How to Abolish Money

“We should just abolish money and return to barter.” Such and similar phrases are sometimes heard in anarchist debate. It usually shows a basic misunderstanding of the nature of money. This essay tries to explain what it would really take to abolish money, and what would not be enough. Once this is understood, and some possible ways to have moneyless economies are known, it should be easier for everyone to decide on whether they really want to abolish money.

This essay won’t deal with the question on what effects money does have on economies, as Lietaer (2001) did quite a good job at describing this. Neither does it want to answer the question on whether money should be abolished. This question is quite old and well-debated. Mutualists like Proudhon, along with Lietaer, have been arguing that money itself is not as much a problem as the shape of our current monetary system. Whether going for mutual credit systems and similar very drastic changes in the monetary system would solve all the problems is way beyond the scope of this essay.

Also, this essay tries in no way to be any kind of criticism of capitalism, as money can exist without capitalism, and capitalism has many more problems than money.

To understand how we can abolish money, we first need to get to an agreement on what exactly we call money. With this agreement, we can try to understand why money exists. Only after we found the preconditions for its existence, we can hope to find a way to abolish it. After we understand this, I’ll apply it to economy and give a few examples on what a money-less economy could be like.

What is Money?

The term money is used with various meanings, ranging from physical coinage to wealth in general. Let’s look at what Webster, Wikipedia and Lietaer have to say on the issue.

Any written or stamped promise, certificate, or order, as a government note, a bank note, a certificate of deposit, etc., which is payable in standard coined money and is lawfully current in lieu of it; in a comprehensive sense, any currency usually and lawfully employed in buying and selling.

Webster 1913

Money is any good or token used by a society as a medium of exchange, store of value and unit of account

Wikipedia

Money is an agreement, within a community, to use something as a means of payment.

Lietaer 2001, p. 41

What these definitions have in common is:

• Money is not necessarily some kind of coinage.
• Money is used for exchange.
• Money is based on trust.

These points can be made more explicit by using the following definition:

In a trade situation, when I give something not for a commodity I want, but for a substitute, trusting that I can later exchange that substitute for a commodity I want, that substitute is called money.

Barter Means Money

Barter is the act of exchanging goods I have, but don’t need, for goods you have, that I need (and hopefully, you don’t). In this act, I try to match the subjective value of the goods I want to give with the goods I want to receive. Let’s look at an example.

Jane makes chairs. Since she makes them, she already has all the chairs she needs, but she made a few more, because she knows that John makes pants, and she really needs a few new ones, and John said one of his chairs broke recently. So Jane and John come together and debate on how many pants John would give her for a chair. After some haggling, they settle for two pants for one chair. They exchange the goods, both are happy.

Now Jane threw her old pants away because she had two new ones, and ripped one of the news ones while making another chair, so she wants another one. Sadly, John doesn’t need a chair anymore. But what he needs is some new cloth. So she goes over to Tim, the clothmaker, and trades a chair for some cloth. She goes over to John and trades the cloth for a pair of pants. That’s less than she got last time for the equivalent of a chair, but it’s ok, she only needs one right now.

So far, so good. Now one thing can happen, which is the emergence of a single commodity which most if not all people need. Grain or rice are typical examples. So Jane can exchange her chairs for grain all the time, knowing that, since everyone needs grain, she will later be able to exchange the grain for what she needs. But then, this is some kind of money according to our definition. To avoid the emergence of such a commodity, we would have to make sure most people were self-sufficient, and would only need to trade a few luxury goods. We’ll look at such a possibility later.

But there is more to money than this commodity to ease exchange. The subjective values we’ve been talking about earlier can be modified by other effects than just the personal priorities. Three premises have to be met for this: First, there is more than one provider for each commodity. Second, everyone is specialized so that they can only produce their kind of commodity. And third, everyone in the community exchanges their goods via trade for the other goods they need.

As soon as I can reliably exchange my chair for two pants and two pants for a cooking pot, I can say that a cooking pot is worth the same to me as the two pants—and probably can exchange the pot back for two pants. But when I find someone who would trade me a cooking pot for a single pair of pants, I could exchange a chair for two pots, and each pot for a chair, effectively doubling what I had before. This is insane, so the people would slowly adapt their idea of value of their goods so that such loops won’t be possible anymore, effectively creating the market value of an item. This is far from the original idea of settling for a value between you and me. (This is part of Marx’ Theory of Value, for those interested in further studying)

This market value puts every commodity on the market, where commodities are traded, in relation to each other. Due to this, any good can be used to measure the value of all other goods. Any commodity can now be used as a means of exchange for other goods, so any commodity could effectively be money. It is important to note that this money is not the market value itself, but only an expression of the market value. The idea to use trade as the basic means of distributing goods leads effectively to the creation of money.

Replacing Money

Now that we have found out a few factors which lead to the creation of money, we can try to come up with economy models that don’t lead to money. But before we can come up with economies, we have to think a bit about what economies do.

What is an Economic System Good For?

An economic system is a system according to which goods are distributed among the participants of the economy in a way that satisfies some kind of fairness criteria. This can be done via a few different ways.

The one used in the examples above is the free market, an economic system based on the idea of trade where people produce goods and exchange them in the market. The free market follows a basic principle as fairness criteria, namely from each according to his abilities, to each according to his deeds., the maxim of the mutualists.

Some people, namely communists, disagree that this maxim is fair, and would rather follow the original version of the adage above, from each according to his ability, to each according to his needs,. Kropotkin (1920, part IV. EQUAL WAGES versus COMMUNISM.) opposed the free market strongly, arguing that the needs of the people are far more important than their deeds.

We will now look at three possible economies that hopefully won’t lead to the emergence of money.

Self-Sufficiency

As we have seen above, trade as the basic interaction between people necessarily leads to the creation of money. The simplest way to have no trade between people is to have every person, or at least small groups of people, to be self-sufficient. Everything they need, they produce themselves.

Since the modern variety of goods is difficult to produce by a small number of people, this would necessarily lead to a society where much fewer goods are available. If we look back in history to a society where no money was used, we can go back quite far to stop seeing money—something around 75.000 B.P..

Primitivists often argue in favor of going back to such a society.

Gift Economies

An alternative to exchanging goods is of course to give them away for nothing. Using this as the basis of an economy might sound weird at first, but it has been done.

Participants in a gift economy give away their goods, expecting no direct reward for this. Though they do indeed expect to get back something of roughly equal value to them, they don’t expect to get back that value immediately, or in any specific amount of time. This prevents both the need for a commodity to help exchange as well as the creation of a market value.

It should be noted that gifts are given out by individuals based on their own ideas of what others have merited. This usually, but not necessarily, means that gifts beyond the basic necessities are given out to each according to his deeds. Making sure that all people are provided with the basic necessities is also not directly present in gift economies, though it can be argued that it’s easier to implement than in a market economy. Also, gift economies suffer both from Groupthink as well as the Tyranny of Small Decisions, so implementing such an economy should be combined with ways of preventing both.

Planned Economies

Markets are based on the idea of individuals producing goods and providing them on the market place. There, they will find out how much of their goods will be bought, and which prices they can get for them. Based on the price calculation, they adjust their production to the demand. Huge industries these days try to find out what the market wants. This is a built-in inefficiency in markets that is impossible to avoid here, because the market system fundamentally relies on it.

Once we stop thinking about individuals producing in their own accord, but about a society where people produce things according to what the society thinks is best, we get to planned economies. In a planned economy, the participants of the economy try to find out what is needed before it is produced, so they can avoid both over- and underproduction.

There are two extremes in which planning can be organized. One is centralized planning, the other is decentralized planning. When the term planned economy is used these days, it usually refers to the system of the former Soviet Union. I want to avoid a debate on what exactly the economy was like there, and would like to state simplified that they used central planning.

In centralized planned economies, something like central committee decides on what should be produced, which is then produced. This has the enormous advantage of being simple, but also the enormous disadvantage that anarchists always see with centralized organizations, namely that the central committee quickly loses contact to the other participants of the economy, effectively becoming a powerful entity which will then abuse this power. Consequently, anarchists would want to look at what decentralized planning looks like.

In a decentrally planned economy, groups of consumers and producers would sit together, debating on what is needed, what can be produced, and what kind of production best meets the needs of the consumers. A well-developed example of such an economy can be found with Parecon, the participatory economics (Albert 2004). It’s not the only possible way, and does have a few problems, but it gives quite a few good ideas.

Combinations

Of course, one does not have to settle for a single kind of economy and go with it all the way. It is possible for example to use a decentrally planned economy for the necessities of live, but use a gift economy for anything beyond that. Such combinations can be seen as a good possibility to combine the strengths of various economic systems.

Also, anarchism being what it is, there won’t be a single economy. Various economic systems will spring up, and be combined by mutual agreement. But anarchists who do not wish to introduce money should be wary that they don’t create another trade-based economy when combining various economies.

Bibliography

Albert 2004

Albert, Michael: Parecon: Life After Capitalism. Verso, 2004. Available online.

Kropotkin 1920

Kropotkin, Peter: Freedom Pamphlets No. 1: The Wage System. New Edition, 1920. Available online.

Lietaer 2001

Lietaer, Bernard: The Future of Money. Creating New Wealth, Work and a Wiser World. Century, 2001

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