2013년 9월 12일 목요일

[L.R. Wray & S. Bell's Introduction to] Credit and State Theories of Money

MMT
출처: Edited by L. Randall Wray, Credit and State Theories of Money: Contributions of A. Mitchell Innes (Edward Elgar Publishing, 2004)
자료: 구글도서

※ 발췌 / excerpts of which:

INTRODUCTION (By L. Randall Wray and Stephanie Bell)

Why would a rather obscure functionary in Her Majesty's Foreign Service deserve a volume devoted to his dabblings in monetary history and theory? A. Mitchell Innes seems to have contributed only two articles on mony, both to the ^Banking Law Journal^, the first in 1913 and the second in 1914. He also wrote an article ^Love and the Law^, published in January 1913 in ^The Hibbert Journal^, as well as a couple of book reviews in ^The Economic Journal^. Much later, he published two articles on incarcerations and criminal justice, which were collected in a short book entitled ^Martyrdom in Our Times^ and which are tangentially related to themes in his earlier articles. (In the intervening years he authored a couple of reports for Her Majesty.) Admittedly, this does not amount to much of a career as a monetary theorist. Still, the authors collected here are convinced that Innes does have something interesting, unique and relevant to say nearly a century later.

  In 1914, John Maynard Keynes reviewd the original 1913 article by Innes (Keynes 1914). Keynes began by noting that Innes's theory of money followed that of Henry Dunnng Macleod (called McLeod by Keynes), a prolific writer who contributed books on currency, credit, banking, political economy, philosophy and economic history. In the review, Keynes immediately rejected as a fallacy the 'theory of the effect of credit' that Mcleod and Innes supposedly shared. This cryptic comment, however, was followed by a favourable summary of Innes's arguments concerning credit and currency. Keynes approvingly noted Innes's rejection of the typical story about money evolving from commodity money to credit money. While faulting Innes for a lack of reference to 'authorities', Keynes approved of his argument that the value of coins was never determined by embodied precious metals; rather, they were 'all token coins, their exchange value as money differeing in varying degrees from their intrinsic value' (Keynes 1914, p. 420). He provided a long quote from Innes summarizing the latter's belief that the use of credit 'is far older than that of cash' and 'the numerous instances, he adduces in support of this, from very remote times are certainly interesting' (Keynes 1914, p. 421) Keynes concluded his review with the following endorsement: 

  Mr. Innes's development of this thesis is of unquestionable interest. It is difficult to check his assertions or to be certain that they do not contain some element of exaggeration. But the main historical conclusions which he seeks to drive home have, I think, much foundation, and have often been unduly neglected by writers excessively influenced by the 'sound currency' dogmas of the mid-nineteenth century. Not only has it been held that only intrinsic-value money is 'sound', but an appeal to the history of currency has often been supposed to show that intrinsic-value money is the ancient and primitive ideal, from which only the wicked have fallen way. Mr. Innes has gone some way towards showing that such a history is quite mythical (Keynes 1914, p. 421).

  There are two interesting things to note about Keynes's review. First, it is significant that the article, published in a banking law journal, had caught Keynes's eye (seeming to validate the claim by that journal's editor that a controversy had erupted on the publication of the article - see Chapter 8). This makes it all the more surprising that Innes's two articles seem to have shortly disappeared from view for some three-quarters of a century. We have not been able to find any other citations to Innes in the major journals or relevant books before the 1990s.

  Second, it is interesting to speculate that these contributions by Innes led Keynes to his own research into ancient monies mostly between 1920-26. Most of that research remained unpublished, and was collected as drafts in Volume 28 of his collected works. Some of the ideas, however, showed up in his Treatise on Money published some years after the review of Innes. In the meantime, Keynes had discovered Frederic Knapp's state money approach and helped to get his book translated to English (Knapp 1905/1924). Knapp's German edition had preceded the Innes articles by nearly a decade, although there is no indication that Innes was familiar with Knapp's work.

  So far as we know, the first explicit attempt to link the approaches was in Wray (1998). While Knapp's name comes up now and then in Keynes's collected works, we have not found mention of Innes.

  As the contributions to this present volume will make clear, there is an overlap - although not a simple one - between Knapp's state money approach and Innes's credit money approach that must have intrigued Keynes. However, the promising integration that may have sparked Keynes's interest was lost in the watered-down version of Chartalism passed down by Josef Schumpeter. Some of the ideas were briefly resurrected in the 'functional finance' and 'money as a creature of the state' approach of Abba Lerner, but these, too, were mostly forgotten during the heyday of 1960s' and 1970s' 'Keynesianism' in which interest in money was reduced to debate about the slopes of the LM curve and the forces that would equilibrate money demand and money supply. Theories of money became increasingly simplistic and silly with the rise of New Classical, Real Business Cycle and even New Keynesian approaches to macroeconomics. Serious monetary research was left to the fringe in economics (Post-Keynesians, Institutionalists, Political Economists, Social Economists), or to other disciplines such as Sociology or Anthropology. To some extent, then, this volume can be seen as an attempt to reconstruct the path that was not taken, or, to put it in a more positive light, to explore the sort of approach to money to which Innes had pointed.

  To our knowledge, the work of Innes was not recovered until the mid 1990s, when his 1913 article began to be referenced by Post-Keynesian monetary theorists. Further investigation led us to discoer the 1914 response to his critics, as well as his 1932 book on incarceration and criminal justice. Over the past decade, especially since publication of ^Understanding Modern Money^ (WRay 1998) and a series of articles on the 'neo-Chartalist' approach, interest in these early contributions by Innes has grown. Unfortunately, the ^Banking Law Journal^ in which theywere published is difficult to obtain (although a subscription on-line services makes them available to law libaries). Hence, we had for quite some time planned to find a way to make them more widely available. Meantime, through the wonders of the Internet, the authors gathered for this present volume had been engaged in a discussion of the ideas expounded by Innes. Hence, we came to the conclusion that a volume that reprinted the original articles together with current thinking on the nature of money would be timely and useful.

  In the next section, we examine the life and work of Alfred Mitchell Innes. We will spend some time on his 1932 book because it contains an interesting interpretation of the evolution of the Western justice system that is related to the state money views discussed in later chapters. We then turn to notes on the two original articles on money published by Innes in 1913 and 1914, as well as a summary of the chapters written for this volume.


A BRIEF BIOGRAPHY OF INNES

( ... ... ) Alfred Mitchell-Innes (the hyphen was not used in his publications) was born in England on 30 June, 1864, the youngest son of Alexander Mitchell-Innes. His grandfather, William Mitchell added the hyphenated surname Innes in April 1840. He had been the cashier of the Royal Bank of Scotland from 1808-27, and had later become a director of the bank. ( ... ) Alfred was educated privately before entering the Diplomatic Service in 1890. His first diplomatic appointment (1891) was to Cairo. He then he served as Financial Advisor to the King of Siam (1896) before being appointed Under-Secretary ofState for Finance in Egypt (1899). From 1908-13,he served as Councillor of the British Embassy, Washington. In his final appointment before retiring in 1919, he served as Minister Pleni¬potentiary to the President of Uruguay (1913-19). He married Evelyn Miller in 1919. After ending his international diplomatic career, Innes turned to local politics, serving on the Town Council in his hometown of Bedford, England (1921-31, 1934-47).

  ( ... ... ) His only published book, Martyrdom in Our Times (1932), includes two essays on prisons and punishments, a topic that occupied Innes for a least a decade. One essay was the result of a project Innes was assigned to while living in Egypt; the other was written years later, after Innes was invited to visit Her Majesty's prisons. In these essays, Innes studies modern approaches to crime and punishment, tracing current legal practices to the Kingdoms of Western Europe (5th-10th centuries AD). As several of the contributors to this volume link the origins of money to the practice of 'criminal justice', it is worthwhile to briefly examine Innes's argument. Under the system of European feudal rule, kings relied heavily on revenues levied primarily as fines and fees 'on the performance or commission of a very large number of acts, mostly acts of aggression against persons or property' (1932, p. 13). According to Innes, the judicial system was not designed to reform incarcerated prisoners or to discourage misdeeds against society but to provide sizeable revenues, needed to carry out frequent warfare. Indeed, as Innes explains, 'the King would have been the last person to wish to cure his subjects of committing acts which were so profitable to him' (1932, p. 13). Instead, trial and imprisonment were important means through which court fees and fines were collected.

  Over time, years of ruinous warfare and devastating plagues left Europe with significant poverty. Bands of armies were frequently assembled and disbanded, causing confusion and doubt about the armies' capacity to enforce taxation. With the machinery of tax enforcement substantially weakened, the likelihood of facing imprisonment (or execution) was greatly diminished. Further, as the hatred of the nobles grew more intense, it became impossible to garner sufficient revenues through the system of taxation. Together, the forces of resistance and scepticism paved the way for the development of an alternative use of the judicial system. Prison and punishment were no longer the subsidiary object of the courts - subsidiary to the main objective of raising money- but the primary 'way of dealing with poverty' (1932, p. 29).

  ( ... ... ) Indeed, Innes sees the evolution of modern (Western) justice as initially driven by the desire to increase payment of fees and fines to the authorities. It is intriguing to explore the transformation of specific wergild 'debts' owed to victims to general, monetary, 'debts' owed to the authority in the form of fees, fines, tithes, tribute and taxes. While Innes hinted at the direction that such thinking might take, the links between his work on the justice system and his much earlier work on money were left mostly unexplored. The contributors to this volume pursue these links and in doing so, they contribute towards development of an understanding of the origins of the money of account.

( ... ... )


A SUMMARY OF THE CONTENTS OF THIS VOLUME

Chapter 2 reprints the original 1913 article in which Innes skewers the conventional view on the evolution of money (a view still propagated by Samuelson, for example). In the conventional view, barter is replaced by a commodity money that can be used as a medium of exchange. Only much later is credit discovered, which can substitute for money and thereby reduce transactions costs. Innes reverses this evolution, arguing that by its very nature, money is creditㅡeven if it happens to take the physical form of a precious metal. This leads to a much different take on markets, on money and on credit relations.

  Chapter 3 reprints the original 1914 article in which Innes responds to the apprarent vigorous debate set off by his 1913 article. In addition, the articel clarifies and extends some of the 1913 articleㅡtaking up, for example, a discussion of the relation between credit and inflation. He also touches on issues related to what later would become known as the Chartalist or State Money approachㅡthat is, the role that government plays in the monetary system. While government money is always debt (just as the case of all forms of money), Innes discusses the speical status of governmentㅡnotably, its ability to impose tax liability. Because of this, the only real 'debt' incurred by a government that issues a nonconvertible currency is the promise to accept that currency in payment of tax liabilities.

  In Chapter 4, John Henry traces the origins of money to the earliest transition away from communal society. In doing so, he relates the analysis of Innes to the origines of money in ancient Egypt. He argues that the development of money in the third millennium BC (1) is placed squarely in the transition from egalitarian to stratified society,(2) is intertwined with the religious character of early Egypt, and (3) represents a fundamental change in the substance of social obligations between tribal and class societies. While forms of social organizations may seem similar, the appearance of money requires a substantial change in the character of social organization.

  In Henry's view, Egypt was not a monetary economy because most production was not undertaken in order to 'make money'. But it certainly had and used money. Further, money was not a simply a medium of exchange, but represented a complex social relationship, bound up with the transition from egalitarian to class society. The ruling class, surrounding the semi-divine king, levied non-reciprocal obligations ('taxes') on the underlying population. These taxes had to be accounted for and a measure had to be developed to allow a reasonably systematic form of bookkeeping to maintain records of obligations and the extinguishing of those obligations. In Egypt, this unit of accoun was the ^deben^, and it is important to note that the ^deben^ was an arbitrary standard that ested on a particular weight.

  According to Henry, and following the argument made by Innes, money has no value in and of itself. It is not 'the thing' that matters, but the ability of one section of the population to impose its standard on the majority, and the institutions through which that majority accepts the will of minority. Money, then, as a unit of account, represents the class relations that developed in Egypt (and elsewhere), and class relations are social relations. Hence, Henry concludes that Innes's theoretical account, developed nearly a century ago and long ignored by economists, in in accord with the historical facts of the development of money in Egypt. He argues that it is time to claim for Innes his rightful place among those theorists who advanced our understanding of this most important social institution called money.

  In Chapter 5, Michael Hudson argues that money has evolved from three traditions, each representing payment of a distinct debt. Archaic socieities typically had wergid-type debts to compensate victims of manslaughter and lesser injuries. It is from these debts that the verb 'to pay' derives, from the root idea 'to pacify'. Such payments were made directly to the victims or their families, not to public institutions. They typically took the form of living, animate assets such as livestock or servant-girls. Another type of obligation took the form of food and related contributions to common-meal guilds and brotherhoods. This is the type of tax-like religious guild payment described by Laum, who in turn was influnenced by G. F. Knapp. Neither of these types of payment involved general-purpose trade money.

  According to Hudsom, the kind of general-purpose money our civilization has come to use commercially was developed by the temples and palaces of Sumer (southern Mesopotamia) in the third millennium BC. His chapter describes how these institutions introduced money prices (and silver money itself) mainly for the internal administrative purposes of the temples and palaces. Their large scale and specialization of economic functions required an integrated system of weights, mesures and price equivalencies to track the crops, wool and other raw materials distributed to their dependent labour force, and to schedule and calculate the flow of rents, debts and interest owed to them. The most important such debts were those owed for consigning handicrafts to merchants for long-distance trade, and land, workshops, ale houses and professional tools of trade to 'entrepreneurs' acting as subcontractors. Accounding prices were assigned to the resources of these large institutions, expressed in silver weight-equivalency, as were public fees and obligations. Setting the value of a unit of silver as equal to the monthly barley ration and land-unit crop yield enabled it to become the standard measure of value and means of payment, although barley and a few other essentials could be used as proxies as their proportions were fixed. Under normal conditions these official proportions were reflected in transactions with the rest of the economy.

  Hudson argues that by positing that individuals engaged in trucking and that money developed out of bartering to minimize transaction costs, the orthodox model does not take account of the historical role played by public bodies in organizing a commercial infrastructure for bulk production and for settling the debt balances that ensued, hence for money and credit. This objective obliged the large institutions to design and oversee weights and measures, and to refine and supply monetary metals of attested purity. ( ... )







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