State Theory of Money

So the big issue with Credit Theory is that whoever is writing all these IOUs that a money supply is based on has to be obscenely wealthy, which is why it’s usually The King or whoever who does it.

“The real impetus for the Chartalist position, in fact, came out of what came to be known as the ‘German Historical School,’ whose most famous exponent was the historian G.F. Knapp, whose State Theory of Money first appeared in 1905.”

Emperors and kings had always handled units of measure, so it makes sense they’d handle money too, under the chartalist model.

Monetary systems of measurement are remarkably stable. Under Henry II from 1154-1189, almost everyone in Europe was still using Charlemagne’s system from about 350 years earlier, even though some of the coins in his system never even existed, almost none of his coins were still around, and the ones that were were wildly variable in size/quality.

Actually Charlemagne’s system stayed in place for over 800 years, coming to be referred to as “imaginary money,” and derniers and livres were only abandoned as units of account around the time of the French Revolution.

But according to State Theory, what the money is made of (Silver or leather or fish or paper) doesn’t matter, as long as the state takes payment for taxes in it, because that becomes currency.

Actual modern banknotes are kind of the opposite though. They’re not backed by debts OF The King’s, they’re backed by debts TO the king. The Bank of England was founded in 1694 with a loan made by a consortium of bankers worth about 1.2 million Pounds. In return, they got a royal monopoly on issuing banknotes, basically that they could circulate IOUs from the king to them for that loan. (King owes bankers money for that loan, King writes a million IOUs, bankers give those IOUs to people to use as currency).

pg 47-8

Credit Theory of Money

Gavin Mitchell-Innes was an early thinker in the area, got support mostly in US and Germany (two up and coming powers at the time, not in Britain, the power at the time. This feels significant). Another name is Chartalism (from latin charta, meaning “token”).

Theory i sthat money is not a commodity but an accounting tool. “For a Credit Theorist can no more touch a dollar or a deutschmark than you can touch an hour or a cubic centimeter.”

“Historically, such abstract systems of accounting emerged long before the use of any particular token of exchange.”

Money matters because it’s an IOU. Conventional wisdom says banknote should be a promise to pay a certain amount of real money (gold/whatever), Credit Theory says banknote is just a promise to pay *something* of a certain value.

“Conceptually, the idea that a piece of gold is really just an IOU is always rather difficult to wrap one’s head around, but something like this must be true, because even when gold and silver coins were in use, they almost never circulated at their bullion value.”

This theory allows for the trading of debts. I give you something, you give me an IOU, I can give that IOU to a third party for something else. They can then give the IOU to someone else, etc, etc. All that matters for the IOU to have value is people’s faith that the original issuer is good for it.

“In this sense, the value of a unit of currency is not the measure of the value of an object, but the measure of one’s trust in other human beings.”

pg 46-7

Why Economics started in 1776

-Money and trade had been around like, forever, so why did we only get a discipline of Economics in 1776?
-We needed government policy creating markets, like England was doing at the time. Beyond laws and police, they were also implementing monetary policy pegging the value of currency to silver but by only “pegging” and not directly using, they were also greatly increasing the money supply
-That required careful regulation of the banks supplying paper money. France and Sweden had already tried creating state-supported central banks, but they failed because they let the currencies get too speculative. So theorists of Smith’s day felt pegging money to precious metals was the answer

Why do they cling to barter?

-Smith’s goal was to create a Newtonian Physics of economics. Concept of a separate sphere called “The Economy” was relatively new in his day, and he wanted to show that it operated by rules like physics
-Newton was a Deist, believed in a clockmaker god who set the universe in order, Smith wanted to show the same thing. This is the “invisible hand” of the market
-This assumption of a kind of divine providence behind the market depends on a voluntary contract type model of exchange, in which all trades are barter for mutual advantage.
-So basically the fundamental belief of modern economics depends on viewing The Economy as a sphere of mutually beneficial trades orchestrated by a divine invisible hand. Allowing the more human relationships into this model raises questions about the divine perfection of it all.

Free Speech

Discussed on Twitch

Real uses of barter: when money fails

-The real uses of barter come when people who were used to money don’t have much of it anymore. Like immediately post-Soviet Russia or Argentina in 2002. Or in POW camps and prisons.
-Early medieval Europe after the collapse of the Roman Empire, and again after Carlingian empire collapsed. People keep accounts in the old imperial currency, even though they no longer have the coins.
-Adam Smith’s examples all come from societies where they did use money as a unit of account, but since it was slightly scarce they would trade in goods until it was more available.

“The law making tobacco legal tender in Virginia seems to have been an attempt by planters to oblige local merchants to accept their products as a credit around harvest time.”

pg 37-8

More real early economics

We’re starting with two imaginary people from an early section. Josh who has shoes but needs potatoes, Henry who has potatoes but needs shoes.
-If they were Iroquois, Henry would tell his wife he needs shoes, his wife would tell the other matrons, and if they approved he’d get some shoes from the community stockpile. To each according to his needs, basically
-If they were in a small, intimate community, Henry would tell Josh his shoes were nice, and Josh would give them to him. The potatoes wouldn’t enter in because both would assume that if Josh ever needed potatoes, Henry would give him some.
–One interesting little aside, particularly nice things thus get passed around a lot, since people compliment them and then are given them. But if you really want to keep something, you say it was a gift.
-Even in a fairly large, impersonal town, Henry’s wife would strategically mention he needs shoes, Josh’s wife would get him to give Henry the shoes, and then Henry owes Josh “one,” which Josh would call in when he needed/wanted something from Henry.

“In any of these scenarios, the problem of ‘double coincidence of wants’ so endlessly invoked in the economics textbooks, simply disappears. Henry might not have something Joshua wants right now. But if the two are neighbors, it’s obviously only a matter of time before he will.

This in turn means that the need to stockpile commonly acceptable items in the way that Smith suggested disappears as well. With it goes the need to develop currency. As with so many actual small communities, everyone simply keeps track of who owes what to whom.”

pg 34-36

The fundamental misconception of economics

“For there to even be a discipline called ‘economics,’ a discipline that concerns itself first and foremost with how individuals seek the most advantageous arrangement for the exchange of shoes for potatoes, or cloth for spears, it must assume that the exchange of such goods need have nothing to do with war, passion, adventure, mystery, sex, or death.”

“Economics assumes a division between different spheres of human behavior that, among people like the Gunwinngu and the Nambikwara, simply does not exist. These divisions in turn are made possible by very specific institutional arrangements– the existence of lawyers, prisons, and police– to ensure that even people who don’t like each other very much, who have no interest in developing any kind of ongoing relationship, but are simply intersted in getting their hands on as much of the others’ possessions as possible, will nonetheless refrain from the most obvious expedient (theft).”

pg 32-33

Real Bartering

-Barter does exist, just rarely between fellow villagers
-Nambikwara of Brazil: if one band sees the cooking fires of another nearby, they’ll send emissaries to negotiate a trade meeting. If accepted, they hide the women and children and invite the men over to talk. Chiefs give a speech praising the other band and belittling his own, they put aside weapons, sing and dance, then individuals approach each other to trade. They have this really ritualized thing where they argue over if the things they want are any good, agree on a trade, and then with mock-force take the things they’ve agreed to trade. Then they have a big feast.
-So basically for the Nambikwara, “Barter… was carried out between people who might otherwise be enemies and hovered about an inch away from outright warfare– and, if the ethnographer is to be believed– if one side later decided they had been taken advantage of, it could very easily lead to actual wars.”
-Gunwinggu of Western Arnhem Land in Australia: They have a region-wide moiety system (kinship groups where everyone in a group is part of one lineage), so people are basically divided up into teams and can only marry people from other teams. They have a big festival called the dzamalag where after some initial negotiations, strangers come to another group’s main camp. They sing and dance, then do flirty dances, fuck, and give them trade goods. When everyone’s satisfied, the host group gives the visitors their own trade goods in return. Then everyone eats.
-Point is, barter happens during “meetings with strangers who will, likely as not, never meet again, and with whom one certainly will not enter into any ongoing relations. This is why a direct one-on-one exchange is appropriate: each side makes their trade and walks away.” It’s also why there are big rituals involving food and dance and “shared pleasures,” and why they make light of the tension of possible hostility between them through play.

Real History of Not Bartering

-Six Nations of the Iroqouis: main economic institution was longhouses where goods were stockpiled and alloated by women’s councils. Nobody traded arrowheads for slabs of meat.
-“The definitive anthropological work on barter by Caroline Humphrey, of Cambridge, could not be more definitive in its conclusions: ‘No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing.'”