Monetary Exchange as an Extra-Linguistic Social Communication Process

Abstract

Metaphorical descriptions of the economic functions of money are plentiful among economists and other social scientists. S. Herbert Frankel (1977, p. 2), for one, offers a list of over twenty such descriptions. Included on that list is the metaphor of money as a of communication. Many social theorists have noted the similarities between money and language along these lines. James Tobin has noted that: Both are means of communication . . . use of a particular language or a particular money by one individual increases its value to other actual or potential (Qtd. in Yeager, 1982, p. 237). It is this metaphor that this paper attempts to examine by analogizing money's role in the communication of knowledge in the marketplace to language's role in the communication of knowledge in other social processes. Much in the same way that the spoken and written word make mutual understanding possible between individuals in society at large, so money and money prices make orderly processes possible between economic actors in the market. In addition to performing this analogous communicative function, money, through its ability to make personal and contextual knowledge socially usable, also extends the range of social communication beyond the limits of language and the physical senses. To explore the relationship between money and language, we will rely on two complementary -- and intellectually related -- bodies of thought. The subjectivist (or Austrian) tradition in economics provides a comprehensive understanding of money's role as a social medium of exchange and how that role enables money prices to perform their semiotic function in the market. Much of the Austrian tradition descends from earlier work in Continental philosophy and social theory,(1) and it is from this Continental tradition, specifically Hans-Georg Gadamer's phenomenological hermeneutics, that we get a theory of the communicative role of language and its relationship to human understanding.(2) The paper begins with a review of the subjectivist approach to money and prices, including a discussion of the sociologist Georg Simmel's very similar philosophical treatment of money. After introducing the Gadamerian view of language, the paper attempts to weave the two themes together to find their similarities and differences. The paper concludes with some brief methodological observations. A Subjectivist Theory of Money and Prices Discussions of money and monetary theory within the subjectivist approach invariably turn to Carl Menger's (1892) theory of the origin of money. To get at the origin of money, Menger argues that we must first recognize that money's most important, and most distinguishing, characteristic is that it is so easily saleable. The problem in a barter economy is the absence of a double coincidence of wants which results from different goods having different degrees of saleability. This makes it difficult to find someone who has what you want and wants what you have. After explicating a number of factors that do and do not enhance the saleability of goods, Menger proceeds to the heart of his theory. We can imagine a series of actors on their way to the market intent on executing exchanges in order to get rid of the goods they have but do not want and acquire others they want but do not have. Such exchanges will be easier to execute if our actors bring with them goods that are more easily saleable. Even those who do not at first possess saleable goods can always exchange what they do have for something somewhat more saleable, which can later be exchanged for the ultimate desiderata. It may well be easier to acquire a certain good through a series of exchanges for goods of greater and greater saleability, ultimately leading to the good in question, rather than hoping for a double coincidence of wants with the originally possessed good and the desired good.(3) As the few original users of media of exchange begin to find it easier to obtain the things they ultimately want, others in the market observe their success and begin to imitate their behavior. …