Quebec Issued the First Paper Money in the New World — Martin Armstrong

Factoid.

Armstrong Economics
Quebec Issued the First Paper Money in the New World
Martin Armstrong

Michael Hudson — Origins of Money and Interest: Palatial Credit, not Barter

Neolithic and Bronze Age economies operated mainly on credit. Because of the time gap between planting and harvesting, few payments were made at the time of purchase. When Babylonians went to the local alehouse, they did not pay by carrying grain around in their pockets. They ran up a tab to be settled at harvest time on the threshing floor. The ale women who ran these “pubs” would then pay most of this grain to the palace for consignments advanced to them during the crop year. These payments were financial in character, not on-the-spot barter-type exchange.

As a means of payment, the early use of monetized grain and silver was mainly to settle such debts. This monetization was not physical; it was administrative and fiscal. The paradigmatic payments involved the palace or temples, which regulated the weights, measures and purity standards necessary for money to be accepted. Their accountants that developed money as an administrative tool for forward planning and resource allocation, and for transactions with the rest of the economy to collect land rent and assign values to trade consignments, which were paid in silver at the end of each seafaring or caravan cycle....

Naked Capitalism
Michael Hudson: Origins of Money and Interest: Palatial Credit, not Barter

See also

Michael Hudson — On Finance, Real Estate And The Powers Of Neoliberalism
High Cost Economy

There’s an idea – deregulate the banks!

Michael Hudson | President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and Guest Professor at Peking University

Diane Coyle — Civilising money

I am going to have to read this book. Fortunately, it is modestly priced. You can "Look inside" at Amazon.

Publisher's blurb:

In the aftermath of recent financial crises, it's easy to see finance as a wrecking ball: something that destroys fortunes and jobs, and undermines governments and banks. In Money Changes Everything, leading financial historian William Goetzmann argues the exact opposite--that the development of finance has made the growth of civilizations possible. Goetzmann explains that finance is a time machine, a technology that allows us to move value forward and backward through time; and that this innovation has changed the very way we think about and plan for the future. He shows how finance was present at key moments in history: driving the invention of writing in ancient Mesopotamia, spurring the classical civilizations of Greece and Rome to become great empires, determining the rise and fall of dynasties in imperial China, and underwriting the trade expeditions that led Europeans to the New World. He also demonstrates how the apparatus we associate with a modern economy--stock markets, lines of credit, complex financial products, and international trade--were repeatedly developed, forgotten, and reinvented over the course of human history.

Exploring the critical role of finance over the millennia, and around the world, Goetzmann details how wondrous financial technologies and institutions--money, bonds, banks, corporations, and more--have helped urban centers to expand and cultures to flourish. And it's not done reshaping our lives, as Goetzmann considers the challenges we face in the future, such as how to use the power of finance to care for an aging and expanding population.

Money Changes Everything presents a fascinating look into the way that finance has steered the course of history.

Finance and economics are two side of the same coin, one coin among the many, albeit a very important coin, that figured in the development of civilization and life as we know it today. But even today, finance and economics remain separate disciplines, and very few understand their intimate connection through price ("money") as the basis of markets, and accounting as the common language of finance, business and economics. 

The Enlightened Economist
Civilising money
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Brian Romanchuk — A Postscript On Barter

Brian answers objections raised here and elsewhere on why the history of money is still relevant in economics as practiced today.

It is relevant not because economics discuss barter any longer but because they assume a barter-based economy, in which goods are traded for goods. 

This is the basis of Say's law, which even Say came to recognize is not a "law" in a monetary economy. Say's law is the basis of the modern assumption of general equilibrium, that all markets clear in the long run.

Related to this is the assumption that money is a neutral veil so the monetary aspects of a modern economy don't really matter in the long run, although there can be short run effects. 

Moreover, it is is at the foundation of Friedman's monetarism, which is based on Hume's analysis holding that at increase in the money supply will drive up the price level cet. par. Monetarism assumes cet. par, even though empirical evidence runs counter to it.

The neutrality of money view also underpins the assumption of conventional economics that finance can be ignored in econometric analysis. The banking system just intermediates between borrowers and savers, so the interest rate is determinative in economic activity. While it can be used as a lever by the monetary authority, the central bank is reactive rather than proactive, responding to markets rather than determining them.

Keynes's General Theory of Employment, Interest and Money is grounded in effective demand, which is income and consumption based. Neoclassical economics is grounded in production, hence investment based. Keynes agreed that production (supply) is investment-based and that investment is the driver of growth. But he pointed out that investment is consumption-driven and consumption is demand-driven. 

Firms produce goods to sell, and when sales lag owing to lagging demand, they unplanned inventories rise and firms reduce quantity rather than price, as neoclassical economics wrongly assumes. Modern economies are "monetary production economies." they don't produce just to produce because they can. They produce in order to make a money profit. Marx had observed this as the difference between C-M-C' as classical economists assumed and M-C-M' as he theorized. See Wray, "Theories of Value and the Monetary Theory of Production" (Levy Working Paper No. 261).

 

The insight of Keynes was that lagging demand, that is, effective demand insufficient to purchase the quantity of goods that can be output using available resources efficiently, results from demand leakage to saving rather than being initiated by a market failure involving the factors of production, e.g., an exogenous shock. This vitiates Say's law "in the short run" as long as liquidity preference remains high enough to inhibit spending and there is no monetary offset. And "in the long run we are all dead." Waiting for the system to autocorrect is folly when the government sector can offset lagging demand by accommodating liquidity preference (saving desire) to return the economy to capacity and full employment "in the short run".

There are other reasons that the history of money is still important in the study of economics and finance, which are joined at the hip in a monetary economy. But just from the point of view of the fundamental assumptions of conventional economics — even Krugman and DeLong self-identity as neoclassical economics — the history of money is important in understanding the basis of fundamental neoclassical assumptions that run counter to the operation of a modern monetary economy, as well as the failure of neoclassical economists to correctly understand and incorporate finance and monetary operations in their models.

While may not be necessary to know how the erroneous assumptions were arrived at based on the assumption of money arising from barter and economic exchange being essentially barter, it accounts for what might otherwise be surprising. Why would intelligent people think that monetary operations, banking, and finance were irrelevant to economic analysis, miss a major crisis and still be mystified about policy to correct for it. The conclusion is that they are either morons, or are using the wrong model. 

Keynesian, Post Keynesian and MMT analysis may not depend on the history of money, but the history of money illuminates the analysis.

It also shows the value of studying the history of money and theory of money, Neoclassical economics is a development of classical economics and also a response to issues previous raised by Smith and Ricardo in particular. The foundations for the neoclassical view of money were laid by the classical economists and Hume. Menger's analysis of money, that is, money as barter-based and gold as the basis of commodity money (numeraire), dominated early neoclassical thinking and influenced neoclassical assumptions.

Keynes apparently developed his views on the monetary theory of production from both Marx (see Wray above) and also Knapp's Chartalism or state money. Post Keynesian later developed understanding of the monetary circuit that corresponds to the circular flow of production-distribution-consumption that underlies neoclassical thinking. This led to an accounting approach and sectoral balance stock-flow consistent analysis by Tobin and Godley. Neoclassical economists have largely either ignored this development, or rejected it, claiming that methodological issues are settled, so history is irrelevant.

Bond Economics
A Postscript On Barter
Brian Romanchuk

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

Jacques Melitz — The profitability of early coinage

Minting small change was a big, expensive problem in the ancient world. This column argues that the ancient Lydian government and Greek city-states absorbed the cost of producing an extremely wide array of denominations of coins as a political strategy. Governments had much to gain from the spread of coinage in managing budgetary affairs. If it subsidised the mint, an ancient government would make savings in terms of transaction costs.

Most probably, early coins were only mildly profitable at best, and quite possibly were even subsidised by the state as part of a political strategy of encouraging their spread. The reason for this political strategy would be the considerable economies of transaction costs that the state could gain from the spread of coinage in its own revenue-seeking and spending activities. A proper analogy would be the interest that contemporary governments have to encourage popular reliance on computers, at public expense, in order to induce online declarations of taxes.

Research traces the beginning of coinage with increasing accuracy to around 630 BC in the Greek city-states in Ionia or in Lydia, or both, in the contemporary part of West Turkey east of the Aegean Sea. The earliest coins were made of electrum, a mix of gold and silver. The common view, even among knowledgeable scholars, is that early coinage was highly profitable, at least for the Lydian kings Alyattes (610-560 BC) and Croesus (560-547 BC). It is “usually understood [that] the electrum coins were highly overvalued”, say the archaeologists Cahill and Kroll (2004, p. 613, with minor rephrasing), by which they clearly mean highly profitable. In an influential book, Le Rider (2002, pp. 96-100) estimates a profit rate of about 15 to 20%. However, I argue that this position is very dubious (see Melitz 2015).…

VOXEU
The profitability of early coinage
Jacques Melitz | Professor emeritus, Heriot-Watt University; and CEPR Research Fellow

Merijn Knibbe — Yap stone money as an example of a blockchain kind of technology

I’m reading up on the famous stone money from Yap (Cora Lee Gillilland, The stone money of Yap. A numismatic survey. Washington, 1975). About this:

1) This was a kind of blockchain money avant-la-lettre

2) And not your typical western kind of individual owned money. Because of its blockchain character it could serve as ‘ritual’, ‘gidigen’ gift-money (compare our wedding rings) as well as ‘normal’ money. Fascinating. From the link…

Real-World Economics Review Blog
Yap stone money as an example of a blockchain kind of technology
Merijn Knibbe

FRB Atlanta — The Story of Money

Good resource. Well illustrated.

A highlight of the Monetary Museum is the story of money as told through an exhibit of artifacts, coins, and currency notes in sixteen display cases.

With gold nuggets and wampum and much more, you can trace the evolution of money from barter to modern currency along with the story of banking and money in America right up to the founding of the Federal Reserve System in 1913. Take a look at the unusual objects, rare coins, and beautifully detailed currency notes in our outstanding collection.

Just click on the sections below to learn the fascinating story of money.

Federal Reserve Bank of Atlanta
The Story of Money
(h/t John Hobgood)

Aaron Campbell — Review of “Debt: The First 5000 Years” by David Graeber

The history of debt is a vast and consequential topic that remains understudied. So there is no way this book could live up to its title. Much work remains to be done before anyone could produce a satisfying summary of debt history in 400 pages, if that will ever be possible. Graeber’s book is however a remarkably original achievement, and even the hubric title is well chosen. The ultimate value of this work depends on its reception, and whether it becomes a departure for further critiques and research. Hopefully this book will someday be re-written in several volumes, but this is a good start for now.

Many interesting comparisons and a good summary of the history and consequences of metallic versus credit money.

The review also illustrates the contrast between the breadth of undertaking and of view of anthropologists and sociologists, and the narrow undertaking and view of conventional economics.

Supposing (n) one
Review of “Debt: The First 5000 Years” by David Graeber
Aaron Campbell aka Zegreus Moole

Keith Hart — A Crisis of Money: the demise of national capitalism

Outside the box thinking. Covers a lot of ground in a few paragraphs.

Our Kingdom — Power & Liberty in Britain
A Crisis of Money: the demise of national capitalism
Keith Hart | Centennial Professor of Economic Anthropology at the London School of Economics and Political Science and Professor Emeritus of Anthropology at Goldsmith's, University of London.

Hart co-directs the Human Economy Programme in the Centre for the Advancement of Scholarship at the University of Pretoria. His main research has been on Africa and the African diaspora. He has taught at numerous universities, most significantly at Cambridge where he was director of the African Studies Centre. He has contributed to the concept of the informal economy to development studies and has published widely on economic anthropology. He is the author of Money in an Unequal World. One recurrent theme of his work has been the relationship between movement and identity in the transition from national to world society. — Wikipedia

BEW, I fished this out of the comments on the Smith post at Zero Hedge. Not everyone over there is bonkers.

Christine A. Desan — Money as a legal institution

This essay summarizes the case for considering money as a legal institution. The Western liberal tradition, represented here by John Locke's iconic account of money, describes money as an item that emerged from barter before the state existed. 

Considered as historical practice, money is instead a method of representing and moving resources within a group. It is a way of entailing or fixing material value in a standard that gains currency because of its unique character. As the second half of the essay details, the relationships that make money work are matters of governance carried out in law.

Money as a legal construct — as Chartalism holds.

Money as a legal institution (PDF)
Christine A. Desan | Leo Gottlieb Professor of Law, Harvard University

(h/t Rohan Grey on FB)

James Surowiecki — A Brief History of Money

Hap tip to Micheal Boudreaux in the comments, who says, "I just came across an article in IEEE Spectrum magazine (Electrical Engineers) that gets a lot of stuff right or pretty close. It quotes Graeber, talks about the neoclassical fascination with scarcity and notes that gold standard was such because it was declared to be, much like our current fiat paper. Wiki claims 380K readership for the magazine. The article is not perfect, but better then most. IT seems to me that Engineers (like me) catch on to MMT and closed systems more easily then many."

Read it at IEEE Spectrum
A Brief History of Money
Or, how we learned to stop worrying and embrace the abstraction
by James Surowiecki

James Surowiecki writes The Financial Page at The New Yorker.

Randy Wray — Introduction to an Alternative History of Money

L. Randall Wray
Introduction to an Alternative History of Money
Working Paper No. 717 | May 2012

Levy Institute