Sheep and Wool Coats: On The Currency Itself

An example of a labor note, from Josiah Warren’s work, Equitable Commerce. Warren used such notes as a way of exchanging products via his Cincinnati Time Store, labor being traded for labor.

Before dealing with the topic of currency, we must briefly discuss value: to determine what the currency should represent without defining value first is to attempt to drive a car without any wheels.

The prominent economic theory of value at the time of writing is the subjective theory of value: the value of a specific object or commodity varies from person to person. Someone in the desert will value a bottle of water more than someone at a pool; one person may value chocolate more than oranges, while someone else may value oranges over chocolate. Each individual has their own subjective tastes; value, then, is a matter of subjectivity.

The theory itself is quite old, going back to the economist Jean-Baptiste Say, and has been propounded by the likes of Carl Menger, Ludwig von Mises, Friedrich Hayek, Milton Friedman, etc., etc. With the rise of market economies, it is not unreasonable to see why: trade acts, in a way, as an exchange of values as well as an exchange of commodities. Each person gives up something they value less to gain something they value more.

The idea of subjective value can find itself relayed concretely through marginal utility. Agorist thinker Samuel Edward Konkin III (SEK3), in his Agorist Primer, explains marginal utility through a story: a shepherd trades with other shepherds, exchanging sheep and wool coats. A rich shepherd, with 100 sheep, buys the wool coat from the other shepherd (who only has 10 sheep), in exchange for three sheep. The rich shepherd finds the wool coat more valuable than the three sheep, while the other shepherd valued the three sheep more than the wool coat. The rich shepherd would have been willing to trade the coat for more sheep, though; however, the other shepherd would not have traded the coat for less sheep. The marginal utility of the rich shepherd for his sheep is less than the marginal utility of the other shepherd, because the rich shepherd has more sheep: the more someone has of a certain object, the less relative value they put on it.

Samuel Edward Konkin III, prominent thinker and purveyor of Agorism.

How does this relate to currency? Currency acts as a medium of exchange: its purpose is to facilitate trade more easily by representing a certain value, so as to be used to exchange for something of equal value. It acts as a middle-man: while barter originally was the direct exchange of two different commodities, currency acts as an indirect exchange. A person sells their product for a certain amount of currency; they then use that amount of currency to buy a different commodity. There are more steps, but it’s more efficient: while barter requires one specific commodity to be exchanged for another specific one, currency can be used to exchange for all types of commodities.

Currency, then, represents a store of value; but the value stored is relative. If the U.S. dollar wasn’t a medium of exchange, it would just be a piece of fancy paper. Its value as a currency is not based on the intrinsic value of the paper, but on its ability to be exchanged for other commodities. Thus is the same for all currencies.

The Subjective Theory of Value sheds light on the issue of determining value, by saying that value cannot be determined objectively. “The value of a thing is a positive quantity, but only for a given moment. It is its nature to perpetually vary… Nothing can fix it absolutely…”(1) There is truth to this: it would be foolish to claim that everyone values all of the same things all the time. It would be extremely difficult, if not impossible, to prove that such-and-such a thing is valued at this much of so-and-so for all time.

However, while such is good and well from the realm of metaphysics or sociology, such a theory holds certain difficulties from the scientific approach. “Political economy,” says Proudhon,

being the science of values, of their production, distribution, exchange, and consumption — if exchangeable value cannot be absolutely determined, how is political economy possible? How can it be a science? (2)

If we are to define what our currency should be valued on, we must find some ground upon to base our idea of value itself. The individual may value things differently from their peers, that is true; but we must delve deeper in order to understand the limits of value, the overarching rule or formula beyond simple subjectivity, if we are to make economics a hard science.

First, we must state the fact that each and every product has some actual value. The value may change relative to other products for a variety of factors, but there is at least some legitimate, true value.

We may then use the act of exchange to help define value. Proudhon writes that,

“in every exchange, there is a moral obligation that neither of the contracting parties shall gain at the expense of the other; that is, that, to be legitimate and true, commerce must be exempt from all inequality.” (3)

Now, how do we determine if values are equal? If it is true that products must have actual, true value, and that products can and should be exchanged for other products of equal value, there must be some way to then determine that value objectively. That is the beginning point of economics as a science: even if the intrinsic value cannot be determined, the relative value, the exchange value, can and must be calculated.

The Subjective Theory of Value, while it posits an idea of supply and demand, does not go no further than that: its basis of product value is too fluid for calculation, or at the least it is content with not knowing or being able to calculate value. Yet within the market mechanisms, we can observe the trend, perhaps even the rule, of value calculation: that the value of a product equals its cost in time and expenditure. Professor David Friedman, an anarcho-capitalist thinker, unwittingly shows such using the example of doctors: As more doctors enter into the medical market, the price for a doctor’s services decreases. This makes sense from the point of marginal utility: increase in product, decrease in relative value.

However, with the steady increase of doctors, the change in price also steadily decreases. Friedman notes:

“If the total number of physicians was much larger than one hundred (as it is), the decrease in the price of a visit resulting from the addition of one more physician would be far lower. The nearer the change is to zero, the nearer the new doctor comes to getting 100 percent of his product.” (4)

David Friedman, anarcho-capitalist thinker and economist.

At some point, then, the price of the product becomes equal to its value. We also know that the value of the product cannot be less than the expenditures on the product. “Every product not in demand is a loss to the producer — a commercial non-value.”(5) With both ideas in mind, we must then make the same conclusion as the peasant who, asked how many nails is a pair of shoes worth, “replies without hesitation: ‘As many can be made within the same time, at the same expense.’ ”(5)

“The same product, at different times and in different places, may cost more or less of time and outlay; in this view, it is true that value is a variable quantity. But this variation is not that of the economists… the true value of a thing is invariable in its algebraic expression, although it may vary in its monetary expression… The price of every product in demand should be its cost in time and outlay — neither more or less…” (5)

What we move to, in this regards, is a surprising evolution from the Subjective Theory of Value to the older economic theory of the Labor Theory of Value. Perhaps, indeed, it is a combination of the two systems: for the Subjective Theory of Value helps in explaining why individuals trade amongst each other, and the Labor Theory of Value helps to calculate the economic values being exchanged. Economics, then, is grounded through the application and synthesis of these two theories of value.

With value now set firmly in place, we may discuss currency. As stated earlier, currency is a store of value: through it, trade can be done more easily. Gold has been the historic example of a currency, and for a long time right-libertarians valued gold as an optimal currency. “Gold,” as SEK3 put it, “remains the choice of a free market.”(6) The mutualist Clarence Lee Swartz admits that “gold, so far, seems best adapted to be the standard of value, and can well continue to be such until a better standard is found.”(7)

However, the exclusive use of gold as currency would be a recipe for disaster. Swartz states that,

“as the sole basis of security upon which paper money is to be issued, gold has been one continuous source of trouble and disaster. This… function could be fulfilled much more satisfactorily by other commodities than by gold alone…” (8)

Clarence Lee Swartz, American mutualist thinker. He was close friends with the influential American anarchist Benjamin Tucker.

Friedman also says as such:

“The disadvantage of gold and silver is that they have very inelastic supplies and relatively inelastic demands; judging by recent history the value of both… can and does vary erratically even without the additional instabilities that would be introduced by a fractional reserve system based on them.
The ideal commodity backing for a modern system would not be any single commodity but rather a commodity bundle… the goods making up the bundle would be chosen to make the value of the total bundle correlate as closely as possible with the general price level… the value of such a money would be stable against both monetary and non-monetary changes.” (9)

Currency, then, can vary widely: gold may act as a standard of value, but it need not be the sole basis for currency. Each form of currency, whether in coins, paper, or digital data, has its own value as a medium of exchange. The use of whichever type is left to personal preference.

What should the currency be valued at? If our idea of value is anything to go by, it will be variable: while we know the formula to be cost in labor and outlay, the specific value will vary depending on the cost of issuing the currency. It may cost less to print paper money than to mint coins; using pieces of gold may cost less than printing money. Perhaps the currency will act like a bond: a promise for a certain value of products, to be redeemed or traded for that value. Labor vouchers may even be used for currency, if one so wishes to use them as such.

The valuing of currency, then, is up to the decision and cooperation of the people using their respective currency. “The issue of money”, Swartz asserts, “should be free to respond to the demands of industry and business, as is the production of other things.”(10) Whatever the case, I see it as certain that the value of money will correspond with a certain amount of work and expenses put to it; in short, the value of money should correspond to the value of labor.

In respects to crypto-currency, it shall follow the basis of currency as outlined above. The value of crypto may perhaps be determined by how much of the currency is gained for mining or authenticating a transaction on the blockchain, comparing it to the time and cost put out to complete the authentication. Or it may perhaps be decided at the beginning that the value corresponds to a certain amount of labor, and the currency value is based on a sort of smart contract, saying how much it is worth relatively.

The currency itself, however, has been dealt with. One must now deal with how the currency may be issued or lended out: in essence, we must deal now with either the creation, or the lack of necessity, for a Mutual Bank or Bank of Exchange.

(This article is part of a series dealing with the establishment of a mutualist system utilizing cryptocurrencies. The beginning of this series may be found here.)

  1. From Jean-Baptiste Say, as quoted by Pierre-Joseph Proudhon in What Is Property? (Anodos Books publishing, p. 59)
  2. What Is Property?, by Pierre-Joseph Proudhon. Anodos Books publishing, p. 59
  3. Ibid, p. 58
  4. The Machinery Of Freedom, by David Friedman. Second Edition, Open Court publishing, p. 13
  5. What Is Property?, p. 60
  6. An Agorist Primer, by Samuel Edward Konkin III. Paperback edition, KoPubCo publishing, p. 27
  7. What Is Mutualism, by Clarence Lee Swartz. PDF edition,, p. 37
  8. Ibid, p. 36
  9. The Machinery Of Freedom, pp. 223–224
  10. What Is Mutualism, p. 41



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