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The Social Life Of Money

Dec. 04, 2014 8:45 AM ET
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What is the true nature of money, and what gives it its value? I recently asked Professor Nigel Dodd of the London School of Economics, author of The Social Life of Money, these questions on my radio show Goldstein On Gelt. Here is a transcript of this interesting interview.

Douglas Goldstein: You speak about the social life of money for over 400 pages. What's there to talk about?

Nigel Dodd: There's a huge amount to talk about. Money has been with us for an awfully long time, but also it's everywhere. It's all around us, and we use it in so many different ways and really crucially, it's changing fast. It's becoming extremely diverse, taking many different forms. I'm sure everyone has heard of Bitcoin, and that's just the tip of an iceberg where there's an explosion of different kinds of money in today's world. It's really quite astonishing how fast things are moving. So what I decided to do is write a book that was a cornucopia of ideas and lots of different ways of thinking about money. My sense is that we need to revise this area. We need to think much more richly, and in a much more varied way about the kind of money that we encounter in order to cope with this new variety. So I think it's an exciting time.

Douglas Goldstein: You refer to your book as The Social Life Of Money. Why is it referred to as "a social life"?

Nigel Dodd: I'm really tackling a longstanding misconception about money that we still have, which is the idea that money is just a thing. It's something impersonal, something that has some kind of material value. Even if we use paper money or digital money, somehow that value goes back to some kind of prior commodity such as gold. Even if we don't believe in gold anymore, and lots of people don't, we still believe that money is this thing. It's something that we need to store up, we need to hoard, and we need to protect its value.

My argument, and it's an argument that I don't make on my own but lots of other sociologists, anthropologists, and economists make it too, is that money gets its value not from gold, not from metal, not even from the state, and not even from banks. The fundamental source of money's value is its users. People who use it on an everyday basis are the ones that support the value of money and sustain that value, and so we need to understand the richness of the way in which we do that because there isn't one answer to the question of why money is valuable. There are a lot of different answers but in general, it comes from its social context. So that's why I've called my book The Social Life Of Money.

Douglas Goldstein: Don't people ultimately believe that the value of money is the value of what it will allow you to do or buy?

Nigel Dodd: I think it is, and in that sense that's social too, because money is only worth what somebody else would accept for it, and any Bitcoiner will tell you that as they are learning now. I think that's fine. In a sense, the value of money is what it would buy, but also money can in many contexts have a different sort of value for people. It can actually mean something quite special. It's not simply access to a commodity. I told a story once about my daughter who won money as a prize. She won cash, and I was keen to take her out to spend this money, but she said, "No, this was a prize." She wanted to hold on to her banknote and she became attached to it, but there are a lot of stories where people draw on banknotes. They earmark them in some way.

So I think the value of money is not simply what it buys. It's also what it stands for and what it represents. You try telling a Brit that they are going to lose the pound and take on the Euro. They'll tell you that money is not always the same. It has kind of emotional quality to it.

Douglas Goldstein: Something you said made me think a little more about money. You're not trying to say that money is backed either by a metal or by the full faith and credit of a government, but rather it sounds a little more virtual. In the same way, in my day job as a financial advisor, where I deal a lot in stocks and shares, people ask, "What am I really owning?" In other words, if I buy a hundred shares of Google or Disney, I don't really have any control. I can't go to Disneyworld and say this image of Mickey Mouse is mine. It's very virtual in the same way that money seems to be very virtual. Are they parallel to one another in today's world?

Nigel Dodd: In many ways, money is just an asset. It's a claim. One of my favorite sociologists is a guy called George Simmel. He described money as a claim upon society, and that's exactly what it is really. It's a claim that I own, which you'll redeem or somebody will redeem for a given amount, and of course if money is working well nobody thinks about that. Money is one of those things that stay in the background of what we do really, but if that goes wrong of course, we soon realize that it is simply a claim and it can turn into nothing very quickly.

So I think there is a very strong parallel, but the difference with money is that it's a generalized claim. It's universally recognized within a particular social group or society. So it's not simply a particular kind of claim on a particular company or a particular asset. It's something which we like to think everybody will accept. That's one of the interesting things about what's happening with money now, because increasingly we have different sorts of money that aren't generalized in that sense.

In London, we have something called the Brixton Pound, which is a currency that was developed in the community of Brixton and the idea behind is that you keep value local. So you can buy things in Brixton shops with this pound, but if you then move to the next neighborhood, you can't spend it there. In a sense, what we're doing has gone back to the past of course. The idea of monetary multiplicity that I'm talking about is not really new. It's only for about a hundred years that we've had a monopoly currency system.

Douglas Goldstein: But that's not the direction that we're going in. It's quite the opposite with the creation of Euro. We eliminated many different currencies in order to bring everyone together.

Nigel Dodd: We certainly did, but the Euro has been fascinating because although it's always being called a single currency, of course it's not. All the coins have different designs on the back. They have a national character, and surveys show that even now in 2014, many Europeans, when they buy something in the Euro, they still add up in their old national currency. The Germans still think in the deutschmark, and the French still think in the franc. So this single currency is actually very diverse still. Of course, it's diverse in a real sense. If you're a Cypriot, you're not free to take your Euros out of the bank and carry them around in Europe. There's a restriction on moving Cypriot Euros around. There's also a restriction on moving Greek Euros around, I believe. So it looks like a single currency, but it doesn't really operate like one.

Douglas Goldstein: Is this a fallacy? Is the Euro really just an illusion that people are pretending still exists?

Nigel Dodd: I think it always has existed in some form, and as a kind of money it works very well. It's been a success. I've never moved around Europe and had any problems using the Euro, but of course it stands for now huge problems that are going on since 2008, so lots of people are predicting that the Euros are not going to last all that long. I'm not sure whether that's true, but I think the idea that it's just a single monolithic currency that is the same in every single European country is a fallacy. It always has been, but that's the fallacy about money. The idea that money is the same for everybody, the idea that money is one universal form, that's a fallacy too.

Douglas Goldstein: The U.S. dollar certainly seems to continue to be the major currency of trade in the world. People don't quote the price of gold nor oil in Euros. At the end of the day, the major commodities that people are buying are quoted in dollars, and yet there are always discussions with the doomsayers saying, "The dollar is on its way out and soon Chinese or European currencies will take over." It doesn't really feel that way to me though. What's your sense?

Nigel Dodd: The dollar hegemony, if I can call it that, won't last forever because nothing ever does. So I think within my lifetime and in your lifetime, we will see a system of multipolar currencies used worldwide. So the dollar won't completely disappear. I think it still will be used for international trade in many areas of the world, but we'll also see prices denominated in Euros if it still exists. We will also see prices denominated in Chinese currency.

Douglas Goldstein: But not Bitcoins?

Nigel Dodd: Maybe not Bitcoins, but maybe some other some digital coins, maybe a Dodd coin or something. There are lots of new coins. There are something like 74 of these electronic coins around, and I think around 10 of those, like Bitcoin, are worth quite a bit.

Douglas Goldstein: It's really quite shocking that anyone would go into any of the other 60, because if it's not making it why would you put your money into something that's not a currency that's accepted?

Nigel Dodd: I think people are doing it for fun. You can do your own. There's a plenty of software. That's why I said, "Dodd coins." I quite fancy creating my own currency. Why not? I think there's lots of innovation going on that's just for fun, but also people are looking to iron out some of the problems with Bitcoin. For example, it's actually extremely difficult on your own to mine for Bitcoin now. You need these huge mining rigs. I have seen pictures of them, and they are really ugly things. If you decided you wanted to mine for Bitcoin, your best bet actually would be buy mining space on one of these big rigs that rent out space per year. So for example, for a thousand dollars, you can rent a percentage of a mining rig in Iceland. Interestingly, you have to pay for this using Visa, which I think is quite nice. Then you'll get about 0.01 of a Bitcoin every now and again, whereas if you're sitting here with your laptop like I am, and I plugged into the Bitcoin network and started mining, probably my laptop would blow up before anything happened.

It's tough, and with all the energy costs associated with Bitcoin, there's a problem there. So people are trying to redesign Bitcoin. There's light coin, for example, which is meant to be much more democratic. But Bitcoins are a fascinating experiment, and in one sense, what it has done is really drive the conversation about the future of money. When I started working on money back in the early 90s, it was a very lonely place for a sociologist. There weren't many of us doing this. People thought I was mad or just greedy. People were saying, "You must really love money." I said I don't love money in that sense. I find it fascinating. If I'd said in 1994-1995 that I think the era of monopoly state currency is coming to an end, and I think it has come to an end, people would have probably said I was completely mad. But now in 2014, everybody is saying this. There are all sorts of people coming to me to talk about money, and to talk about the diversity of money, and to even get advice from me about designing their own currency. The world is coming around to my way of thinking. I was talking to a student the other day, and she said, "Money is cool now. You're suddenly cool." I don't think that will last long. I hope it doesn't. I don't like to be too cool, but it's fun. Bitcoin has done that. Bitcoin has led that conversation. People are excited about it, they are talking about it and I think that's great.

Douglas Goldstein: How can people follow you and follow your work?

Nigel Dodd: They can follow me on Twitter. I'm @nigelbdodd. They can also come to my website, which is www.nigeldodd.com, and if they just enter into Google Nigel Dodd LSE or Nigel Dodd Social Life of Money, they'll find other sites like Tumbler and Pinterest, and they will also find my LSE site, so there are plenty of ways of finding me.

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