Money (41 page)
Authors: Felix Martin
“What?”
“No. You see, money is a social phenomenon—like language—so the whole notion that the sovereign or the central bank controls the standard is in fact a myth. It doesn’t control the monetary standard any more than the editors of the
Oxford English Dictionary
control the meaning of words.”
“You must be joking.”
“I’m afraid not.
“You see, because money, like language, is intrinsically social, one certainly can’t just invent it on one’s own. A famous economist
once said that anyone can issue their own money—the problem is getting it accepted. That’s exactly right: anyone can write IOUs—and depending on how other people rate the creditworthiness and liquidity of those IOUs, they can circulate as money. But the famous economist was making an assumption that these IOUs are denominated in dollars or euros or pounds or whatever. Because what anyone cannot do is issue their own money—regardless of how creditworthy an issuer they are—denominated in their own, private, monetary unit. The IOUs would be quite literally meaningless. It would be as absurd for you or I to decide unilaterally on our own monetary standard as it was for Humpty-Dumpty to claim to Alice that his words mean just what he wants them to mean.
“Now the state is not exactly like you and me, of course. It is uniquely large and uniquely influential—and if you have to deal with it regularly, as most of us do, it can, to an extent, dictate terms. So, for example, the state—especially if it is a totalitarian state—can manipulate the meaning of words. And when it comes to the monetary standard, the weight of the sovereign’s promises to pay does exert a significant effect on its value and on the extent to which the general public use it. That’s why hyperinflations are invariably associated with the collapse of sovereign credit, and of the legitimacy of the state itself.
“But the state is not society; so the state’s control over the standard is never complete. If the monetary standard, like totalitarian language, becomes so detached from reality as to be useless in the eyes of its users, society can and will improvise an alternative. That’s why when inflation gets out of control in emerging markets, people start to re-denominate prices in dollars or euros even though there may be hardly any dollar or euro notes actually in circulation. Occasionally, like the issuers of the Argentinian
Crédito
or the Italian exchange-bankers of the sixteenth century, they even come up with a new standard all of their own. In either case, they find themselves a monetary standard that will actually serve its stated purpose—the co-ordination of monetary society—to replace the one that the state has rendered quite literally meaningless.”
“All right,” said my friend suspiciously, “so what? What does all this mean for our revolutionary—sorry, conservative—programme? Are you trying to tell me that there’s no point in my writing to the new Governor of the Bank of England after all, because he doesn’t actually control inflation, and he’s not actually in charge of our money?”
“No—that’s not quite the point. It may be indirect but, as I said, the state does exercise a great deal of influence over the monetary standard so I think he should stay on the list. The same goes for all those others you mentioned. National and international monetary and financial policy-makers have a great deal of power over money. Likewise, the academics and finance professionals who are the high priests of economics have enormous influence over the ideas which shape monetary society. So you should definitely lobby them all. It’s just that, because money is, like language, in the last analysis, a social phenomenon, none of these people are ultimately in charge of it any more than professors of English are in charge of English or the Académie Française is in charge of French. So if you really agree that money is a social technology, not a thing; that the conventional way of thinking about it is wrong, and makes the technology malfunction, but that the right way of thinking about it is available, and can allow money to fulfil its potential as the greatest tool of self-government ever invented, then it’s no good just writing to the experts.”
“But who should I write to then? I mean, who is in charge of money?”
“Ah—you of all people will like the answer to that. You are.”
“Me and everyone else who uses it, you mean.”
“Yes, I suppose that’s more accurate!”
“So if we’re really going to reform money …”
“… I’m afraid it will ultimately come down to ourselves.”
“I knew it,” said my friend, with the satisfied look of someone who realises he’s been right all along. “If you want anything done properly—you have to do it yourself.”
1 What Is Money?
1.
Furness, 1910.
2.
Ibid
., p. 92.
3.
Ibid
., p. 93.
4.
Ibid
., p. 98.
5.
Ibid
., p. 96.
6.
Ibid
., p. 97.
7.
Ibid
., pp. 97–8.
8.
Keynes, 1915a.
9.
Aristotle, 1932, I.3.13–14. As we shall see in
chapter 8
, Aristotle also developed a quite different theory, however.
10.
Locke, 2009, pp. 299–301.
11.
Smith, A., 1981, pp. 37–8.
12.
Ibid
., p. 38.
13.
Ibid
., pp. 38–9.
14.
The anthropologist David Graeber exasperates himself presenting a catalogue of examples from recent textbooks in Graeber, 2011, p. 23.
15.
Dalton, 1982.
16.
Humphrey, 1985, p. 48.
17.
Kindleberger, 1993, p. 21.
18.
Graeber, 2011, p. 28.
19.
Smith, T., 1832, p. 11ff.
20.
Mitchell Innes, 1913. Like, I expect, most modern readers, I owe the discovery of both this essay and Mitchell Innes, 1914 to Wray, 2004.
21.
Statistics from the Federal Reserve Bank of St. Louis and the Bank of England, respectively, for November 2011.
22.
Friedman, 1991.
23.
See
http://www.centralbankmalta.org/site/currency1b.html
.
24.
Peter Spufford—the leading British historian of money in medieval Europe—discusses the historiographical pitfalls that result from this fact in the introduction to Spufford, 1988.
25.
Goetzmann, W. and Williams, L., “From Tallies and Chirographs to Franklin’s Printing Press at Passy,” in Goetzmann and Rouwenhorst, 2005, pp. 108–9.
26.
See Clanchy, 1993, pp. 123–4; and Goetzmann and Williams, “From Tallies and Chirographs to Franklin’s Printing Press at Passy,” in Goetzmann and Rouwenhorst, 2005.
27.
Charles Dickens, 1855, “Speech on Administrative Reform,” delivered at the Theatre Royal, Drury Lane, 27 June 1855.
28.
Ibid
.
29.
The historian Michael Clanchy has pointed out an exquisite irony in this. At the very moment that Britain’s rulers were ordering the deliberate and wholesale destruction of her most important financial records of the past six hundred years in the name of progress and reform, they were instructing the Records Commissioners to begin the first collation of the earliest medieval records in parchment, starting with the Chancery rolls from the time of King John. As Clanchy laments, “The Commissioners would not have dreamed of burning Domesday Book or the Chancery rolls, yet these records of the Exchequer were deliberately destroyed because they were in a medium, wood, which was too uncouth for scholars to appreciate” (Clanchy, 1993, p. 125).
30.
Goetzmann and Williams, “From Tallies and Chirographs to Franklin’s Printing Press at Passy,” in Goetzmann and Rouwenhorst, 2005, describe and analyse one such collection; but they freely admit how difficult it is to know for sure what individual tallies mean.
31.
Irish Independent
, 1 May 1970, pp. 1 and 24.
32.
Central Bank of Ireland, 1970, p. 6.
33.
The Times
, 14 July 1970, p. 20.
34.
Irish Independent
, 28 May 1970, p. 30.
35.
Ibid
., p. 9.
36.
Ibid
., 13 June 1970, p. 1.
37.
Central Bank of Ireland, 1970, p. 47.
38.
Murphy, 1978, p. 44.
39.
Ibid
., p. 45.
40.
The characterisation of money as a social technology—a brilliant coinage which has gained even more suggestive power since the advent of internet-based social networks—is due to Ingham, 2004.
41.
These three elements form the basis of what is usually called the “credit” theory of money—and set it in opposition to the conventional “commodity” or “metallist” theory: see, for example, Schumpeter, 1954; Goodhart, 1998; Smithin, 2000; Wray, 2004; and, for a concise overview of the differences between the two approaches, Jackson, Werner, Greenham, and Ryan-Collins, 2012. As we shall see throughout the rest of this book, the credit-theoretic approach to understanding money has a rich history.
42.
Macleod, 1882, p. 188.
43.
Ibid
., p. 481.
44.
The classic reference is Knapp, 1924. We will hear more about chartalism in chapters 4 and 8.
45.
Feynman, R., “How to Enjoy a Trip to the Dentist: The Mystery of Magnetic and Electrical Forces,” Episode 3 of
Fun to Imagine
, first broadcast 22 July 1983. Available at
http://www.bbc.co.uk/archive/feynman/10702.shtml
.
1.
The
aristeia
of Diomedes, for example, comprises all of Book V, and the first 236 lines of Book VI of the
Iliad
.
2.
The shield is described in
Iliad
XVIII. 478–608.
3.
Seabright, 2004, p. 15.
4.
Iliad
II. 272–7.
5.
Fragment 23 of the 7th–6th century
BC
poet and statesman Solon, here in M.L.
West’s translation. The identical couplet is also attributed to another aristocratic poet of the seventh century, Theognis of Megara, at lines 1253–6.
6.
See Seaford, 1994, pp. 42–53. Seaford summarises: “Collective participation in the ritual as well as in the distribution of meat in a fixed order create community (
koinonia
).” p. 44.
7.
See, for example, the first chapter of Macdonald, 2006, p. 14, which provides a useful historical catalogue of the socio-economic institutions of tribal peoples. The classic comparative study of the phenomenon of gift-exchange is Mauss, 1954, the second line of which summarises in a single sentence the results of decades of research on numerous primitive and archaic societies: “In … many … civilizations contracts are fulfilled and exchanges of goods are made by means of gifts.”
8.
Parry and Bloch, 1989, pp. 23–4.
9.
And, of course, one which has persisted all the way into our own era in the form of the Christian Eucharist.
10.
The mysterious standing stones at Göbekli Tepe in modern-day Turkey, carved with elaborate illustrations of people and animals as long ago as 15,000
BC.
11.
Nissen, 1988, pp. 70–3. By way of comparison, the urban area of classical Athens was only around 2.5 square kilometres; and Jerusalem, after its expansion around
AD
43, attained about 1 square kilometre. Estimates of population sizes for ancient Mesopotamian cities, even very vague ones such as those given here, are necessarily speculative: see Van de Mieroop, 1997, pp. 95–7.
12.
The following account of Ur in the early part of the Old Babylonian period (2000–1600
BC
) is based on Van de Mieroop, 1992.
13.
Van de Mieroop, 1992, pp. 77–8.
14.
Ibid
., p. 208.
15.
The term “command economy” is of course not strictly appropriate, alluding as it does to socialist economies in the twentieth century (
AD
). There were—especially in the latter part of the Old Babylonian period, as documented in Van de Mieroop, 1992—parts of the Mesopotamian economies which appear to have been under much looser central control. Most probably, the Mesopotamian urban economies incorporated a dominant redistributive, administered temple economy supplemented by a variety of small-scale productive and trading activities outside of the direct control of the bureaucracy.
16.
Childe, V. G., 1954, “What Happened in History,” p. 93, quoted in Schmandt-Besserat, 1992, p. 6.
17.
Schmandt-Besserat traces the earliest version of this theory to William Warburton, who propounded it in his
Divine Legation of Moses
of 1738. See Schmandt-Besserat, 1992, p. 4ff.
18.
This last interpretation was not as bizarre as it might sound. Board games were indeed an important feature of Mesopotamian life, as attested by the famous board of the “Game of Ur” that is now in the British Museum. But the sheer number of clay artefacts discovered implied an obsession with games-playing on a rather unlikely scale. The conclusion drawn by the eminent archaeologist Ernest Mackay in his field report from the site of Jemdet Nasr in 1931—“That the games played with these pieces were extremely popular is proved from the great number found”—turned out to be a circular argument.
19.
Carleton S. Coon, in his site report on Belt Cave in Iran, cited in Schmandt-Besserat, 1977.
20.
See Dantzig, 1930, for more on the history of the concept of number.
21.
Schmandt-Besserat, 1979.
22.
Schmandt-Besserat, 1992.
23.
There were important stages in its development—most notably a stage before about 5500
BC
when tokens were mostly undecorated, and the stage afterwards, in which drawing on tokens with a reed pen offered a means of introducing additional flexibility into the system. See Schmandt-Besserat, 1992.
24.
UET 5: no. 572, (RS 9), cited in Van de Mieroop, 1992, p. 83.
25.
See Hudson and Wunsch, 2000, for more on this fascinating topic.
26.
Whilst it is uncontroversial that there was no money in Dark Age Greece, there is some debate over whether or not money existed in the ancient Near East. Seaford, 2004, devotes an appendix (pp. 318–37) to an extensive review of the evidence that it did not; but concedes that there is continuing scholarly disagreement on the question. Any answer will always depend critically on how exactly money is defined. The interpretation followed here is that the systems of financial accounting developed in ancient Mesopotamia did not make the transition to the use of general-purpose money based on a universal concept of economic value deployed throughout society in a decentralised fashion, but instead developed a sophisticated system of limited-purpose units of value for use by the clerical bureaucracy in the course of their economic planning.
27.
Kula, 1986, p. 8.
28.
Ibid
., p. 22.
29.
Ibid
., pp. 4–5.
30.
The set of six basic units themselves had in fact been endorsed as Resolution 6 of the 10th meeting of the General Conference in 1954—but it was Resolution 12 of the 11th General Conference which established it as the
Systeme International
, complete with official abbreviations and a list of supplementary and derived units. At the 14th meeting of the General Conference in 1971, a seventh basic unit, the mole (amount of substance), was added. The story of the creation of the SI—and much else—is told in Robert Crease’s fascinating
World in the Balance: The Historic Quest for an Absolute System of Measurement
, 2011.
31.
More precisely, “in terms of the wavelength in a vacuum of the radiation corresponding to a transition between specified energy levels of the krypton 86 atom.” In 1983, the 17th General Conference on Weights and Measures redefined the metre as the length of the path travelled by light in vacuum during a specific fraction of a second (though it has not yet been possible to operationalise this redefinition).
32.
Kula, 1986, p. 42.
33.
“Slicing an Apple,”
The Economist
, 10 August 2011. The proportions given are of total dollar value.