Book Review: “New Money” by Lana Swartz

New Money by Lana Swartz

Professor Swartz has her head screwed on right, and has a deep understanding of payment systems, conventional and “innovative”.  Having followed the Anthropology of cryptocurrency communities for years, I was impressed that she isn’t all that impressed by blockchain projects.

Money is a many faceted thing, so there are lots of ways to look at it.  Professor Swartz analyses money as a medium for payments, which are transactions and therefore a form of communication.  As such, payments can be studied with all the intellectual tools that have been developed around communication.

“The history of payment bears traces of ongoing conflict between space and time, ephemerality and permanence, individual identity and collective accountability, private control and public interest.” ([3], p. 27)

At the very least, this book is a refreshing change from all the pseudo-intellectual natter in the crypto community about ‘value’, ‘capitalization’, and the inevitable (yet never realized) implosion of ‘fiat currencies’.

She uses the term “transactional communities”, by which she means the community of people who use a particular type of transaction:  who pays who, who controls the payments, what can be paid for, etc.  The existence of such a community implies that there are people outside the community, people who cannot pay, cannot be paid, do not exist as far as the transactions are concerned.

“Every card conveys and performs a transactional identity.” ([3], p. 47)

Swatrtz gives us a brief history of “money” as communication technology.  And, surprise!—money tracks communication technology.  There is a lot of interesting background information here on how conventional charge/credit/debit cards work.

One of the interesting things is  how the open network (VISA/Mastercard and other back office stuff) enabled the amazing variety of cards, targeted to smaller and smaller niches, we see today. The policy requiring that participating merchants must take all cards made it possible to issue a vast array of different cards.

This infrastructure was, in turn, coopted by PayPal and internet commerce to create yet new forms of payment. Much of the “innovation” of internet payment involves cutting out middlemen.  This doesn’t help merchants or customers, because the new companies take the savings as profit.  And it doesn’t create new business or jobs so much as wipe layers of hidden rentiers.

Social Media Money?

Swartz sees national currency (i.e., conventional money) as a form of “money mass media”—” designed to enact transactional communities the size and scope of the nation.  It is public infrastructure for use by citizens that could be used for all transactional purposes.” ([3], p. 152)

The question is, what is money in a post-mass media infrastructure, which she calls ‘social media money’?

One key point is that, as a communication technology, social media are plural, customized to small groups.

“Just as money has been and may again be plural, so too will the transactional identities that these monies produce.” ([3], p. 160)

And, indeed, we see this plurality in the various special cards which explicitly serve specific “communities” with specific identities.  Many of these “platinum”, etc. ,cards create or recreate hierarchies of specialness, essentially recognizing or creating an identity for its users (and, by implication, identifying everyone else as irrelevant and valueless.)

This concept plays out in corporate “loyalty” programs (starting with airline miles), which trade personal data for special deals.  By definition, the loyal users are a community with shared interest and implied identity.  Some of these programs have slipped into general financial services, becoming very much like a private currency, used by a transactional community.

And, of course, Bitcoin and other Nakamotoan cryptocurrencies explicitly aim to replace money with new digital tokens.  I have written about the many cryptocurrency communities that enact their own identities [2].  Swartz sees cryptocurrencies as reproducing many of the patterns of conventional finance, i.e., forming and serving transactional communities.

Shwartz has some not-at-all-worshipful remarks about Facebook’s Libra project, now rebranded as ‘Diem’.

Discussing different kinds of money, new and old, she remarks:

“If national currency represents liberal democracy, and Bitcoin represents some combination of techno-libertarianism and anarcho-capitalism, the Libra represents Silicon Valley feudalism….

This is not a “peer-to-peer” technology, rather, it bestows a peerage’” ([3], p. 169)

Ouch!  “Silicon Valley feudalism”!

Discussing the success of Starbucks’ (non-blockchain) loyalty cards, which are edging toward a general-purpose currency, she remarks:

“There is little evidence, however, that a firm like Starbucks, with its extensive infrastructure for digital payments, or social media platforms like Facebook actually need a blockchain or cryptocurrency to provide digital payments.” ([3], p. 168)

What is actually going on is marketing, and deceptive marketing at that:

“… Blockchain offers these firms a mystique of innovation, a feeling of excitement, a whiff of the radical.  In this sense, blockchain acts as a Trojan horse, enabling entrenched firms to create closed-loop loyalty systems while appearing to support an open, transparent, peer-to-peer technology.” ([3], p. 160)

I would say the same about central banks, governments, and all parts of conventional financial system that are toying with blockchain-y technology.  What does a central bank—which already has its own money and infrastructure—need with a new, less developed technology?  And how would using a blockchain make a central bank, well, “decentralized”?  Ditto for Wall Street.

In short, much of the chatter about blockchains is just PR, science fiction that makes people sound sexy and innovative, but technologically non sequitur.

If there is any reason for these institutions to adopt blockchain, it would be the possibility of huge cost savings.  I haven’t seen any convincing evidence that, once you actually replicate all the functions of conventional finance, blockchain will be significantly cheaper than conventional technology.  But with hundreds of millions of dollars and tens of thousands jobs on the line, even small savings in the back room could add up—for the big, centralized players.  I’m not sure that automating away thousands of jobs is the kind of “innovation” people are hoping for.

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Summing up:   This is an interesting and timely book, and a welcome dose of reality in the fantasy land of cryptocurrency.  Before you start pontificating about “reinventing money”, you might want to read this book to learn something about how “money’ actually works already.

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1. Brady Dale (2020) Every Credit Card a Tribe, Every Crypto Coin a Scaling Debate. Coindesk, https://www.coindesk.com/lana-swartz-new-money-book-crypto-communities
2. Robert McGrath, You Shall Not Crucify The Internet On This Cross of Bitcoin, in Very Much Wow. 2014: Albuquerque. p. 34-37. http://issuu.com/verymuchwow/docs/vmw3/35?e=11558635/8421855
3. Lana Swartz, New Money: How Payment Became Social Media, New Haven, Yale Univesity Press, 2020.