Money Is Made-Up

Cover for Slate Money

Podcast Length 00:46:28

Transcript

S2: Hello, welcome to The Money is Made Up episode of Slate Money, Your Guide to the Business and Finance News of the Week, a very, very special episode this week. I am Felix Salmon of Axios. I’m here with Emily Peck of Huff Post. Hello. I’m here with Anna Shamansky of Breakingviews. Hello. But most excitingly, I am here with Jacob Goldstein of Planet Money. Jacob. Hi there. Hello, everybody. Your podcast probably needs no introduction to this crowd, but just in case it does, tell me about your podcast.

S3: My podcast is called Planet Money and my book is called Money The True Story of a Made Up Thing.

S2: You are totally on brand here. We are going to have a whole show about money, which is something weirdly after. I’m not sure what we’re up to six years of this show. We have never actually spent an episode talking about money. It’s about time, if you ask me that. We had an episode of Slate Money talking about money. So this is what we are going to do and to talk about money, what it is, what it means, it’s relationship with power. We’re going to talk about Bitcoin and whether that really counts as money. We’re going to talk about mortgages. Why not? We’re going to even have a Slate plus segment about debt service to GDP ratios. We go all manner of places in this issue. It’s a good one because we have a proper professional podcast, basically driving the bus for a change. So you have that to look forward to coming up on slate money. So, Jacob, in between all of your other gigs, you managed to write a book and it is called Money The True Story of a Made Up Thing. Money is a made up thing. Yes. So I don’t need to worry about it. Right.

S1: Correct. False. Just it’s just a fiction. It’s just fiction like the law, which you also don’t need to worry about.

S2: OK, so these are a major parts of society that we all rely on on a fundamental basis. What does it mean if if that’s so important and so foundational, what does it mean to say that they’re made up?

S1: What it means is, you know, I think we often confuse money, especially with something that exists in nature. Right. I still think we kind of go back to gold in our, like, fuzzy mental models.

S3: That’s what I did, you know, before I started learning about it. It’s just, oh, money is just this thing that exists in the world. And we have some set of complicated feelings about it. But it’s just out there and that is emphatically not true. Right. Money is a thing that people made up and have sort of remade up and remade up. And the important point of that, the reason that insight is meaningful is it means that it’s a choice. Right? It’s this collective social choice we are making all the time. And it’s something that can be quite different than it is now. It’s something that has changed a lot over time and will continue to change. And we can choose to do money differently if we want.

S2: All right. So so what’s the biggest change that you have seen in the history of money? Well, what were the two biggest changes?

S1: Wow. I think from the whole thing, like all five thousand year old.

S2: Five thousand. Yes. I think the one change that people intuitively know about is the gold standard. At one point, money was linked to gold and now it’s not. But let’s put that one to one side because it is a big one.

S3: That one is not overrated, that people are correct and that we kind of know about that one, though.

S2: So if it’s there, another one is less well known, but almost as important.

S1: Well, I mean, the to call it historical is to give a little too much credit. We don’t exactly know the origins of money, but like the very beginnings of money are really interesting and I think instructive. Right there is this sort of just so story that people told for a long time about the origin of money, which was people before there was money, people would barter. Right. They would just exchange goods. And this was inconvenient because if you had something I wanted in order to get that, I also had to have something you want. Right. And and that didn’t work so well. And people thought, well, if only there were some little token that I could give you for the thing you have and then you could give that token to somebody else, we would solve our problem. Right. This is now called the myth of Barter, because it turns out, as far as historians, anthropologists have been able to figure out, that kind of pure barter society has never existed.

S3: Right. So this barter story sort of imagines money as this very kind of atomistic, individualistic thing in the world. Barter is this very kind of impersonal exchange, what anthropologists discovered instead when they were, you know, going around the world in the 20th century, looking at the way different kinds of societies exchanged material goods in the absence of what we think of as money. What they found instead was this really complicated set of rules about giving and getting and reciprocity, you know, rules about what you had to give someone’s family if you wanted to marry someone in their family rules about what you had to give someone’s family if you killed somebody. In their family and those all of those rules, those really seem to be the origins of money. And so I do think that points to money as this thing that is not this cold, atomistic Mathie thing, but rather this really intensely social and socially agreed upon thing. So that origin story is one of the big ones for me.

S4: And so it kind of goes back to that idea that all money to a certain extent is credit in the idea that whether it’s because a culture says, you know, when you do something, you must give me something in return or whether it’s I did something for you and now you owe me this, like going back to the tally’s stick till today. To a certain extent, it’s all about that push and pull.

S1: Yeah, absolutely. Absolutely. What’s the Teletech I let Jacob. You wrote the book. Yeah. Telesis are not in the book. I know it is. But if you don’t. Well so you point to it. Yeah. So Tele’s in England. Well Felix you know it. You’re British.

S2: I can tell there was a whole pile of them in the houses of Parliament which got burned for firewood and it was this incredible historical record which disappeared.

S3: Yes. Well that that’s the end of the story. Right. And it almost burnt down something the House of Commons. But basically, I think the idea was somebody would take a stick and break it right, break it in half, like whatever a branch from a willow tree or something and give one person one half.

S2: And it was an IOU because they had lengthways to be clear. So, yeah. And you could tell which which two halves matched to each other.

S1: So in some fashion, matching the top of the dead broken in half.

S2: Exactly. Yeah.

S1: Oh like the best friend. Like the B.F. lockets. Yeah. It was that well that England whatever hundreds of years ago and you actually see this model a fair bit. I once at the New York Public Library saw they had that in early banknotes, sort of paper IOUs where they would tear it in this kind of serpentine way and you can match the sides together to see that they fit. And so, yeah, that is debt as this relationship between two people, as you know, manifested in the stick in debt and money to a..

S2: Point a very closely connected in fact, I think Adam was basically saying that the same thing. Yeah. I mean, I can totally see this idea that money is debt. One of my favorite other theories comes from Narayana Koch, Lakotah, who says that money is memory. It’s a way of remembering things. And this goes all the way back to the one thing which everyone who ever writes about money has to talk about, which is the island of Yap. But it’s basically a way of memorializing like who did what for whom.

S3: Do you prefer one of those massive I think I like memory. Like the death thing gets a little slippery today not to have to prefer one or the other. I mean, the memory one is is clearer to me. I mean, money as memory is really elegant. If you want to be more boring about it, you could say money is a ledger. Right. Which it really is. Right. I mean, most money today, like our mental model of money, is a twenty dollar bill or something that is a small minority of the money in the world. Right. The vast majority of money in the world today is basically bank deposits. And a bank deposit is not a record of some dollar bill in the bank’s vault. Right. That dollar bill does not exist. Your money in the bank is just a ledger, is just a number on the bank’s computer. And that number is essentially memory. It’s the memory of everybody passing money from hand to hand.

S5: I mean, I think and this is maybe even too obvious to say, but what Jacob’s book makes clear and we just read the Keynes biography by Zach Carter, Make Money is power. Well, money is power. Yes. And it’s political. It’s always political. And it always has been. It’s it’s a tool of the state. And depending on how you wielded it can help people or not. Yeah, right. That’s the lesson I took away from FDR in the Great Depression, essentially from your book.

S1: Yeah.

S3: I mean, that story FDR in the Depression is the story of the end of the gold standard. It’s really an extraordinary story to me. I mean, I didn’t know it before I started covering money and the gold standard more than any other period, I think was the era when people confused the rules they were living under for the natural state of things. Right. People like really smart people who spent their lives studying money thought during the gold standard that that was the only thing money could be, that anything else was just chaos out of the question.

S1: And they were wrong. Like they were so wrong that they caused the Great Depression. Right. Like the stock market crash of 29 would have been like a nasty recession. But what turned it into the Great Depression was everybody following the gold standard was central bankers raising interest rates as people were losing their jobs and prices were falling, which is clearly the exact opposite of what they should have done. So, you know, Roosevelt gets elected in 1933, the worst of the worst of the Great Depression. The day he gets inaugurated, banks all around the country are closing because basically there’s like a run on all the banks in the country and. A few months later, he says, in spite of the advice of his closest advisers, we’re going to go off the gold standard. And like the people in the room who he tells say this is the end of Western civilization. Like that’s what they thought. And they were smart, right? Like they were smarter than us and they just couldn’t see out of the world they were in. And they were wrong. And he was right. Right. He knew that. Emily, as you said, money was this set of political choices fundamentally. And he realized we America, whatever, the world could make different choices.

S4: Doesn’t it also, though, have to do with the faith and trust that people had in the government? Because, you know, that is power.

S2: That is exactly what power is. So one of the thing that power does is you can try to to turn it into money. One of my slogans that I roll out every so often is that it’s a lot easier to turn my power into money than it is to turn money into power. That when you’re FDR and this is I think the insight that FDR had is that he’s like, I have power and person in the United States. The United States has this incredible global hedgeman. I can just turn that power into money because what the economy needs right now is lots of money. And that’s what he did.

S1: And what were you going to say?

S4: It’s also, though, the faith of the people who are willing to use that money and accept that money, because I think, like, part of the reason the gold standard existed as it did, was because it for a period of time enabled global trade, partly because countries didn’t trust each other enough. And also, frankly, citizens often didn’t trust their own leaders enough. But then as things developed, as politics developed, and especially as the U.S. became this hegemon, like things started to change and the politicians hadn’t quite realized that they really no longer needed this thing that had anchored all of that trust in the past, because now people did have trust in the state.

S5: Throughout Jacob’s book, there are these sort of delightful examples of where powerful political figures take some kind of stance on money and completely change the game. So obviously there’s the FDR example, but then Jacob has the whole thing about Deng is quite right. Kubelik on his grandson, the other car. Thank you. Kublai Khan, who basically is like, use this money or, you know, I’ll kill you. And everyone was like, OK, that seems fine. You know, among those options, I’ll choose the money, right? Yeah. And you had something in France, too. There was John Le, who is trying to get everyone to use money and like, it wasn’t going well until the guy running France, not the king, because he was too young, but the guy who was in the king’s place was like, yeah, use this money. And everyone was like, OK. So, I mean, I feel like there are examples, pre gold standard, where if the person in power says this money is good, most people are going to be like this. Money is good until they decide.

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