The New Wealth of Nations

A New Enquiry Into the Nature and Origins of the Wealth of Nations


The Societal Learning Arrangements Needed for a Sustainable Society


John Raven

Chapter 4

Some Observations on Money

The Role of Money

In fact, it is not simply the nature of money - and the meaning of the term - that has changed. The role of money in society has been overturned

Adam Smith argued that decisions produced by the invisible hand of the marketplace would be better than those taken by "wise men" because even the wisest of men did not have all the information required and could not know all the consequences which their actions were likely to have when those actions interact with the actions of others. Bits of this picture could, however, be known to different people. If one allowed everyone to contribute to the decision-taking process by enabling them to vote with their pennies, this would provide a mechanism whereby all these different bits of information could contribute according to their quality and prevalence to the way things develop. Furthermore it provided a rapid feedback mechanism which would quickly respond to effects produced by the interaction of actions and marginal changes. In contrast to the public data which alone would be available to wise men, these bits of information would not need to be conscious and articulate; people could act on their intuitions or feelings. Prices would then be determined by, on the one hand, the costs of raw materials, labour, and capital - i.e. by the efficiency with which goods were produced or services provided - and, on the other, by how much consumers valued the goods or services and were therefore willing to pay.

But the world is no longer (if it ever was) like that. The control of cash flows is now used to orchestrate decisions taken through the politico-bureaucratic process. Funds are collected and budgets apportioned to achieve goals established by the owners of the TNCs, politicians, and public servants (who may or may not be wise or concerned with the public interest). Money is not used as the best available management mechanism to establish the goals themselves, to orchestrate their attainment, and to provide feedback to ensure that the system achieves its unwritten goals effectively. Instead, taxes, grants and levies are fixed by men (or women) to influence the costs and prices of materials, labour, land, capital, and transportation, and to influence the behaviour of manufacturers and consumers so as to point them in the direction of what is conceived to be the public interest or the interests of the TNCs. The main feedback mechanism in modern societies does not consist of people casting, on a daily basis, a whole series of votes with their pennies, voting separately in relation to each of a wide variety of different types of provision and product, but a single, five-yearly, vote in relation to a wide-ranging package of policies and provisions. A positive effect of this political voting is that it becomes possible to spend money on communal activities which it would have been difficult to provide through the individualistic market. A less positive aspect is, however, that it pre-empts individual voting on many issues.

One effect of having become an economy in which costs and prices are managed is that it it is now more important for producers and the providers of services to attend to grant and levy legislation than to the needs of those who are nominally their customers or clients. Or, put differently, the customer is not the "sovereign" person he or she is supposed to be. This is why it has become more important for farmers to attend to the grant structure than to the needs of their customers, the well-being of their cattle, or the fertility of their soil (which is not to say that their eventual customers' needs may not be better met by their doing this). Another effect of this change is that the image of "a customer" which comes into the minds of most of us when we hear the word leads us to mistaken conclusions. Customers are no longer individuals voting with their pennies, but corporate giants purchasing on behalf of hundreds, even millions, of people - for medical ("health") services or international defence alliances. The effect of these changes is that the realities which lie behind the main words central to market theory - words like "money", "customer", "product", and "producer" - are quite different from what they were when market theory was developed and from what they are taken to be in everyday conversation. For this reason the continued use of such terms - and market theory itself - misleads.

Additional Considerations

There are four widely accepted beliefs about money, management, and wealth-creation which create serious barriers to developing the concepts and tools required to run modern societies effectively. These are:

1. That we must have money before we can initiate wealth-creating activities.

2. That wealth inheres in manufactured products.

3. That wealth is to be equated with money.

4. That manufacturing industry is the main source of wealth.


As we will shortly see, none of these beliefs is well founded. Wealth is a product of organised activity, not a necessary pre-cursor to it. Money is a tool to be used to organise wealth-creating activity. Money is neither something which is in limited supply nor an outcome of wealth-creating activity. Wealth mainly inheres, not in private goods, but in the wider environment. Public servants and other service providers, not industrialists, are the main producers of wealth.

The excuse that "there is no money" to do important things is clearly without foundation. Douglas4.13 drew an analogy between the supply of money and the supply of railway tickets - which are designed (among other things) to provide management with information about how many trains are required. He remarked:

"It is every whit as sensible to argue that because there may happen to be 100 tickets from London to Edinburgh in existence, that therefore no more than 100 passengers may travel, as it is to argue that because the units of money happen at the moment to be insufficient, therefore desirable things cannot be done, irrespective of the presence of the men and materials necessary to do them."


Bank notes are notes of authority to command the compliance of others in a course of action one has chosen. They are voting slips which enable us to comment on the goods and services we are offered.

Viewed in this way, money is not sacrosanct. We can print more notes of command - but, if we do, we must beware of devaluing other people's power and influence. One can command (by introducing income and other taxes) that people vote with their money in particular ways and thereby deny those concerned any effective say in relation to the issues to which those votes pertain. (Note the need to provide alternative prioritising and feedback mechanisms.)

More generally, as Douglas4.14 noted, there is an essential continuity between money as a general ticket which can be exchanged for a wide variety of goods and services and a railway ticket which can be exchanged only for a particular service. We could therefore envisage a wide range of types of money having limited domains of validity. The most important consideration is that any system that is introduced be, and be seen to be, fair and effective. Currently, the operation of the monetary system is neither well-policed nor fair.

Money - i.e. tokens which enable us to influence what happens in society - is normally issued to us in return for a contribution to society. However, (i) the most important contributions to society have come from previous generations who are now unable to gain any reward for their efforts; most of the money that is currently paid to those with the highest incomes has been earned, not by them as individuals but by previous generations; (ii) we do not need most members of society to "contribute" in the ways which are currently deemed to merit the highest rewards; (iii) it is not at all clear whose current contributions are in the end going to benefit society and the planet most; (iv) the poor are poor mainly because the well-paid leaders and managers of our society - including those who control the financial system - have failed to do their jobs properly and not because of their own laziness or ineptitude; (v) the well-being of the rich is heavily dependent on disproportionate contributions from the Third World and future generations who get scant returns for their efforts, and (vi) many of those who are currently paid most spend their time on the very activities which do most to destroy the future and the planet. It would seem to follow that there is every reason to distribute money more equitably and, in particular, to offer everyone a high basic standard of living which will provide the security needed to facilitate the kinds of innovation society most urgently needs.

Money as a tool can be used well or badly: It can be used to organise activities which benefit us all or which benefit only a few; it can be used to dissipate energies on activities which occupy many and benefit few. The unintended dissipation of money on useless work can be achieved as easily through market mechanisms as through bureaucratic generation of checking activity.

The notion that manufactured goods are the main source of our wealth is due to their tangibility. Actually, large numbers of - supposedly non-productive - service providers - designers, drivers, salesmen, computer programmers, management personnel, accountants, market researchers, advertisers are required to produce and distribute them ... and their monetary value is dependent on those who purchase them being able to use them - on the availability of roads, good health, and ample leisure. All who provide these services contribute directly to wealth production. In fact most international trade now consists in trade in services - finance, consultancy, education, tourism.

We have continued to believe that all these other activities - some of them wealth-creating in themselves - have to be paid for out of taxes raised from levies on manufacturing industry and incomes. As a result, we have created a taxation and accounting system which absorbs vast amounts of labour - and which [i]does[i] drain human resources away from wealth-creating activity of one sort or another. It is this which needs to be replaced by a new, social-science-based, accounting system which takes account of many more of the relevant costs and benefits.

Traditional economic theory has underestimated the contribution of the public sector to the public good. It has underestimated the contribution of the public sector to the private sector. It has overestimated the contribution of the private sector to both the public sector and the public good.


Social scientific research is urgently needed to set money and taxes in the context of an adequate framework for thinking about social management - a framework which encompasses non-market means for prioritising options and influencing decisions, and providing variety, choice, accountability, and feedback. The focus on money is diversionary: What we need to focus on is the way in which society uses money to frustrate or achieve human ends. We need to examine the decisions taken in the course of constructing the components of prices and in conducting cost-benefit studies and claims about "efficiency".

Chapter 1 which provides a sketch map of where the book is going and an overview of its contents similar to the final, summary chapter of many books.
Chapter 4  Some Observations on Money
Chapter 17  which is a Summary of Parts I, II, and III, and an Introduction to, and Overview of, Part IV
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Copyright : John Raven, 1995