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Money no longer grows on trees

By Stuart McIntyre - Posted on 4 October 2013

Stuart McIntyre, lecturer at Strathclyde Business School, considers whether money may have had its day…

Money plays a central role in the lives of each of us. The Bank of England recently announced that the notes in our wallets and purses may soon be made of plastic; lowering the cost of printing money and accruing a slew of other benefits. It has also been pointed out that there are some potential downsides, most importantly perhaps, that it might lead to greater spread of bacteria. Yet some would argue that we don’t really need paper or coin money at all.

Money is a strange thing: in itself it isn’t really worth anything. What it represents, however, is essentially an IOU from the issuing bank ‘promising to pay the bearer on demand’. When this IOU can be trusted, money has great value since it facilitates the exchange of goods and services. Without it, we would need to engage in barter; find someone who is selling what we want, and is willing to accept something in exchange that we own. It was not always thus.

Since I do research in the area of personal indebtedness, a colleague of mine suggested that I would enjoy a book about debt, written from an anthropological perspective, called ‘Debt: The First 5,000 Years’. The author, David Graeber, argues that far from the need for money arising from the inefficiencies of the barter economy, the historical solution most commonly adopted to address the inconsistency between what a buyer wanted and what a seller was willing to receive in exchange, was to issue debt in your own name.

He argues that debt was (historically) issued by individuals in the form of IOUs or similar device; with the understanding that these ‘IOUs’ could be used at some future point to pay for other goods and services. Indeed it turns out that some of these IOUs were themselves passed on and treated as a ‘currency’. In this way ‘credit money’ became a currency of its own, and was able to keep its value, so long as someone was willing to accept it in exchange for goods and services; there was an implicit trust in the individual to repay that debt if called upon to do so.

The idea of bartering for goods and services is one that is largely alien to today’s developed world, but the recent economic downturn has brought an interesting example of a barter system to prominence: time banking. There are a number of these schemes throughout the UK, and Timebanking UK provides a database of established time banking schemes.

The idea of time banking, simply put, is that instead of trading using money, participants swap goods and services for ‘time credits’: I will tidy up your garden and cut the grass, say worth two hours, in return for which you will cut my hair twice (each haircut being worth one hour), or I will give you a jacket in exchange for four time credits which I can redeem at some future point.

The surge in interest in time banking may be a response to the austere times people have experienced recently. In itself though, as Graeber’s book tells us, the issuing of personal IOUs as a means of trade is not a new phenomenon. Indeed in many ways the rise of time banking represents a reversion to the notion that we can be indebted to each other and that we act as our own surety in issuing debt, and perhaps most important of all is the realisation that time is perhaps the most valuable commodity of all.

Plastic banknotes are due to be rolled out soon, and will bring many benefits, but economists are not wrong in reminding us that money is little more than a convenient medium for reducing transactions costs. In fact, it could easily be argued that notes and coins are now no longer the major medium of exchange, having been displaced by the tried and tested facilitator of exchange that David Graeber tells us was relied upon by the ancient Mesopotamians thousands of years ago: debt.

What do you think? Let us know in the comments below…

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