Money Madness: Utah Edition

Utah has passed a Tea-Party inspired law encouraging the use of gold or silver coins from the U.S. Mint as payment for goods and services.

Supporters, according to The New York Times, say “that it is just a beginning, that one day soon Utah might mint its own coins, that retailers could have scales for weighing precious metals and that a state defense force could be formed to guard warehouses where the new money would be made and stored.”

Brave new world? Brave old world? Actually it’s both.

For instance, there is already a working mint in Utah, the Old Glory Mint. It markets a silver Ronald Reagan coin, showing Reagan in a cowboy hat on the front and a nuclear-powered aircraft carrier, the U.S.S. Ronald Reagan, on the back. Notice the mix of cultural images: the wild west of the American 19th century, and the global reach of American military force in the 21st century.

To get a feel for what to expect from Utah’s Legal Tender Act, imagine walking into a bar and buying a $4.00 glass of beer. You hand over your American Eagle silver coin, the bartender checks the spot price ($37.05 on June 1), and hands you back $33.05. But do you want dollars? Isn’t the point of paying with a silver bullion coin to get around using dollars? So, what would you accept instead? A dress shirt? An egg-laying hen? A voucher for a lube and oil change? At least for now, there seems to be no way to escape the U.S. dollar. The silver coin is priced in dollars, and the change you get back is in dollars and cents. So what’s the point?

Supporters of Utah’s new law hope to get back someday to “real” money, “hard” money—something whose value can be weighed and measured (and guarded by an armed militia). Hard money people watch the U.S. dollar floating unmoored in the turbulent sea of international currencies, and they want no part of it. How can you tell the value of anything? How can you be sure that your savings will keep their value?

The nature of money

If money isn’t “real” or “hard” money, what is it? The trouble with the Utah concept of money is that its use is hardly different from a barter system. And it implicitly repeats an argument that has no historical support, that money—more exactly, currency—arose spontaneously from early free-market barter when traders settled on a single commodity that served as a medium of exchange and store of value. The alternative view, which does have historical support, is that money originates in a sovereign’s demand for tax revenue, to be paid in a material form authorized by the sovereign.

A compelling account of this view is Geoffrey Ingham’s book, The Nature of Money (2004). He argues that, fundamentally, money is the mark of a debtor-creditor relation. That is, money—in its moneyness—is not the same as currency, what you might carry in your pocket, or deposit at the bank, or keep in a strong box. And nothing happens in an economy unless someone goes into debt, or deficit spends. That is how money gets “made,” how the wealth of a nation grows.

If I loan you $1,000, it is immediately doubled and exists in two places at the same time. You have the use of it, to invest or do with it what you will, while I have ownership of it and am entitled to payment of interest and, finally, repayment of the principal—although extending the loan, rolling it over, is frequently the better option. As the French historian, Marc Bloch, puts it, “perhaps the most exact definition of capitalism is ‘a system that would fall apart if everyone paid their debts'” (Esquisse d’une Histoire Monétaire de l’Europe [1936]: 77). Ingham repeats this quote several times in his book.

The debtor-creditor relation is a (if not the) basic social relation. And it is an ethical relation. We (Americans generally), in our idealizing of free-agency in a “free” market, don’t have much of a grasp of this relationship. If I give you something, or do something for you, and you say, “Thank you,” the American thing for me to say in return is, “Don’t mention it, it’s nothing.” But if we were Japanese and I answered you that way, I would have seriously insulted you (hat tip, linguist David Zubin). I would be saying that what I’d given you is worth nothing—so you are “free” of any debt or obligation to me—but I am also saying that you are worthless. Such is the difference of cultural difference.


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