2013년 12월 25일 수요일

[메모: L.R. Wray's Introduction to] Theories of Money and Banking (2012)

출처: L. Randall Wray (ed), Theories of Money and Banking, I & II (Edward Elgar Publishing, 2012); Contents

※ sub-sections of the Introduction:

  • The Orthodox Story of the Origins of Money
  • Towards a Heterodox Critique
  • Primitive 'Exchange' and Primitive 'Money'
  • Private Property and Money
  • Relations between Money and Markets
  • Credit and State Theories of Money: Modern Money Theory
  • The Development of Central Banking and the Evolution to the Modern Financial System
  • Conclusions and Policy Implications


※ 발췌식 메모 (reading notes with excerpts):

* * *

Introduction

L. Randall Wray

Inconvenient as barter obviously is, it represents a great step forward from a state of self-sufficiency in which every man had to be a jack-of-all-trades and master of none. ...  If we were to construct history along hypothetical, logical lines, we should naturally follow the age of barter by the age of commodity money. Historically, a great variety of commodities has served at one time or another as a medium of exchange: ...tobacco, leather and hides, furs, olive oil, beer or spirits, slaves or wives ... huge rocks and landmarks, and cigarette buts.  The age of commodity money gives way to the age of paper money. ... Finally, along with the age of paper money, there is the bank money, or bank checking deposits (Samuelson, 1973, pp. 274-6)
Although this explanation of the origins of money and financial institutions is taught in almost all money and banking courses, it is internally inconsistent and has little historical foundation. There is an alternative approach that emerges from the heterodox literature on money, banks, the broader financial system, and monetary policy. This two-volume collection presents a cross-section of heterodox approaches to these issues. For purposes of contrast, some of the more important orthodox treatments are also included.

   This introduction integrates the various strands of this alternative view on the origins of money and the development of the modern financial system in a manner that is consistent with the historical facts, such as we know them. To be sure, the history of money is 'lost in the mists of time' as money's invention probably pre-dates writing. Further, the history of money is contentious. And, finally, even orthodox economists would reject Samuelson's caricature as historically inaccurate. Rather, the story told about the origins and evolution of money is designed to shed light on the 'nature' of money. The orthodox story draws attention to money as a transactions-cost-minimizing medium of exchange. By contrast, the heterodox tradition focuses on money as a complex and important institutionㅡperhaps the most important institution in the capitalist economy (see Part I, II and III of Volume I, and especially Dillartt I.8(Volume I, Chapter 8).


[1] The Orthodox Story of the Origins of Money

According to the orthodox story, barter replaced self-sufficiency and increased efficiency by allowing for specialization.[n.1]  It was then discovered that further efficiency could be gained by using some object as a medium of exchange to eliminate the necessity of a happy coincidence of wants required for barter to take place. Thus, money sprang forth to facilitate exchange by lubricating the market mechanism, which had previously relied upon barter: money was created to minimize transactions costs. Further, 'fairground barter' replaced 'isolated barter' because this lowered the cost per unit of time taken to complete a transaction. Thus, the development of money and markets allowed the economy to move toward its optimum position with the lowest transactions costs (see Goodhart I.1).

  The argument is extended to the development of fiat money by noting that, in the 17th century, commodity money was commonly deposited with 'goldsmiths' for safe keeping against receipts called 'goldsmiths' notes'.  Time and effort (now called shoe leather costs) could be saved by exchanging notes, rather than by reclaiming the gold each time an exchange was made. The goldsmith discovered that, as a result, some notes were permanently in circulation so that the gold they represented was never withdrawn. Thus, goldsmiths could safely lend these gold reserves, or issue additional receipts as loans, creating the equivalent of modern fractional reserve banking. Since the cost of writing out these receipts was less than that of mining gold, goldsmith 'banking' was also a rational economic decision taken to reduce the costs of the transactions structure; paper money thus replaced commodity money.

  However, as goldsmiths had to keep some commodity money to facilitate clearing with other goldsmiths and for deposit withdrawals, the quantity of paper money issued would be closely governed by the quantity of commodity money held in reserve. Some of the goldsmiths gradually specialized, and the modern private banking system emerged, based on fractional reserve deposit banking.[n.2] Governments began to compete by issuing fiat money either through their treasuries or through their central banks. Private banks were permitted (or required) to hold this governmental (or quasi-governmental) fiat money as reserves. Thus, an increase in the issue of government fiat money would lead to a multiple expansion of bank deposits in the fractional reserve system.

  While the deposit multiplier might vary, central bank control over the privately issued supply of paper money (and, later, demand deposits) is ensured through control of bank reserves (Friedman II.1 and II.3, and Brunner II.2).  In order to prevent excessive money from being privately created, the central bank must closely regulate the quantity of reserves.  Lack of moral fiber on the part of the authorities leads to excessive reserves and to excessive money. When the public finds itself with too much money, it spends the excess, causing inflation. Thus, the primary responsibility of the central bank is to serve as an inflation guard dog.


[2] Toward a Heterodox Critique 

The orthodox story, in which the present is a linear descendant of the past, relies critically on an approach identified as 'hypothetical, logical' in the passage by Samuelson above. The orthodox economists view our economy as a more or less free market economy in which only real variables matter (at least for the long run) and in which neutral money is used primarily to facilitate exchange of real goods, undertaken by self-interested maximizers for personal gain. The origins of money are then discovered by abstracting from this hypothetical economy to an economy that is an exact replication save one feature: it does not use money. The conventional economist compares these two economies and finds that the one using money faces lower transactions costs. Money must, therefore, have been created to reduce the transactions costs that arise in barter. Historical detail can be added to the feature, and mental gymnastics ensure that historical 'facts' are consistent with the basic neoclassical view of the world.

  'Money' can be discovered in almost any society (past or present) if one is willing to include as money 'tobacco, leather and hides, furs, olive oil, beer or spirits, slaves or wives ... huge rocks and landmarks, and cigarette butts', as Samuelson is wont to do (Samuelson, 1973 pp. 274-6).  If such objects cannot be found in a particular society, one can always argue that this society merely has not yet discovered money. All societies are based on exchange, or at least would be if natural propensities were allowed to flower.  If one is willing to define almost any human interaction as an 'exchange', then exchange can be found in any society.  Finally, all such exchanges must be made on the basis of cold calculation of self-gain, for no other exchange could be rational.

  Heterodox economists have mounted a several-pronged attack on this methodology and its conclusions.  First, institutionalists (in particular) have rejected the formalist methodology adopted by orthodox economists in favor of a substantivist methodology (Stanfield, 1986).  In the formalist methodology, the economists begins with the 'rational' economic agent facing scarce resources and unlimited wants (Dalton, 1971).  The focus, then, must be on choice; implicit or explicit relative prices will be generated (by an auctioneer or through tatonnement) to guide choice as rational agents maximize.[n.3]  Since the formalist methodology abstracts from historical and institutional detail, it must be applicable to all human societies; indeed, it is presumably relevant for the study of any organism capable of making choices.  Institutionalists instead argue that economics has to do with a study of the institutionalized interactions among humans and between humans and nature.[n.4]  The economy is a component of culture, or, more specifically, of the material life process of society.  As such, substantivist economics cannot abstract from the institutions that help to shape economic processes; and the substantivist problem is not the formal one of choice, but one concerning production and distribution.[n.5]

  The universalist, formalistic method should be rejected because institutions matter, influencing the social and economic arrangements adopted.  As these vary across cultures and over time, different approaches have been taken to questions of production and distribution.  This dictates a comparative methodology: comparative anthropology addresses differences across cultures, while comparative history deals with the evolution of institutional arrangements through time (including within and across societies).  As Bloch argues the comparative method should 'analyze and isolate the "originality" of different societies' (Bloch, 1953, p. 507).  He claims that, if our analysis remains within the bounds of one society, we will never uncover the causes of germination of a historical development; a 'general phenomenon must have equally general causes' (Bloch, 1953, p. 505).  A series of monographs, each on a particular society, may be quite useful, but 'none of them, working separately, is able to provide the solution' to a question concerning the general causes of a general phenomenon.  On the other hand, monographs become important only because 'the comparative method can elicit from the chaotic multiplicity of circumstances those which were generally effectiveㅡthe real causes' (Bloch, 1953, pp. 505-6).  Use of comparative method allows one to 'isolate the "originality" of different societies' (Bloch, 1953, p. 507) by using 'factual studies which are detailed, critical, and well-documented' (Bloch, 1953, p. 520).

  The economist who wishes to use the comparative method faces a major hurdle: the economy in (all?) societies is 'embedded' in the total social fabric so that it is difficult to identify (Stanfield, 1986, 0. 18).  This is the corollary o the institutional rejection of the formalist method: one cannot abstract from the institutions that shape (and are shaped by) society's way of 'making a living'.  This is particularly true of pre-capitalist societies, where productive activities are closely integrated with other social activities (Stanfield, 1986, p. 76). [n.6]  Polanyi argued that, ...   ( ... p. xvi ... )

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