What would a world with no money be like?

 

Image attribution: Frank Kovalchek; CC BY-S.A. 2.0 

By Paula Whately

“Money, so they say, is the root of all evil today,” sang Pink Floyd’s Dave Gilmour back in 1973. Little did the Ancient Mesopotamians know when they introduced the idea of currency to the world around 5,000 years ago that their revolutionary idea would go on to transform the planet in such a profound way. What’s more, given what humankind has achieved by moving massive amounts of money around – the scientific discoveries, the medical advances, the mind-blowing technological developments – it kind of seems a bit ungrateful to those Assyrian and Babylonian pioneers of old to suggest that maybe we’d be better off without money, and that it’s time to start imagining a future where goods and services are exchanged in a different way.

In a world dominated by competition for resources and defined by massive economic inequality, it’s certainly appealing to think there might be a better way of doing things and that hunger and poverty might one day become things of the past. But thinking about how an alternative economic system would work in practice isn’t that simple.

A New World economy

Maybe they got it right in Star Trek, where the good old United Federation of Planets began shifting to a ‘New World Economy’ in the 22nd century, money becomes an outmoded concept and Fort Knox is turned into a museum of the primitive capitalist ways of the society of old. But this New World Economy was only possible in Star Trek because they had, in their Replicators, a technology for synthesising whatever material goods they need. Whether you’re a lowly warp drive engineer or a high-ranking Starfleet diplomat, you have equal access to food, clothes and novelty key rings. Additionally, automation has become so widespread that there is no longer any need to pay for labour. That leaves citizens free to focus on bettering themselves and improving the lot of their fellow humans, instead of worrying about the relentless accumulation of wealth.

With the advent of 3D printing, replicator-style technology might not be as far away as we thought, but for now it’s fair to say we can’t really compare our current society to the inter-planetary civilisation imagined in Star Trek. But that certainly hasn’t stopped figures at the very highest level from thinking about and discussing what the world might be like without money as we know it today.

A barter economy

Sir Mervyn King (Governor of the Bank of England and possible Trekkie) has said that there is “no reason” that producers and consumers couldn’t exchange products and services directly through “essentially a massive barter economy.” According to King, “all it requires is some commonly used unit of account and adequate computing power to make sure all transactions could be settled immediately. People would pay each other electronically, without the payment being routed through anything that we would currently recognize as a bank. Central banks in their present form would no longer exist – nor would money.”

So we just need to come up with a unit of value and then figure out exchange rates for every single one of the trillions of different products and services that people might want to exchange? Cool. I’m sure someone could make an app for that. But is it simply the question of computing power that stands in the way of a transition to a barter economy?

Not according to ex-Microsoft engineer Balaji Viswanathan, who points out what he describes as the ‘indivisibility problem’; imagine you sold all your mushrooms for a pair of socks, and then decided you wanted to buy some bread. Would you be able to split the pair of socks in order to get the bread? No, you wouldn’t, you hippy fool! What were you thinking swapping all those lovely mushrooms for a rubbish pair of socks? Other criticisms include the problem with individuals storing wealth for use in future transactions (as many of the products being exchanged will be perishable, meaning they don’t necessarily retain their value over time), and the fact that there’s no easy way of arranging unsecured or secured loans of other forms of credit.

Collaborative consumption

As things stand, it’s hard to see how the world would function without conventional currency, but that doesn’t mean you can’t start doing some small scale bartering in your own day to day life. Are you awesome at baking? Then why not offer to bake a delicious cake for the landlord at your local pub in exchange for a few pints of the good stuff? Do you have a skill that people value? Then see what they can offer you in return for your time and expertise. Just ‘cause you have a job and occasionally shop at Tesco doesn’t mean you have to be a total slave to money; people are definitely embracing the idea of bartering, skill-swapping, and what Rachel Botsman calls ‘collaborative consumption’, so now’s the time to get in on the action.

About the author: Paula Whately is a freelance writer who has been writing about financial issues such as secured loans and credit ever since the recession began.

What money is

Money includes more than just the paper and coin currency exchanged between merchants and their clients. Money has existed for 1000's of years as a convenient replacement to barter. In the course of history, money evolved and took many forms as it does today. For example, in some countries, compacted bricks of tea leaves are used as currency and exchanged for other products.

Since the tea is a commodity that has value in overseas markets, the compacted bricks of tea have intrinsic value therefore it is used as money. In fact, anything that has intrinsic value whether it be via confidence in the "currency" i.e. medium of exchange or real value in terms of demand within an economy.

The different forms of money

As noted above money comes in different forms, even tea leaves, and thus any medium of exchange that is used to represent value can be thought of as money. In many societies and economic systems, money has taken on several key distinctions including its shape, capacity, production, role in an economy and the way it is given value. A few such different forms of money are the following:

• Electronic money
• Plastic money
• Paper money
• Metal money
• Credit money
• Collateralized money

Each of the above forms of money serve different purposes have differing physical or non-physical features and are exchanged differently. Before the advent of digital technology, telephone wires, and computer information technology, paper money and metal money were by far the largest source of money in the world. More recently however, electronic money in the form of digital account balances and electronic credit are exchanged using financial clearinghouses, wire transfers, and credit recording equipment.

Factors that affect the value of money

Money is valued and given worth through a number of economic mechanisms. Historically, money was "backed" by gold or other precious metals, but in more recent times, the gold standard has been reduced or done away with completely. When money isn't backed by gold, it is valued by market forces such as economic performance, money supply, and more indirect forms of collateral such as a country's financial capacity, political stability and natural resources.

Other financial and economic factors that can influence the value of money are leveraging, interest rates, and inflation. Generally, money's value is an indicator of economic events within a matrix of influencing factors such as those mentioned in the last sentence. Inflation is often thought of as the rise in the cost of goods and services over time. Additionally, as money supply increases, the demand for it goes down, potentially causing the cost of services to rise.

Thus, over time, as things cost more, the ability of currency to pay for things declines, and therefore so does its value in terms of purchasing power. Furthermore, low interest rates charged by national banks can spur lending and increase money supply which generates more wealth. However, this increase in wealth can cause the cost of things to rise thereby lowering the value of the money.

In culmination, money is a multi-faceted medium of exchange that takes on many forms, is valued by different economic forces and is used in various ways. Money has evolved as a matter of convenience, efficiency and economic management. With the advent and spread of technology in the 20th and 21st centuries, money has taken on new roles, sophistication, application and valuations.

Indeed, money may continue to evolve into ever different forms and uses. Furthermore, if history is any indicator, money will continue to exist as culturally relevant invention that facilitates the expression of human life, production, consumption and economy for many years into the future.