim, Milton Friedman’s succinct maxim that “Inflation is always and everywhere a monetary phenomenon” is in actuality almost entirely uncontroversial. The fundamental idea is one that even the Antichrist of today’s hard-money advocates, John Maynard Keynes, [80] subscribed to – without serious hesitation. Any instance of economic value is a registration of scarcity, and the value of money is only a special case of this general rule. It is, of course, in recognition of this utterly pedestrian claim that scarcity is included in any list of the essential properties required by a monetary medium. In the extreme case, glut destroys economic value. It is therefore understandable that the tendency among economists has been to negotiate the terms of this formula’s application, rather than to challenge it at a fundamental level. Submerged – very slightly – beneath the macroeconomic argument lies the real topic, which is institutional discretion in respect to money-supply management, and therefore the politics of trust. To what extent should controlled monetary debasement be available as an option to the regime?
§5.64 - The central Keynesian argument, as formulated in his The General Theory of Employment, Interest and Money (1936), has surely to be included among the most influential in history. Its unique virtue, from the perspective of the modern nation state, was to provide a rationalization for currency debasement. No previous political power had ever been blessed with such a thing. A Roman Emperor adulterating the coinage harbored no illusion about the essential corruption of the undertaking. It was nakedly a swindle, whose advantages overrode reservation. Now, however, there was for the first time an articulate justification for what was essentially the same procedure. Macro grounds its legitimacy in the proposition that programmatic monetary devaluation can, under certain circumstances, have positive aggregate economic effects, by contributing to the mobilization of unemployed resources stranded in social ‘liquidity traps’. This trade-off between inflation and unemployment – formalized in the Phillips Curve – has insinuated itself deeply into macroeconomic intuition, surviving even the complete collapse of its supportive empirical regularities during the ‘stagflationary’ 1970s. [81] It relates the inflation rate to an ideal socio-political equilibrium point, and therefore defines a managerial responsibility. Money is now indexed to a thermostat. It can be too hot (‘loose’) or cold (‘tight’). The regulatory imperative thus codified transcends any specific empirical hypothesis. The hypothesis is adjustable, and even radically replaceable. The new power, once installed, is far more resistant to retraction. Once the case for a campaign against ‘cash preference’ has been entrenched at the level of mass psychology, its theoretical foundations become dispensable. The communist and fascist anti-bourgeois tide of the 1930s found its principal Anglo-American expression in Keynesian macroeconomics. Here, too, ‘hoarding’ was denounced as a crime against the collective. [82] Implicit socialization of all economic resources was made rigorously axiomatic. There is nothing so fragile as a mere theory, here, then. Rather, there is the maturation of a socio-political program. The theory flexibly rationalizes a regime.
§5.641 - At the greatest scale of historical analysis, Macro is characterized by the way it places itself beyond the bourgeois definition of civilization. Among modernity’s ascendant prudential classes, high time-preference (or low impulse-control) served as distinctive markers of barbarism. Civilization thus acquired a measure, corresponding to a time-horizon. Industrial civilization was based upon psychological tolerance for efficient indirect methods. Roundabout production had secured its ethic. Macro breaks with all of this. Imprudence is now re-valorized on Keynesian grounds as pro-social stimulation. To spend is glorious. Anti-bourgeois cultural politics and administrative economic doctrine become one.
§5.65 - When conceived theoretically – or targeted administratively – as a macroeconomic aggregate, the ‘quantity of money’ turns out to be an extraordinarily elusive object. Two sources of complexity are especially notable. Firstly, the effective quantity of money is a twin-factor product, comparable to physical momentum, of monetary mass multiplied by velocity (the macroeconomic ‘multiplier’). Secondly, the nature of money is inherently multiple, and intensive. This is formally recognized by the systematically differentiated – and nested – monetary definitions (M0, M1, M2, M3 … Mn …MΩ) employed by economists and financial professional. [83] Any asset of non-zero liquidity is money to some degree of intensity. (Monetary intensity is approximated by the reciprocal of the index.) Between the speeds and types of money there is only illusory orthogonality, or theoretical decomposition of the diagonal.
§5.651 - The most consequential area of controversy within the macroeconomic era – with intellectual roots that can be pursued back to the 16th century – concerns the relation of the velocity of money to its quantity. According to Irving Fisher’s formula MV = PQ, when the quantity of money and goods (‘M’ and ‘Q’) is held constant, the price level (‘P’) becomes a function of monetary velocity (‘V’). Potentially, and as a matter of historical fact, an entire technoscience of monetary management follows. Any authority that is attributed with responsibility for the money supply is compelled to concern itself with liquidity. Tightening-loosening defines the control axis.
§5.652 - Given the extreme complications of technical monetary analysis, it is not unrealistic to describe macroeconomics as the monetary neo-baroque. Its elaborations are implicitly unlimited. To present its convolutions as ultimately manageable requires a more-or-less cynical public relations exercise. It cannot be admitted – for reasons of trust-preservation – that the final overseers of the financial world do not have, and cannot have, any definite idea what money is. MΩ has no calculable determination. Far more importantly, at the other extreme, M0 is an advanced edge, and not a settled reality. It designates the intensive frontier of cash, commercial liquidity, or what money can do, as it has yet been historically encountered. In other words, it is problematic rather than theorematic, experimental rather than conceptual. Mx deranges all the formulas. We haven’t seen anything yet. Crypto-currency is showing us that.
§5.653 - To refer to a neo-baroque is to invoke a decadent paradigm, in something like the Kuhnian sense. [84] Ptolemaic cosmology is the unsurpassable model. Crucially, it is indefinitely expandable. As it decays, epicycles accumulate, but never to a point of intrinsic lethality. There is no such point. The fundamental error is wholly retrospective. It would be no less mistaken to imagine the monetary neo-baroque dying from its own exploding complexity. Macro need only add epicycles. Nothing impedes such a development. Computers and professional hyper-specialization even facilitate it. Simplicity is for gold-bugs, and other primitives. If Macro’s hypertrophic theoretical complexity appears increasingly magical – so much the better. Magic, as we have repeatedly seen, is functional. What matters to Macro – as institution, meta-institution, or regime – is primarily the credible illusion of understanding. That is where its authority lies. Macroeconomics must only pretend to a theoretical competence that is practically unobtainable. In this it epitomizes the socio-cultural status of expertise in progressive modernity, if not something far more general. Clerical authority has always rested on a pretention to mastery of that which is a mystery even to itself. Nothing new is to be expected there. Innovation arrives from outside.
§5.66 - Liquidity is valuable, uncontroversially. [85] It has a price. This is to say, reciprocally, that illiquid assets trade at a discount. Financial systems therefore automatically assimilate the concept of liquidity to that of risk, which configures illiquidity as negative investment quality. The essential – and innovative – macroeconomic contention is that liquidity preference, beyond a certain threshold, becomes excessive, malignant, and self-contradictory. Rather than returning to equilibrium, it feeds positively upon itself. Generalized investment aversion drains the pool of liquid assets, on a spiral into depression. Spending, then, is a social obligation, whose collective importance justifies suppression of private discretion. In this way, macroeconomics provides a specific model for the tragedy of economic liberty. This is its most profound counter-modernist theme. It is an argument translatable without remainder into the language of contradiction. On such lines, macroeconomics can be configured as an elaborated sub-plot within the critique of political economy initiated by Marxian historical materialism.
§5.661 - When configured in terms of mass social psychology, the thirst for liquidity expresses distrust, or negative confidence. Conceived economically, it is disinvestment. Conceived politically, it is dissent. Only liberalism, of the old type, would dissuade a regime from seeking to suppress it, and Macro – which is always Macro in power – means that liberalism is dead. The point can be made more strongly. Macro is the death of liberalism, in power.
§5.662 - All earnest pretension to ‘counter-cyclical policy’ notwithstanding, the systematic asymmetry is manifest. Politics tends to soft money. Governments – especially democratic governments – do not pass marshmallow tests. “In the long run we are all dead,” Keynes famously quipped, and in doing so the voice of the state – now channeled by macroeconomics – was immediately audible. Delayed gratification was being explicitly re-modeled as a bourgeois vice. Created to ‘manage’ long-wave capitalist down-turns, and then to economic contractions of even minimal severity – its interventions scaled down by an order or magnitude to the pulse rate of (roughly) five-year business cycles – Macro tends to configure itself as the correction to capitalism in general. Globalization is deflationary, because it operates to control prices, through arbitrage. Technological efficiencies are an even stronger driver, in the same direction. The relation of macroeconomic stimulation to the capitalistic mechanization and globalization of production can therefore be understood as compensatory. Macro tacitly legitimates itself as an antidote to deep deflationary dynamics inherent to the modern economy. It is designed to make money soft.
§5.663 - While it requires a portrait of Macro – as a consummate regime – to see where we are, the picture takes us away from money, rather than toward it. Crypto-currency is the negative of all this. [86] It shorts political economy in general. The broad contours of a Micro Counter-Revolution are for the first time definitely indicated. Macro is essentially oriented against saving. In striking contrast, Bitcoin invents the ‘hodler’ who disdains short-term market interventions. [87] This is nothing less than the synthesis of a new bourgeois mentality or its substitute. A fierce re-animation of prudence accompanies the cryptic Micro insurrection. It understands, this time around, that it has dedicated enemies, true opponents, and not merely feckless villains indifferent to its virtues. Since Keynes, incontinence has been a cause, and then – almost immediately afterwards – a regime. All capacities for prudential self-protection outside state guarantees have been targeted explicitly for destruction. This is the framework within which money has been increasingly understood. Everyone should know, by now, what happens to ‘hoarders’ under socialism. Macro is only very slightly more subtle. Stigmatized liquidity preference is legible enough. The cultural importance of the intrinsic Bitcoin ideology follows from this. To ‘hodl’ is to hoard defiantly, in explicit recognition of the socio-political game being played. It is to save, not merely for the future, but for an impending revolution in the order of time. The value of Bitcoin, in this critical regard, is that of an option for liquidity preference that cannot be politically neutralized. It is the anti- New Deal. In other words, it is the Old Deal, but this time capable of protecting itself. No one is any longer relied upon to keep it. It keeps itself. That’s what algorithmic governance means.
§5.664 - As money has ‘evolved’ the axis of inflation-deflation became ever more strongly determining. Money’s dimension of variance through depreciation or appreciation is the carrier of its macroeconomic control function. As a good tool, it keeps the potential distractions of ulterior features to itself. Value is the message it is trained to focus upon. Also ever more, it seems ever thus. Yet ‘inflation’ is only superficially a trans-historical economic category. Over the past half millennium three distinct – if over-lapping – phases are identifiable. These can be related to the very different dynamics of monetary asset (bullion) glut, excessive (private) credit creation, and national macroeconomic relaxation. In each case there is an expansion of supply, which becomes inflationary when it results in a comparative abundance of money (relative to the general level of economic production). Such formal equivalence, however, offers little concrete guidance to the specific working of each monetary regime. Insofar as fractional reserve and then central banking can be seen to obey pre-existing economic laws, the insight is overwhelmingly retrospective. Neither innovation was discoverable through such compliance. On the pattern of the synthetic a priori, their necessity was found late. This – alone – can also be expected from what comes next.
§5.665 - Crypto-currencies initiate a new phase in the history of inflation. Bitcoin, crucially, structurally forecloses inflationary processes of the three dominant antecedent types. Its absolute abundance is rigidly constrained, fractional reserve multiplication is invalidated (as ‘double spending’), and absolute ‘policy neutrality’ excludes macroeconomic laxity. [88] There is no tried-and-tested method of doing inflation with Bitcoin. This is not, however, to reach the end of the question. In the era of crypto-currency, appreciation-depreciation becomes ecological. It occurs between coins. Monetary pluralization, rather than monetary expansion, becomes the leading phenomenon. [89] After Macro, the deflationary dynamic reverts to a properly capitalistic – which is say Darwinian – distributed mechanism.
§5.7 - Nick Szabo begins his (2005) proposal for ‘Bit gold’ [90] with the remark: “A long time ago I hit upon the idea of bit gold. The problem, in a nutshell, is that our money currently depends on trust in a third party for its value. …” Even monetized precious metals, he notes, have involved trusted third parties in their validation. Worse still “you can’t pay online with metal. Thus, it would be very nice if there were a protocol whereby unforgeably costly bits could be created online with minimal dependence on trusted third parties, and then securely stored, transferred, and assayed with similar minimal trust. Bit gold.” Bit gold in this respect is indistinguishable from Bitcoin.
§5.71 - There is something at work here that the psychoanalytically-inclined might gloss as a return of the repressed. Since the triumph of paper over metal has been the central public narrative of 20th Century monetary history, the effect is unsettling – even uncanny. The metallic model was supposed to have been left behind. More specifically, the populations of ‘sophisticated’ or macroeconomically-managed and thus at least partially post-capitalist societies were supposed to have been educated out of it, automatically. Nothing more distinctly signals economic primitivism among such peoples than metalized wealth. Explicit lessons had seemed unnecessary, therefore. A return of gold from the economic margins looked no more likely than a restoration of Germanic Paganism. [91]
§5.72 - Among the attractions of abstract metal, none exceeds its inherited, intrinsic, adamantine resistance to discretion. Formalized negatively, with maximum concision, Alchemy is impossible. [92] Gold has no greater virtue than this. It precludes magic, as silver repels werewolves. [93] The replication of this characteristic within a digital simulation is Bitcoin’s most basic achievement. It has realized homeopathic gold. Not a molecule of the original substance remains, yet the solution still delivers the cure. Fully-abstract gold has been modernity’s obscure goal from the beginning. ‘Invisible’ credit money was its defective preliminary draft. Bitcoin, it turns out, is the true Philosopher’s Stone.
§5.73 - Since Bitcoin has no central mint, it cannot generate revenue in a way strictly equivalent to seigniorage. It does, however, permit of a close analog. Early-stage miners of Bitcoin (or any related cryptocurrency) are able to accumulate substantial holdings with comparative ease, perhaps amounting to a significant proportion of the total (ultimate) stock. Similarly, early speculative investors can afford to take a commanding position in the currency during the early stages of introduction, when its price remains comparatively – and even, one might speculatively predict, absurdly – low. Of course, the introduction of speculative hazard into this analysis is already the pre-emption of a capitalistic justification. Once Bitcoin’s prospects begin to be taken seriously, these early intimations of moral-political discomfort translate into acute concerns about the profound inequality of bitcoin distribution, [94] pitched upwards into vociferous fervor in direct proportion to the extent that such spiky stock holdings could now actually mean something. Yet even for the super-rich – defined narrowly for these purposes as those with personal assets exceeding the value of the entire bitcoin supply at present prices – optimizing a financial position in the crypto-currency at this early stage in its history involves a complex game. Since any attempt to monopolize the entire stock of coins would suppress the value of BTC as a circulatory medium, it would be predictably self-defeating. The value of any currency has necessarily to be a more or less direct function of its social diffusion. [95] There can be little doubt that such calculations are in fact taking place, and their outcome – even, roughly, their ‘equilibrium’ – is among the crucial determinations of the bitcoin price. Currency monopolization – understood as ownership, rather than issuance, of the entire monetary stock – is an inherently paradoxical project.
§5.74 - It is easy to deride the notion of monetary ‘backing’ for its naivety (or in a more contemporary idiom ‘pwnedness’). The idea has become a popular icon of duped thought. Its application to Bitcoin has therefore to be considered among the very weakest of criticisms, notable more as a symptom than an argument. There is – of course – nothing at all ‘behind’ (or ‘backing’) Bitcoin beyond the implemented Bitcoin protocol itself. This is not a unique feature. It merely makes Bitcoin post-classical (‘modern’) money. It is not being unbacked that makes it modern. Nothing was ever ‘backed’ beside deposit receipts. It is the relevance of a question of backing that carries the marker of modernity. Modernity in money is ecological coexistence with residual promises to pay. Naivety and cynicism are co-produced by it. Since the abolition of the gold standard, monetary ‘backing’ has been solely political. It rests upon the credibility of an issuing authority, which in turn rests upon more fundamental public perceptions of the durability, competence, and constrained malignancy of a regime.
§5.741 - The phased process of demetallization might appear to tell a story of cumulative monetary degeneration. Yet it would be a mistake to interpret this process as a dissolution of secure foundations. There is no type of money – however metallic – that can lay claim to an absolutely inherent value, extricable from a speculative assessment of its acceptability. [96] The desirability of a monetary medium cannot finally be grounded in its substantial properties, but only in the dynamic assessment of these properties, occurring within a market context. Its value is solely ‘based’ upon the system of scarcity it creates, insofar as this is latched onto by network effects. In consequence, money is essentially prone to ontological crisis – when it is discovered to be nothing in itself. Bitcoin accelerates the advance of monetary theory into cybernetic fundamentalism. It’s turtles – or, more precisely, feedback dynamics – all the way down. By philosophical analogy, the metallist theory of money corresponds to a pre-critical epoch, and the fiat era to an idealist efflorescence of elaborate, exhaustively constuctionist anti-realism. Cryptocurrency initiates a double-sided (transcendental realist) correction. Monetary value finds no ground outside the circuit, but the circuit is ontologically autonomous.
§5.742 - Currency [97] is money apprehended as a means of payment, flowing through transactions as a circulatory medium. Its principal virtue – liquidity – is a measure of how readily it is accepted in exchange for goods and services. ‘Acceptability’ is thus roughly synonymous with commercial value. Yet, when the acceptability of any currency is analyzed, it is found to depend primarily – if not exactly ‘originally’ – upon how widely it is accepted. However tempting it may be to dismiss such a nakedly circular definition as an absurdity, the formulation is deliberate, and informative. The acceptability of money is irreducibly self-referential. Money is acceptable in any particular case only because it is acceptable in general, while generality is a cumulative product of particularity, and nothing besides. The nonlinearity is essential, rather than accidental, and cannot be resolved into anything more fundamental. This is evidently a problem of the ‘chicken-and-egg’ type, characteristic of positive feedback dynamics. Thus, as previously noted (perhaps obsessively), the virtuous circle of liquidity translates, without remainder, into a display of network effects. The utility of a network, to each individual user, grows superlinearly with the number of users. With currency, as with all systems that generate positive returns to scale, ‘nothing succeeds like success’, and there is ultimately nothing to success besides. There is no basis of value to be excavated beyond or beneath its own self-reinforcement. The supreme, self-grounding virtue of acceptability is thus practically revealed. Conceptually, acceptability is integrative, since the functions of money as a store of value and as a unit of account can be gathered under it (distinguished only formally, rather than substantially). We enter the cybernetic abyss, without transcendent ground. The succinct account of this dynamic provided by Koen Swinkels cannot easily be improved upon:
Ultimately the only thing that matters in people’s decision to use bitcoins as a medium of exchange is their expectation that enough other people will accept it as payment in the future. That alone is enough basis for people to buy bitcoins now and to invest in the bitcoin infrastructure now. […] The circularity involved in the argument is unmistakable but unavoidable and, according to the bitcoin enthusiasts, unproblematic. That’s just the thing about a good that is used as money or is expected to be used as money in the future: people value the good because they think that enough other people will value it. The circularity is just the network effect in action. [98]
§5.75 - Since Bitcoin advocacy is indissociable from claims about the quality of money, it is propelled into a collision with Gresham’s Law, as popularly – and quite adequately – summarized by the maxim bad money drives out good. Gresham-effects can be easily recognized in modern life. Given two cash notes, one pristine, the other crumpled, stained, and taped together, which would one expect the holder to be inclined to part with first? In an earlier monetary era, characterized by widespread coin-clipping – rather than germ-saturated paper – the economic significance of such decisions was more substantial. As exemplified by such examples, the most intuitively compelling application of Gresham’s Law is to physical cash. The classic archaic case concerns two coins of identical nominal value, but differentially clipped. The negative comparative appeal of the ‘short’ coin – which any holder wants as soon as possible to be rid of – accelerates its currency. A ‘pass-the-parcel’ dynamo is envisaged. Implicit within this model is the proposition that the disposal, rather than acceptance, of currency is the primary driver of its circulation. There is a crucial irony – which we will return to in its other guises – that the spontaneously-concerted attempt to shed bad money looks indistinguishable from an illustration of good money, especially when hoarding is conceived as an anti-social economic vice. Money is most stimulative when it is least wanted. [99] Yet this assumption requires a peculiar inversion. Since even minimal acceptability is non-mandatory under ordinary economic conditions, we can be confident that it is in fact the ‘good’ coin that propels the circulation of the ‘bad’ one, by sustaining the standard of value which the inferior instance parasitizes. The tacit calculation involved in every acceptance of a bad coin includes the question as to whether it still suffices to pass as a acceptable money.
§5.8 - Whether history ‘in general’ is anything other than the history of money remains an open question. Certainly, the distinction between ‘history’ and ‘pre-history’ seems to have been decided by monetary innovation. The earliest digital recordings are accounts. [100] In the beginning was the registry. If this distribution of emphasis seems unbalanced, the fact that – in our own time – a distributed ledger manifests primarily as a monetary innovation tends, nevertheless, to vindicate it. Commentary in the “Bitcoin is about much more than money” vein, while copious, also comes later. [101] The monetary model sets the matrix.
§5.81 - A bitcoin, or part of a bitcoin, is a number of numbers, or several. In this it reproduces an abstract structure that is essential to the nature of money, in any of its variants, although realized at very different degrees of formalization. The semiotic complexity of money is expressed by a multiplicity of numerical dimensions. (Money not only quantifies, it quantifies multiplicitously.) Even prior to the introduction of allocation as a topic, monetary numbers divide by signification and designation. They function arithmetically as counting numbers and indexically as registry numbers (indices). The distinction is illustrated by the coexistence of a denomination number and a serial number on every bank note. The final term in the semiotic triad – the allocative number – corresponds to a tallying of bank notes, for instance – most concretely – through their bundling into ‘bricks’. These dimensions are primeval. Yuval Noah Hariri writes (in Sapiens: A Brief History of Humankind, p.182): “The first coins in history were struck around 640 BC by King Alyattes of Lydia, in western Anatolia. These coins had a standardized weight of gold or silver, and were imprinted with an identification mark. The mark testified to two things. First, it indicated how much precious metal the coin contained. Second, it identified the authority that issued the coin and that guaranteed its contents.” The coin bears an index of composition and a sign of credentials. The third semiotic dimension is added in a counting house, and introduces – from the beginning – the ledger.
§5.82 - Every commercial transaction involves a conversion into numbers. There is no primordial difference between monetary circulation and digitization, recognized as the historical process. In its narrower, electronic sense, however, the digitization of money does not date back very far. The first electronic money precedes Bitcoin by no more than half a century. Precursors are retrospectively identifiable, including charge coins, charge cards, ‘charga-plates’, and air travel cards. Western Union began issuing charge cards to frequent customers as early as 1921, but the runaway electronic ‘derealization’ of money is a far more recent phenomenon. [102] The first credit card [103] – accessing a bank account by means of a plastic identification document – was the BankAmericard, launched in September 1958 (and renamed ‘Visa’ in 1977). It took another eight years for the system to be extended beyond the United States (to Britain, with the ‘Barclaycard’, in 1966). The spread of electronic banking outside the English-speaking world was far slower still. Widespread adoption of the new monetary medium in Continental Europe, for instance, did not take place until the final decade of the 20th century. Most of the world skipped this stage of monetary evolution altogether.
§5.821 - Electronic monetary transfers – as required by credit cards – are not yet an online payment system. The former involves electronic settlement, but not yet digital cash. [104] Electronic bank credit operates exclusively between trusted parties. The cash-like aspect of the transaction takes place offline, between the cardholder and the goods or services provider. Even here, some basic characteristics of cash are sacrificed, most notably anonymity. It is ‘cash’ in this reduced sense that is translated online by the first consumer-level digital money services, exemplified by PayPal. [105]
§5.83 - It was not the personal computer that set the frame for the next stage of money’s technological evolution, but the mobile phone. Within this new epoch of consumer electronics, ‘personalization’ is intensified, through heightened communicative-orientation and the massive distribution of computational capability. [106] It is easy to miss the full complexity of the mobile phone as a technological nexus. Not only does it serve as a telecommunications and Internet-access device, but also as a scanner, and a personal identity hub. In combination, these features enable convenient, efficient, and passably secure monetary transactions. The serendipitous contribution of an in-built camera to the mobile phone’s function as a monetary platform is especially worthy of note. A facile photographic shot closes the transaction. The era of the bar-code thus passes into that of the QR-code.
§5.831 - The age of mobile payments dates back only to 2007. In that year, Safaricom and Vodacom, the largest mobile network operators in Kenya and Tanzania respectively, released their M-Pesa mobile-phone based finance application, developed by Vodafone. ‘M-Pesa’ abbreviates ‘mobile money’ in hybrid tech-jargon and Swahili. The application was designed to support elementary banking services on wireless telecommunications, in drastically under-banked societies. It enabled monetary exchanges between users, with the additional capability to facilitate microfinance credit. Anybody with identity certification (such as a national ID card or passport) could use M-Pesa to deposit, withdraw, or transfer money through their mobile device. Its rate of adoption exceeded all expectation, resulting on social, cultural, and commercial success on a now already legendary scale. From its take-off point in East Africa, the service was subsequently expanded into Afghanistan, South Africa, and India, reaching Eastern Europe in 2014. It has been in China, however, that the new fusion of money and telecommunications has developed most explosively. China’s mobile payment market has been opened by its Internet giants Alibaba and Tencent. Up to late 2015, Alipay dominated, accounting for over two-thirds of mobile purchases by value. Tencent’s competitor system, based upon its WeChat [107] social media application, consolidated its position through a highly-successful marketing campaign themed by digital emulation of traditional ‘red-envelope’ monetary gifts. By the first quarter of 2017, Alipay and WeChat between them were servicing 94% of the country’s mobile payment market. Chinese late-mover advantage has enabled the country to leap-frog plastic, transitioning directly from paper to wireless. By early 2017, US online payments amounted to scarcely 2% of the Chinese figure (which had reached the equivalent of US$8 trillion).
§5.84 - The story of electronic money is not exhaustively subsumed into that of banking. In has various quite separate lineages, of greater and lesser independence. One of the most important of these passes through online multi-user environments and games. The fictional quality of in-game monetary systems has shielded them from regulatory scrutiny, to a degree that cannot easily be philosophically defended. They thus open a zone of special interest in regards to the ontology of money. [108] What is the relation of ‘real’ money to simulated money? Virtual currencies, such as the Linden Dollars (L$) of Second Life, made this question ineluctable. If online ‘pretend’ currencies had an exchange value denominated in offline ‘real’ currencies – as they soon did – how solid could any ontological discrimination between the two be? It began to dawn upon commentators that a new age of private currency issuance had been surreptitiously initiated. It is perhaps a matter of mere historical contingency that far more consequential developments have not yet been catalyzed in this zone. There are few obvious limits to what might have come.
§5.841 - The industrialization of virtual currency production in the crypto-epoch was partially anticipated by the phenomenon of ‘gold farming’ in the world of MMORPGs (or Massively Multiplayer Online Role-Playing Games). Many of the most popular MMORPGs permit trading in items of in-game value. For instance, a special weapon acquired at the cost of much (in-game) effort and peril, and therefore scarce enough to be precious, might be surrendered by one avatar to another in exchange for an out-of-game payment between their respective players. Such arrangements called out for economic rationalization, through specialization, concentration, and Internet-enabled geographical labor arbitrage. China’s business renaissance during the reform-and-opening period coincided with the emergence of this opportunity, and its new entrepreneurs moved nimbly to take advantage. Tedious game play was quickly transformed into commoditized labor, as cheap, capable, Chinese youngsters were organized by upstart businesses to undertake grueling virtual activities. Such ‘gold farms’ thus functioned as exchanges. Through them, game currencies could be laundered into ‘real’ money. A Möbian economic circulation now crossed seamlessly between the virtual and the actual.
§5.85 - Perhaps not finally, but at least additionally, and decisively, there is the lineage of cryptocurrency innovation itself. It arose from the application of public key cryptography (PKC) to the specific problem of monetary transactions. The work of David Chaum, in the early 1980s, was especially decisive in this regard. Chaum’s 1983 paper on ‘Blind Signatures for Untraceable Cash’ was a landmark advance. [109] The problem it sought to solve was specific to the meaning of cash. Digital money is comparatively straightforward. It requires only the secure transmission of bank account details across the Internet, and appropriate modification of balances. Cash is more difficult (in rough inverse proportion to its superior facility). It has to operate like a bearer bond, making no reference to the identity of its holder. A cash payment is nobody else’s business.
§5.851 - Blind signatures, like cash, had a pre-digital instantiation. They required only carbon paper, envelopes, and rigorous method. [110] Everything was dependent upon procedure.
§5.852 - The basis for strong digital signatures was established by asymmetric or ‘public key’ cryptography in the mid- to late-1970s. [111] The further step to digital blind signatures was required to make these cash-like. Already with PKC there is suggestive ‘blindness’. It enables any particular private key to be recognized without ever being seen. A public key is able to validate a private key without displaying it. This already provides a strong analogy for the function of signatures, which are ideally identifiable without being reproducible. In the digital arena, where the ability to authenticate seems more obviously bound to a technical option to forge, the near-paradoxical demand placed upon traditional signatures becomes more evident. Chaum notes further that signatures are reliable only if conserved. An additional near-paradoxical demand placed upon them is that they cannot be repeatedly copied. [112]
§5.853 - Chaum’s insight was properly transcendental-philosophical, or diagonal. It achieved the apparently impossible, translating cash into Cyberspace, by conceptually breaking the false tautology of authentication and identification. The new diagonal creature thus released was the verified but anonymous holder of communicable virtual property. Something like a prototypical cryptocurrency is thus initiated. [113] Chaumian cash, or ‘ecash’ was actualized as DigiCash in 1989, which survived into 1998.
§5.854 - Chaum has a reputation for prickliness which intrudes into the story-line, at least insofar as it led him to turn down an offer of US$100 million from Microsoft to incorporate DigiCash into Windows 95. It is difficult not to see history fork here. An alternative history exists in which cryptocurrency was mainstreamed by the late 20th Century. With cryptocurrency having missed this early turn-off into actuality, the types now arriving are almost certainly harder, and more socially abrasive, than they might have been. It seems as if the Ultras booked a pre-emptive win.
§5.86 - Arvind Narayanan and Jeremy Clark helpfully decompose cryptocurrency – as initiated by the Bitcoin synthesis – into three functional modules, which can be traced back along distinct technical lines. Crossing the threshold into cryptocurrency requires bringing together a resilient decentralized registry, secure value-tokens, and a gauge of computational contribution, in a fully-converged operational singularity. [114] Within this combination, each thread exposes its complicity with an abstracted realization of money, in one of its three ineliminable semiotic aspects. The index of value-storage, the sign of accountancy, and the token of actual payment (i.e. exchange), are the exhaustive, irreducible, indispensable, and mutually-dependent features of any functional monetary order.
§5.861 - The early 1990s saw the conceptual innovation of robust (or ‘append-only’) data-structures capable of providing secure ledgers. Such structures introduce a gradient. They make data-bases sedimentary, and time-like. [115] The past is protected against revision, as a type of artificial, hard or ideal memory. Irrevocable commitments were thus digitally supportable. Since backing out of an executed deal is the typical mode of double-spending, a capability for the hardening of commitments has special relevance to the implementation of cryptocurrency. Indeed, its importance is such that there is a tendency among much Bitcoin commentary to reduce the innovation to ‘the blockchain’ which is itself then summarized as a distributed, revision-resistant ledger. Remaining within the Narayanan and Clark schema, the technological lineages leading to the emergence of such decentralized chronotypic databases are themselves susceptible to further triadic classification. Specifically, they assemble advances in the fields of linked time-stamping, Merkle trees, and byzantine fault tolerance.
§5.8611 - Even before timestamps were conceptually, and then practically, linked, a timestamp was already a ‘trusted timestamp’ if it was anything. Verifiable dating of digital documents poses a problem closely analogous to that of digital money, brought to a point of criticality by the ease of perfect replication. In both cases, initial solutions involved procedures of formal vouching by trusted third parties. For timestamps, the role of supervised banks is taken by Time Stamping Authorities (TSAs). [116] Public Key Cryptography is employed to render time-stamps indelible – resistant to modification by anyone accessing the document in question, including its creator.
§5.86111 - Linked timestamping draws primarily on work by Haber and Stornetta, dating back to the beginning of the 1990s. [117] This work was directed towards secure notarization, which is to say the verification – within a digital environment – of a document’s historical existence, with special reference to questions of priority. A facility of this kind has obvious relevance to legal documents, such as contracts and intellectual property claims. Linking timestamps adds dynamic to the procedure, by extending it to digital entities undergoing successive modification, such as changing inventories, and accounts. At each (discrete) stage of transformation, an additional timestamp is signed, or (in later versions) hashed, constituting a chain, pointing into an increasingly edit-resistant past. Each timestamp in the chain envelops the preceding series. It thus establishes public order, or absolute succession, in which the past is uncontroversial, and secure. As Satoshi Nakamoto notes in the Bitcoin paper, “Each timestamp includes the previous timestamp in its hash, forming a chain, with each additional timestamp reinforcing the ones before it.”
§5.86112 - A series of linked timestamps is already, at least in embryo (or larva), a ‘block-chain’. The stamps operate as irreducible moments, whose order is settled (immanently) by embedding. Their time is sheer order, without cardinality. Any timestamping system nevertheless inherits a time-keeping procedure, amounting to a fully-functional calendar, whose granulated ‘dates’ it competently codes. Unix time is the most widely applied system of this kind. Bitcoin adopts it. [118]
§5.86113 - Taking timestamping into trustlessness was a development that had to await Bitcoin. [119] While linked timestamping provides the basic architecture for secure (edit-resistant) ledgers, their robust decentralization depends upon additional cryptographic advances, supporting validation, compression, and consensus.