Cigarettes, dollars and bitcoins – an essay on the ontology of money

Abstract

What does being money consist in? We argue that something is money if, and only if, it is typically acquired in order to realise the reduction in transaction costs that accrues in virtue of agents coordinating on acquiring the same thing when deciding what thing to acquire in order to exchange. What kinds of things can be money? We argue against the common view that a variety of things (notes, coins, gold, cigarettes, etc.) can be money. All monetary systems are best interpreted as implementing the same basic protocol. Money, i.e. the thing that we coordinate on acquiring in order to lower our transaction costs, is, in all cases, a set of positions on an abstract mathematical object, namely a relative ratio scale. The things that we ordinarily call ‘money’ are merely records of positions on such a scale.

What do we call money? An appraisal of the money or non-money view

“…Smit et al (2016) aim to provide a criterion to determine whether bitcoin is or is not money. Although their motivation is practical, the starting point is philosophical.…”

“…This, roughly, is the same basic strategy as is used to determine the extension of natural kind terms , i.e. to determine whether whales are fish, whether “heavy water” is water, whether “fool's gold” is gold, and so on … (Smit et al, 2016: 327, added emphasis)…”

“…On this view, therefore, it is possible to draw a precise dividing line between money and non-money. Recently, Smit et al (2016) faced the question of whether bitcoin is or is not money. Beyond the merits of their answer, we believe that a great contribution of their work is that in placing their strategy on philosophical grounds, they allow us to discuss what would be needed for the money or non-money view to succeed.…”

Money and mental contents

“…Other things, like institutions, also involve a close link between reason and action, but not because of their physical nature. For institutions the "full incentivization needs to be brought about by some human action, or moral belief, that serves to incentivize us" (Smit et al, 2016(Smit et al, , p. 1816. In both cases we have a reason, but one comes from the physical properties of an object and the other comes from agents creating incentives (p. 1816).…”

“…People can be incentivized by others to act in a certain way, and when such incentivization is stable enough, the resulting pattern is a 'social fact' (Smit et al, 2011, p.8). An institutional object is simply a natural object individuated by these actions and incentives, an "X that S is incentivized to act in manner Z towards" (Smit et al 2011, p.7) As long as people can attach incentives to natural objects, institutional objects can exist (Smit et al, 2016(Smit et al, , p. 1816).…”