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CEA Conference 2007
Heiner Ganßmann
Heiner Ganßmann
Money—the symbol and the game.
On sociological and economic theories of money.
Introduction
After Marx, Simmel and Weber sociologists did not contribute much to the theory of
money for a long time. Post-classical contributions started with Talcott Parsons who
introduced the idea of money as a ”symbolically generalized medium of communication”
(Parsons 1967). This idea was taken up and modified in different ways by Habermas
(1981) and Luhmann (1994). Their shared starting point was an analogy between
language and money. A second analogy was used to introduce other “symbolically
generalized media of communication”, first among them power. These media, one for
each subsystem of society, were constructed in analogy to money.
Both analogies are somewhat misleading. Money has properties reaching beyond
language. And other media, like power, do not share crucial properties of money
(Ganßmann 1988, 1996). In abstracting from the differences between objects,
institutions, social relations and concepts by lumping together money, power, influence,
love, truth and more, in Luhmann´s case, or money and power in Habermas´ emphasis
on the system/life-world distinction, the idea of symbolically generalized media of
communication became too fuzzy to be useful. Nonetheless, placing money in the
context of communication throws some new light on traditional problems of the theory of
money. This may be useful especially given the continuing failure of economics to solve
some self-imposed puzzles in the explanation of money.
My objective in what follows is to clarify the relationship between language and
money, the role and functions of monetary objects as symbols in communication, and
the ways in which the use of money structures social relations. Sociological views of
money will be contrasted to traditional economic views with the hope that the contrast is
enlightening for both sides. The general idea underlying my argument is that money is a
social fact and as such a social construction. This does not sound like much of an
insight. However, to fully recognize and articulate the specificity of money as a social
fact is quite an intricate undertaking. One important issue is to understand the particular
objectivity of money. It leads agents to behave vis-à-vis money as if it were given like a
natural fact.
Why accept money?
A useful standard opening for discussing money is Menger´s old question: Why is
"each economic agent .. ready, even eager to trade his goods intended for exchange
against small disks of metal appearing to be useless, or against notes representing the
latter"? For Menger, the fact that agents are willing to accept and hold intrinsically
useless objects as money was something "which so contradicts the common run of
things that we should not be amazed when it is described... as being ´mysterious´"
(Menger 1892: 31) The puzzle has remained. ”Who would want to exchange something
1
All translations of German texts quoted in this paper are my own, H.G.
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useful in itself for something useless in itself?“ Shackle (1974: 4) asked almost a
hundred years after Menger.
Explanations offered for the ready acceptance and holding of useless, valueless
objects serving as money are not very satisfactory. Traditionally, they come in two
groups: In the first, the phenomenon is described as circular. Everybody accepts money
because everybody expects that everybody else will accept it.2 In the second, money is
accepted because it symbolizes something acceptable, namely, goods or their value or
their utility.3 The symbol represents, or stands for, other objects. However, when
everybody acts as if the symbol was the real thing, some kind of projection must be
taking place. Why and how does this happen?
To defend the first group, one can concede that social life may in effect be
permeated by circular phenomena, like imitative behavior: I do something because you
do something that seems to promise success. However, homo oeconomicus is
assumed to be a rational individual. For a rational agent to accept fiat money, the
expectation that others will accept it in turn, may be a necessary, but certainly is not a
sufficient condition. There must be some individual gain in its use, and the gain cannot
merely consist in the near certainty that you can get rid of it again without loss. In short,
it does not seem rational to do something simply because everybody else is doing it4,
even though rewards may justify such actions post festum.
For the second group, the explanation of the nature and role of symbols becomes the
main problem. Normally, symbols are seen as representations. In the case of money,
the reasoning runs roughly as follows: There are useful things, goods on the one hand,
and money representing these useful things, on the other. Manipulating the symbol is
motivated by the fact that it provides for some kind of leverage in the world of "real"
resources, of goods and services. But it remains puzzling why rational agents should go
for symbols if they can have the real thing. One answer to this problem has been to
point out some social advantages of using symbols (they are cheaper, safer, help save
transaction costs, etc.). However, describing social advantages (whether in terms of
"functions" or not) does not help in the world of methodological individualism: One has
to show why individual agents would use symbols prior to assuming their social benefits
and acceptance. This involves an explanatory difficulty that brings us right back to the
circularity issue. Maybe it cannot be avoided because circularity is a general
characteristic of social facts?
To discuss this and other issues raised by traditional strategies of explaining money, I
will first introduce the philosophical approach of John Searle to the understanding of
language, social facts and institutions. It is convenient that Searle frequently refers to
money as an example of a social institution (Searle 1995: 37-53). After presenting
2"There
is an oddly circular characteristic in the value of fiat money--sellers are willing to accept it because
other sellers are willing to accept it. However that may be, and several hundred years of speculation and
empirical study have not removed the perplexity, we can take the acceptability of money for granted."
(Arrow 1981: 148) Weber defines the medium of exchange as an object that is ”typically accepted,
primarily by virtue of the fact that the recipients estimate that they will, within the relevant space of time, be
able to offer it in another exchange“ (Weber 1956: 38f.)
3For Parsons, money "is symbolic in that, though measuring and thus 'standing for' economic value or
utility, it does not itself possess utility in the primary consumption sense - it has no "'value in use' but only
'in exchange', that is for possession of things having utility." (Parsons 1967, p.306)
4Perhaps this is the reason why Menger and Wieser split agents into two groups, leaders and followers
(masses), where the latter are not rational, but behave mimetically.
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Searle´s argument, I will relate it to economic and sociological concepts of money,
returning to the questions concerning money as a symbolically generalized medium of
communication.
Searle on social facts, institutions, and money.
Social facts - as opposed to ”crude facts“ like naturally given physical objects - exist
only because there are agents with intentions. They create social facts by acting in a
concerted fashion. For coordination they do not necessarily have to use language. But
the emergence of one class of social facts, namely institutions, requires agents who can
speak and act. To describe the general pattern in which institutions are built Searle uses
the formula: X counts as Y in C. In a simple case, X will be a physical object, say, a
piece of wood and a piece of metal stuck together. It is assigned a function Y by an
agent to serve as a hammer. The assignment of a function has a normative dimension:
It implies rules of how to use X so that it can count as Y. The assignment can be just an
individual affair, or it can be performed by the members of a group in a social context C.
If the function is assigned collectively it will imply shared rules regarding behavior
towards the object. Rules can regulate a behavior that exists without the rule, like driving
an automobile. It can be done without a rule that you should drive on the right side of
the road. The interesting rules, Searle calls them “constitutive rules”, are those which
regulate a behavior that would not exist without the rules. A football game is an
example: without rules stating the objective and the legitimate moves of football, the
game would not exist. If all players stick to the rules and play, they create the game as a
social fact. The interesting property of such social facts is that they are dependent on
agents who must behave so that they confirm them as facts. The objectivity of social
facts rests on such a circular structure. They are generated by actions while at the same
time they constrain, channel and regulate actions. How do these general ideas apply to
money?
* Objects serve as money only if agents attribute to them one or more functions.
Functions in general are observer-dependent. One can only say that something has a
function if one also refers to observing agents. To attribute a function involves a
reference to norms. Norms allow us to answer questions like: Has the function been
performed? For example: Has a contract been fulfilled?) Such norms (implicitly or
explicitly) serve to determine the states of systems with respect to which functions are
distinguished and counted as fulfilled or not fulfilled.
* Money only appears in a frame of reference in which several agents share
convictions, intentions, and needs. These interacting agents must be convinced that
certain pieces of metal or paper are money; otherwise these objects cannot function as
money. That agents share this conviction is a necessary, but not a sufficient condition
for an object to function as money.
* Money only exists if the agents using money follow rules. These rules do not govern
a type of behavior that would exist without the use of money (something often assumed
when money is derived in a barter setting). Rather, the rules of using money are
constitutive of money. The rules have the form: "X counts as Y in context C". (Or: This
piece of paper counts as a means of payment in transaction T between A i and Aj in
Euroland)
* Rules supporting social facts can be understood like the rules of a game.
Interrelated actions governed by rules form systems. Specific action systems (like a
stock exchange or a basketball game) can be distinguished from their environment by
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patterns of rule-governed behavior. They can be understood only by understanding
these rules, not just by observing them as sequences of physical events. Participants
must broadly follow these rules; otherwise the game does not take place. Rules define
rights and obligations, desirable or acceptable moves in the game. That participants
have to be able to act according to the relevant rules does not imply - as would be the
case in a game of chess - that they are capable to state these rules explicitly. Rather,
they can follow rules without that capability – as speakers obey the rules of grammar.
Rule violations are sanctioned in various ways. Elaborate rule systems feature
mechanisms and institutions that help settle disputes about the rules and their meaning.
* Originally, objects - like pieces of precious metal - were selected to serve as money
because they had physical properties convenient for the function(s) they served.
However, in contrast to social objects like tools, say a hammer, whose functioning
depends on a set of physical properties, learning by doing revealed that the functions of
money can be performed by using a whole range of physical objects5. Thus, the objects
originally serving as money can be replaced, as when paper replaces gold or silver,
since it is not the nature of the objects but conformity to the rules of the money game
which makes money possible. To play the game, the objects serving as money must be
distinguishable from non-money objects. Their repeated use supports expectations
about their continued use. They may then also have a signaling function—or serve as
“status indicators”-- indicating what game is being played.
* Due to frequent repetition of the game, the collective attribution of a function to an
object can become completely independent of the object's specific properties as a thing.
However, this is not to say that the functions of money can be performed without a
carrier object6. A spoken sentence can be a promise and the promise may oblige one
agent to perform a service for another agent in the future, but the structure of claim and
fulfillment alone does not turn a promise into money. If the promise is written on a piece
of paper: ”I owe you...” and can be used by the recipient to settle a debt he has with a
third agent, the piece of paper circulating in this way can be considered as a
rudimentary form of credit money. The collective attribution has the simple form of "X
counts as Y" (this piece of paper counts as money), but a more elaborate form is hiding
behind it: "This object (piece of paper with a written and signed statement) counts as
something which has this status (IOU) and, therefore, this function, namely to serve as
Y (money) in context C". Until a sentence like: "This note is legal tender in State S" is
elaborately printed on a piece of paper and all agents play their game as if this were the
case and confirm their practice by continuously performing it, a lot of social construction
must have taken place. Once established, however, the game rests in itself,
notwithstanding its occasional manifest vulnerability, because it is advantageous for
each participant to use money as long as the others are using it, too.
The main risks involved in the use of money are forgery and inflation. Most users of
money want to protect themselves against these risks and this becomes a major motive
driving technical and institutional innovations.
5
Cf. Lester (1939: 10ff.) for an account of all the useful things which served as money, from axes to
beaver skins, and their eventual replacement by small replicas.
6 However, cashless transactions imply what Searle (2005: 19f) calls a „free-standing Y term“: instead of
money objects changing hands there are only numbers in accounts that change. The physical X that
counts as Y has been replaced by elaborate electronic bookkeeping devices. There is a question,
however, to what extent the advantages of cash transactions (anonymity, finalization of transactions on the
spot) will limit the use of „electronic“ money.
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* When we say "money", the word is a summary expression for objects serving as
means of exchange, stores of value, means of payment, measures of value, etc. Thus,
the word "money" refers to a family of functions – sometimes performed by different,
sometimes by the same objects. In this sense, the word „money“ marks the node in a
whole network of practices, the practices of owning, buying, selling, earning, paying for
services, paying off debts, etc." (Searle 1995: 52) “Money is a network phenomenon.”
(Shubik I:142)
* To repeat, a physical object becomes money only if agents treat it as money. But
not all agents are equal. Under modern conditions, a central bank will be an agent that
encourages other agents to treat a specific object as money. It turns an object into legal
tender by declaring it to be legal tender. Insofar as the agents accept this declaration
and play their game by using this (and not some other) object as money, it will function
as legal tender. Its continued acceptance will depend on whether the central bank itself
conforms to certain rules.
* The rules of the money game are iterative. They rest on other social rules and on
themselves, according to ever more elaborate patterns like: Agent A utters noises.
These noises count as sentences for other agents. These sentences may count as
promises. In a certain type of situation, promises may count as contracts. Contracts
count as grounds for rights. Rights may count as claims to benefits. Handing over
whatever counts as money counts as the fulfillment of obligations. Iteration has the form
of coupling “X1 counts as Y1 in S” to “(Y1=)X2 counts as Y2 in S”, to (Y2=)X3 counts as Y3,
etc.
Systems of rules composed in such ways make possible elaborate structures of
interdependent actions. Not only does one have and use money, but also one has a
bank account with bank B into which firm F pays a salary, from which rent, electricity
and insurance bills are paid. Resources changing hands and places, their storage,
consumption, recycling, all these practices are initiated or accompanied by transactions
involving the movement of money. Given modern technology, these movements of
money do not have to have a physical reality beyond patterned changes of data in
computers.
* Thus, money as a social fact is based on an elaborate set of rules. They have
developed in a trial-and-error fashion. A central feature of money, shared by all social
facts, is that its functioning depends on agents´ attitudes towards it. Searle (1995: 23f.)
describes these attitudes as "collective intentionality": I am doing something only as a
part of what we are doing. The same holds for you. Any one of us can use an object as
money only if all of us do so. Social facts are based on collective intentionality in this
way.7
Invoking collective intentionality appears to be Searle´s way of avoiding the paradox emerging when all
individual agents want to choose their actions depending on what the other individual agents do. For that,
everybody would have to know the moves of the others, but nobody can know them because everybody is
waiting for the others to move. The paradox is avoided in game-theoretical modeling by postulating that
agents have a sense for equilibrium: "if a mode of behavior is self-evident, and each player believes it is
self-evident to all the players, it is self-evident that it is self-evident, and so on, then each of the players
must be choosing a best response to what the others are evidently doing. That is, it must be a Nash
equilibrium." (Kreps 1990: 31) To postulate collective intentionality instead of demonstrating how it can
result from individual intentionality is most likely the part of Searle´s argument least acceptable for
economists immersed in the tradition of methodological individualism. See the discussion in Koepsell/Moss
2003.
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Collective intentionality, however it may come into being, rests on a mutual
recognition of agents as parts of a collective. Such mutual recognition has to be
communicated in some way. The more elaborate the objective of collective
intentionality, the more elaborate is the communication required to support it. A common
language makes such communication possible. Therefore, the use of money as a social
artifact is unthinkable without language as medium of communication (Longhi 1982).
An implication of agents recognizing each other as part of a collective and using a
common language is that agents can develop a reflexive attitude towards each other:
Each acts and performs according to socially defined, shared rules not only with the
knowledge that the others do so, too, but also with the knowledge that one observes
and is observed by the others in doing so. This knowledge may lie at the roots of
collective intentionality. Instead of assuming that mutual reasoning of the type ”I expect
that you expect that I expect...“ can structure interactions, we have the form ”We do A
according to rule R“ (where it remains unclear, however, why an agent follows a rule:
Simply, because he or she is part of the „We“, or because following the rule is a
condition for becoming part of the „We“, etc.?). For example, when accepting pieces of
paper in return for work performed, an agent acts in the knowledge that (anonymous!)
others who are parts of the „We“ will also accept these pieces of paper as a means of
payment.
Symbols
In their dependence on recognition by the very agents who create them, social facts
involve circularity. Even if we concede that such circularity is a general characteristic of
social facts, however, it is difficult to understand how collective assignments of status of
the type ”X counts as Y in C” are accomplished. If everybody concerned agrees that „X
counts as Y in C“, does that turn X into a symbol of Y? And does this mean, as the
standard traditional formula (aliquid stat pro aliquo) for a „symbol“ says, that there is a
relation of representation between the symbol and some „real“ thing, so that money
„stands for“ goods?
Luhmann suggests a different notion of „symbol“: ”Symbols are not at all signs.
Money, too, is not a sign for something else, like an intrinsic value” (Luhmann 1994:
257). ”Symbols are forms of meaning (Sinnformen) which make possible the unity of the
different. They are this unity, their outer form is the presentation of this unity, but not a
sign for something else.” (ibid.) While it may make sense to reject the notion that
symbols are necessarily ”a sign for something else”, Luhmann´s argument is not
convincing: What does "presentation of the unity of the different" with the help of an
“outer form” mean? Considering the history of money, the objects serving as money
have indeed evolved in the direction of a replacement of goods by models of those
goods: ”In time... the knives, hoes, axes, and fishhooks (serving as money, H.G.) were
gradually decreased in size - the blade and most of the handle disappearing from the
knife (...) and the sharp point from the fishhook - until only miniature models or tokens of
these instruments were used as money.” (Lester 1939: 10). In the history of modern
money, this early, well-documented development from the use of things to the use of
signs of things is intertwined, however, with another one, namely the use of (written)
promises to pay as means of payment, the replacement of ”real“ money by credit
money. In this context money objects no longer "stand for" other objects belonging to
the world of "crude facts". Rather, if anything, money objects “represent” patterns of
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communication and social relations. Perhaps it is more appropriate to think of a different
role for money objects than that of representation.
As Henry Thornton (1802: 76) observed: "commercial credit is the foundation of
paper credit; paper serving to express that confidence which is in the mind, and to
reduce to writing those engagements to pay, which might otherwise be merely verbal."
The evolution of credit money, of written promises to pay that, in turn, serve as means
of payment, can tell us why the traditional notion of symbols is insufficient for
understanding money. The objects serving as credit money do not "stand for" useful
things, goods or services. If they "stand for" anything at all, they stand for promises and
that capacity in turn depends on the confidence that promises will be fulfilled. Is it
possible to describe the role of symbols in economic interactions more in line with this
mode of functioning of money?
A starting point for developing a notion of symbols different from the traditional
assumption of a relation of representation between the symbol and the object
symbolized can be found in Wittgenstein. Discussing the role of signs in mathematics,
Wittgenstein appears to follow Frege in his argument against the formalist view that
arithmetic is a mere play with signs. However, Wittgenstein has one reservation: "For
Frege, there is the alternative: Either a sign has meaning, that is, it represents an
object... or it is only the shape drawn on paper with ink. But this alternative is not
correct. There is, as the game of chess shows, a third possibility: The pawn in chess
neither has meaning in the sense of representing something, of being a sign of
something, nor is it just the piece carved out of wood. What the pawn is, is determined
by the rules of chess." (Wittgenstein 1984: 150)
Can we transport Wittgenstein's idea into the theory of money? For example by
saying: The ten dollar bill neither has meaning in the sense of representing economic
resources, of being a sign of value, nor is it a mere piece of paper elaborately imprinted.
What the bill is, is determined by the rules of...? What game is being played?
Economists and sociologists
Much of traditional economic theory assumed that the game being played was that of
the exchange of goods and services, where the difficulties of playing it in the primitive
form of barter were overcome by introducing money: First, by using, as Menger
proposed, the most frequently exchanged good as a means of indirect exchange; later
on, as more elaborate ways of playing the game were discovered, by the emergence of
new functions of the money object, as means of payment, measure of value, store of
value, standard of prices, means of accounting, etc. Along the way, money also
changed its form, from more or less ”full value“ coins to paper notes. Thus, we can only
find out what a banknote is if we know what variant of the game of buying and selling is
being played by the agents we observe handling banknotes. To know and recognize a
game, we have to learn its rules. When we observe (or participate in) the game of
buying and selling, we learn that players are following some routines in which they give
up the possession of goods - or perform a service – in return for gaining the possession
of money objects and vice versa. The objects serving as money come with numbers on
them and, evidently, the higher the numbers, the more significant they are for the
players, the more considerable are the efforts to gain their possession. Since - in a
world of physical objects and observable behavior, without ascribing intentions and
meaning – it remains inexplicable why a mere difference in the numbers printed on
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pieces of paper should induce considerable differences in activities and possessions,
we have to refer to the world of meaning and of symbols to explain such differences.
Economists, with their standard frame of reference, a world of subjective individual
preferences and useful objects, do not have a theory to access this world of symbols.
Sociologists who see money as a “symbolically generalized medium of
communication” start from the premise that the game being played is some variant of
communication. In general, communication is about making others understand your
intentions. While extra verbal communication still plays a big role and is - as dogs
wagging tails know - the primordial way to communicate, the normal human game
involves the use of language. The signs used are words, sentences, and languages.
The puzzle is how (and to what extent) the use of linguistic signs enables agents to
understand each other.
To position the analysis of money in such a linguistic framework8 rests on the
presumption that once we know how communication via language works, we have a
promising starting point, to say the least, for understanding communication through
money. But how does the economists´ observation that the game of money is about
changes of possession and physical use fit into the sociologists´ world of pure
communication?
As sociologists emphasize, it is obviously important to know how successful
communication works, but it is equally obvious, as economists´ imply, that successful
communication using language is only one precondition for coordinating economic
actions. Buying and selling involve the physical manipulation of goods and money
objects. Changes of possession are not merely changes of ownership titles, but are
normally associated with extra-linguistic purposes, for example, of production or
consumption. Thus, economic actions reach beyond the sphere of pure communication.
That is why purely linguistic communicative means may not be sufficient to induce the
type of action coordination achieved in economic exchange.
We can learn from this contrast
a) that starting from communication as such, the sociological approach to explaining
the use of money is more abstract and general but nonetheless important: We cannot
hope to understand the game of money if we neglect its communicative aspects;
b) that, as economists stress, this game is about coordinating actions that normally
reach beyond speech communication. Economic actions are driven by extra lingual
intentions. They imply gaining possession of - frequently material - resources that can
be used for production and consumption. Physical manipulation is involved, where the
giving and taking of money from one agent to another is one move in a whole complex
process that must be understood to understand the money move.
It follows that an appropriate analysis of money must include two steps: First, we
have to understand in general how communication involving the use of signs, symbols,
and language works. How is the trinity of information, message and understanding,
which - according to Luhmann - characterizes communication, constructed and
reproduced? How are communicative units linked together? Communication enables
agents to understand each other. But understanding may result in either rejection or
acceptance of a communicative offer. Acceptance normally is the precondition for
solving coordination problems. If I make what I do dependent on what you tell me, or
According to Parsons (1967: 345f.) money is ”essentially a ´symbolic´ phenomenon and hence ... its
analysis required a frame of reference closer to that of linguistics than of technology”.
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even more positively, if I accept the information contained in your message as a
premise of my action, we have communicated successfully. Once the general conditions
of successful communication are clarified, we can take the second step: How does the
money game differ from coordination via speech communication, what are its excess
properties, how do they reach beyond the realm of communication?
Signs
What allows us to understand each other when we use signs, words, and language?
Do we rely on a kind of shared knowledge of correspondences between thoughts,
sentences and reality? How is this knowledge supported or anchored in the physical
world? Wittgenstein argued that ”the correspondences which allow linguistic
understanding and presentation are no longer materially supported by forms which are
shared by the presentation and the object presented. Rather, correspondence may rest
solely on the recurrent, rule-governed use of signs. This use in turn may originally have
been supported by natural repetitive patterns and propensities to act and react.” (Lange
1992: 101) But once such support has faded away, what remains is the regular use of
signs whose outer form does not have to have any inherent relation to their meaning.
This implies that ”concerning their meaning the use of signs cannot be causally
explained, but only described in a grammar ... tabulating rules“ (ibid.).
If we cannot rely on the idea that the meaning of signs necessarily rests on a
correspondence between their ”Gestalt“ and the nature of the signified, how do signs
work in processes of communication? Apart from the requisite abilities of the agents to
use and interpret signs, the objects serving as signs must have at least three properties
(Hutter 1995: 337):
1. A sign used must be recognizable in an environment of other signs.
2. The use of the sign must be repeated, so that a regularity of recognition and
expectations of future use become possible.
3. A sign not only signals its own meaning, but simultaneously also signals which
game is being played.
For the theory of money, this implies that we can leave behind traditional propositions
concerning the ”value“ of money which were to explain its functioning by singling out a
property shared by the money object and whatever it bought or measured or signified. A
material correspondence between money objects and commodities, the things dealt with
in monetary transactions, may to some extent have existed historically when commodity
money was used. But such a correspondence is not a necessary condition for the
functioning of money9. For that, all that is required is an agreement among the agents
engaged in buying and selling of the type: „X counts as Y in C“. In order to accomplish
and confirm such an agreement agents have to act accordingly. The use of whatever
object functions as money is both an expression of the agreement and an essential
element of the communication process leading to action coordination.
To understand the use of signs and to see the money game as a specific instance of
the use of signs allows us to free the analysis of money from a first layer of the
traditional confusions surrounding the ”money puzzle“ in Menger´s sense. The puzzle
arises from the contrast between the money object, its properties, and the (assumed)
rationality of agents. They exchange objects of value against valueless money. Why
9
This does not rule out the likelihood that some objects will be more suitable to serve as money than
others.
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accept it, why hold it, why use it at all? For sociologists and philosophers emphasizing
the communicative aspect of money use, such puzzles sound as if one questioned the
rationality of using the word ”dog“ for the animals we call dogs. There is no rationality to
be found behind the selection of signs except that they should be understandable. One
might even add: the less intrinsic importance the object serving as a sign has, the less
likely it is that communication is distorted by extraneous interests directed to the objects
as such. Understanding has more to do with repeated, regular use in typical situations
than with the nature of the object serving as the sign.
Conventions
In that sense, language as the ordered use of lingual signs is strictly conventional, if
we understand conventions as answers to coordination problems (Lewis 1969). The
selection of a money object can serve as an example: "Suppose we are tradesmen. It
matters little to any of us what commodities he takes in exchange for goods (other than
commodities he himself can use). But if he takes what others refuse he is stuck with
something useless, and if he refuses what others take he needlessly inconveniences his
customers and himself. Each must choose what he will take according to his
expectations about what he can spend - that is, about what the others will take: gold and
silver if he can spend gold and silver, U.S. notes if he can spend U.S. notes, Canadian
pennies if he can spend Canadian pennies... whatever may come along if he can spend
whatever may come along, nothing if he can spend nothing." (Lewis 1969: 7) The
coordination problem involved is that the trading of each works best when everybody in
the same trading network supports an initially arbitrary individual selection of a means of
exchange by simultaneously making the same selection. Obviously, this is difficult to
achieve even if agents can already rely on a common language (which is itself
conventional).
Following Lewis, the general pattern of the emergence of a convention can be
described plausibly starting from the assumption that several agents gain some
advantage by solving a shared coordination problem. An accidental solution forms a
precedence; the action pattern is repeated in similar situations or applied to other, in
some way analogous situations. The experience of successful coordination stabilizes
and extends the solution. ”We acquire a certain belief, unrestricted as to time, that
members of a certain population conform to a certain regularity in a certain kind of
recurring coordination problem for the sake of coordination.“ The belief that a pattern is
stable turns out to be self-confirming: ”Each new action in conformity to the regularity
adds to our experience of general conformity... And our expectation of future conformity
is a reason to go on conforming, since to conform if others do is to achieve a
coordination equilibrium and to satisfy one's own preferences... Once the process gets
started, we have a metastable self-perpetuating system of preferences, expectations,
and actions capable of persisting indefinitely.” (Lewis 1969: 41f.) A convention can thus
lead to a coordination equilibrium. Given an established convention with equilibrium
properties, it is easy to see why everybody confirms to it. With respect to money, this
means: "Once there is a rule that transactions should proceed via money, it is not
advantageous to deviate from this rule" (Hahn 1982: 21).
Thus, the interesting question is not why a convention is upheld, but how a
convention or rule becomes established. It does not have to be initiated by an explicit
contract or mutual promises. Hume gives the example of two men rowing a boat
together. If they find a common rhythm, the boat will move forward smoothly, if they
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don't, they will waste energy and the boat will move slowly and erratically. Therefore,
each man attempts to adapt his rowing in strength and rhythm to that of the other. This
can go wrong. The experience of the negative effects of failed coordination may
stimulate the emergence of a rule about who is to adapt to whom. Failed coordination
nurtures a ”general sense of common interest... which induces them to regulate their
conduct by certain rules.“ (Hume 1992: 490)
Hume's rowing example shows that not even language is required to establish rules.
Rules can regulate behavior without being explicitly stated. Nonetheless, it seems safe
to say that solving coordination problems through conventions is all the easier, the more
communication about ”the common interest“ and the ways to pursue it is possible.
Language and money as media
How media work can be understood in this context of communication and convention.
In general, a medium is a means for agents to contact other agents. Its emergence
presupposes more than one agent.10 In this general sense, both language and money
are media. Although their use is conventional, regulated by rules, they may be used
creatively. One can do all sorts of things with them. Language can be used to describe,
to command, to persuade, to sing, to ask, etc. By using the medium of language, the
user brings his intentions into contact with other users of language and with nonlanguage reality, often pursuing intentions beyond the realm of speech. An adequate
mediation is accomplished, communication is successful, if the addressee understands
which mode of communication is intended, what the message is and if he signals
readiness to continue communication. Then, a game may emerge.
Money as a medium can be described in a parallel fashion. By using money, the
intentions of agents - aiming for economic gain in a social context characterized by
specific economic institutions like a division of labor and private property - are brought
into contact with each other. That money is used signals the general type of transaction
intended, but the particular function of money may be selected according to context. As
in language, there is no closed list of the uses of money, but rather room for creativity.
New functions of money may emerge.
However, there is a clear difference between language and money in terms of
universality: While language can be used to explain the use of language - even if such
explanations may be difficult and involve circularity -, money cannot be used to explain
the use of money. Although a popular saying has it that ”money talks“, we have to rely
on the ordered use of language to explain money. Thus, language is a universal
medium, money is not. In this sense, Habermas and Luhmann are right when they refer
to money as a ”special language“. Language can exist without money, but money
cannot exist without language: In terms of hierarchies of rules, conventions, media, the
use of money rests on rather elaborate patterns of functional ascriptions – of the type „X
counts as Y in C“ - which presuppose the use of language. Money thus cannot replace
speech but can be used as a substitute or a complement to language in many
situations. For any modern tourist, it is an everyday experience that a wish to purchase which cannot be communicated with words or sentences because one does not speak
the local language - can be expressed by displaying the amount of money one is ready
to pay and by making the appropriate extra-verbal gestures. Evidently, this way of
But as in a spiritualist séance, the medium itself may be an agent and the agent with whom contact is to
be established may be non-existent.
10
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substituting money as a medium for language is promising only in contexts in which
buying and selling are the expected activities. Such contexts may expand, but it is
unlikely that they will comprise the entire social world. Therefore, Habermas´assumption
that there are limits to the money-induced colonialization of the life-world is justified.
However, with his idea that the use of money is restricted to a "well delimited class of
standard situations" (Habermas 1981: 395) he underestimates the creativity of money
users. Innovative uses for money are discovered all the time. This is why we can count
on morally inspired complaints about universal venality to continue, although they are as
old as the use of money itself.
That both language and money involve the use of signs and rest on conventions, that
both serve purposes of communication and are in this sense media and that language is
the more universal one raises the question: Why do agents use/need the more
restricted medium of money if they have available the universal medium of language? In
other words: What is the communicative surplus to be gained by using money instead of
language?
As noted above language can be used for various purposes, to express all sorts of
intentions: to beg, to command, to convince, to describe, to explain, etc. The plausible
core of the sociological concept of communicative media comes into sight when we ask:
Under which conditions is a communicative effort of agent A successful in the sense of
moving agent B to respond in the way intended by A? Or, more technically, if
communication consists of information, message and understanding, how can A induce
B to accept the information A gives as a premise of B´s subsequent action?
Symbolically generalized media of communication are introduced to answer this
question. The concept rests on the observation that there are social constellations in
which the use of language pure and simple is not sufficient to convince B to act
according to A´s intentions. In other words, A´s statement: ”I want you to do this“, may
not be sufficient to make B do what A wants, whereas it may be sufficient for A to say: ”I
want you to do this because what I am saying is true”, or ”... because I love you“, or ”...
because this is the way things have always been done”, or ”... because this is the legal
thing to do“, or ”... because if you do not I can force you”, or ”... because I will give you
seven Euros if you do“. Media of communication are answers to coordination problems
that arise when the simple sharing of information and the wish for cooperation are
insufficient to achieve coordination. As Mandeville (1924: 421) observed: ”To expect,
that others should serve us for nothing, is unreasonable”. What then can replace
”nothing“ and make others serve us? The sociological answer is: Truth, love, tradition,
law, power, money..., all symbolically generalized media of communication (at least, in
Luhmann´s loose use of the concept) that an agent can refer to and mobilize. The
underlying reasonable idea is that coordination problems can be solved in many ways,
not just, as Mandeville, Smith and economists after them had in mind as the basic case,
by ”the bartering of one thing for another“ (ibid.).
But, admitted that media of communication have in common that they help solve
coordination problems, what is it that makes money different from the other media?
What makes money different?
The easy but, as it turned out, insufficient answer to this question was to follow the
lead of Mandeville and Smith and go back to barter: ”Give me that which I want, and you
shall have this which you want” (Smith 1976: 26). I can convince you to do what I want namely, cede possession of a good - by offering you a good in exchange. The
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coordination problem is resolved by mutually appealing to interests and establishing the
symmetry of do ut des. But, given money, one has to explain the apparent move away
from such symmetry. Money is introduced as a (convenient) substitute for the second
good in a barter transaction. To maintain the symmetry, early economic theories held
that the ”value“ of the money object should be the same as the value of the good bought
with it. But, if it ever existed, this symmetry is destroyed when commodity money is
replaced by tokens or paper. Ever since it had to be admitted that whatever serves as
money is or can be intrinsically valueless, the symmetry could be preserved
conceptually only by proposing that money is an effective ”symbol“ of such value, relying
on the traditional notion of a symbol as something ”standing for” something else.
However, such moves led straightly to Menger´s puzzle: Why would rational agents
accept a representative of the real thing if they can have the real thing?
We have seen that most sociologists see money solely as a language-like medium of
communication. In this framework, the answer to Menger´s puzzle looks easy. All we
need is a plausible analogy, for example by asking: Why would rational agents use the
word "dog" if they can point at or manipulate a real dog? 11 There are many reasonable
answers to this question, but the decisive one that completes the analogy would not be
reasonable. We do not exchange the word "dog" for some real thing, say, a cat. Would
you give me your cat if I gave you my word "dog"? No? What is wrong with the proposed
transaction? Certainly, one thing that is wrong is the contention that words as symbols
can be appropriated: There is no such thing as "my" word ´dog´.
In other words, language is a public good. Although one might argue that a monetary
system is a public good, the money objects that are used to play the money game are
certainly not public goods. Their usefulness depends on limited access and the struggle
for money income implies rivalry of use. Whatever money I have, you do not have.
Monetary transactions imply a local constant sum condition. You lose what I gain and
vice versa. In other words, if money were like language, money objects could not serve
as quid pro quo in economic transactions. This implies that the analogy between money
and language holds only as long as we limit our field of analysis strictly to
communication12. Once we admit that the use of money, buying, selling, etc., involves
more than communication, we also have to admit that the sociological reduction of
monetary practices to communication neglects the non-communicative aspects of these
practices. One leg of monetary transactions, of buying and selling, - normally13 involves goods or services. The presence, manipulation, disposition of things in a
physical sense are essential ingredients of the money game. It is not only about the
transfer of ownership titles.
One project in Swift´s grand Academy of Lagado tells us why it may be easier to use symbols even if
one can have the real things. The project was to avoid the diminuition of our lungs which was supposed to
happen when we speak. ”An expedient was therefore offered, that since words are only names for things,
it would be more convenient for all men to carry about them such things as were necessary to express the
particular business they are to discourse on”. The project failed because ”the women in conjunction with
the vulgar and illiterate...threatened to raise a rebellion... However, many of the most learned and wise
here adhere to the new scheme of expressing themselves by things, which hath only this inconvenience
attending it, that if a man´s business be very great, and of various kinds, he must be obliged in proportion
to carry a greater bundle of things upon his back” (Swift 1973: 230).
12 That is why money in its function as a unit of account (or a measure of value) can be considered as a
public good.
13 One can also buy money with money, or ownership titles and all sorts of similar paper, etc.
11
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However, despite this neglect of the physical dimensions of the money game, the
sociological perspective lets us understand that whatever is given in exchange for the
objects bought, be it coins, bank notes, cheques or deductions from my account and
additions to your account, must neither have ”value“ nor ”stand for“ real resources.
Rather, these money objects are symbols like pieces in a game we play. They have no
intrinsic significance outside the game.
Within the game, money objects apparently derive their significance from the
background conviction of players that access to them is governed by the rules of do ut
des and that therefore the amount of effort or sacrifice necessary to gain their
possession is roughly equal14 for people in the same economic position. This does not
preclude that some are luckier than others15 or that beyond some threshold the
acquisition of money may be governed by increasing returns16. The point is simply that
for the game to be played access to money must be governed by recognizable rules
that are binding for all participants. I will not play with you in the normal form if I am
believe that you have printed the banknotes you are offering me in your basement. You
are not supposed to have command over arbitrary quantities of the stuff.
This functionally required, firmly institutionalized difficulty of access to money is the
social background for the semantics of scarcity that govern the ways in which we speak
about economic issues in general. Luhmann -- in line with neoclassical economics -has argued that scarcity is the general reference problem of the economic system.
Money then functions as a duplicator of scarcity: The scarcity of economic resources is
mirrored by the scarcity of money. That money has to be kept scarce appears to be
justified by the experience of hyper-inflation and its devastating effects, the economic
and political disruptions resulting from an excessive issue of money. However, except
by pointing to such extreme experience, it has never been clear when and why money
should be "scarce", for example, in terms of a relation of its own quantity to some
collection of un-priced goods. Rather, the common sense association of money and
scarcity stems from the difficulties of acquiring and keeping money along with the
permanent need for it as the key to participating in the economic life of modern society.
The access to money is supposed to be conditional on performing services or offering
useful objects as the quid pro quo. Individual activities can thus be firmly tied into the
continuous reproductive circular flow of the economy once the acquisition of money has
become a general, ubiquitous goal. This ubiquitous need for money is continuously
renewed because of one peculiar property of money that distinguishes it from other
media of communication, namely, the rule that any batch of money can be spent only
once by its owner. This peculiar property of money is captured in the saying: ”When
money talks, it says good by”. Once you use it, you lose it, but you will need it again.
The one-use-only rule, that a batch of money can be spent only once by its owner,
explains why the money game in its serious form is usually played using tangible,
material things as money objects. While one can repeat a promise, verbal or written,
many times, the requirement to hand over money objects in exchange for some good or
14
In classical liberal theories, competition is supposed to ensure such an equal difficulty of access to
money. That every money user can roughly calculate the effort or sacrifice required to gain a unit of money
may be the ultimate foundation for the second major difference between language and money: the fact that
money has a built-in metric. To discuss the conditions of possibility for the metric of money is beyond the
scope of this paper.
15 You can find a treasure or win in a lottery.
16 The more you have, the easier it is to get more.
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service depletes the ability of the buyer to repeat such transactions. Although the money
game is not strictly a zero-sum game, normally the total available amount of money
objects is tightly controlled. Such control is easy if hard to forge material objects,
however paper-thin, are used as money. This is a simple solution to the problem of
ensuring that the game is played according to the one-use-only rule, which in turn
ensures that the need for money is reproduced continuously. The money game thus
turns out to be a social disciplining device. It imposes enormous and continuous
pressure on participants to renew their purchasing power. In non-monetary economies,
such far reaching discipline usually could be imposed only from above in hierarchical
arrangements relying on the use or the threat of force.
Conclusion
To conclude let us look back at the problems associated with the theory of money as
a symbolic medium. While the analogy of language and money, the idea that money is a
"special language" is misleading in picturing money merely as a harmless, beneficial
social device, it is nonetheless useful to place money in a context of communication, as
a medium of action coordination and – in this way – as an analogue to language. Given
such a context, it has to be born in mind to what extent money as a means of
communication is, on the one hand, less than language, namely less universal and less
informative in its reduction of qualities to quantities, and, on the other hand, more than
language, namely by inducing agents to mobilize additional action and coordinating
capacities through indirect promises of utility or purely monetary gain. Compared to
language the use of money as a symbolic medium provides extra action coordination
potential. At least part of this coordination surplus is possible because – in contrast to
language and other media of communication – money objects are things that can be
physically manipulated in terms of ex- and appropriation. This property is closely
associated with the role money plays in relations of domination and subordination.
Money can be a functional equivalent of coercive power because the threat of being
without money has the same effect as the threat of force. It establishes and maintains
relations of command and submission. Thus, one significant use of money to coordinate
actions has the same results as action coordination through coercion. Whereas normal
transactions to buy and sell are based on voluntary contracts between legally equal
partners – without domination of one person over another -, this civilized aspect of
money use fades into the background once labor contracts lead to work under the
command of others. Work in capitalist enterprises is organized in hierarchies consisting
of relations of command and submission. However, submission is not induced through
the – mostly latent – threat of force as in traditional societies but rather through the
threat of exclusion from the money game (Bowles/Gintis 1990). Since economic
reproduction of individuals and households is dependent on participation in the money
game, the threat of exclusion is an effective, far reaching means to impose discipline
throughout the economy.
The objects serving as money signal which game is being played. If, as symbolic
objects, they ”stand for” anything, they stand for the rules of buying and selling and
property. If you have bought this house by handing over the required amount of money
to its former owner, I cannot (legally) use it, at least, not without your consent. If I have
used a wage promise to buy the right to direct your labor power, you have to do what I
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want. 17 In this sense, money signals economic power, the power to control access to
resources, to appropriate whatever is alienable. But the use of money is not restricted to
buying and selling. It can be won in a lottery, lost by accident, borrowed, lent, wasted,
saved, inherited, stolen, washed, burnt... There is a seemingly endless stream of
innovations associated with the use of money.
Despite possibilities of innovation, most uses of money are governed by firm
conventions. They are sustained by a common interest of the agents involved, namely,
the interest to control or influence one another's attitudes and actions. That can be
accomplished by bids with and offers of money.
17.Of
course, this only holds within the limits of the labor contract, limits which can only partially be defined
by law and remain subject to conflict (Marsden 1999)
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