In establishing that the notions of credit and debt are the realities underlying both commerce and civility, we posited a definition for money having some potential for demystifying our subject, i.e.: money quantifies debt. Transactions of quantifiable things are of course only possible in terms of the unit by which quantification occurs, and therein lies the rub: what shall be the monetary unit in which merchants do their bookkeeping and write their contracts? The only conceivable answer would be the same unit as the coin of the realm.

Sovereigns’ unceasing interest in power is coextensive with their interest in money — power’s liquid state. Rulers have always attempted to monopolize the creation of monetary symbols and used their police powers to enforce the exclusive use of these symbols as legal tender.

Coins can be minted from base metal so as to make them difficult to counterfeit, or minted from metals that are rare, thereby joining their value to the marginal costs of the metal’s discovery, extraction, and refinement. In the latter case, minting need be no more complicated than impressing an ingot with a credible assertion as to its weight and purity.

The printing of paper banknotes must also be done so as to limit counterfeiting, lest the realm’s information carrying particles become corrupt and cease to function as adequate indicia of where better economic states might lie. If a sovereign wishes or is compelled to signify that he has no desire to value himself at an unrealistic level, his paper currency might take the form of receipts of deposit for some quantity of a rare metal in the sovereign’s care.

Irrespective of the form in which money might be embodied, its intended reference is to value, which we hold to be the object of economic science. To our view, value is a reality separate from money: money is incorporeal; but value’s essence inheres with the physical quanta of an economic system’s productive assets. And physical assets make for a challenging category of analysis because physical things all have irreconcilable units of measure, e.g.: labor and capital, making it impossible to count them together.

Physical assets have their money prices; and these prices do permit the expression of various physical quanta in the same monetary unit, thereby enabling an evaluation of disparate physical assets in terms of a single unit. But these money prices carry with them the same conceptual problem with which we began, viz.: what shall provide the monetary unit? Again, the only imaginable answer for this question is the coin of some realm; and this is inherently unsatisfactory in application to the notion of value.

As the amount of debit/credit in the economy is always subject to change, so is the amount of money. The amount of coinage in which money is denominated can also be changing for completely unrelated reasons. And money prices of assets also change relative to one another. What does not change are the physical units of measure of the assets whose existence is the embodiment of value. That being the case, the only acceptable measure of value would be as constant as the physical measure of anything having a physical nature. And the only acceptable economic theory would base its price computations on commodities’ values as measured by a constant unit.

Many schools of thought define ‘value’ as some sort of virtual reference commodity for the economy’s productive potential. In the SFEcon system, value refers to the shapes of the economy’s underlying production and utility tradeoffs as these react upon the premise of general optimality — this premise being necessary because optimality specifies the unique quantum of each physical asset that should be associated with each productive process.

Historically, sovereigns have chosen a single physical commodity to stand in reference to all other physical commodities. This arrangement is serviceable insofar as the reference commodity is difficult to counterfeit and relative prices among all commodities are stable. Gold is the prototype for reference commodities of this order.

Gold coinage is thought to have been originated by kings in order to pay their soldiers. Having first monopolized gold’s supply, a King would require that taxes be remitted in his gold coins. This forced the mercantile classes to do business with his soldiers: the merchant got the coins with which to pay his taxes; the soldiers got their sustenance; and the king got his coins back.

If we accept that credit and debt are the underlying pheromone of commerce, then we can see the need for the king’s expedient: merchants are not going to extend credit to violent and rootless young men whose occupation is organized plunder; and an un-provisioned army will ravage whatever territory it occupies. In the course of his conquests, Alexander the Great liberated untold amounts of temple wealth with which he paid his soldiers. His advancing armies were provisioned all along their way by local merchants eager to trade their wares for the soldiers’ specie and (we may be sure) anxious to avoid the threat those soldiers posed.

It will be noted that coins made of base metal have served the same purpose as gold when the sovereign’s authority was extensive to a point where the convertibility of his coins could be guaranteed throughout a large realm. Certain phases Rome’s history provide cases in point here: the Roman Republic thrived on its intrinsically worthless monetary tokens; and the decline and fall of the later Roman Empire can be traced in terms of the corruption of its coinage for purposes of state. At a certain speed of new coinage, the credit/debt arrangements that underlie economic order are destroyed by falsification of the denominations in which they are stated. Corruption of the units by which obligations are measured can induce chaos as readily as would a randomizing of the physical units denominating objects of value.

If coinage has become synonymous with ‘real money’ it is perhaps because coins survive in the archeological record while debt/credit arrangements dissolve away. In any case, it has been several hundred years since a sovereign power has needed to deal with these barbarous relics. When William III needed money to finance his wars with France, he granted his creditors a monopoly on the creation of banknotes, which were actually liens against William’s obligations to what suddenly became the Bank of England.

The rise of central banking created specie of an entirely new composition: central bank holdings of sovereign debts (whether incurred by actual kings for their wars or by parliaments for social programs by which parliamentarians perpetuate themselves in office) now perform the role that coinage once had in denominating credit/debt arrangements throughout the economy. The coin of the realm now exists in the form of credible demonstrations by the state of its ability to tax. Coinage has taken the form of wealthy elites’ appetites for the safety and returns associated with sovereign debt.