Essay/Chapter 1. The monetary systems

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Chapter 1. THE MONETARY SYSTEMS


1. First level: actual goods
2. Second level: abstract monetary units
3. Third level: mixed market values
4. Fourth level: monetary instruments
5. Conclusions


How are they made and what are the monetary systems good for?

To answer these questions, we shall disregard all that is explained to us by «economists»[1] and we shall directly explain our own idea of the monetary reality.

We are not going to make here a description of how the monetary systems presently in force work, but of how the primitive monetary systems worked, and of how the present ones should work: we shall therefore suggest monetary rules.

To attain a maximum understanding of this matter, we shall make a distinction among four levels of reality:

  • 1st level: actual goods
  • 2nd level: abstract monetary units
  • 3rd level: mixed market values (actual-abstract)
  • 4th level: monetary instruments


1. First level: actual goods

All living beings, and among them also man, need to consume a number of goods (and in the case of man, also services) in order to carry on and to better realize their existence. These goods are called utilitarian goods, because they are useful to satisfy the consumption needs of living beings.

In the same way we call utilitarianism the production and distribution system of utilitarian goods existing in a given community (vegetal, animal or human).

In the human species has been developed, during millennia of evolution, a mode of utilitarianism which is today paramount in all modern societies: it is the market-monetary utilitarianism (in short: market utilitarianism).

This utilitarian regime is typified basically by the fact that the produced goods are not consumed by their own producers, but are exchanged in a market, by means of regulating agreements which constitute a monetary system.

The utilitarian goods exchanged in a market are called generally merchandise, and are of two kinds: produced merchandise (which may be inert objects, dependent living beings, or utilitarian services), and producing merchandise (which are the forces which allow the production of the previous ones).

We must underline the fact, therefore, that it makes no sense to talk about a monetary system if it is not in a context of actual, really existing, goods.


2. Second level: abstract monetary units

At the beginning the market —that is, the exchange of goods— took place without any need for a monetary system.

Every basic exchange of an actual A merchandise for an actual B merchandise —called barter— was done without the instrumentality of previously established monetary conventionalities. The only factors to be kept in mind were the particular needs of the two exchange agents: if these needs were satisfied by means of a given barter, the barter was carried out. But the perception of this satisfaction was of a qualitative order, as no reference was made to a quantitative value standard which would allow to calculate the exact equivalence between the values of any two given merchandises.

But when the market utilitarianism of a society grows, is amplified, becomes complex, then the need for a measuring system of the quantitative exchange value of goods becomes evident, in order to be able to carry out quantitatively equivalent exchanges. Then the monetary unit is born.

In the same way that, to measure actual distances we use a metre, which is a conventional and abstract length unit, to measure the exchange value of actual goods, we use monetary units, which are social conventionalities, completely abstract and universal.[2] They are abstract because they are pure formal conventionalities, empty of actual contents; they are universal because they make up an abstract-accounting common denominator of all the real and heterogeneous goods existing in the market considered as a whole; that means, they are poured out into one single system of interrelated correlation, measure and numbering.

Every actual merchandise contains then, conventionally, a given number of abstract monetary units: thanks to this monetary homogenization of real goods, naturally heterogeneous, it is easy to calculate numerically exact equivalences among any different real goods.

Let us observe, however, that the introduction of a monetary unit on a market does not cause barter to disappear, that is the actual exchange of two real goods: it only makes it numerically easier and more perfect.


3. Third level: mixed market values

The immediate consequence of the introduction of a monetary unit is fixing the market values. This means simply that to every specific merchandise a market value is given, that is the given number of monetary units therein contained.

The attribution, to every specific produced merchandise, of a given market value in monetary units, produces a sales price.

The attribution, to every specific producing merchandise, of a given market value in monetary units, produces a salary.

Prices and salaries are mixed realities, specific-abstract, as they result from the comparison between specific goods (first level) and abstract monetary units (second level).


4. Fourth level: monetary instruments

Somo protohistoric societies, which enjoyed a very dynamic market, reached at a given time a situation in which market values (prices and salaries), which up to then had been established almost exclusively through tradition, therefore very stable —as it happens in scarcely dynamic societies—, were established by a free agreement between the two contracting parties of every basic, free exchange. Thus, prices and salaries fluctuate and change freely and continuously, not only in terms of the desire every party has to own the merchandise the other is offering, but also in terms of the environmental circumstances (war or peace; want or abundance; transport, warehousing difficulties or easiness...).

At this moment the market reality becomes so rich and complex, that the invention of new exchange forms becomes necessary, to allow more rapid and easy transactions: then, in the most advanced societies monetary instruments appear.

Monetary instruments must not be confused neither with the monetary units, nor with market values; but they imply the existence of both of them. In a society where one or more monetary units are defined, and prices and salaries are freely established, a monetary instrument will consist, simply, of working out an accounting document, intercompensating in an accounting system.

Let us explain it: the monetary instrument (which we could also call monetary document, or monetary sign...) is a document which registers a free market transaction, a free elementary exchange. But its interest depends on the fact that it allows barter (the direct exchange of a given A merchandise for a given B merchandise) to disappear, and allows the possibility of making delayed exchanges, both in time and space. The working of the delayed exchange through the monetary instrument is the following: let us imagine that Mr. X wants to obtain from Mr. Y a specific A merchandise, with a value of a monetary units; but has no B merchandise to offer in exchange (in sucha quantity to attain the same monetary value of «a» monetary units). In this case, Mr. Y can supply Mr. X the A merchandise, without obtaining any specific merchandise in exchange, but receiving a document in which Mr. X acknowledges a debt towards Mr. Y for «a» monetary units. If both Mr. X and Mr. Y have personal current accounts in a suitable establishment (for example, in the city temple), then the debt written down in the monetary instrument may be immediately compensated by writing down the necessary notes on the two current accounts.

So, a monetary instrument is, simply, a debt acknowledgement, documented and intercompensating through a system of personal current accounts.

This simple invention will revolutionize the market, because the delayed exchange is much more flexible and allows a greater market dynamics than barter. After this, it is not necessry to invent anything new as far as a monetary system is concerned, because the monetary instrument is flexible enough to suit any situation, of whatever market complexity. It is only necessary to update it in terms of the market realities and of the present technological possibilities. This we shall discuss in the following chapters.


5. Conclusions

As a final synthesis on the nature of the monetary systems, we shall say that these are complex realities —but not difficult to understand— where the following levels must be marked out:

  1. specific goods really existing on the market (whether produced goods, or producing goods), which are to be exchanged;
  2. monetary units, universal numerical-abstract conventionalities, which are used to determine exactly the exchange value of each and all the previous, specific goods;
  3. market values (prices and salaries), mixed values resulting from comparing specific goods and monetary units;
  4. monetary instruments, documents which advise and inform about a debt acknowledgement, for a given quantity of monetary units, of one person towards another one (both of them well identified too).

The monetary unit is a measuring unit, and as such it is completely abstract. The monetary instrument is a document which registers at the same time, a measuring action (a measurement, consisting of establishing a market value) and a market action (a transaction).

As a matter of fact, neither of them makes any sense, if there is not a specific merchandise to be measured and exchanged through a contract. The really existing specific goods are then the final basis of the existence of monetary units, of market values (prices and salaries) and of monetary instruments: that is, of the existence of monetary systems.

We may apply a simple metaphor to understand the instrumental-artificial-abstract character of all monetary systems.

The specific goods (whether produced or producing) are the basic realities of any utilitarianism: we call them first realities, because they are the direct objects of man's utilitarian interest.

On the contrary, we may imagine the monetary system as a mirror which supplies images of the specific goods and of the market acts: monetary realities are then second realities, derived from the first ones.

Let us imagine that, every time that two market agents make an operation, the merchandise being the object of the operation goes quickly through the mirror (of the monetary system), and projects its image. The image is its market value (price or salary). But, at the same time, there is a camera which makes a snapshot of this image, and also of the two agents which produced it: the picture obtained is the monetary instrument, the document of what has been going on. The image in the mirror is a fleeting one, it disappears as soon as the operation is over; but the document remains, recording all the features of the operation which has been carried out. As far as the monetary units are concerned, they are the outline, radically abstract-numerical, of the previous images (the mirror image and the camera image).

The value of these monetary images is auxiliary-instrumental: they are used to better handle the specific goods which produced them, but they have no intrinsic value. Only specific goods have an intrinsic value.

Besides, it is very important to point out that there cannot be monetary images without specific goods producing them. Monetary realities are always second, derived from the specific realities of the utilitarian market.



Notes:

1. We write the word «economy» and all those derived from it in quotation marks, when we use them in their present meaning, because we give this word, usually, a very different meaning, next to its original etymological meaning (see chapter 23).

2. Universal: the etymological meaning is «to pour out or to shed different realities into one single correlation system».