“…today the world’s central bankers are in something like a state of panic. Money is, quite clearly, uncontrollable. This manifests in large ways – like the six years of continuous crisis that have roiled the eurozone – but also in smaller, more technical matters. For example, the Federal Reserve has no idea how much money is out there, at least in all its digital forms, or how fast the overall supply is growing…
…This is alarming, because the whole concept behind the Fed is to monitor and control the money supply. That was a much easier task in an era of physical banks and highly regulated savings accounts. But today, each of us has the power to increase the money supply by simply carrying a balance on a credit card. (If you ever meet a central banker and want to get her stammering, ask this question: “How much money is there, precisely?”)”, Adam Davidson, “In Code We Trust”, New York Times Magazine
Magazine | The Money Issue
In Code We Trust
Credit Illustration by Javier Jaén
When Caesar Augustus minted the denarius coin, around 4 A.D., he did so with a decree that it be made almost entirely of silver. But over the coming decades, as the financial health of the Roman Empire declined — largely because of its increasingly independent army, which demanded ever more money to subdue the rebellious provinces — the emperors began, slowly at first, mixing in copper to stretch the silver further. By 280 A.D., a denarius was 98 percent copper, with a thin silver wash on the surface. The implication was clear to every Roman: Here, in their hands, was a physical manifestation of the empire’s deepening desperation. Whatever proclamations the emperor might make, the coin told the truth.
The lesson, perhaps, is that money shapes — and is shaped by — the society at large. And the last century has seen far more transformation in money than any other to date. A hundred years ago, paper money was still just a reference document, the real value hidden away in a vault full of gold. But with the rise of information technology, money has increasingly become an abstraction. We’ve created A.T.M. and debit and credit cards, electronic transfers and 401(k) accounts. Since 1980, computers and deregulation have allowed Wall Street firms to experiment exuberantly with new securities that blur the line between finance and gambling. By the early 2000s, banks were selling securitized mortgage-backed assets as “money-good,” and it was largely this mistaking of junk for cash that brought about the financial crisis of 2008.
They do their best to hide it, but today the world’s central bankers are in something like a state of panic. Money is, quite clearly, uncontrollable. This manifests in large ways — like the six years of continuous crisis that have roiled the eurozone — but also in smaller, more technical matters. For example, the Federal Reserve has no idea how much money is out there, at least in all its digital forms, or how fast the overall supply is growing. This is alarming, because the whole concept behind the Fed is to monitor and control the money supply. That was a much easier task in an era of physical banks and highly regulated savings accounts. But today, each of us has the power to increase the money supply by simply carrying a balance on a credit card. (If you ever meet a central banker and want to get her stammering, ask this question: “How much money is there, precisely?”)
One way to understand this chaos is to see that power is shifting. The authority to create, move and define money — once confined to central banks and treasury departments — is being dispersed to an odd mix of entrepreneurs, libertarian hackers and old-line banking institutions. Even for the most technologically skeptical, this monetary chaos isn’t something we can choose to avoid. It’s a new and pivotal force in our economy, and it will change the way we work and live.
In this Money Issue, we’ve collected four articles that capture ways that technology is changing the very nature of money. Two of these articles are about Bitcoin and Kickstarter — two phenomena that represent, in extreme form, two contradictory aspects of money that have been there from the beginning: total anonymity and rich social context. As a digital form of currency, Bitcoin receives its authority not from a government but from an algorithm that is everywhere and nowhere. It allows for an anonymity of exchange and a creation of value all but completely unmoored from history. Kickstarter, by contrast, calls upon money’s other characteristic: its deeply social nature. It’s impossible to make an anonymous donation to Kickstarter, which is precisely the point, since our donations are often performances of sorts, put on for the benefit of friends or people we admire.
The other two articles revolve around technology that seeks to reduce the influence of money or even bypass it entirely. One of them profiles a Silicon Valley start-up that claims its technology can ameliorate some of the precariousness of working life — a precariousness that technology, paradoxically, has helped to create. The other documents how a software engine has enabled a profound form of nonfinancial exchange: a “kidney chain,” in which friends and family of patients with kidney failure, potentially as many as 70 in total, donate in an act of reciprocal generosity. It’s a wonderful example of an algorithm, built on the latest computer science, that allows for the most ancient form of exchange — that is, barter — to save the lives of loved ones.
There is a common perception that economists believe money drives human behavior. In fact, it’s almost precisely the opposite. Most modern economics is predicated on an idea first espoused by David Hume in his 1752 essay, “Of Money,” that currency, gold, bank slips, checks and so on are beside the point. What actually matters is what we make and do and feel and want. Money is just an imperfect tool to add it all up, to assign value to our fundamental human desires. We need money only because it, unlike passion, can be stored and traded and counted.
Arguably the two greatest economists of all time — Adam Smith and John Maynard Keynes — both wrote about money as a way to get at something far more important: who we human beings really are and how we can have the best possible lives. Smith believed that the core desire of all people was to be both loved and worthy of love. Keynes believed the highest possibility of human life came from creating and appreciating artistic works of true beauty. In either case, money is not some separate force, easily divided from other, more human, concerns. Money is changing now, very fast, but only because we are, too.
Correction: May 4, 2015
An earlier version of this article misstated when Caesar Augustus minted the denarius coin. The date is not precisely known, but scholars believe it was minted between 2 B.C. and 4 A.D, not around 15 A.D.
Adam Davidson is a founder of NPR’s “Planet Money” and a contributing writer for the magazine.
A version of this article appears in print on May 3, 2015, on page MM45 of the Sunday Magazine with the headline: The Money Issue.