Wednesday, May 18, 2016

Brian Romanchuk — Should We Care About The History Of Money?

When reading about economic theory, one of the arcane areas of argument that comes up is the origin of money. From the perspective of knowledge for the sake of knowledge is a good thing, one cannot complain about this. However, if you are interested in understanding the current monetary system, this debate is largely a red herring. In this post, I discuss some of the criticisms of "neo-Chartalism" by Anwar Shaikh in his new book Capitalism (link to my discussion of that book).
The simple answer to the importance of the history of money in theory of money is historical. Neoclassical economics is based on the barter-commodity theory of money, which implies that money is a neutral veil.

The opposition of some economists to this deficient assumption was not only to point out that money does not function as a neutral veil in modern monetary economics, but also that the narrative on which the barter-commodity theory of money is erroneous. For example, the commodity theory leads to the assumption that gold is money, or gold, silver and copper are money, and that other forms of money are just tokens for these real assets.

So, yes, economists have to take the history of money into consideration into order to avoid the false assumptions that afflict conventional economic methodology, a principal one of which is that a modern economic is a barter economy rather than a monetary economy. This has lead to wrong conclusion and disastrous policy based on them.

Bond Economics
Should We Care About The History Of Money?
Brian Romanchuk


Matt Franko said...

No I get a kick out of all the "what is money?!?!?" debates... that is the real hootenanny....

Brian Romanchuk said...

Hello Tom,

One could imagine some amazing discovery of a text written by a proto-Murray Rothbard which shows that some ancient tribes did have a barter economy, and used gold coins, etc. Even so, this would still not affect the analysis which shows that we do not currently live in a barter economy.

Although the neoclassicals have some fairly shoddy historical analysis in their work, it seems eccentric to worry too much about the details. The focus needs to be on why the analysis is wrong now.

Of course, as an ex-academic, I cannot completely ignore the "knowledge for the knowledge" argument; after all, there is a whole Department of History at any reputable University. That said, we cannot project our current political biases onto the past, which is why this should be probably left to the real historians.

Matt Franko said...

"we cannot project our current political biases onto the past,"

Well they are projecting their linguistic idiot biases onto the past with their use of the figure of speech "money" in the first place...

How could we have had something identified as a figure of speech when the name of the goddess in the Roman pantheon which the figure of speech is derived from logically cannot pre-date the Roman pantheon in the first place????

Matt Franko said...

Its like they are thinking:

What did the ancient Greeks use for a cell phone back in the day????? Hmmmmm?????

They're idiots....

Tom Hickey said...

@ Brian

I don't think that the attack on the neoclassical assumption of barter as the basis of exchange, the commodity theory of money, or the non-neutrality of money in a monetary economy depends in the history of money as a necessary or sufficient condition. But it does happen to be a foundation of their argument, e.g., based on Smith, Menger, etc, and it happens to be fictional. It is probably sufficient to object that the narrative is "just so," but there is also counter evidence. Why not bring it in to buttress the argument.

The argument about the history of money only seems to be a distraction or irrelevant when taken out of the context of the history of economics. It's important there because it's how erroneous theory developed.

Similarly with Locke's just so narrative about private property having a natural origin and therefore being a natural right.

These are powerfully persuasive myths that need to be debunked in order to change the frame.

Ignacio said...

That's the labour of historians and archaeologists. You don't need economists to study history of money for anything, the only thing they need to acknowledge is that is an human institution that we control and does not grow on trees or is mined from the underground.

Otherwise you end up with economists looking for stochastic process to explain how human societies work...

Ignacio said...

How could we have had something identified as a figure of speech when the name of the goddess in the Roman pantheon which the figure of speech is derived from logically cannot pre-date the Roman pantheon in the first place????

That's a good one Matt, the whole thing makes zero sense.

Ignacio said...

Tom because it's a pseudo-science...

If economics weren't a pseudo-science they wouldn't waste time discussing about metaphysics and instead tackle and define operationally what they are trying to explain.

Instead economists define a conclusion and walk backwards from the conclusion to "prove" what they want to "prove".

Is like describing the Ptolemaic system and waking backwards to "prove" that the universe centre is the Earth. Silly.

Tom Hickey said...

Of course, I agree, Ignacio. And they hold still hold the high ground, so the assault has to be using all available weapons, evidence, logic, and rhetoric to persuade.

Unfortunately, matters often come down to who has the more convincing narrative instead of who is correct.

The problem is that their narrative involves a lot of confirmation bias. Simple stories tend to be more appealing than more complicated ones. A barter economy is a lot simpler to grasp than a monetary one, for example.

Gold and silver and copper were fetishes and they remain so for many. For example, Russia and China as the top two gold producers are aiming at returning the world to a gold standard not only for reasons of interest but also owing to the fetish.

There is also a counter-narrative that conventional economists use against Chartists, accusing them of being illiberal and authoritarian owing to their emphasis on the role of taxes in driving state money.

Then, there are the "where's your model' formalists. Conventional economists use this to portray heterodox economists as unscientific amateurs.

These are all issues that are important in capturing "hearts and minds" in the game of persuasion that has its own "logic."

Anonymous said...

For me, it’s always and forever until the quest is resolved – a matter of identity.

People live vicariously through their enterprise, whether that be an individual pursuit, or a family, clan, tribe, culture, civilisation, or an attempt at global domination. The human being still has no idea who or what the human being actually is: - we just know the expressions, the appearances, the roles (enterprises) we create for ourselves layered on top of the natural state. We see a more natural expression of the human persona in little babies, up to and around four years old – then the conditioning kicks in. There is nothing potentially wrong with the enterprises, other than the fact that the entity pursuing them is not fully self-conscious; not fully human. The society is a teapot, a Form that will change over time; but it is always and forever simply a teapot, designed from the day it was created for one purpose only. All signposts in human history, once you have learnt how to read them, point unerringly like a compass, to the Self. We are so fascinated by the teapot, even though it is shattered again and again. For me, $money is just a symbol, inscribed on the teapot, to represent subjective evaluations of human energy, expended in our pursuits. Of course we argue about that like we argue about everything else ... :-)

If you measure the value of that expenditure in energy in terms of what the teapot contains, then there is none. China as one of the old kingdoms, invaded from the NSWE is a good example. There is nothing wrong with the dream to rebuild the teapot. The value lies in the development of the teapot (mentally, emotionally, physically) as a suitable container for the tea, and the evolution and awakening of the tea to Self-consciousness and higher. The teapot is a means to an end.

For me, that is the axis on which we periodically cycle, and the reality we contain. I have never found a truer context, on which to evaluate the world play. A bit like Plato’s cave analogy – but we don’t like to think of ourselves as shadow watching prisoners, chained to a wall – Plato had a great sense of humour!

Roger Erickson said...

Absolutely we should peruse the history of currency. It provides a telling lesson on the history of human unwillingness to actually think.

Humans reason by analogy. If not fed with an adequate sampling of the range of prior analogies used, we're condemned to continue using the wrong analogies to guide our future reasoning.

Knowledge is just the sum of distributed - and retained - trial and error.

Ralph Musgrave said...

I agree with Roger Erickson.

Anonymous said...

But human history from one aspect is thought (coloured by desire and subsequent action).

Mind has evolved, but we need to be aware of its limitations. Mind has had thousands of years to come up with the right answers. How many more thousands of years do we give it to ‘actually think’? Would you give a kid in elementary school that long to get something right – or would you really begin to wonder whether or not this kid has his marbles in the right place?

What we know is based on our experience and what we reason is conjecture. I think there is a very important distinction there. A cook knows how to cook through experience; the rest are all recipe readers, or people who argue incessantly over recipes - but they are not cooks. They are ‘theorists’. There is a difference between an analogy a cook might use, and one a recipe reader or ‘expert’ might use. If he doesn’t know how to swim, the expert on hydraulics and sub-atomic particles of H2O won’t survive if the boat capsizes, while the less enlightened boatman will – he has swum and rowed back and forth across that river many times, since he was a kid. Back and behind of a heuristic search based on trial and error, is either experience or conjecture. We should very carefully sort out the milk from the water.

In today’s world, the concepts have multiplied beyond belief, and so has the ego - but the experience is pain. We know pain and we don’t like it; we much prefer joy. So where is the cook who knows how to cook something that isn’t painful to consume: - because we know where all of the theorists are, and what they have served up? And we know about greed.

For me, mind creates all of the problems and the ‘I’ holds them in place. You cannot use the problem maker as the problem solver. You have to introduce something ‘new’ into the human consciousness, for mind to witness and change its perspective. You have to change the ‘I’ so that it will be happy, content, generous, and kind. The USA ‘I’s will want to cooperate with the Chinese ‘I’s and Russian ‘I’ s instead of nuking each other. Some people think the task is impossible.

Like lighting a candle in a pitch black room with a cyclone blowing through. For this reason you will find somewhere in the Upanishads (?) – ‘mind is the slayer of the real’. And from people like me who know that it is possible:- the human heart holds the key to consciousness.