Digital (Crypto) Money and Alternative Financial Circuits: Lead the attack to the heart of the State, sorry, of financial market – by Andrea Fumagalli

“Money in its significant attributes is, above all, a subtle device for linking the present to the future”[1]

 “That which is for me through the medium of money – that for which I can pay (i.e., which money can buy) – that am I myself, the possessor of the money. The extent  of the power of money is the extent of my power. Money’s properties are my – the possessor’s – properties and essential powers. (…). I am ugly, but I can buy for myself the most beautiful of the women. Therefore, I’m not ugly, for the effect of ugliness – its deterrent power – is nullified by money”[2]

1. Introduction: about the role and the form of money in our history[3].

Money is a human invention. Money does not grow on trees. Money shows us that the human being is a social animal. Money is social, it is, more in specific, a social relationship, which today is not equal, but that might become equal. Money is the demonstration of the existence of a community, because money is the result of a trust relationship. But  money is, above all, power: a decision-making power, the power of the strongest. In a capitalist society, money represents the unfair relationship inside the labour-capital ratio. It’s the expression of the capitalistic power[4]. That’s why money cannot be a common good (it is same for labour). It is, or rather could be, should be, an expression of the common in a different type of  society. But today more than ever, it is not. In the bio-cognitive and financialised capitalism, if there must be a struggle, it must necessarily be fighting for the money understood as a tool of the common. A fight for the common(e)ism.

Money has played different role in the history of mankind. In prehistoric societies is a medium of exchange and unit of value. Mean of payment to allow the social relationships dictated by the activity of exchange for survival: the need of the neg-otium ( the damnation of labour), as opposed to otium (the pleasure of creativity and human genius). And as such, unit of measure of the value of the commodities. At the same time, it is an expression of power at a time when such a measure is established on the basis of a social hierarchy . Who decides the “form” of money ? But, above all, yesterday and today, who decides the value of money?

The history of money is related to the history of human beings, we said. In ancient times, until the formation of national States in Europe in 1500, the most prevalent form of money is the money commodity. The value of money is contained in the body of the same coin. Its shape (weight) metal (i.e. physical, be it copper, bronze, silver or gold) indicates the value. It is an exchange between equivalent in value. A meter of cloth, say, with a value of 10 grams of gold is directly exchanged with a coin that contains 10 grams of gold. From this point of view, the exchange of money implies a rival and solvent exchange. 10 grams of that particular coin can only be used for that specific exchange, in a relationship “do ut des”: commodity (cloth) against commodity (metal). We are in a C-M-C system.

According to Herodotus[5], the Lydians were the first people to introduce the use a gold and silver coin and the first to establish shops for monetary retail sale in permanent locations. When the coin is spreading as a means of payment and unit of value in the economic exchange, it also becomes an expression of power. It was who issued the money (the king) to determine its value and to express the command statement.

At this stage of history (euro-Mediterranean), the money commodity implies an ownership structure. The property is expressed by the monopoly of issuing (the sovereign). They are not even shake the rights of seigniorage. It will be with the Roman Empire, first with Nero and then with Septimius Severus, that the value of the coin (Aureus and Denarius, respectively gold and silver) will tend to no longer exactly correspond to the amount of precious metal.  Hence, the right of seigniorage started to work .

But it will be only with the formation of national states in Europe and the technological paradigm shift at the turn of the fifteenth – sixteenth century that we start to witness the total disengagement between the nominal declared value of money and the content of the precious metal.

The monopoly of issuing money then takes the form of a supra -individual and extra- market right: money becomes variable, controlled at the institutional level and not by the dynamics of the market. Once guaranteed by the role of the State, which operates not as an agent of the private market, but at the top of it, money begins to also perform the function of store of value and wealth measure. This stage is, not coincidentally, accompanied by a change in the shape of money. Metallic money, mainly based on gold, is substituted by paper money, which means that means of payment have not the same real value that declares. As we have pointed out, the economic exchange “value versus quantity” had always existed as a pure and direct exchange of equivalent commodities. It is not a coincidence that most of the names of the existing currencies etymologically derives from weight units (pound in Britain, peseta in Spain , lira – from lb- in many countries). With the guarantee of an institutional governance, economic exchange begins to be increasingly characterized as material exchange between a piece of paper, whose intrinsic real value is very small, and a certain amount of commodities. But this piece of paper – banknote – is guaranteed by a superior political power that compels acceptance (trust) and ensures the virtual nominal value reported herein. This step generates, through the increasingly important role of the Central Bank, the possibility of creating a State/public monopoly in the monetary base.

With the industrial revolution and, in the twentieth century, with the Bretton Woods Conference, we observe the gradual abandonment of the monetary system based on precious metals and the convertibility of currencies in precious metals (Gold Standard System). The growth of economic activity, caused by the spread of the capitalist mode of production, has prescribed the use of currencies whose supply is no more constrained by the limited availability of precious metals. Furthermore, the emergence of certain currencies, more and more widely used and accepted in international trade, has rendered obsolete the use of precious metals to regulate these exchanges. Finally, the claim of the banknote and other forms of payment released by the use of precious metals, can be explained by the convenience of payment systems that do not require to transfer large amounts of heavy precious metal. Only one currency (Us dollar) remained fixed to gold, as conventional unite of measure of value (Dollar Standard System).

Today, after the end of Bretton Woods, we are witnessing the complete dematerialization of money. Its value, conventionally set in 1944 at Bretton Woods fixed parity ($ 35 per ounce of gold) felt .

From “money commodity” and “convertible gold money”, finally, we reach the stadium in which  money becomes “pure sign ” (Marx). This step, through and thanks to the process of financialization, has reduced the weight of the rights of seigniorage and also the ability of Central Banks to control in toto money supply and the credit and financial multiplier that ensues.

Money, in this way, becomes totally immaterial. Today money is no more linked to a commodity or to a material asset. There is no more a unit of measure of the value of money, as the meter for length or kilogram for weight.

With the end of the Bretton Woods system, the value of money is no longer determined solely by the institution issuing it. The monetary sovereignty (both national or supranational), whose governance is responsibility of the Central Bank, tends to lose more and more significance.

2. Finance money as expression of the libertarian communism of capital

 With the advent of the capitalist system of production, money becomes an expression of capital and its social relationship of exploitation with labour. With the transition from the Taylorist – Fordist capitalism to the cognitive and financialised bio-capitalism, the main function of money has changed. The credit function, typical of a M-C-M’ system (monetary production economy), where investment activity in the production of goods  requires a monetary anticipation and the indebtness  of economic actors (be they private firms or the State), leaves more and more space to the finance money (financial production economy). This financial function coincides with the total dematerialization of money, being pure sign money.

We are witnessing the transition from credit money, under the control by monetary institutions (Central banks) to finance money, dependent on the dynamics of the financial market .

Until the crisis of Fordism, in fact, the institution of the Central Bank had the task of exercising a direct and precise control over the amount of banknotes and coins issued by the national Mints (fiat money). But 95 % of the money supply is now provided by private banks and financial investors in the form of loans or speculative activities, on whose portion the Central Bank has only a very indirect control. This means that, despite the Central Bank could unilaterally and autonomously fix interest rates and impose reserve requirements on banks, the amount of money in circulation is less controllable by the same Central Bank. In a capitalist system that is based on a financial production economy, the amount of endogenous money is determined by the level of economic activity and by the evolution of the financial conventions (in Keynesian term) that govern the international financial market. The Central Bank can only try to increase or decrease the money supply in circulation, but nothing more. This possibility is now being further reduced by the new role played by financial markets and by financing investment activity, via capital gains and the creation of highly liquid securities (defined near money) .

It paradoxally follows that  the discretionary powers of the Central Banks are more reduced as much as they themselves have become politically independent institutions. As result, the management powers of the banking sector and, through the adjustment of interest rates, the entire economic system of the Central Bank are increasingly ancillary to the dynamics taking place in the financial markets and increasingly dependent on oligarchies that dominate them.

This means that, in the bio – cognitive capitalism, money and the determination of its value is no longer under the control of the Central Bank. At the very moment in which money is pure sign money, it escapes any public scrutiny. Money loses the status of ” public property good”.  Its value is determined from time to time from operating speculative activity in financial markets. Its functions of means of payment and unit of account (measure of value ), as well as a store of value and means of funding the accumulation / development,  becomes beyond any control. At a time when its quantity and mode of movement are determined by the conventions that dominate the financial markets, more and more concentrated, money is hostage to the expectations that the oligarchy (or rather, the dictatorship of the oligarchy) of the financial markets is able to exert .

Today, we can say that the creation of finance money is the expression of the libertarian communism of capital. This is evidenced by the fact that the monetary policy is function of the financial dynamics. The same interest rates are no longer fully controlled by monetary policy.

Money is, today, an expression of financial bio-power, since its value is determined by the financial conventions, whose governance represents a proxy of the expropriation of the common, as the new form of capital-labour exploitation in a cognitive bio-capitalism.

3. Crypto-money: aspects and problems

We’re facing an historic opportunity.

Today, the existing technology allows us to create money in digital form: the s.c. crypto currencies (or crypto money, in general term).

The new and absolutely relevant aspect lies in the replacement of the money creation decision maker: no more monetary institutions, that, democratically (very little), are deputy to monetary and financial policy, thanks the monopoly of emission, but the multitude of individuals who decide to produce or “extract” the “strings” with their computers in the network and those individuals who decide (trusting) to recognize the monetary value to those generated strings.

In this machine-algorithm time, it is not surprising that money is not printed but generated and that the validity of money is no longer stored in supra-individual institutions, but in the formal correctness of an algorithm executed by machines and/or by decisions of a techno-financial elite.

This new situation is a challenge and a chance to/for the construction of an alternative system, able to overcome the contradictory and unequal nodes of the contemporary capitalism.  More and more sophisticated algorithms to generate crypto-money are necessary conditions, but not yet sufficient.

Some points need to be more and better discussed:

3.a. Trust, confidence and the problem of property rights. 

Fiat money is guaranteed by the State, which holds the monopoly of emission and imposes that money must be accepted (if not false) as mean of payment by all the inhabitants of the same State. That implies, that the real “owner” of money is the State not the individuals.  What happen with the crypto-money? 

Just the confidence to act ethically and politically is the basis of the birth of crypto-money. The dependency of money creation from traditional institutional actors whose decisions are no longer considered to be able to protect the individual and his freedom has pushed the creators of crypto-money and their main proponents to seek such protection in a impartially mechanical action[6]

For many of them also the democratic process could – indeed, should – be replaced by algorithm decisions performed with impartiality by computers.

First critical point is the following: can crypto-money be neutral? Of course not, since technology is never neutral.

Second critical point: who is the proprietor of crypto-money? Is the technological elite who owns the codex of the mining algorithm? Or is the community which organize the crypto-money according to a certain degree of confidence and trust?  Can we talk about common as a “non property” face to private/public (State) property?

For instance, the Bitcoin project (BTC) is based on a “peer to peer” production of money, anonymous and made ​​secure by non-property algorithms, whose code is licensed under open source and uses the principle of distributed computing network (clustering or network computing ). They are aspects that place BTC in the category of major projects of cooperation and collective socio-technical innovation in the hacker community origin, such as that of Linux[7].

Crypto-money does not exist in real term, it is just a string, it is an artificial language. And language (like knowledge), even if codified, owns to individuals.  It cannot be expropriated. But language freedom exist only from a formal point of view. Performative language, in fact, is composed by “words or numbers” and by a “grammar”[8]. Grammar is the codification and standardization of words and numbers. There is a dynamic dialectic between them, which creates different levels of access. In other words, crypto-money is the result of a cognitive division of labour. Techno-financial élite derives from this cognitive division, which implies power and hierarchical structure. It’s up to us to take in account this asymmetry.

b. The target of crypto-money

Most of the existing crypto-money (Bitcoin, Frecoin, Litecoin, etc.) are born to facilitate exchange activity.

The reason for their existence, as for most s.c. “complementary or local currencies”, derives from providing more available monetary liquidity, in favour of anonymous and free purchasing activities, especially where there are prohibitionist constraints in some trades. From this point of view, crypto-money breaks the constraint of scarcity that the institutional money supply often generates in order to justify positive levels of interest rates and/or the imposition of restrictive monetary policy.

Quoting  Keynes:

“The owner of capital  can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital”^[9]. 

Mainly, crypto-money plays the role of mean of payment and unit of value. As unit of value, it needs to be connected to the values of the other traditional currencies. For local or complementary money, which operates in a specific territory, the rate of change is fixed. But for international crypto-money (as BTC), the rate of change is flexible, since it depends on the level of exchanges on the international financial markets. It follows that the value of crypto-money is subjected to a change of value, depending on the dynamics of financial and speculative flows.

What happened to BTC in the last months is paradigmatic.  At this stage BTC is used mainly as an instrument of accumulation and speculation. The convertibility with traditional currencies  (yuan and the dollar) and a limited algorithmically production in quantity and in time reproduce in any way the role of gold as a reserve currency. 

“The metaphor also extends to the terminology used and to a certain mythology of the gold rush that merges with that of video games. As in gold mining, the production of crypto-moneys (in fact defined mining) needs a large amounts of electricity and computing, which is produced by working at the maximum speed of the powerful PC derived from those dedicated to video games”[10]. 

In such a way, crypto-money plays hence the role of store of value. And the result, unlike its initial effort, is to be part of the traditional financial system. There is no emancipation, but subsumption. There is no alternative, but compatibility.

The question becomes: how can crypto-money, once freed by institutional constraints, be able to lead the attack to the heart of oligarchy of financial big intermediaries? In other words, can crypto-money become, as instrument, the money of the common?

4. Some preliminary suggestions to the build of alternative financial circuits 

To answer to the last question, we need to better define what is a money of the common (that has nothing to do with common goods). The discussion on this issue is quite differentiated, since there is no an unique answer. Autonomist Marxism (i.e. Carlo Vercellone, C. Marazzi and myself) on the basis of the hypothesis of cognitive bio-capitalism agree in identifying four main elements which should be guaranteed in its algorithms and its implementation as far the concept of money of the common is concerned:

·     Not to be cumulative and cannot become the subject of speculation. In consequence it must lose a part of its value over time. It is therefore a melting or burning money.

·     To be able to mitigate the dependence of workers from the economic constraints of the sale of their labour-force and therefore the wage relation, i.e. reducing precariousness.

·     To be able to allow, on this basis, to free up time and resources to develop alternative forms of cooperation based on the pooling of knowledge, and the results of the production, however, on exchange networks that exclude the logic of profit. Participation in the network in which the circulating money of the common constitutes adherence to these principles, whether they are individuals, of companies or institutional actors[11].

·     To be a non-property

These four parameters imply that the way in which the money of the common enters in the economic process is not through exchange  or financial activity (as mean of payment or store of value), but through the financing of production activity (be material or immaterial).

More specifically, the money of the common can represent an alternative to the monetary and financial production economy if it is used firstly as monetary payment of labour-force, may be, at the beginning, in a complementary way, able to increase the wages, paid in traditional money.

A financial production economy like cognitive bio-capitalism is at the same time a M-C(kn)-M’ and a M-M’ system. It can be represented in the following sequence[12]:

financial markets (with bank system inside) –> investiment activity (material, immaterial, financial) –>  consumption, saving , taxation;

to which it corrisponds a parallel sequence on distributive basis:

financial markets (with bank system inside) –>capital gains –> financial multiplier –> rents ( (together with profits and a share of wages), wages –> public and privare indebteness

In this framework, financial markets are able to create liquidity in order to finance investment activity and consumption and to directly intervene in income distribution. The result is an increasing degree of inequality, which issustainable untile the financial multiplier effect (via capital gains) on aggregate demand compensate the worsening of the same income distribution. It is an unsustainable condition, since financial markets cannot grow indefinitely. That is the macroeconomic role played by finance money.

The money of the common should substitute finance money. That means that the money of the common should re-create a different economic circuit, in which material and immaterial production is no more financed by financial and credit market. And the simplest way is, from this point of view, to imagine a sort of community financial institution, able to generated no property money under the community supervision in a democratic way, which is  irreducible and irreconcilable to the traditional financial hierarchies.

The aim of this alternative financial circuit is to provide financing for the developing of social services, production of use values (no profit organization), remunerating  the social cooperation. The production of human beings in favour of human beings, outside exchange-values, can represent, now and soon, a beginning experiment of alternative way of living, without depending on the external financial constraints.

The possible framework can be the following:

Financial Institution of the “common” –> money of the common –> social services, investment on use values, monetary wages –> Antropogentic model of human production for human beings –>[Municipality/Community/Stae balance] <–>  [learning and network economies (free social cooperation)] –> [Common-fare (unconditional basic income, fre access to basic sservices, housing, education, health, sociality, firmation, transport, ,…)] <–> [Remuneration of general intellect and consumption –> Financial Institution of the “common”.

It is evident that this framework poses different challenges and limits.

The first limit has to do with the definition of economic boundaries. A crypto-money with the characteristics of money of the common can be introduced in an economic system as mean of remuneration of labour and investment in favour of social cooperation only if the production cycle is constraints by space boundaries. From this point of view, a local money can play this role. It is necessary to start with experiments, which deals with economic activity  that cannot be globalized. Social services, like education and training, transport, health, social security, culture and leisure, real estate, agricultural and artisan activities together with some specific manufacturing production, whose filiéres are localized,  could be, for example, good examples.

The second problem lies in the managing of the financial institution of the common and of the issuing of the money of the common. Many alternatives are possible. That is a political aspect, whose solution has to do with the existing degree of bottom-up democracy and decision making apparatus.

We are aware that this alternative financial production model cannot, at the moment, substitute the traditional one. It is complementary. But it is able to open free space for a non-commodified and profit oriented production.  It can be a chance for a production of the common. Since the common is just among us.

Crypto-money, like any type of money, is a tool. And, like every tool, his utility depends on the way it is used and on the social context in which it is used. As Keynes wrote, money is a bridge linking the present to the future.

It is time to think a monetary tool online with the new subjectivities of today precarious living labour.

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