Dear all,

Before I can really talk about debt, which will lead us to bonds, I wanted to spend a little time thinking about one of the very strange properties of money - that you can use it to buy itself, and what you buy may not have the same value as what you give away.

A key property of money is that it is fungible. The money you use to buy and sell things is interchangeable with the money you use as savings, the money you take as debt, and the money you are paid for your labour. This is a necessary property of money. If money can’t be substituted for itself, it fails at the one thing it’s supposed to do - be exchanged for goods and services.

Imagine for a moment that we don’t understand what a loan is. Instead, pretend that what happens is that we go to someone with money, and say we would like some. We have no money with which to go about our daily lives. So we promise that in return for selling us this money for free, we will allow them to buy money from us for free later - and we’ll let them buy more than they sold to us in the first place. For how much more?

If all money is the same, then money tomorrow is the same as money today. Which means that changes in the value of money are not due to money itself. They are due to things occurring in the world. They are due to the passage of time. Look, I know that we all know what interest is. But what I’m actually pointing to is something else. It is that the fungibility of money allows us to do something that seems impossible. It lets us treat it like it is interchangeable with time. It lets us set the price of money, in terms of money.

A debt is a transaction that turns time into something we can value, so that when we sell back the money we bought, we can say that its value should have increased in the interim by an amount we can understand. An amount that is measurable in the same ways as the thing that’s being transacted in is.

Material things are generally not fungible. We live in a world of entropy. Many things are close substitutes for each other, and to a large extent that’s the best we can do. But human society needs something that is defined as fungible, so that we can start thinking about value in ways that are otherwise arcane and ineffable. So we invented money. Money, whether physical or digital, is a thing that lets us pretend that we can quantify things - and their value - in a way that we otherwise know we can’t.

The reason that the reality of money - its ontology - is so circular is that the logic of money is circular at its heart. Money is interchangeable with itself, which lets us price money in ways that imply it is not interchangeable with itself. It is this circularity that we must take for granted if we ever want to actually get on with the business of using it.

Something very weird happens when you start thinking of buying things as selling money instead. You start thinking of the price of money in terms of the things that are buying it. The market is full of purveyors of money, each of whom is willing to sell it for a variety of things. No one really says “I sold 10,000 rupees for this bag”. But this sentence is no less true than the one we are more used to hearing: “I bought this bag for ten thousand rupees”.

So when you take a loan of ten thousand rupees at 10 percent simple interest, the transaction can be thought of like this: “I sold twelve monthly payments of 1100 rupees to buy 10,000 rupees today”. To understand debt, we have to understand that this very silly sentence really is describing a transaction.

Next week, some thoughts about poetry and why formalism works for me even though I’d prefer to be cool and modern instead.

Cheers,

mvs