What is the real purpose of money? Gap Psychology and fairness. You may never have thought of it this way.

Image result for alan greenspan on computer
Alan Greenspan: “A government cannot become insolvent with respect to  obligations in its own currency.”


What is the purpose of money? You may never have thought of it this way.

Yes, money acts as a convenience. As opposed to a purely barter economy, in which you would need to carry and ship various items of value to trade for other items of value, transactions using money allow you simply to press a computer key.

Yes, money acts as a measure. It helps you determine and compare how the public values things.

Yes, money acts an incentive, to do what society wants to be done.

Yes, money helps you evaluate people’s trustworthiness. Depending on how people use their money, and how much money they own and owe, you can determine credit.

Yes, money helps you evaluate people from many perspectives. You think about rich people differently from the way you think about poor people. You may not like the shallow implications of this sort of evaluation, but it is reality. You do it all the time.

And yes, money acts as a reward, and this is a clue to the real function of money.

In fact, money is so pervasive in your life, you scarcely can imagine a society operating without money.

And yet . . .

. . . yet, termites don’t use money, and some of their societies can include several million individuals. Each termite simply does its job, without any exchange of money. The same is true of bees and other social insects.

Emporer penguins form large societies, and the males especially, work together to shelter one another from the cold and wind. But no money is exchanged.

Our nearest relatives, the chimpanzees, don’t use money, though they do use a back-scratch grooming system that is a vague cross between barter and money.

Now, consider human families. I have a wife, two children, and five grandchildren. We don’t use money for our family internal transactions. I do things for them, and they do things for me and for each other, and no money changes hands. In our little society, we do not use money.

But in our dealings with the rest of the world, we use money.

How is it possible for my family to operate internally without money, and for termites and penguins and chimpanzees to function without money, but nations and large human societies seem to demand money?

I propose that the primary purpose of money is to mediate the conflict between Gap Psychology and Fairness.

Gap Psychology is the common desire to narrow the income/wealth/power (IWP) Gaps above you and to widen the Gaps below you.

You wish to follow, mingle with, and know more about the rich and famous, while you wish to distance yourself from those poorer and less powerful than you.

Being nearer to the strong and farther from the weak is a human survival technique.

The following graph provides a demonstration of one of the many Gaps, the salary Gap:

The widening salary Gap between college grads (red) vs. high school (blue) and less than high school grads (violet).

Fairness opposes Gap Psychology. Gaps, by many measures, are unfair. Ironically, though we are strongly influenced by Gap Psychology, we also are strongly influenced by the desire for Fairness.

From an early age, you felt the urge for Fairness. Consider these excerpts from an article in Scientific American Magazine:

Do Kids Have a Fundamental Sense of Fairness?
Experiments show that this quality often emerges by the age of 12 months
By Katherine McAuliffe, Peter R. Blake, Felix Warneken on August 23, 2017

There is a commonly held belief that humans are fundamentally selfish agents and fairness is a construct designed to help us override our selfish instincts.

Not only this, but the idea really seems to be that fairness doesn’t come naturally, which is why we need institutions like the justice system to make sure that fairness prevails.

Psychologists and economists have begun to gradually chip away at this notion, showing that people are actually pretty fair even when they can get away with selfishness.

Recent studies with children suggests fairness is an integral part of how our social world operates.

Infants as young as 12 months expect resources to be divided equally between two characters in a scene. By preschool, children will protest getting less than peers, even paying to prevent the peer from getting more.

As children get older, they are willing to punish those who have been unfair both when they are the victims of unfairness as well as when they witness someone else being treated unfairly.

Older still, children would rather receive nothing than receive more than a peer.

The purpose of money is to deal with two conflicting desires: Your desire to gain relative to other IWP levels,  and your desire to achieve a fair distribution of IWP.

Paying money for goods and services justifies your receiving those goods and services (fairness). Receiving more money than others to buy goods and services, provides the Gap.

In my family, and probably in yours, there is no Gap Psychology and no concern about fairness. You do not wish to distance yourself from your children who have less IWP than you, nor do they wish to come closer to you just on the basis of your IWP.

Thus, there is no need for money in your family internal transactions. But you do need money in your exterior transactions to achieve fairness and the Gap.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell


The most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-lesses.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
This article addresses the questions:
*Does the economy benefit when the rich can afford better health care than can the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE A MONTHLY ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA (similar to Social Security for All) (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Economic Bonus)) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:

Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012

Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONE Five reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefitting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
Businesses are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the federal government (the later having no use for those dollars). Any tax on businesses reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all business taxes reduce your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and business taxes would be a good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.



3 thoughts on “What is the real purpose of money? Gap Psychology and fairness. You may never have thought of it this way.

  1. Modern Money idea is good.
    But finally money will not have any value if we follow this system.

    A country with services and farming will last long. All theories will collapse.


  2. Thanks for writing about this, Rodger.

    It’s ridiculous that there are both empty houses and homeless people in the world. I work in Washington, D.C., and am asked for spare change almost every day.


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