by Felix Martin
27. See above this page and this page.
8 The Economic Consequences of Mr. Locke
1. The Mint price of silver—the tariff ordinance which specified the silver content of the sterling monetary units—had been 60d an ounce since 1601, except during the period 1604–26, when seigniorage had been half a penny more, and the Mint price therefore 59½d. Meanwhile, the market price of silver had rarely dropped below this, and in general had been between 62d and 64d an ounce. See Feavearyear, 1931, pp. 109–10.
2. The Mint price was raised by the Act to 62d an ounce, in other words. See ibid., p. 110.
3. By Lowndes, in his 1695 report to Parliament. See Mayhew, 1999, p. 97.
4. Desmedt, L., “Les fondements monétaires de la ‘révolution financière’ anglaise: le tournant de 1696,” in Théret, B., ed., 2007, La monnaie dévoilée par ses crises, cited in Ormazabal, 2012, p. 158. The market price of silver reached 77d an ounce in 1695, according to William Lowndes’ report of that year.
5. Lowndes, 1695, p. 56.
6. For simplicity’s sake, I describe here the mechanics of a recoinage. Lowndes’ preferred solution was in fact to execute the official devaluation using the method more frequently deployed throughout English history of “crying up” the tariffed, nominal value of the existing coinage, rather than going through the practically costly and administratively difficult business of re-minting. The equivalent of a 20 per cent reduction in the silver content would have been a roughly 25 per cent crying up of existing, full-weight coinage. See Lowndes, 1695, p. 123.
7. Feavearyear, 1931, p. 122.
8. Locke, 1695, pp. 1–2.
9. Ibid., p. 9.
10. Ibid., p. 12.
11. See Feavearyear, 1931, p. 124.
12. The full distributional arithmetic was more complex. The counterparty to these gains and losses was in the first place the Exchequer—since it was the Exchequer that was liable to subsidise the re-minting of the collected coins at full weight before the deadline, and the Exchequer that would no longer have to redeem light coins at full nominal value after the deadline. But the Exchequer would need to raise funds for the subsidy (it did so via a window tax), so what it gave with one hand it might take away with another a moment later.
13. Feavearyear, 1931, pp. 129–30.
14. Quoted in Mayhew, 1999, p. 101.
15. Keynes, 1931, p. 394. The book was Hayek’s 1931 Prices and Production.
16. Barbon, N., 1696, A Discourse Concerning Coining the New Money Lighter, quoted in Magnusson, 1995.
17. Liddell and Scott, 1996. Richard Seaford explains the etymology of the word nomisma as follows: it “comes from nomisdein (to acknowledge), is the object or consequence of nomisdein” (Seaford, 2004, p. 142). Nomisdein was the verb the Greeks used to denote cognitive commitments, such as belief in the gods, that were the result of convention rather than of active deliberation. To give a flavour of the connotations of nomisma, Seaford explains that “[t]he earliest surviving occurrence of nomisma is Alcaeus fr. 382 L-P: ‘truly she [Athena?] was bringing together a scattered army, inspiring them with nomisma.’ Nomisma here, mysterious enough to be divinely inspired, is the collective confidence, based on custom, that can unite an army … Customary collective practice [nomisma], whether coinage or in battle, depends on and objectifies the collective confidence of the community, for whom it introduces order into potential chaos” (ibid., p. 143).
18. Plato, Republic, 2.371b.
19. Aristotle, Nicomachean Ethics, 1113a. Similarly at 1133b: “There must therefore be some one standard, and this accepted by custom [nomos] (on account of which it is called a convention [nomisma]); for such a standard makes all things commensurable, since all things can be measured by money [nomisma].”
20. Seaford, 2004, p. 146.
21. Herodotus, Histories, 8.26.
22. Aquinas, Sententia Politica, lib. 1, l. 7, n. 6.
23. Aquinas, Sententia Ethica, lib. 5, l. 9, n. 12.
24. Aquinas, In Octo Libros Politicorum, Vol. XXVI of Omnia Opera, 1: 7. Likewise at Sententia Ethica, lib. 5, l. 9, n. 5.
25. See chapters 1 and 4. The tradition of Aquinas was by no means the only one in medieval monetary thought. In fact, significant parts of the legal tradition rejected monetary nominalism and developed an essentialist theory. For a fascinating, blow-by-blow survey of the medieval debate see Sargent and Velde, 2002, chapter 5.
26. Briscoe, J., 1696, A Discourse on Money, p. 18, quoted in Appleby, 1976, p. 65.
27. Feavearyear, 1931, p. 137.
28. Mandeville, 1705.
29. Mandeville, 1988 [1732], Vol. 1, p. 369.
30. Smith, A., 1981, III.iv.4, p. 412.
31. Ibid., III.iv.10, p. 419.
32. Ibid., IV.ii.9, p. 456.
33. Ibid.
34. Ibid., III.iv.15, p. 421.
9 Money Through the Looking-Glass
1. Or at least, they certainly did in the headquarters of the international financial institutions in Washington, D.C. Soon after the crisis first broke, in April 2007, I went to the joint IMF–World Bank library to borrow a copy of Kindleberger’s standard history of financial crises (Kindleberger, 2000). All the library’s copies were out on loan for the first time in many years—as of the previous week.
2. Kindleberger, 1993, p. 264.
3. Reinhart and Rogoff, 2009.
4. Marx and Engels, 1985, Section 1: Bourgeois and Proletarians.
5. Keynes, 1923, pp. 67–8.
6. Ibid.
7. Ibid.
8. France, 1908, p. 82.
9. “Charity as a Remedy in Case of Famine,” The Economist, 29 November 1845, p. 192.
10. “Feeding the Irish,” The Economist, 21 March 1846, p. 370.
11. Ibid.
12. Ibid. Readers may recognise in the arguments of this editorial precisely the arsenal of rhetorical strategies that the great intellectual historian Albert O. Hirschman identified as characteristic of reactionary argument throughout history in his 1991 study The Rhetoric of Reaction: Perversity, Futility, Jeopardy. Yet these arguments were being deployed by one of the leading reform journals of the day, in the cause of radical liberal economic policy. Perhaps they show that it is not just conservatives that have a monopoly on these evidently persuasive strategies.
13. Ibid.
14. Quoted in Woodham-Smith, 1962, p. 93.
15. “Faith in Principles,” The Economist, 2 January 1847, p. 3.
16. Quoted in Woodham-Smith, 1962, pp. 162–3.
17. Quoted ibid., pp. 375–6. Jowett was being a bit disingenuous: he was practically an economist himself, giving a course of lectures on political economy at Balliol every year until he became Master. See “Benjamin Jowett” in Pigou, 1925, pp. 292–4.
10 Strategies of the Sceptics
1. Herodotus, Histories, 8.138. Herodotus has the garden located in Macedonia—but Midas was an historical person, and the story has been transposed from Phrygia.
2. Midas’ story is told by several classical authors, with numerous variations. The version given here broadly follows the compound account given by Seaford, 2004, pp. 305–6, with incidental details from Ovid’s account in Metamorphoses, XI.
3. Ovid, Metamorphoses, XI. ll.118–19.
4. Ibid., XI. ll.127–8.
5. Aristophanes, Frogs, l.141.
6. Aristophanes, Wealth, ll.189–97. A talent was a high-value coin. This was a comic, classical expression of an older idea: Solon, the law-giver of the sixth century, had written: “As for wealth, there is no set limit for mankind; for those who are the richest amongst us hurry on to get twice as much again, and who can satisfy everyone?” (Solon, fr. 13 ll.71–3). Hirschmann, 1977, follows the trail of this particular aspect of money through the transformation of monetary thought by the Enlightenment philosophers of the eighteenth century. In their hands, he demonstrates, the insatiability of the desire for money, which had long “been considered the most dangerous and reprehensible aspect of that passion,�
�� “[b]y a strange twist … now became a virtue because it implies constancy.” As he points out, this amazing bit of moral gymnastics required something else as well: “to endow the ‘obstinate’ desire for gain with an additional quality: harmlessness.” (pp. 55–6).
7. Sandel, 2012, p. 6.
8. Skidelsky and Skidelsky, 2012.
9. See, for example, Frank, 2011.
10. Aristotle, 1932, 1257b 16.
11. Aeschylus, Seven Against Thebes, l.682.
12. Ibid., ll.688–9.
13. Ibid., l.697.
14. This was the boast of Athens’ greatest leader, Pericles, in his famous speech extolling her virtues reported by Thucydides in his History of the Peloponnesian War, 2.41.
15. As a rite of passage to adulthood, young Spartan men were assigned to secret clubs and sent out to live wild in the countryside, where they lay hidden during the day and emerged at night to murder any members of the peasant caste they could find. See Murray, O., 1993, p. 179.
16. Ibid., p. 160. Murray argues that both Plato and Aristotle admired the Spartan constitution, and believed its failing to be its relentless emphasis on breeding martial valour into its citizens, rather than a broader and more enlightened range of virtues.
17. In the Republic 2.371b, Plato admitted that there would have to be money in his ideal state, but at Republic 3.416e–17a, he forbade the Guardians—the highest caste—from using it. In the Laws 741e–742b, he then proceeded to impose conditions on the use of money by the masses, advocating the issuance of separate moneys for domestic and foreign trade (the former represented by coinage with no intrinsic value, the latter by precious-metal coinage), and explaining that the state should control the allocation to its citizens of the money good for foreign trade.
18. More, 1975, Book II, final page.
19. Bellers, 1696, p. 12.
20. Marx and Engels, 1985, Section 1: Bourgeois and Proletarians.
21. Ilf and Petrov, 1962, p. 29. I owe the example of Ilf and Petrov’s novel as an illustration of Soviet monetary policy in the 1920s and 30s to David Woodruff’s superlative study, Money Unmade: Barter and the Fate of Russian Capitalism, 1999.
22. Ilf and Petrov, 1962, p. 30.
23. Ibid.
24. Ibid.
25. Ibid., p. 294.
26. In part this had been making a virtue of necessity. The rampant hyperinflation caused by printing money to pay essential workers in the months after the revolution, for example, was quickly hailed as a deliberate effort to accelerate the demise of money by destroying the people’s confidence in it. In reality, it was simply a loss of control over the budget and a total collapse of economic and political confidence. See Arnold, 1937, p. 105 ff.
27. Sokolnikov, G.Ya., 1925–28, Financial Policy of the Revolution, I, 114, quoted ibid., p. 112.
28. Yurovsky, L.N., 1925, Currency Problems and Policy of the Soviet Union, p. 34, quoted ibid., p. 107.
29. Commissariat of Finance, 1921, Social Revolution and Finance, p. 42, quoted ibid., p. 107.
30. Ibid.
31. Lenin, V.I., 1921, “The Importance of Gold Now and After the Complete Victory of Socialism,” in Lenin, 1965, Vol. 33, pp. 109–16.
32. Ibid.
33. Collected Decrees, 1922, Decree 46, quoted in Arnold, 1937, p. 112.
34. Quoted in Woodruff, 1999, p. 21.
35. The American economist and Soviet expert Gregory Grossman long ago pointed out an irony in all this, that “[f]rom the standpoint of the (Western) monetary theorist, the passive money in the production sector of the Soviet economy is perhaps the closest approximation to that abstract and pure phenomenon, neutral money, neutral because largely powerless as an active determinant of social behaviour.” This myth of “neutral money”—the idea that money is not a proactive force in society or the economy—is one of the most important intellectual descendants of Locke’s monetary naturalism, and we will meet it in chapter 13. Of course, it was no more true that money was “neutral” in its constrained, Soviet form, than it is in capitalist economies, as Grossman pointed out: “But from the standpoint of the social scientist it is anything but neutral precisely because it is powerless; that is, it has been rendered passive in order not to challenge the regime’s political authority.” See Grossman, G. (1966) “Gold and the Sword: Money in the Soviet Economy,” in Rosovsky, 1966, p. 234.
36. Quoted in Woodruff, 1999, p. 54.
37. An exception to this general statement is the growth of quasi-moneys such as supermarket and airline points systems which have taken advantage of technological change to create viable modern forms of limited-purpose money.
11 Structural Solutions
1. Law had been a protégé of Thomas Neale, the inventor of the Million Adventure whom we encountered in chapter 7.
2. The Bank of Scotland had been established in 1695, but had remained underdeveloped by comparison with the Bank of England, and in 1704 suffered a calamitous run.
3. Law, 1705.
4. Ibid., p. 100.
5. Law, 1720, p. 91.
6. Ibid.
7. See chapter 5.
8. Law, 1720, p. 94.
9. Ibid.
10. Law, 1705, p. 118.
11. Ibid. In his early works—his 1704 Essay on a Land Bank and his 1705 Money and Trade—Law advocated using land as the standard of monetary value—and it is to land that he is referring here. He believed land to be preferable to precious metals because it was understood by common people to be valuable, of limited supply (thereby imposing a limit on money issuance by the sovereign and quelling fears of overissuance), and under domestic ownership and control. As we shall see, however, once he came to implement his theories a decade later, his thinking had progressed and he had come to believe that the use of land was a halfway house at best.
12. See Velde, 2007, pp. 276–9 for details.
13. Du Tot, N., 1935 [1738], Réflexions politiques sur les finances et le commerce, Vol. 1, p. 106; quoted in Murphy, 2009, p. 69.
14. Law, J., Oeuvres complètes, Vol. 3, p. 53, quoted in Macdonald, 2006, p. 201.
15. The Duke of Antin, quoted in Murphy, 1997, p. 259.
16. Lee, 1869, p. 189.
17. As James Macdonald points out, however, it was not without precedent, having a close parallel in the corporate structure deployed to organise public finance in the medieval Republic of Genoa (see Macdonald, 2006, pp. 94–100). Moreover, though ahead of its time, the principle of Law’s idea is no longer nearly so far-fetched as it once was—as we shall see in chapter 15.
18. Though by no means exclusively in democracies, even if only the circumstantial evidence of the use of coinage is taken as the main indication. See Trevett, J., “Coinage and Democracy at Athens” in Meadows and Shipton, 2001, p. 32.
19. Aristotle, 1932, 1317b, 35–8.
20. Plutarch, Pericles, 12, quoted in Trevett, J., “Coinage and Democracy at Athens,” in Meadows and Shipton, 2001, p. 24.
21. The hypothesised social and political situation in Athens preceding Solon’s reforms presented here is that of Fustel de Coulanges, set out in his 1864 La Cité antique, and preferred by Murray, O., 1993, chapter 11.
22. Solon, fr. 13, ll. 5–6.
23. Ibid., ll. 7–8.
24. See Hudson and Van de Mieroop, 2002, pp. 29 ff.
25. Ibid.
26. King James Bible, Leviticus 25:8 ff.
27. Murray, O., 1993, p. 187.
28. Solon, fr. 37, ll. 9–10.
29. While Chief Magistrate, Solon also introduced new standards of weights and measures for Athens (Aristotle, The Athenian Constitution, X). Here is the clearest indication that in money’s early days it was easier to understand the difference between a social and a physical standard.
30. Ibid., IX.1.
31. According to Murray, “these objects survived to be discussed by scholars as late as the third century BC; and Plutarch saw fragments of them three hundred years later, preserved in the council office at Athens�
� (Murray, O., 1993, p. 183). Solon’s laws were not in fact the first law-code to have been written down in Athens. A generation earlier, the chief magistrate in 621 BC, Draco, had written down a law-code. Unfortunately, “the exact scope and nature [of Draco’s code] are unknown”—though it was proverbially “extremely harsh (hence the modern word ‘Draconian’)” (ibid., p. 182).
32. King James Bible, Leviticus 25:10.
33. Law, 1720, pp. 103–4.
34. Ibid., p. 86.
35. It is impossible to say how close and causal the relationship between monetisation and democracy in ancient Greece was. Evidently in the case of Athens, the self-proclaimed “school of Greece” in political matters there was a link, made here, between the social revolution that money brought and the development of her democratic political and legal culture. Some scholars have argued that the link was much broader—at least when it came to the technology of coinage—arguing, for example, that “[t]he anti-democratic ideal was of a world without coinage. Conversely, the democratic polis, and Athens in particular, was a world of coins” (Trevett, J., “Coinage and Democracy at Athens,” in Meadows and Shipton, 2001, p. 34).
12 Hamlet Without the Prince
1. Focus LSE, Spring 2009. Available at http://www2.lse.ac.uk/study/meetLSE/pdf/focus/FocusNewsLetter10.pdf.
2. The list of participants in the British Academy conference can be found at http://www.britac.ac.uk/events/archive/forum-economy.cfm.
3. Besley and Hennessy, 2009, p. 3.
4. Ibid., p. 2.
5. Ibid.
6. 110th Congress House of Representatives Committee on Oversight and Government Reform (2008), The Financial Crisis and the Role of Federal Regulators, hearing of 23 October 2008. Available at https://house.resource.org/110/gov.house.ogr.20081023_hrs15REF2154.raw.txt.
