Money

A Critique of "Neutral" Money

Part IV of Money as a Reflection of Political Values, Virtues, and Human Order

Part IV of Money as a Reflection of Political Values, Virtues, and Human Order

Previous Parts

With the background regarding the common good, the use cases of “external goods” or “material goods”, and teleology and money outlined (see Part III - Values and Virtues), we can now turn to a critique of “neutral" money.

To start, there are legitimate claims for concern of State and authoritative manipulation of the currency. Individuals and households have every right to be concerned with central authorities intervening in monetary decisions that might reduce their purchasing power and savings, and they have the right for a monetary system that does not hamper their personal life plans. That said, “neutral" money has a limited view on what freedom and liberty entails and reduces money to a product or good in and of itself.

Spontaneous Order and Design

It would be beneficial to discuss the emergent order or spontaneous order of things that, for many, is the foundation of “neutral" money. The spontaneous order argument outlined by the likes of Hume and Hayek is extremely appealing. We will assume that the spontaneous order is valid. The point of contention, though, is that the order described is focused exclusively on competitive market dynamics and ignores other fundamental human institutions and relations that might have spontaneously emerged. For example, the judicial system and political institutions are examples of organizations and bodies that emerged separate from the market, as well as armies and bodies of defense. Also, informal institutions such as social norms and family are examples that emerge separately from the markets. The emergent order described by figures such as Hayek also narrows human nature to being innately greedy. It must be highlighted that markets are not the only foundation of human organization, and there is much reason to acknowledge that human nature is not innately greedy. Social and political institutions, outside or in the market, might have emerged from the human tendency to collaborate and look out for each other. A collaborative tendency of humans might have resulted in the spontaneous emergence of social institutions focused on the common good just as the tendency of self-interest might have led to the spontaneous emergence of competitive markets. Hayek did in fact acknowledge that moral norms and laws emerged spontaneously, but the center of his views revolved around competitive markets and individualism (Hayek, 2021). The spontaneous order can also be reflected by social systems in which there was no necessary hierarchy, but in which individuals in a community came together to make decisions on a discretionary basis with no central authority making the final decisions. The evolution of society comes about by collective decision making as circumstance arises, and communities establish specific tools and institutions, including money and monetary systems, to reflect the collective needs. Since the spontaneous order is based on trial and error, there is no set in stone rules, but the rules change according to circumstance and in accordance with what works best for individuals and the community as a collective social order. As McIntosh mentioned “critics argued that Hayek overreached in Denationalisation by supposing that he knew what kinds of characteristics of money the public wanted and by constructing a monetary system when he himself had long ridiculed the idea that institutions could be designed using human reason” (McIntosh, 2024). All of this is to say that the spontaneous order argument is appealing and valid, however, the right-wing libertarian application of it is exclusively focused on competitive market dynamics and excludes other human relations, institutions, and tendencies. Moreover, a fixation on the spontaneous order characterized by pure competition and market dynamics is, to a certain extent, establishing the rules of society as set in stone in terms of markets and would in fact obstruct the trial-and-error approach to an ever growing, emergent human order; just as a central authority taking all the decisions and establishing rules that serves its interest would distort the natural order. The emergent order focused primarily on markets is a narrow and limited approach in evaluating the emergence of human organization and relations.

A fixation on neutral money can also contradict the spontaneous order. Neutral money is strictly focused on being fixed in supply with inflexible rules to maintain scarcity and predictability. The insistence of such a money obstructs spontaneous human ingenuity in creating new forms of money that might be more effective in times of need or at pivotal moments. While Joshua Preiss is primarily talking about credit markets in the following quote, his statement could reflect the monetary system as a whole and eloquently explains the problem with fixation on specific “natural laws” when it comes to the social sphere: “The rules of the game of markets (financial or otherwise) don’t suddenly fall from the sky according to textbook definitions of perfect competition. They are constantly in flux in response to political and economic power.” (Preiss, 2021). Not only does the fixation on “neutral" money obstruct new forms of potentially better suited money to emerge, but the inflexible nature of "neutral" money has been proven to have detrimental effects on individuals, households, and the community as witnessed during the Great Depression. The lack of flexibility in expanding the money supply due to central bankers’ strictness to abide by the gold standard resulted in the Great Depression and a period of prolonged deflation and unemployment (Ahamed, 2009). Instead of allowing the spontaneous human order to operate in shaping a better means for a monetary system that works better for individuals, households, and communities, the strictness of the gold standard contributed to devastating effects in the name of maintaining the status quo and the gold standard. That said, Hayek proposed that private competing currencies issued by private companies might solve the inflexible nature of legacy hard money and allow for ingenuity and creativity to prevail. This ultimately may result in a currency that suits our needs best as they emerge from the spontaneous order of the competitive market.

Money as an End in Itself

It is worth noting that Hayek proposed a model of multiple competing currencies given that he acknowledged a difficulty to return to the gold standard. With that, it would be interesting to see the emergence of currencies in this competitive system that are designed contrary to "neutral" money principles (i.e. money that burns if not spent, money designed around universal basic income, and more). In fact, with the proliferation of cryptocurrencies, a variety of experimentation with such alternative currencies are being attempted.

Nonetheless, the problem with Hayek’s private competing currency system is that it reduces money to a product or good in and of itself rooted in the market. The purpose of competing money, based on Hayek’s views, is grounded in the value of money as a standalone item that purely functions based on market dynamics. Given that it will be hard to get back to the gold standard, the best way to achieve a “neutral” money is by allowing private companies to compete in the issuance of currency. Competing currencies is not necessarily a bad thing, but the premise of Hayek’s proposal is that competing currencies must be founded on “neutral" money principles with the sole goal of fighting inflation and maximizing individual wealth. There is little chance that Hayek envisioned a competing currency that burns if not spent, for example, since the focus of his monetary thought was around the fight for maintaining money’s value as a form of wealth maximization for the self-interest of individuals. A currency that burns if not spent, Hayek might argue, would fail because it would not fulfil the wealth maximization function and will therefore have weak demand. From this reasoning, the competing currencies envisioned would be purely currencies that abide by “neutral” money principles focused exclusively on money’s value as an end in itself. That said, money, as I will argue in the next part of this series and based on Part III - Values and Virtues, should not be a product or good in and of itself, but rather a tool for achieving valuable ends.

Moreover, shifting monetary oversight from public to private institutions only shifts monetary domination from government to private institutions. Private companies issuing currency that are driven by profit do not shield against authoritative and coercive action. There is much reason to acknowledge imperfect markets, the capability of collusion, and the power of lobbying to distort perfect “free market” dynamics, and thus much reason to see private companies abusing the power of their currency issuance just as a state would but for alternative reasons. Money, as I will elaborate on in the next part of this essay series, is a vital resource and not just a good or product to be produced and purchased via pure market forces. “The more important resources are, the more vulnerable people are to those who control those resources” (Preiss, 2021). Additionally, the shift of currency control from the public to the private sphere would reduce the power of accountability on the institutions handling the vital resource of money. It is worth mentioning at this point that Bitcoin aims to solve some of the problems outlined in this paragraph as will be discussed later in this essay series.

Experimentation with money forms and governance is a process rooted in social and political institutions and not just the market given its vital role in power relations and dynamics. Hayek claimed that there was no experimentation with currency because of state control (McIntosh, 2024), but the experimentation of the currency he speaks of seems to be an experimentation of money as a product and was focused on experimentation of money purely by market forces with profit in mind. He ignored that there always existed actual experimentation of money, but that that experimentation took the form of social and political ingenuity and movements. The view highlighted by Hayek was an experimentation of money as a product in and of itself focused on money being purely a means for wealth preservation and accumulation (McIntosh, 2024). This was in line with Hayek’s and right-wing libertarian values specifically focused on economic liberty and freedom; it takes markets as the only reality that people are situated in.

Money and Liberty

Freedom and liberty, however, encompass much more than just material freedom. Freedom involves the ability of different individuals and groups to express themselves, to have the opportunities to achieve their desires, to organize themselves in ways they see fit, to have a voice in pressing matters that relates to their wellbeing, and to have the means for a good life. A liberty focused on profit and material ends does not necessarily lead to a good life, but rather corrupts the nature of humanity and moral values (see Part III - Values and Virtues). In fact, much of the conferences held by Hayek and right-wing libertarians around “neutral" money in the 1970s brought capitalist libertarians and other business and political figures together over a search for investment and profit (McIntosh, 2024). This is not to say that profit is bad and that money should not preserve wealth, but that there is more to liberty and freedom than profit and wealth, and that money’s role goes beyond individual wealth preservation and accumulation, as will discussed in the following part of this essay series. Furthermore, “neutral" money focuses on the harms of the dilution of the currency and how it will affect savers; however, wage growth is also a means to freedom and wealth accumulation and wage growth tied to productive means does not necessarily result in inflation. From that perspective, “neutral" money is focused on maintaining wealth for the few who currently hold wealth while undermining an expansion of wealth. Money and monetary design and governance could be a vehicle to combat social and political domination. "Neutral" money robs money from that essential feature. A money, therefore, that is focused on individual profit maximization is an unvirtuous and unjust form of money that distorts prosperity and the good life.

Finally, people are social animals that do not operate in isolation (Ferraro & Sison, 2017). It will be extremely difficult to survive without the collaboration of others. A right-wing libertarian perspective takes the achievements and foundations of civilization for granted and ignores the fact that much of the infrastructure and innovations established that allow for individuals to pursue their freedom were in fact built and developed by public and private means with the common good in mind. There can be no individual liberty without a common good and shared interest in human flourishing. Opposition to the common good hinders individual liberty and only maintains the liberty of a subset of privileged individuals, or more accurately, a subset group or community. Hence, "neutral" money acts in opposition to the public good and only acts as an instrument of material liberty for a specific group within the community as opposed to a vehicle for freedom beyond economic liberty for all. A neutral money in that sense becomes an embedded feature in structural injustice claiming to be an apolitical money.

In Part V, we will examine the overlooked function of money – Part V - The Functions of Money

References

Ahamed, L. (2009). Lords of finance: The bankers who broke the world. Penguin Press.
F. A. Hayek, & Jeremy Shearmur. (2021). Law, Legislation, and Liberty, Volume 19. University of Chicago Press.
Ferrero & Sison, Aristotle and MacIntyre on Virtues in Finance
McIntosh, W. (2024). FA Hayek, Libertarianism, and the Denationalization of Money. Modern American History, 1-20.
Preiss, J. (2021). Did we trade freedom for credit? Finance, domination, and the political economy of freedom. European Journal of Political Theory, 20(3), 486-509.