Roger Scruton (Unreal Estates) reminds us that money is a social fiction. By this, I take him to mean that there is a human and social reality in the myriad purposes, entreprises, agreements, efforts, transformations etc that go to constitute society; and that there is a subset of these efforts that are thought of as comprising "the economy", a subset which more or less coresponds to that group of activities that we have come to account for through a sort of social karmic game of money - like a computer game, you get so many points for this action, lose so many for that ... but unlike most games, the "tariff sheet" is determined within the game itself, as part of the game. But, importantly, the reality is the human and social interaction; the money is a sort of formalised and reductive representation of it.

It is important to remember money's fictional and social function, especially today when the social function has so broken down: if the financial system is not working, there ought to be no absolute constraints, no natural laws that constrain how we reset or redefine the game of money.

Roger proposes that the fiction of money can be fixed by "re-moralising" it: by understanding debt as an obligation, for example, not as an instrument to be flipped:

what we are seeing, in both Europe and America, is a demoralisation of the economic life. Debts are no longer regarded as obligations to be met, but as assets to be traded. And the cost of them is being passed to future generations, in other words to our children, to whom we owe protection and who will rightly despise us for stealing what is theirs.

I think that many would agree with Roger's view as a basic analysis of how we got from the economic crises of the 1970s ( the end of the dollar's gold convertibility as much as the oil crisis as much as the impossible pass that labour and management cornered themselves into in the UK) to the economic crisis of today (see, for example, my 2007 piece on "The end of gentlemanly capitalism").

A financial system that used to hold together through all sorts of "archaic" understandings and institutions gave way to a free-trading, formalistic, property-rights based order. That order has not only turned out to be highly prone to boom and bust. More importantly, it has turned out to be very corrosive of the "moral understandings" that stabilised the old order: a community, nation, a sector or a class no longer stands behind its currency and debt; instead, it is money that stands behind it , buying privilege, the law it wants, and impunity.

Roger is right, I think, to insist on the culpability not only of the financial and corporatised business sector but also of a public sector which has abused its power to borrow for the purpose of short term political expediency. This has been true all over the Western world, but especially so on the Eurozone periphery.

So much for the analysis. What do we do now? This may be where I part ways with Roger, although he offers no clear policy prescription in his piece.

I don't think that there is a simple return to a society in which the economy is understood in terms of moral foundations: it is telling that Roger goes back to the Quran for an example of the moralised economy. He could just as well have gone to Deuteronomy or Confucius or any number of traditional social codes to find the same sort of understanding. The development in law of the "moral person", separate from the physical but with legal agency; the invention of limited liability, debt and fractional reserve banking ... they have all of them allowed not only economic growth and all the human flourishing that has allowed, but also a great levelling of economic opportunities. The status quo ante is not only unattainable, it is unattractive.

The traditionalist prescriptions against interest, for example, solve the economic problem by limiting the extent of contact with strangers. A small-scale, closed society does not need interest because very precise accounts of social reciprocity (and the lack of it) are contained in collective memory. A prohibition against interest makes sure that society stays that way. The converse is that usury, in the best of cases, brings strangers together. This is the defense of interest that I developed here:

When money is supplied to outsiders, the boundary of the "inside" changes. The investor starts to exchange more than just gold with the adventurer--the love between Jessica and Lorenzo in the Merchant of Venice would presumably never have flourished had there not first been outside interest. Once interest flows, so can much more--usury, in the best of cases, weakens the boundary between the inside and the outside.

I think that we need to understand the state the we find ourselves is as one of transition: many of us were living under the rules of the traditional financial order, of the moralised economy, while a small - and now mostly very rich - professional class had taken advantage of the reality that the traditional order was no longer supported by practices and institutions  that stabilised it. The solution is not to return to that older order, but to make sure that we make a full transition away from it - not the half transition that has been so damaging and so unfair.

What are the elements of that transition?

• An honest state - one that neither bribes voters with short term gain nor bends over to accommodate the interests that promise to pay for its exercise of power
• An informed, engaged citizenry - one that is willing to take on the role of guarding the guardians seriously; that does not delegate the most important State functions to a technocratic elite of the so-called expert
• A transformation in our understanding of social status, which should cut through the fiction of money to the human and social realities behind it, and indeed, that should include many other goods than the ones included in the economic representations of society: Bill Gates should be socially regarded for his transformation of the PC industry, not for the wealth that it brought him, while any number of financiers and corporatised CEOs should be socially regarded, if at all, despite the money that they made

The fictions of finance can help us make that transition. They are malleable to social ends. My own favourite reform would involve requiring much more of the "corporate person" in exchange for limited liability.

What implications does any of this have for our immediate actions during the crisis - for example on the question of whether or not Greece should default, or whether stimulus should replace austerity in the UK or the US? The main point of understanding these social fictions is that the argument should not consider that any financial options are out of the question because of the nature of money or the financial system: we decide that. Nevertheless, my view is that we should judge courses of action on the basis of whether they are more likely to points us towards saner fictions.