A tree is an organism, but also a lumber reserve. After it is felled by a lumberjack, its story as an organism ends. But its story as a lumber reserve goes on, and its story as a house has not yet begun.
Similarly, money is more than one thing. Traditionally it is three things: a means of exchange, a store of value and a unit of account. It is easier to think about the future of money when you realize that the three different things called money might have three completely different futures.
This article is part of Future of Money Week, a series exploring the varied (and sometimes weird) ways value will move in the future.
Consider Marco Polo’s 13th-century description of paper money in Kublai Khan’s empire (written for Europeans unfamiliar with the concept). The Khan printed notes on mulberry bark paper and required his subjects to accept them as a form of payment on penalty of death. In Marco Polo’s simple retelling of this Promethean moment, he makes clear how the Khan’s currency united all three stories:
- Unit of account: Everyone in the Khan’s empire accepts his paper as payment, because they must. And no one resents the requirement, because everyone else accepts it, too.
- Means of exchange: Traders and merchants actively prefer to use the Khan’s paper, because it is easier to transport and more divisible than jewels or metal.
- Store of wealth: The Khan’s paper makes him the wealthiest man in the world. (Though, to be sure, he diversified his fortune by using paper to buy up jewels, metals, real estate and the like.)
In those times, the glue united money’s three functions in paper was the Khan’s iron fist. More recently, things have loosened. For example, U.S. merchants are under no obligation to accept dollars; the only truly guaranteed acceptor of dollars is the U.S. government. Further, anyone in the world can now mint a currency, and a lot of people seem to be interested in buying these non-state currencies. So the three functions of money have started to pull apart from each other slightly, like strands of a loosening braid. A couple examples:
- Bitcoin functions well as a store of wealth, despite not being much good as a unit of account (due to volatility) or a means of exchange (due to transaction fees and technical impracticalities like key management).
- Stablecoins nearly match fiat currencies as a unit of account and as a store of wealth, but remain less effective as a means of exchange.
In the future, the strands could pull apart more dramatically. We might have excellent means of exchange that are actively bad as stores of value (for example, because they employ demurrage) and powerful stores of wealth that are all-but impossible to transact (for example, due to staking schemes).
Most interestingly, I can imagine money’s unit-of-account function radically fragmenting. Bitcoin maximalists predict that bitcoin will become a sort of universal unit of account; and this is not the kind of prediction that can be disproved, because it will come true if enough people believe it. But I can imagine another future in which units of account dramatically pluralize, instead of becoming universal.
Emergent associative communities could measure value in their way, on their own terms. The more they took their endogenous terms seriously, the more they could use them to shape and stimulate endogenous commerce, thus enriching themselves with minimal dependence on global markets. That is much more interesting than a world in which everything is measured in dollars, bitcoins, Galactic Guilders or any such thing.
The Khan’s currency united all the stories about money because the Khan wielded all the coercive power. But the reverse is also true: He wielded all the coercive power because he united all the stories about money. Today, when we try to conjure one money to rule them all, we are implicitly seeking to concentrate coercive power in whomever holds that money. Yes, this is a critique of Bitcoin, but don’t fail to notice that it’s also a critique of “universal” basic income. I fervently wish to guarantee everyone a baseline of dignity, but there’s no telling what will be lost, or where power will end up concentrated, if a monetary baseline establishes a universal unit of account whose governance is not seriously accountable. “Local” or “community” basic income seem less dangerous.
Radical pluralism, including in our yardsticks of value, is the true source of wealth. Let’s just let the old universalist stories about money drift away, recalling economist John Maynard Keynes’ words when Britain abandoned the gold standard: “We have nothing to fear, honestly nothing.” Three cheers for a messier, more resilient world.
