Money (Venue B: Starbucks)

THE VENUE: Starbucks

The weather forecast for Sunday looks promising so we expect to meet outside by the river. But things may change. So, the default is to meet indoors but please look out for updates before you leave home.

When we meet inside, we run the same event in two locations: Caffè Nero and Starbucks, so as to provide capacity for as many people who would like to attend. Thus, there will be two events published, and you can choose which one to attend. Please don't sign up for both. This event is for the Starbucks location.

We meet upstairs at Starbucks. An organiser or regular attendee will be present from 10.45. We are not charged for use of the space so it would be good if everyone bought at least one drink.

An attendee limit has been set so as not to overwhelm the venue.

Etiquette
Our discussions are friendly and open. We are a discussion group, not a for-and-against debating society. But it helps if we try to stay on topic. And we should not talk over others, interrupt them, or try to dominate the conversation.

There is often a waiting list for places, so please cancel your attendance as soon as possible if you subsequently find you can't come.

WhatsApp groups
We have two WhatsApp groups. One is to notify events, including extra events such as meeting for a meal or a drink during the week which we don't normally put on the Meetup site. The other is for open discussion of whatever topics occur to people. If you would like to join either or both groups, please send a note of the phone number you would like to use to Richard Baron on: website.audible238@passmail.net. (This is an alias that can be discarded if it attracts spam, hence the odd words.)

THE TOPIC: Money

We talked last week about what things exist and it what ways. One example given of an abstract entity created by humans was money. (Others included race, gender and nation states).

Money is the sort of social institution whose existence depends on “collective intentionality”: beliefs and attitudes that are shared in a community. The process starts with someone’s simple and unilateral declaration that something is money, which is a performative speech act. When other people recognize or accept the declaration it becomes a standing social rule.

On some accounts, money is better than barter because it is a neutral medium of exchange. It solves the problem of 'double coincidence of wants': I have something you want but you can't offer something that I want in exchange. So we may agree to use something that is of equal value to both of us, maybe gold or silver, or sea shells.

The system of commodity money eventually evolved into a system of representative money. This occurred because gold and silver merchants or banks would issue receipts to their depositors, redeemable for the commodity money deposited. Eventually, these receipts became generally accepted as a means of payment and were used as money.

Money is: (i) easer to handle, store and transport; (ii) easier to measure and divide to facilitate calculations; and (iii) is difficult to destroy so that it lasts over time. It can be used for both trade and for tracking credit relationships. In the latter case, it is an abstract entity, a promise from someone to grant (or repay) a favour (product or service) to the holder of the token.

Two further features are crucial: (i) the promise must be sufficiently credible, that is, the issuer is “creditworthy”; and (ii) the credit must be transferable, that is, others will accept it as payment for trade.

It can said that the financial sector has two main functions: (i) to maintain an effective payments system; and (ii) to facilitate an efficient use of money. The latter function can be broken down further into two parts. First, to bring together those with excess money (savers, investors) and those without it (borrowers, enterprises), which is typically done through financial intermediation (the inner workings of banks) or financial markets (such as stock or bond markets). Second, to create opportunities for market participants to buy and sell money, which is typically done through the invention of financial products, or “assets”, with features distinguished by different levels of risk, return, and maturation.

Thales of Miletus is typically regarded as the first philosopher, but he was also a financial innovator. He appears to have been what we would now call an option trader. He predicted that next year’s olive harvest would be good, and therefore paid a small amount of money to the owners of olive presses for the right to the next year’s use. When the harvest turned out to be as good as predicted, Thales earned a sizable amount of money by renting out the presses (Aristotle, Politics, 1259a).

(The level of abstraction can sometimes become enormous: For example, a “synthetic collateralized debt obligation” (or “synthetic CDO”), a form of derivative common before the financial crisis, is a promise from person A (the seller) to person B (the buyer) that some persons C to I (speculators) will pay an amount of money depending on the losses incurred by person J (the holder of an underlying derivative), which typically depend on certain portions (so-called tranches) of the cash flow from persons K to Q (mortgage borrowers) originally promised to persons R to X (mortgage lenders) but then sold to person Y (the originator of the underlying derivative). The function of a synthetic CDO is mainly to spread financial risks more thinly between different speculators.)

Of these complex financial products, can we say they have intrinsic value ? They seem to track recognisable objects (e.g. property) and human activity (e.g. trading) but do they enable us to create complex things we don't completely understand ?

From an ethical perspective, three problems can be identified: (i) the love of money (the profit motive), (ii) usury (lending at interest), and (iii) speculation (gambling in finance). What could be wrong about these ?

Another criticism is that money allows putting a value on things and thereby displaces other forms of valuation. Is a work of art valuable because of its aesthetic qualities or because some people are prepared to pay a lot for it ? And does the latter reliably track the former ?

Do money and financial instruments have any intrinsic value, or are they only worth what people are prepared to value them at ? And how do we discover what their value is at any point in time ?

Links:
https://plato.stanford.edu/entries/money-finance/
https://en.wikipedia.org/wiki/Money