by Felix Martin
“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.”
Notes
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.
2 Getting Money’s Measure
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.
3 The Aegean Invention of Economic Value
1. Mitchell Innes, 1914, p. 155.
2. B. Applebaum, “A Life’s Value May Depend on the Agency, but It’s Rising: As U.S. Agencies Put More Value on a Life, Businesses Fret,” New York Times, 16 February 2011.
3. These verses announce that the cup is the famous drinking vessel belonging to the Homeric hero Nestor—and thereby represent an example of instant sophistication of technique to rival Sterne’s Tristram Shandy, since this earliest extant specimen of Greek writing is also both the earliest literary allusion—to a passage of the Iliad—and the earliest ironic subversion of such an allusion—since the Homeric cup of Nestor was so large and ornate it could barely be lifted, whilst the inscribed cup is a modest clay bowl. See Murray, O., 1993, pp. 92–101 for further details on the transmission of literacy and its impact.
4. The modern fountainhead of the analysis of the impact of literacy on Greek culture is Jack Goody and Ian Watt’s 1963 article “The Consequences of Literacy,” reprinted in Goody, J., 1968. Goody and Watt were anthropologists, rather than ancient historians—and their hypotheses were strongly influenced by the anthropological research of the Soviet psychologist Alfred Luria, who made an extraordinary study of the cognitive effects of the transition from oral to literate culture in the unique circumstances to be found in Soviet Central Asia in the 1920s and 1930s (collected in English in his 1976 Cognitive Development: Its Cultural and Social Development). The Jesuit Walter Ong’s Orality and Literacy, 1982, was another foundational contribution. The subject has since come to be seen as fundamental for the understanding of archaic Greek history: see Murray, O., 1993, pp. 98–101 for a concise discussion.
5. Of course, it was not only the flow of new technologies from the ancient Near East that catalysed this intellectual revolution: there were substantive borrowings as well. See West, 1971.
6. Murray, O., 1993, p. 248.
7. Nissen, Damerow, and Englund, 1993, p. 51.
8. The hypothesis that it was the particular ritual of sacrificial distribution that provided the raw material for the idea of universal economic value can hardly be conclusively proved. Nevertheless, the case in its favour is not limited to its unusual role in expressing the equality of the individual within the tribe. There is also important circumstantial evidence: the earliest Greek monetary units were the obol—the term for the spits on which celebrants’ portions of the sacrificial meat were distributed—and the drachma—which originally meant “a handful,” presumably of such spits. See Parker, 1996, for details of the ritual itself; Seaford, 1994, and Seaford, 2004, for the exposition of the theory from which the hypothesis here is derived. Evidence in favour of the general hypothesis that abstract monetary units derive originally from social institutions of this broad type has been provided by Grierson, 1977; Grierson’s famous lecture made an analogous case for the origins of medieval European monetary units in the similarly egalitarian political ideology of the Germanic tribes of the European Dark Ages, ritualised in that case via the institution of wergild, the conventional compensation for personal injury.
9. See, for example, Supplementum Epigraphicum Graecum XII. 391, quoted in von Reden, 2010, p. 36.
10. Plutarch, Solon, 23.4, quoted in von Reden, 2010, p. 37.
11. Jeffrey, L. H. and Morpurgo Davies, A. in Kadmos, 1970, fig. 1, side A; cited in von Reden, 2010, p. 36.
12. Peter Spufford has demonstrated the intrinsic connection between money and markets in the Middle Ages in his 1988 Money and Its Use in Medieval Europe: “One of the striking phenomena of the tenth century in both Germany and England is the great number of new commercial centres deliberately created by imperial or royal fiat … The twin grants of the rights to hold a market and to operate a mint added a new dimension to urban life … Market and mint went together. The market was not for barter, but for selling and buying with money, and to provide for this a mint was needed” (p. 75). Of one of the very earliest specific examples of such a grant—to the Abbey of St. Gall by the Holy Roman Emperor Otto I in 947, he writes “Mint and market are firmly linked together. Without money there can be no market” (p. 77).
