A Comment on Ayn Rand

(A repost with some amendments)

 Ayn Rand and her followers worship money. But her notions on money are such a muddled mix of insight and delusion that it's hard to know where to begin a rational critique. From the Ayn Rand lexicon (http://aynrandlexicon.com/lexicon/money.html):

     Money is the tool of men who have reached a high level of productivity and a long-range control over their lives. Money is not merely a tool of exchange: much more importantly, it is a tool of saving, which permits delayed consumption and buys time for future production. To fulfill this requirement, money has to be some material commodity which is imperishable, rare, homogeneous, easily stored, not subject to wide fluctuations of value, and always in demand among those you trade with. This leads you to the decision to use gold as money. Gold money is a tangible value in itself and a token of wealth actually produced. When you accept a gold coin in payment for your goods, you actually deliver the goods to the buyer; the transaction is as safe as simple barter. When you store your savings in the form of gold coins, they represent the goods which you have actually produced and which have gone to buy time for other producers, who will keep the productive process going, so that you’ll be able to trade your coins for goods any time you wish.

    As soon as she leaves the standard definitions of money (means of exchange, store of value/savings), her key points drift into nonsense. One of these misleading notions is that gold has “tangible value”. Gold has no intrinsic value; its value as money is only and exactly what people believe it is. The Conquistadores could not understand how the value of gold among the Inca and other South American peoples could be so low. They looted the gold, took it home to Spain, and promptly caused ruinous inflation. It was only when Spain used its gold for external trading that it could be used as capital. So much for the intrinsic value of gold.

     The notion that money somehow buys time for future production misses the point. "Delayed consumption" is possible only when there is a surplus of goods or productive capacity. Money cannot create a surplus, nor is it needed to ensure that any surplus will be used. Humans have invented many ways of saving surpluses without money. What’s needed to create a surplus is a technology that multiplies the effect of human work, such as agriculture. What’s needed to delay its consumption is a system of values and customs that will ensure the surplus (such as grain) will be stored for later use and trade. Neither of these require money.

     Fact is, even today much trade is done without money. The basic rule of all trade is "mutual obligation". The members of families and social circles trade goods and services because sharing is one of the obligations of these social groups. They keep pretty close track of their trades, too. Exact matches aren’t required, but everyone is expected to share their goods and provide services as best they can.

     And like practically everybody, Rand misquotes St. Paul’s comment on money. Later in the article, she says, So you think that money is the root of all evil? . . .  Have you ever asked what is the root of money?

     St. Paul actually wrote, The love of money is the root of all evil. Look it up!

    Money is a way of making trade with strangers possible, and thereby creating mutual dependence. A very useful invention. Eg, just try to calculate how many people have been involved in producing a 98 cent ball point pen and making it available to you. It’s made of several kinds of plastics and metals, which had to be mined, refined, processed, and shaped. The pen had to be packaged, warehoused, transported, and shelved. Even in a small town where you know most people, you aren’t necessarily a close friend of the shop owners and staff, but they serve you all the same.

     A stranger is someone to whom you owe nothing, and vice versa. This makes interaction between strangers dangerous. Hence, all societies have had to invent ways of making at least temporary mutual obligation possible. Think of "guest right", for example. You not only have the right to stay among your hosts, they have an obligation to protect you. A pretty good deal; you’d better have some good stuff to trade with them.

     So why do all those strangers work to produce and deliver a cheap pen to you? Because money makes it not only possible to trade with people you will never see, it makes it easy to do so.

     Nowadays, money trades are used to measure economic activity. They’re totalled in the Gross Domestic Product, or GDP, a number of such incomplete, gappy data that it causes pernicious delusions. The worst of these is the belief that an ever-rising GDP means we’re getting richer. Yet every time there’s major storm destruction, there’s a spike in GDP in the following months and years as the damage is repaired. I don’t think having to repair storm damage is making us richer. Besides, even in our highly monetised economy, about 1/3rd of economic activity does not involve money. In pre-money times, that was 100%.

     There is one value to the GDP: it can tell you how much of your spending eventually ends up in various pockets. Eg, in Canada, we spend about 10% of our GDP on healthcare. Every time we spend a dollar, a dime wends it way to the healthcare providers. Some of it gets there via taxes, some via insurance payouts, some via personal spending. So we could describe our GDP in terms of these three types of spending, but then we wouldn’t know what exactly the taxes, insurance payouts, and personal spending bought. What the GDP means all depends on how you analyse it. And that means that people with different axes to grind will analyse it differently.

     Basic rule about money: Money and wealth flow in opposite directions. This should be obvious, but most people tend to think that more money means more wealth. Money is only potential wealth, a point Rand doesn’t get quite right either, although her notion of money as buying time for future production comes close. But anyone who’s lived through extreme inflation, or has absorbed the stories of the people who did, knows that money isn’t wealth.

     I think everybody needs a good introductory survey course in anthropology, to learn about all the ways humans have organised the production and distribution of goods and services. It might cure one of the notion that our current economic arrangements are somehow natural or god-given. For over 95% of our existence as a culture-creating species, we humans have had no money. Yet humans managed to produce the goods and provide the services they needed. It’s true that money, because it accelerated trade, and more importantly enabled trade with strangers, accelerated the creation of wealth. But trade, and its beneficial effects on wealth creation and cultural exchange, existed long before money.

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