2013년 10월 18일 금요일

[발췌: G. Ingham's] "Babylonian madness": on the historical and sociological origins of money

출처: J. Smithin (ed), What Is Money? (Routledge, 2002 [2000]) ; 차례

※ 발췌 / Excerpt of which:

Chapter 2. "Babylonian madness": on the historical and sociological origins of money

By Geoffrey Ingham

p. 16~:


Following initiation into the 'Sociog' tribe (Leijonhufvud 1973), I lived for many years among the 'econ', working as an underlabourer on what was referred to as the 'social context' of economics. During this time, I became interested in London's capital markets and asked some of the 'Econ Bigmen' for guidance (Ingham 1984). I wanted to know, in simple terms, what money was. They seemed amused by my naivety and explained that money, as such, was not really as important as common sense might suggest. But, I was not convinced, and lacking a thorough grounding in microeconomic analysis, found it difficult to accept the counter-intuitive 'neutral veil' conception. General equilibrium theory's inability to provide an essential place for money in its formulations was even more puzzling (Hahn 1982). I dropped the matter for quite a time.
cf. Ingham, G. (1984) Capitalism Divided? The City and Industry in British Social Development, London: Macmillan
   When I eventually returned to money, a much more congenial Post Keynesian literature was available[n1]. It led me back to Schumpeter (1994[1954]); but more importantly, I also discovered the first two chapters of Keynes's A Treatise on Money (1930) and, subsequently, what he referred to as his 'Babylonian madness'. For 5 or 6 years in the 1920s, Keynes studies metrology and numismatics in a search for the historical and logical origins of money in the ancient Near East civilizations.[n2] At times he thought the enterprise to be 'purely absurd and quite useless'; but, none the less, 'became absorbed to the point of frenzy'. [n3] However, his instinct was surely sound. This method of inquiry, I shall argue, leads to a better understanding of money than pure theory, supported or otherwise by fanciful historical conjecture.[n4]
[n1] I am very grateful to Geoff Harcourt for guiding me to this literature, especially Wray (1990) and also the work of John Smithin (1994, 1996). 
[n2] By 'logical' origins is meant the general conditions of existence of money (or any other institution). This is to be distinguished from 'historical' origins in the sense of the earliest empirical evidence for the use of money. The distinction is used by Schumpeter (1994[1954]), but is also to be found in Keynes's (1983: 56) review of Hawtrey's ^Currency and Credit^, where he locates the logical origins in money of account. 
[n3] Letter to Lydia Lopokova 18 January 1924, in Keynes (1983: 1-2). 
[n4] A persistent example of suh historical inaccuracy, in the face of considerable evidence to the contrary, is the assertion that goldsmith's receipts for bullion held for safe-keeping were the precursors of modern banknotes and credit money. See, for example, Begg, Fischer and Dornbush (1991: 404). The conjecture accords with the commodity exchange theory of money. However, bills of exchange, promissory notes, and the like, that is, signifiers of debt, were the source of modern credit money (Ingham 1998b).
      Keynes was also aware of the rich body of work on money that the German historical school had produced around the turn of the century. [n5]  By the 1920s, however, this had been more or less expunged from the growing economic orthodoxy, and even Keynes's flirtation with the historical and sociological approach to money was short-lived. As he was implicitly aware, it sat uneasily with his classical economic education. However, a clearer conception of money's essential properties and its role in the economic process requires the rehabilitation of this kind of perspective, which has lain dormant outside not only mainstream economics, but also modern sociology (Ingham 1998b).
[n5] Keynes endorses Knapp's 'chartal' theory at the beginning of A Treatise on Money, and had earlier favourably reviewed a book published in German, popularizing Knapp's ideas (Keynes 1983: 400-3). The question of the applicability of orthodox economics to the primitive, ancient and classical economies was an important issue in the Methodenstreit between the German historical school and the economic theorists at the turn of the century. Babylon's economic system also played a part in the dispute's recredescence in social anthropology in the 1950s and 1960s, between Polanyian substantivists and the opposing formalists. Polanyi's ^Trade and Markets in the Early Empires& (1957) argued that the economic theory of the market did not apply to the production and circulation of goods by means of reciprocity and/or redistribution. Unfortunately, the substantivist critique implicitly endorsed the orthodox theory of money. The focus remained firmly on media of exchange, which in their ancient or primitive pre-coinage form, were seen as 'limited purpose' as opposed to the 'general purpose' media of exchange of modern market systems. As we shall see, Keynes's emphasis on money of account transcends the question of the primitiveness of money-stuff.

Money in orthodox economic analysis   (p. 17)

Two basic methodological tenets in mainstream economics, consolidated after the theorists' victory in the Methodenstreit, have prevented the development of an adequate conceptual framework for the understanding money (Ingham 1996b, 1998b).[n6] The first is the retention of the model of an essentially barter exchange economy in 'real' analysis in which money is essentially a commodity (Schumpeter 1994 [1954], Rogers 1989, Smithin 1994); and the second, the methodological individualism of the rational utility maximization model. Within this paradigm, an acceptable theory of money has come to be one which does not violate the above canons.
[n6] I shall be concerned only with the basic assumptions of microeconomic analysis and have taken it for granted that mainstream macroeconomics, whether New Classical or New Keynesian, entails the orthodox microfoundations of money.

Money as a convenient medium of exchange

The metatheory of the 'real' economy that underpins (neo)classical analysis is concerned exclusively with money as a medium of exchange
  • The other functions (unit of account, means of payment, and store of value) are taken for granted or assumed to follow from the medium of exchange function. 
  • As either a commodity itself, a medium of exchange can have an exchange ratio with other commodities; or, as no more than a symbol or token, 
  • it can directly represent 'real' commodities. In this conception, money can only act as a 'neutral veil' or 'lubricant'. Money is not an autonomous economic forceㅡit does not make a differenceㅡrather, it merely enables us, according to Mill, to do more easily that which we could do without it. [n7]
[n7] Such views are traceable to Hume in the essay ^Of Money^ (1752):
Money is not properly speaking, one of the objects of commerce, but only an instrument which men have agreed upon to facilitate the exchange o one commodity for another. It is none of the wheels of trade: It is the oil which renders the motions of the wheels smooth and easy. (Hume, quoted in Jackson 1995: 3)
   Real analysis and, ultimately, the equations of general equilibrium models are not, as it is generally supposed, purely the results of the axiomatic-deductive method. The ‘real economy’ abstraction actually derives from an inaccurate historical conception of a small scale, pre-capitalist ‘natural economy’ or the ‘village fair’.[n8] In this model, economic activity is seen to involve routine spot trades in which media of exchange can be readily taken to be the direct representation of real commoditiesㅡthat is, as their ‘vehicles’ㅡby the continuously transacting economic agents. The natural economy does not possess a complex social-economic structure; it is essentially simple barter with a monetary veil.
[n8] See for example Hecksher, in Lane and Riemersma (1953)
   This restricted view of money, and, indeed of economic activity in general, creates a number of problems. 
  • In the first place, I shall argue that taking all other functions of money (money of account, means of payment/settlement, store of abstract value) for granted, is not only unwarranted, but also diverts the theoretical focus from fundamental questions regarding the actual social processes by which money is produced and the problematic relationship between money and goods is socially enacted.[n9] 
  • Second, the narrow concern with media of exchange has created difficulties in understanding modern capitalist credit money, in which special signifiers of debt (promises to pay) issued by states and banks, becomes means of payment and stores of abstract value.
[n9] The term 'enacted' is used to indicate a functional difference between the orthodox economic methodology and a sociological approach. In the former money and goods are integrated and brought into equilibrium as a result of individual utility maximizing decisions. By implication, monetary policy, for example must accommodate itself to the forces of supply and demand created by those decisions; otherwise it will make errors based on either ignorance or folly. Alternatively, the notion of social enactment assumes inherent uncertainly and the active creation of an economic regime that is the outcome of the conflict between the relatively autonomous interests of the producers and consumers of both money and goods. For example, an inflation target of (say) 2.5% is a negotiated outcome, and is involved in the creation of an economic reality rather than the state of affairs derived from economic analysis.
   In their preoccupation with the theory of value in the exchange of the ‘money-stuff’ of actual media of exchange, the 19th century commodity exchange theorists and their neoclassical heirs appeared to have missed the central importance of money of account. This is evident, for example, in Edgeword's parable of the two men taking a barrel of beer to sell at the races, by which he provided a neat illustration of the assumptions that underlie the view of money as a neutral veil over real exchange. As the men become thirsty on their journey, one of them asks the other if he may buy a share of the beer with the only threepenny piece they have between them. As the day gets hotter, both men become thirstier and the transactions multiply. Eventually the velocity of circulation of the 'vehicle' of a single coin, as it passes from one to the other, is able to finance the sale of the entire barrel (quoted in Robertson 1928). It is interesting to note the contrived equilibrium conditions of symmetrical, dyadic trade in the example. It is more important to realize, however, that the transactionsㅡsymmetrical or notㅡcould have been recorded in money of account to be settled at a later date by an acceptable means of payment.

   Following Keynes's ‘Babylonia’ and the German historical school, I shall argue that money of account is the pivotal element of monetary practice.[n10]
  • Money of account is the essential means by which price lists are constructed and multilateral, inter-temporal exchange is made possible. Markets, such as the Champagne Fairs of the late Middle Ages, demonstrate (Boyer-Xambeu et al. 1994) that actual money-stuff is not required for the immediate transactions, and Edgeworth's beer carriers ought really to have known this. Only monetary practice in the sense of an abstract system of accounting (‘book money’) and an agreed means of payment to effect an eventual settlement is needed
  • If the latter[=the means of payment] is universally acceptable so much the better; but extensive and complex monetary practice (as opposed to barter) involving price lists and debt contract, denominated in abstract value, is possible without it: as, for example, in 18th century Boston.[n11]  Indeed, there are compelling reasons for agreeing with Keynes (1930: 3) that ‘Money of account ... is the primary concept of a Theory of Money’ (see also Keynes 1982: 252-5, 1983: 402; Hicks 1989). 
  • However, money of account cannot simply be assumed to be the spontaneous outcome of ‘truck, barter and exchange’: the very idea of money needs to be explained. And the economic theory of pure exchange, based as it is on a basic dyadic model of rational utility maximizers, is incapable of providing an explanation.
[n10] In their important critique of the neoclassical theory of money, Heinsohn and Steiger (1989) follow Keynes in linking money with contract, and, then, argue that money has its origin in the institution of private property. (See also Wray 1990). However, I shall argue that the idea of moneyㅡthat is money of accountㅡis anterior to contract and price lists (Keynes 1930, Hicks 1989, Grierson 1977). See also Weber (1981[1924]): ‘From an evolutionary standpoint, money is the father of private property’.
[n11] Working within the orthodox framework the 'New Monetary Economics' has suggested that information technology might more closely match wants, and keep account of decentralized credit relations, and thereby render money-stuff redundant. Reference is made to 'sophisticated barter' or 'credit-barter' systems (Cowen and Kroszner 1994). Notwithstanding any practical difficulties, or the problem of trust in a totally decentralized and depersonalized trading system, it should be noted that these systems are not barter but ‘cashless’. They are not ‘moneyless’ because they use a money of account. For an example of exchange using money of account and payment in kind, see Baxter (1945) study of 18th century Boston.
   A second major problem with this restricted view of money as a medium of exchange in a natural or real economy is the difficulty in adequately conceptualizing capitalist financing. In the natural/real economy of spot transactions, there is no investment in a ‘money wage or entrepreneurial economy’ (Keynes quoted in Smithin 1994:2). Indeed, it is ironic that the neutral veil conception achieved its fullest expression at the very time that modern capitalist credit money became firmly established. As Schumpeter implied, orthodox analysis is unable to conceptualize this form of money without considerable intellectual contortion:
Saving and investment must be interpreted to mean saving of some real factor of production...such as buildings, machines, raw materials; and though 'in the form of money', it is these physical capital goods that are 'really' lent when an industrial borrower arranges for a loan. (Schumpeter 1994 [1954]: 277]
It was precisely this impasse that Keynes sought to break, especially with his radical conception of socially constructed credit money:
there is no limit to the amount of bank money which the banks can safely create provided that they move forward in step. The words italicised are the clue to the behaviour of the system ... Each Bank Chairman sitting in his parlour may regard himself as the passive instrument of ‘outside forces’ over which he has no control; yet the ‘outside forces’ may be nothing but himself and his fellow-chairmen, and certainly not his depositors. (Keynes 1930: 26-7ㅡ화폐론 1권 제2장)
   We shall return to this central issue of money as a system of social relations based on power relations and social norms. Here, I simply wish to underline that this conception differs radically from economic orthodoxy's fixation with the actual forms of 'money-stuffs as commodity-objects and 'commodity-bundles', or as symbols directly representing these.  A solution to the question of how a promise to pay could function as both a universally acceptable means of (final) payment and store of value has remained intractable within the confines of the theoretical assumptions of real analysis. Such an approach utterly fails to recognise that money necessarily consists in social relations between economic agents and between them and a monetary ‘authority’. I shall argue, [,]
  • first, that all monetary systems, including commodity-money, are social systems which construct the way to ‘move forward in step’
  • and second, that capitalist credit money is a qualitatively distinct form in which money-stuff itself is essentially the social relation of the promise to pay.

Explaining money's existence

Money's existence, narrowly conceived as a medium of exchange, is explained in orthodox economics as the outcome of individual rational utility maximization. Whether or not it is acknowledged, Menger's (1892) formulation has provided the basis for all subsequent attempts in modern neoclassical analysis to establish the logical origins of money in these 'microfoundations' (see, for example, Jones 1976). Both the original version and more recent variants are, however, seriously flawed logically. As I have argued in detail elsewhere, the microfoundations of money are not merely ‘weak’(Smithin 1994: 14), but non-existent (Ingham 1996b).

   When attached to the 19th century evolutionary perspective, Jevons's sensible observation that money overcomes the inconveniencies of barter that occur in the absence of a 'double coincidence of wants' implies a crude teleological functionalism.[n12] However, Menger's attempt to avoid this logical problem, by arguing that the origin of money was the unintended consequence of individual rationality in hold stocks of the most tradeable commodity in a barter economy, merely posed another question. The existence of non-commodity or token money presented him with the paradox that money was ‘in the common interest’, but conflicted with the ‘nearest and immediate interests of contracting individuals’ in that they ‘should be ready to exchange his goods for little metal discs apparently useless as such, or for documents representing the latter’ (Menger quoted in Jones 1976: 757). Modern neoclassical economics has taken up the challenge by attempting to establish that holding money brings various types of transactions cost reduction for the rational maximizer (Jones 1976, see especially the survey in Hoover 1996). However, these approaches must presuppose what they set out to explain; that is to say,
  • at the very best they can only demonstrate that it is economically rational for the individual to hold money once it is in existence and widely accepted.[n13] 
  • Modern neo-classicism is unable to explain its own interpretation of the problem of the logical originsㅡmicrofoundatinsㅡof money, exclusively as a medium of exchange.
[n12] Functionalismㅡthe explanation of institutions by their functionsㅡentails the risk of treating effects as causes, for example, as in money evolving to overcome the inefficiencies of barter. There is the further problem of functional alternatives. Assuming that a functional benefit can be identified, it is not logically possible to specify which particular institution might perform the role. For example, see the reference below to Samuelson's (1966[1958]) analysis of the 'function' of money as an intertemporal store of value.
[n13] This is a typical example of the circular reasoning in much neoclassical economics. See the discussion of Hahn's unsuccessful, but highly revealing, attempt to establish the 'microfoundations' in Ingham (1996)

Means of payment and store of abstract value

In his rigid attachment to commodity-exchange theory, Menger was adamant that the means of (final) payment was not a distinct function. Indeed, in arguing his case, he insisted that money had only one function as a medium of exchange.[n14] There is a tendency to use the two functions interchangeably, but the distinction is an important one that helps to distinguish different types of economic transaction.
[n14] It would appear that it was entirely as a result of his extreme theoretical stance in the Methodenstreit that Menger refused to accept that money had more than a single function (see Melitz 1974: 8). The German historical school stressed the importance of money as a means of unilateral payment between states and their members, and Menger presumably thought that in admitting this as a separate function he might implicitly endorse the state theory of money expounded first by Knies and then by Knapp.
   In the small, continuously operating, spot trades system of the natural economy, abstract purchasing power in the form of money (as the means of payment) need not be held for any significant length of time. However, as Hicks and others have pointed out, the most significant transactions in existing modern (as opposed to 'real') economies are not spot, but involve contract and deferred (final) payment or settlement (Hicks 1989).[n15]
  • Keynes's Babylonia had led him to the same conclusion: Something which is merely used as a convenient medium of exchange on the spot may approach to being Money ... But if this is all, we have scarcely emerged from the stage of Barter (Keynes 1930: 3ㅡ화폐론 1권 1장).
  • In short, money is uniquely specified, [:]
  1. first, by being a measure of value/unit of account and, 
  2. second, by the capacity to store abstract value in a universally accepted form that enables it to act as a means of payment (see also Hicks 1989).
[n15] Indeed this distinction had been embodied in dual currency systems that had existed from the earliest times: base metal tokens were used [as] media of exchange for everyday spot transactions and precious metal coinage as legally valid means of payment for the settlement of debts, especially tax debts (Goldsmith 1987), Even as late as early 19th century in Britain local coinage was comonplace (Davies 1994). More recently, local exchange trading schemes (LETS) have developed their own media.
   In the simple realm of lubricated barter, holding money as a store of abstract value for the spot trades is scarcely necessary. The theoretical specification of these empirical features of the natural economy in general equilibrium theory is achieved with the assumptions of foresight, rationality, and by the bracketing of time. But as some of the theory's astute adherents, such as Hahn, have realized, the result is the same: money as a store of abstract value is made redundant.[n16]  In sharp constrast to this (neo) classical conception, Keynes and others have insisted that rationality is limited not only by ignorance, but also by radical uncertainty. Future information is not amenable to probabilistic treatment. Rather, we simply do not know and do not have the means of knowing. In these typical and normal circumstances, Keynes argued that moneyㅡas a means of payment that is also a viable store of abstract valueㅡlinks the past, present and future. The problem of the social reproduction of the economy is taken care of by 'tradition' in the natural economy, and it is simply not an issue in a timeless Walrasian world.
[n16] ‘Money may slip through our fingers unless its role in transactions is made essential’ (Hahn 1987: 42).
   Moneyㅡas a store of abstract valueㅡmakes possible the reproduction and continuity of economic life in a complex, actually existing capitalist economy. In this role, money is anything but neutral and the dislocation of the real economy follows hard on the heels of any perturbation of the social relation of money. It has not proved possible to incorporate this essential property of money as a temporal transporter of abstract value, and the consequences of this property, into orthodox microeconomic analysis. For example, the very title of Samuelson's (1966 [1958]) workㅡ'An Exact Consumption-Loan Model of Interest With or Without The Social Contrivance of Money' (emphasis added)ㅡbetrays the serious logical problem. In other words, this method was unable to specify why money, as opposed to any other functionally alternative asset, performs as an intergenerational store of vale.

   Two quite different issues have always been entangled in the orthodox approach.
  • First, how does money achieves its definitive property as a widely accepted means of payment? The simple answer, as Keynes argued, following the chartalists, is by fiat. 
  • The second question is more challenging and recalcitrant: how does fiat money actually become a viable store of abstract value?
Within the framework of neoclassicism's methodological canons, explanations become locked into exactly the same kind of circularity that we encounter earlier in the microeconomic explanations for holding media of exchange. Money is a means of payment because it is a store of value, or vice-versa. Furthermore, as we have just noted, microeconomics cannot specify why more adequate stores of value do not become 'money'.

‘Money-stuff’  and the social relations of money  (p. 22)

Mainstream economic conceptions of money cannot account for money's essential properties. First, no explanation is sought or given for the idea of money: that is, money of account. Second, it has not proved possible to explain the existence of media of exchange, means of payment, and stores of abstract value in terms of the individual rational utility maximizer. Within a framework that focuses exclusively on commodity-commodity relations (exchange ratios) that are produced by individual calculations of utility, money-stuff can be nothing other than a special, but perplexing commodity, as Clower (1984) for example was forced to conclude. However, the orthodox emphasis on quantities or stocks of money-stuff that flow or circulate t a varying velocity entirely misses the fact that a commodity or its symbol becomes money because it is a social relation^ (Ingham 1996b; see also Hart 1986, Dodd 1994, Leyshon and Thrift 1997).

   Money is a social relation in three closely related sense. [:]

[1] First, moneyㅡas a social institutionㅡis produced by by non-market agencies and does not obey the economic 'laws' of the production and exchange of commodities. While we may freely produce the goods to exchange for a particular money-stuff in order to purchase other goods, we may not directly produce our own private money in response to demand.[n17] The creation of money, as a unit of account and means of payment, is assigned to specialized legitimately sanctioned agenciesㅡstates, banks and so onㅡand its supply is strictly regulated. Commodities, such as precious metal, became money because they were 'counted' by those who 'counted'. They were thereby transformed into coin by means of a complex social structure which in medieval Europe, for example, comprised the sovereign, mints, moneyers, money-changers, merchants and bill-issuers. The 'moneyness' of commodity-money lay not in the exchange value of the precious metal, but in its socially constructed 'promise to pay' (see the general analysis in Boyer-Xambeu 1994). In short, commodity-exchange theory did not provide an adequate explanation of commodity money. Nevertheless, the concepts of this theoryㅡquantity, circulation and so onㅡwere to provide the basis for the effort in mainstream economics to understand forms of dematerialized capitalist credit money, and in the process the original error was compounded.
[n17] 'If you want more wheat, you can go out and raise wheat, if you want more of any kind of manufactured goods, you can produce them; but if the people want more money they cannot bring money into existence' (William Jennings Bryan, quoted in Jackson 1995: 18)
[2] Second, monetary exchange consists in a social relation and is qualitatively different from the pure exchangeㅡor barterㅡof economic theory. In the most general terms, money is not simply a veil over such exchange, but consists of structurally distinct social relations. As Simmel argued, this is the case with respect to commodity or non-commodity forms of money. The nature of the money-stuff is of secondary significance in the dynamics of monetary exchange.
[M]oney is only a claim upon society. Money appears so to speak, as a bill of exchange from which the name of the drawee is lacking ... The liquidation of every private obligation by money means that the community now assumes this obligation to the creditor ... [M]etallic money is also a promise to pay and ... it differs from the cheque only with respect to the size of the group which vouches for its being accepted. The common relationship that the owner of money and the seller have to a social groupㅡthe claim of the former to a service and the trust of the latter that this claim will be honouredㅡprovides the sociological constellation in which money transactions, as distinct from barter are accomplished.   (Simmel 1978 [1907]: 177, 174-9)
   Holding that all money consists in claims and obligations directs attention to the fact that it is constituted by social relations and cannot be fully understood outside them. In other words, it may be argued that all money is best understood as credit (Schumpeter 1994[1954]: 320-1, Hicks in Simithin 1994: 25), which is a social relation. Barter exchange of commodities, whatever the complexity of the system, is essentially bilateral; but, monetary relations are trilateral.[n18] Transacting agents are themselves unable to produce universally acceptable money at will. Monetary exchange, unlike exchange in general, involves a third party of those authorities that may legitimately produce money. It has been the fundamental error of economic orthodoxy to subsume monetary exchange under the general rubric of pure dyadic exchange.
[n18] ( a part of Simmel's quote ... ) See also Guttman's excellent Post Keynesian informed analysis (1994: 30-1). It is interesting to note here how easy it is to fall back into orthodoxy and its confusions: ‘An economy that uses money as a commodity (e.g., precious metals) which producers can produce for themselves cannot be distinguished from barter’ (ibid.: 30). However, without money of account, the commodities are not money. Guttman does retrieve the situation with a reference to Keynes's astute remark that the rupee was a 'note printed on silver' (ibid.: 491).
[3] Third, modern capitalist money-stuff itself now consists in nothing more than a symbol or signifier of states' and banks' promises to pay. As we have seen, commodity money, as opposed to bullion, also consists in a social relation. Over the past 500 years, almost all money-stuff, if that is still an appropriate description, has become nothing more than this. Modern credit money consists in the expansion or contraction of credit (social) relations expressed in double-entry form in the accounts of the state and the banking system.

   The essential nature of money has become clearer with the stripping-out of its material form to leave its structural framework as a social system which accounts for value (money of account), provides an agreed means of payment, and attempts to regulate the relationship between what is seen as the quantities of money and goods, and thereby produce an acceptable store of abstract value.  I shall return briefly to the implications of looking on money in this way in the last section. First, we must take up the road from Babylon and explore the historical and sociological foundations of money in a little more detail.

The historical and sociological origins of money (p. 23)

Keynes's amateur numismatic analysis of the ancient Near East led him to the conclusion that money is uniquely specified, first, as a money of account and, second, as a means of payment and store of abstract purchasing power (value) (Keynes 1930 ch. 1; 1983 ch. 5; 1982 ch. 2). The elaboration of this argument involves establishing the ‘logical origins’ of money in the concept of money of account, then locating the latter's actual historical and social conditions of existence. I shall suggest that the concept of money of account, which enables the construction of price lists and accounting for credit-debt relations, is the function of certain fundamental properties of social structure. Society itself is the analogue on which its based[? it is based].

   We need to explain how the social relation of money enables symbols and tokens to become acceptable stores of abstract value and means of payment. To repeat: all money has a fiduciary character (Dodd 1994); that is to say, in a fundamental sense all money is credit (Simmel 1978[1907], Schumpeter 1994[1954], Hicks in Smithin 1994), and this is a social relation (Ingham 1996b).

   These general conditions of existenceㅡthat is to say, the social bases of money of account, acceptable means of payment, and store of abstract valueㅡshould be seen as comprising money's sociological ‘origins’.

Money of account  (p. 24)

It is a telling failure of economic orthodoxy that money of account has been 'traditionally regarded as the weak sister of the famous triad (means of exchange, store of value, unit of account)' (Hoover 1996). This basic conceptual lacuna stems from the underlying theory of exchange. In their eagerness to establish that value can only be established by means of exchange, economic theorists of the late 19th century did not pursue the question of precisely what pre-conditions were assumed in a theoretically coherent model of multilateral market exchange. The problem within the microeconomic paradigm is how to specify theoretically the transformation from the real exchange ratios between goods, established on the basis of individual subjective preferences, to the price lists of the fully-fledged invisible hand market. Without a money of account, exchange ratios are only easily established between pairs of commodities in dyadic exchange; that is to say, pure barter (as opposed to payment in kind) can only be bilateral. The central question is whether money of account can, without the existence of other conditions, arise out of bilateral barter? Is it reasonable to think that price lists might spring spontaneously from barter?

   In the Mengerian myth, it should be noted, the holding of stocks of liquid commodities does not in itself result in the use of price lists. As Walras realized, a theory of the movement from barter to complex multilateral exchange could only be constructed with the use of a deus ex machina. The 'tatonnement’  can only begin with an opening price, denominated in a 'numeraire' and announced by the ‘auctioneer’. This recourse to ad hoc categories and theoretical devices betrays a general failing of orthodox economic theory. Neoclassical economics operates with ‘a theory of “pure exchange” that is unable to specify the analytical boundaries of a market’ (White in Swedberg 1990: 83, emphasis added).

   This problem has been addressed in scholarly depth by the numismatist Grierson. First, he argues, as did Keynes on the basis of his Babylonian excursus, that money of account is fundamental: ‘Unless the commodities used for exchange bear some relation to a fixed standard, we are still dealing with barter [because] [t]he parties in barter-exchange are comparing their individual needs, not values in the abstract' (Grierson 1977: 16-19, emphasis added). For example, the tobacco used as a medium of exchange in 17th century Virginia only became money when its value was fixed at three shillings a pound (Grierson 1977: 17). However, the standard of value determined by weightㅡthe exchange value of the money-stuffㅡis not the important issue. It is rather ‘countability’ that transforms the ‘commodity’ (qua convenient medium of exchange) into ‘money’. This might be 'countable-useful' (slaves, cattle, furs) or 'countable-ornamental' (teeth, beads, shells) (Grierson 1977: 33, see also Hoover 1996).

   Grierson finds it implausible that the concept of money, as accounting for value in the abstract, could emerge from subjective preferences and bilateral barter. As an alternative, he conjectures that the concept of money has its origins in a very early social institution for the settlement of disputes, later examples of which are known as wergeld (Grierson 1977: 19).  Wergeld (worthpayment) was one of a range of institutions in early society that sanctioned payment of damages and compensation for injury and insult according to a fixed scales of tariffs. These were both precise and very detailed in their attempt to cover all exigencies (Grierson 1977: 20). Grierson offers a theory of the actual historical basis for the 'logical origins' of money in money of account: [n19]
The conditions under which these laws were put together would appear to satisfy, much better than the market mechanism, the prerequisites for the establishment of a monetary system. The tariffs for damages were established in public assemblies, and ... Since what is laid down consists of evaluations of injuries, not evaluation of commodities, the conceptual difficulty of devising a common measure for appraising unrelated object is avoided.  (Grierson 1977: 20-1) [n20]
[n19] ‘Behind the phenomenon of coin there is the phenomenon of money, the origins of which are not to be sought in the market but in a much earlier stage in communal development, when worth and wergild were interchangeable terms’ (Grierson 1977: 33). See also writers in the German historical school summarized in Einzig (1966).
[n20] This analysis may be construed as a Durkheimian sociology in which money of account/measure of value is seen as a collective representation of basic elements of societal structure (Ingham 1996). The punitive and compensatory tariffs expressed both the utlilitarian and moral components of society. Wergild symbolically represents society's two faces in prescribing recompense for both insult and injury. On the one hand, it accounted for the functional worth of the contribution of social roles to societal welfare by assigning a tariff to the loss or impairment of their individual incumbents; for example, young men of fighting age were worth more than old women and so on. On the other hand, such schemes of functional or utlilitarian worth embedded in moral legitimations that directly reflected the hierarchical status order of society. Compensation for the loss of a Russian nobleman's moustache, for example, was four times greater than for the loss of a finger (Grierson 1977: 20). Wergild was the codification of the social values without which the assessment of functional contribution would have remained anomic and open to settlement only by constant recourse to socially and economically debilitating blood feuds. Payment of tariff, could, of course be made in kind; that is to say, money of account is anterior to the other definitive property of money (means of payment); but it does not logically follow.
   There are, then, very good theoretical grounds for arguing that the idea of moneyㅡthat is to say, its logical origins as the social practice of accounting for valueㅡoriginated outside the market. Such arguments were well established by the German historical school over century ago but were expurgated from the pure theory of exchange in post-Methodenstreit economics. In concentrating their attention on the notion of money-stuff (money as a commodity with exchange value) the theorists were unable to see that, more fundamentally, moneyㅡas money of accountㅡwas the means by which genuinely ‘market value’, as opposed to individual subject preference, could be created (see, for example, von Mises 1953[1912]: 461-81).[n21]  The essential elements of multilateral exchange in the decentralised market economyㅡdebt contracts and price-listsㅡare made possible by money of account and not by commodities acting as the media of exchange. Furthermore, the actual money-stuff that comprises the means of payment:
namely that by delivery of which debts contracts and price contracts are discharged... can only exist in relation to a money of account ... And Age of Chartalist or State Money was reached when the State claimed the right to declare what thing should answer as money to the current money of account.  (Keynes 1930: 3-4, emphasis added)
[n21] See, for example, the thorough and otherwise excellent, account, of 'primitive money' by the economist Melitz (1974). He concludes that the concept of money of account can originate 'outside of trade', but that 'money' can only be established in exchange.
cf. von Mises, L. (1953[1912]) The Theory of Money and Credit, London: Jonathan Cape.

The social production of money as a means of payment and store of abstract value  (p. 26)

Once the concept of abstract monetary accounting (unit of account) was available to society, the next step was the development of a standard of value based on commodities in the ancient Near Eastern empires in the period from 3000 to 1000 BC (Goldsmith 1987, ch. 2; Keynes 1982, 223-93). For example, the shekel in Babylon was originally fixed at 1 gur (1.2 hectolitres of barley) and later at a more manageable 8.3 grams of silver. However, these societies were essentially non-monetized command economies with only very small trade sectors. The overwhelming majority of payments were rents and taxes to religious and secular authorities. There was no coinage and payment was made in commodities, labour services, or silver by weight (shekel, mina, talent) (Goldsmith 1987). It was on the basis of their centralized bureaucratic social structures that Babylon and its neighbours were able to establish ‘chartal money’ (Knapp 1924): that is, the monetary practice of using a fixed standard in conjunction with money of account. It should be stressed that the authorities not only fixed the standard, but also many of the prices of taxes, rents, and so on, and these remained stable over time. In short, monetary practice has its logical origins in money of account and its historical foundation in the chartal money of early bureaucratic empires. It was not, pace Menger, the spontaneous product of the market.

   Coinage, which integrated all the attributes (unit of account, means of exchange/payment, store of value) in the form of money-stuff, came 2,000 years later in Lydia and Greece (Davies 1994). Centralized monarchical states and developments in metallurgy made it possible to embody money of account, standard/store of value, and means of payment/exchange in a single object. This was a critically important development in that it greatly expanded the scale and scope of impersonal market exchange. The coinage system reached its apogee in the Roman Empire and ‘[i]ts “sound money” was accepted over an area larger than any other before or after the 19th century’ (Goldsmith 1987: 36).

   Before the changes in social, political and economic structure that culminated in the emergence of capitalist credit-money, the developmental sequence of the social structure of monetary practice was as follows:
  • The concept of money as a measure of value for representing and accounting for the (utilitarian and symbolic) worth of social positions and roles (money of account) (Grierson 1977).
  • Authoritatively-fixed standards of value based upon quantitative relations between commodities expressed in money of account. For example the cattle standard and the barley standard in Egypt and Mesopotamia, 3000 BC (Keynes 1982; Goldsmith 1987).
  • Authoritatively-standardized means of payments/stores of value denominated in money of account, for payment of taxes and tithes (chartal money). An example is the silver shekel based on the barley standard. No coinage, payment by weight in silver. 2000 BC, in Babylon (Keynes 1982; Goldsmith 1987).
  • Coinage. Uniform units of precious metal by fineness and weight: minted coins in Lydia and Ionian Greece, c. 600 BC (Davies 1994), and 'symetallic' coinage systems. Precious metal means of payment of taxes and debts (legal tender) and base metal tokens as media of exchange. For example, in Augustan Rome: the gold aureus and silver denarious supplemented by the sestertius of copper, zinc and tin, and the quadrans of copper. (Goldsmith 1987: 36).
   The use of specific institutionally-legitimate debts as means of payment is arguably one of the most important developments in the history of humanity's organizational or infrastructural power. As indicated earlier, money-proper itself comes to consist in a particular form of social relation. This development freed the production of the means of payment from the physical constraints of territory and geology. Credit money brought the possibility of a controlled or managed elasticity of supply for money and made possible the financing of the capitalist enterprise. At this time, money became an autonomous force of production (Keynes in Smithin 1994, 2; Schumpeter 1994 [1954], 318; Ingham 1999).[n22]  However,
  • modern credit money cannot be explained simply as the direct result of the need for more efficient monetary representation in an economy whose dynamic lay elsewhere in real factors such as technology, the division of labour, or capital-labour ‘social relations of production’ (Ingham 1999). 
  • The credit money form was the result of particular geopolitical conditions and social structural changes in the reawakening of Europe after the collapse of the Roman Empire and its coinage system.
[n22] ( ... ... )
   The disintegration of Rome produced a dissociation of money of account and means of payment. When coinages (moneta reale) resumed in the myriad political jurisdictions of a now fragmented medieval Europe, they were integrated by a moneta immagineria (money of account)ㅡthat is, by the ‘practice of counting in pounds, shillings and penceㅡalready sanctioned by the glory of Charlemagne’ (Einaudi 1953 [1936]: 230). The Cristian ecumene of the Holy Roman Empire was too weak to support a centralized minted coinage, but it was able to provide the normative basis for a common moneta immaginaria.
  • This dissociation of money of account and means of payment was of critical importance in providing the conditions for the emergence of merchants' private bank money, which was based on the bill of exchange. (See the reference in Ingham 1999 to the later American school of historical economics of, for example, Usher, Lane, and deRoover. See also Wray 1990 and Spufford 1988.)  
  • These bills were denominated in the moneta immaginaria (money of account) and existed in an unstable relationship with the myriad coinages. 
  • Eventually when the practice of drawing bills became detached from any real commodities, rested only on the drawer's promise to pay, they became autonomous means of payment ('dry exchange').  After a long struggle, money ceased to be the monopoly  prerogative of the sovereign (Boyer-Xambey 1994).
   However, it is important to note in relation to chartalismㅡ‘the doctrine that money is peculiarly a creation of state’ (Keynes 1930: 4)ㅡthat the merchants's private bank-credit money that developed out of the bill of exchange only became money-proper when the states joined the bank giros (see Wray 1990).  Moreover, as ‘the state had become the largest receiver and the largest maker of payments in the society’ (Weber 1978: 167), it was almost inevitable that this development would occur. This fusion of state and bank credit money developed first in the Italian city-states during the 15th and 16th centuries, then spread to Holland and, most decisively, to England with the formation of the Bank of England in 1694. The widespread use of debt as a means of payment outside the networks of traders required the state to establish the legal depersonalization and negotiability of debt by which the simple credit of the personal IOU, recorded in a unit of account, could become credit money (Carruthers 1996, Ingham 1998b, 1999). All subsequent developments have been the extension, elaboration, and refinement of this evolutionary leap in monetary practice.

   It is important that chartalism is not confused with crude monetary nominalsim. Barbon's much earlier assertion, for example, that ‘money is a value made by law’ (Jackson 1995: 11, emphasis added) is, if taken literally, equally as untenable as the neoclassical dictum that it is made entirely in exchange on the basis of individual rational calculations of utility. As Weber emphasized in his generally favourable critique of Knapp, state theory only applies to money's formal validity, or its status as legal tender. Money's substantive validity, the expectation that ‘recipients estimate that they will, within the relevant time horizon, be able to utililize it in exchange to procure goods at an acceptable exchange ratio’ (Weber 1978: 75), no more follows from formal validity than does the neoclassical assertion that the converse is the case.[n23]

   At first glance this distinction might appear to be the basis for a neat division of intellectual labour in the social sciences. Once the nominal monetary instrument has been classed as formally valid and place at the disposal of economic agents by the state, its value and utility (substantive validity) is determined by the market; that is, by rational maximizing agents who will only hold it if its capacity as a store of value is known.  An implication of the Keynesian conception of radical uncertainty is that the relationship cannot be expressed quite so neatly in this way; that is to say, as the state proposing and the market disposing (Hicks 1989). Not only is money's formal validity (as means of payment) established by fiat, its exchange value (substantive validity) is also irreducibly fiduciary, and here the 'state or community' (Keynes 1930: 4) also plays an important role in producing the ‘promise of last resort’.

   Willingness to hold money is influenced by rational appraisal of current estimation of its future value; but this can never be more than a guide to further action that itself will, in part, determine the future value of money. Money's capacity to store value depends on a willingness to hold money in the present. In other words, the effectiveness of money as a store of value is based, to an important degree, on a commitment to a course of action that is based on trust that others will continue to accept our money. Effective trust is more than a ‘weak form of inductive knowledge’; it is rather a ‘supratheoretical belief’ (Simmel 1978[1907]: 179) [n24] In holding money as an abstract store of value and means of payment, we trust that our claim on future goods will be met, and in this sense, as I have always arguedㅡfollowing Simmel, Schumpeter, and later Hicksㅡall money is credit.[n25]
[n24] See also Luhmann (1979: 26): 'In the last resort, no decisive grounds can be offered for trusting'. Although economic explanations refer increasingly to trust, rational choice/expectation theories can, strictly speaking, have no place for it. Trust would be made unnecessary by more or better information. Thus, in narrowly economic treatments, trust tends to be reduced to confidence based on empirical knowledge. However, this conflation of trust and confidence produces a logical contradiction in which it is argued that trust is based on the very thing that it is held to replace: perfect information.
[n25] It has been argued with some justification that Schumpeter was a reluctant and equivocal 'creditist'.
   At this level of generality and abstraction, however, such formulations beg the question. As Gansmann has observed, appeals to the obvious importance of 'trust' and 'confidence' in the analysis of monetary systems have 'as much explanatory value as saying credit comes from credere' (Gansmann 1988: 293). That is to say, the social production of trust and confidence and the conventional basis for holding money needs to be explained.[n26] At present, this problem cannot be pursued beyond a comment on two aspects of the problem: the generation of impersonal trust or legitimacy; and the ideological construction of money and its relation to monetary theory.
[n26] ( ... ... )
   Money as a store of abstract value consists in the social system of monetary production which entails the creation of monetary legitimacy which is form of impersonal trust (Schapiro 1987).  However the market is not in the business of trust-building. In the face of radical uncertainty self-fulfilling long-term trust is rooted in social and political legitimacy whereby potentially untrustworthy 'strangers' are able to participate personally in impersonal complex multilateral economic relationships.[n27] In this respect, the impersonal social relation of money is the invisible hand. The basic chartalist argument would appear to be incontrovertible. The story has been told many times: the production of trust in money and modern credit money in particular has been inextricably bound up with the rise of the modern constitutional state (see, for example, Hicks 1969, 1989; Dickson 1967).

   Social conventions based on no more than either an equilibrium of competing interests or consensual agreement are, Douglas has argued, particularly fragile (Douglas 1986, see discussion in relation to money in Carruthers 1996). She maintains that enduring social institutions require a stronger foundation:
There needs to be a[?an] analogy by which the formal structure of a crucial set of social relations is found in the physical world, or in the supernatural world, or in eternity, anywhere, so long as it is not seen as a socially contrived arrangement.  (Douglas 1986: 48) [n28]
   In other words, enduring institutions are based on ideology in which socially constructed arrangements are seen as natural (or supernatural); and, by implication, universal and immutable. If successfully enacted, ideological naturalization conceals the social production and malleability of institutions. Until the 20th century, the ideological naturalization of money was achieved and its social construction concealed by the identification of 'real' money with its commodity form. However, with the appearance of credit money, the fiction of a universal, immutable, natural monetary standard became increasingly difficult to sustain. As Schumpeter observed, 'metallists' were either 'theoretical' and therefore mistaken in their belief that the only true form of money was precious metal; or else they were 'practical metallists' in that they understood that this form of money-stuff would be trusted more readily than a mere promise to pay. Indeed, it was on the basis of both these standpoints that the economically advanced nations spent most of the 19th century trying to devise monetary schemes that would make paper behave as if it were gold.[n29] Naturally it behaved in this way to the extent that people believed that it would.

   This ideology of money survived the commodity form to which it refers. However, monetarism, with its rhetoric of the control of actual 'quantities' of money, was probably its final incarnation.  As I have suggested, a good deal of confusion has been caused by the retention of the conceptual and theoretical apparatus of the erroneous commodity-exchange theory of money in modern economics' attempt to comprehend modern credit money. But even more transparently, the production of money now consists of the attempt to control the price of debt through interest rates and by the monitoring of the degree to which this monetary policy is deemed to be managed correctly in relation to orthodox economic theory.

   Monetary authorities in the different jurisdictions are required, to repeat Keynes's apt phrase, to 'move forward in step' (Keynes 1930: 26-7). Nevertheless, it is still strongly implied that the correct steps are those which keep pace with 'outside forces' which remain couched in a naturalistic rhetoric: for example, the variables representing the natural rate of unemployment.[n30] However, the increasing openness and reflexivity of central bank policy formulation in order to establish credibility in the dialogue with ever more powerful foreign exchange markets might only serve further to ideologically denaturalize money and weaken the very institutions it is designed to strengthen. It is perhaps ironic that the tenets of economic orthodoxy regarding transparency might have this effect.[n31]


The concepts that comprise the theoretical apparatus of most mainstream economic approaches to money all derive from the commodity-exchange theory in which money is essentially a commodity (or direct symbol). In some accounts, it is seen primarily as a veil over the real exchange ratios between other commodities. It can also be seen as a 'quantity' or 'stock' that circulates or flows with some degree of short-run autonomy. This is not the place to examine the subtleties and contradictions of this general position. In any event, money is a 'thing'. However, such metaphors fail fully to capture money as socially constructed and constituted by social relations between the monetary and other economic agencies. A number of very general conclusions might be drawn.

   The properties of money and how it is able to perform its functions are constituted by the social relations of the monetary system. First, the monetary authority possesses the legitimate power to construct and maintain both the money of account and standard of value. This is the formal validity that provides what might be seen as the socio-technical means by which the other monetary and economic agencies account for their economic interrelations and produce monetary value. As Knapp and other state theorists maintained, money of account and standard of value are not themselves monetary value, but they provide the footing by which such value can be determined. [n32]

   Second, legitimately-sanctioned agenciesㅡmints, ministries of finance in conjunction with public and private banksㅡdirectly produce valid 'money proper'; that is, the legal means of payment and attendant media of exchange. Technological and social changes have transformed the money-stuff of the means of payment from commodities by weight, to coins, to signifiers of debt recorded in books or electronically. These may also be media of exchange, but this is not commonly so. The latter have taken myriad forms, from base metal tokens to cheques, plastic cards and so on. The production of money is a relatively autonomous socially enacted process.

   Third, the users of moneyㅡthe owners, controllers, and producers of commodities and moneyㅡenact the relationship between the two. That is to say, there is no automatic tendency to an equilibrium of supply and demand of money and goods that arises from individual calculations of utility. The two sidesㅡmoney and goodsㅡare, from a sociological standpoint, distinct and relatively autonomous, as Keynes and Minsky maintained.[n33] On the goods production side, agents attempt to monetize their market power either by bidding up prices in money of account, or by the expansion of value through borrowing and the creation of debt denominated in money of account (Weber 1978: 108, Maier 1978). On the money side, agents attempt to preserve and store value in money form and to control its supply in order to exact interest; and/or they forge new social relations of credit (monetary innovations), which they hope will be validated by the monetary authorities as a liquid asset. According to this view, money consists in those economic interrelations that are 'monetized' in money of account and periodically settled by a legal or chartal means of payment (see also Hoover 1996). Again, it is important not to confuse the technological changes in monetary forms with fundamental monetary practice and relations. In this respect, it is commonly held that the above characterization of money applies only to the modern world. Technology, it is argued, has transformed money so that it has become 'dematerialized', 'virtual', or even 'postmodern' (see Leyshon and Thrift 1997). However, Babylon and Champagne Fairs of the late Middle Ages, for example, operated with an 'imaginary money' (money of account) and a means of eventual settlement in exactly the way I have outlined. The difference between these era and our own is in the technological means for making and keeping account and in the overall level of monetization, not in the essentials of monetary practice. The debate on what money is has been confused by logical and catergory errors, especially the conflation of the 'thing' and 'social relations' of monetary practice.[n34]

   Money, then, is not simply an 'exogenous stock' that may be added to at will; but neither is it exclusively an 'endogenous flow' that is ultimately accommodated by the monetary authority. (See Wray 1990, Pollin 1991). The familiar antinomy is too extreme and, arguably, tells us as much about economic theory as it does about the actual historical and social production of money. The former theory is an anachronistic adaptation of an inaccurate commodity theory, and the latter is an equally one-sided characterization of capitalist bank credit. However, the central dynamic in the creation of modern money necessarily involves both sides in the continuously-negotiated (re)construction of the rules and practices by which the monetary authority will sanction the monetization of the various claims made in price bids, new credit instruments and so on. Economic discourse plays its part, but the monetary authority ‘does not simply apply the rules of a monetary system which somehow seems to it ideal, but its acts are determined by its own financial interests and those of important economic groups’ (Weber 1978: 172). In other words, a complex triangular power struggle between the monetary authority, the banking system, and the agencies of production is at the centre of the process.

   Moreover, this free play of conflicting interests is essential if monetary systems are to perform the functions of arriving at and storing of value in an abstract form. As Weber argued, in his elaboration of the 'Austrian' view, the possibility of 'the formal rationality of monetary calculation' is dependent on quite specific substantive conditions. Money prices are the result of power struggles and of compromises and they are 'instruments of calculation only as estimated quantifications of relative chances in this struggle'. Consequently, money 'is not a mere 'voucher' for unspecified utilities'; rather it is 'primarily a weapon in this struggle' (Weber 1978: 107) [n35] Any equilibrium of price stability or interest rates is the expression of a balance of power that underlays any equation of quantities of money and goods.

   Permanent monetary stability in a capitalist economy can only be considered to be theoretical possibility if we accept the assumptions of neutrality and a natural tendency towards economic equilibrium. But neither is helpful in the explanation of money's logical or historical conditions of existence. We must conclude, therefore, that all monetary systems, if they are to produce market prices and produce and store abstract value, are necessarily precarious and unstable. Consequently, they require constant intervention to both regulate and legitimize monetary practice and policy, and to control economic agents' disruptive and destabilizing pursuit of self interest (Ingham 1998b). It must be stressed that this is not a matter of intervention in extremis, but a permanent, ongoing social reproduction of money through the readjustment of power relations, the social construction of the norms by which we move 'in step', and an endless ideological quest for the optimally 'correct' and, therefore, 'natural', universally applicable monetary policy.[n35]

   Finally, moneyㅡas it is constituted by real social relationsㅡis an autonomous and active element in economic life. The somewhat contradictory quantity/neutrality assumptions have produced distorted ideas of economic activity which impede our efforts to understand the ubiquity and normality of fluctuations in the price level and monetary crises. Consequently, they have had serious policy implications. As I have already suggested this relative autonomy in the manufacture of money, which is an essential part of the 'struggle for economic existence' (Weber 1978), has double-edged or contradictory effects. In the classic Keynesian formulation, it is the means of creating expanded value in the form of commodities; but it is also the means of their destruction (Schumpeter 1934[1912], Kindleberger 1984, Minsky 1986). This attribution of real force and efficacy to money does not entail a metaphysical nominalism or, more prosaically, a form of 'money illusion'. This is so only if the economy is taken to comprise nothing of importance other than commodities and their 'real' relations as these result from individual optimizing strategies. Alternatively, as Keynes clearly saw, first in Babylon and then in the early 20th century, money is an expression of of human society's capacity for self-transformation. It is arguably the most powerful of our 'social technology' (Stinchcombe 1965); but it is one over which we have, inevitably, a most insecure grasp.

* * *

[n26] As soon as the highly restrictive assumptions of rationality and the calculation of probabilistic statements about future events are relaxed, or seen to be untenable, some orthodox economists look to the other social sciences to augment their explanations. However, the importation of concepts such as trust and convention is a methodologically ^ad hoc^ procedure in that they refer to non-rational action which has no ^theoretical^ status in economics. Keynes's work, for example, is replete with ^ad hoc^ categories, such as 'animal spirits' or conventions, which were necessary to explain the economic actions that was anomalous from the point of view of (neo)classical theory. However, unless such concepts are grounded in a wider explanatory scheme they merely introduce additional tautologies into economic explanation (Ingham 1996a).

[n27] Hart points out that Adam Muller's ^A New Theory of Money^ (1816) was a systematic challenge to the view that the existence of money was governed by the laws of commodity exchange. This line of reasoning informed the theories of Simmel, Knapp, Weber, and ultimately, Keynes, in their insistence that 'money is a symbol of something intangible, ^an aspect of human agency^, not a thing like a lump of coal' (Hart 1986: 646, emphasis added). In Hart's opinion, which I endorse Schumpeter was wrong to dismiss this as metaphysical nonsense (Schumpeter 1994(1954): 421-2).

[n28] Note the similarity between this formulation and my Durkheimian interpretation of the foundations of money in money of account.

[n29] The debate between the Currency and Banking schools in the early 19th century most clearly shows the intellectual foundations of the 'natural' and 'social' conceptions of monetary production that informed the intense debates over monetary policy in the 19th century and beyond. See also Carruthers and Batt (1996) on the 'Greenback' era after American Civil War. As I discovered to my naive surprise some time ago, the ideology of the gold standard during this period bore very little relation to the actual operation of the domestic and international credit money system operated by the Bank of England and the City of London (De Cecco 1974, Bloomfield 1963, Ingham 1984, 1994).

[n30] It should be noted that the accountancy practices that form part of 'moving in step' in the construction of acceptable level of credit money are not only rational techniques, but also rhetorical and ideological in their construction of legitimate and credible promises to pay. For example, double-entry book-keeping is regarded as 'an essential condition for the existence of money-accounting' (Weber 1978: 97); but I would also argue that it is also the means by which a legitimate 'credible' money is actually created.  See Carruthers (1991) on the rhetorical import of accountancy techniques.

[n31] Some of the criticism of the newly independent Bank of England's new Monetary Policy Committee (1997- ) that has begun to appear in the orthodox financial press might be interpreted this way. It has been suggested that the lack of unanimity by the committee of 'experts' cannot provide the decisiveness and appearance of certainty that the market desire. The open disagreement in the published minutes is transparent, as orthodox economic analysis would prescribe, but exposes the fact that the economic numbers, even if they are considered to represent 'outside forces', none the less are subject to different and equally valid interpretations. There is even discussion of the social psychology of committee decision-making and how this might contribute to systematic policy errors; for example, an expert might not wish to concede the superiority of a competing argument. In short, the new arrangements are, in Douglas's (1986) terms, exposing the fragility of an equilibrium or group consensus and the social construction of money. Furthermore, it will be interesting to see how the European Central Bank will be able to maintain resistance to this fashion for demonstrating that they can be seen to be marching in step.

[n32] Again, it is important to note that these authorities need not be states a such, but simply the agreed regulatory agency or 'community', as Keynes expressed it.

[n33] In Keynes's rather obscure phrase: 'the marginal efficiency of money is determined by forces partly appropriate to itself'. See also Smithin (1996).

[n34] The development of electronic money has caused a great deal of intellectual confusion, and, in this respect, there are frequent reference to the 'end of money' (see Ingham 1998a on Angell 1997).

[n35] These arguments were, of course, at the centre of the 'socialist calculation' debate in the 1920s and 1930s.

[n36] As Mirowski, for example, has pointed out, the balance between the expansion of value through the creation of debt and inflation, in modern capitalism, is:
socially constructed and therefore non-mechanical, [thus] ... further institutions are required to intervene continually to offset one trend or the other [and] [t]the overriding problem of all market-oriented societies is to find some means to maintain the working fiction of a monetary invariant.  (Mirowski 1991: 579)
It would be interesting to consider the fragility of social order and the need for its constant enacted reproduction as stressed in the sociological work of Goffman and the 'ethnomethodologists'. For an accessible exegesis and discussion of social agency, see Giddens (1984).

   A fundamental dispute about how best to manufacture money in[? is] implied in the debate over the best way to repair the 1997-8 financial crisis. Notwithstanding all the other important aspects of the situation, it would seem that there are important social differences in the way credit money is created in the East Asian and Anglo-US systems. With more interdependent and longer-term debt relations, the former can produce 'more' money; but the Washington consensus considers this 'unsound' and believes that the world should conform to its norms.

* * *



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