The Nature of Money E-Book

Geoffrey Ingham

• Herausgeber: John Wiley & Sons
• Kategorie: Geisteswissenschaft
• Sprache: Englisch

Seitenzahl: 533

Veröffentlichungsjahr: 2013

Beschreibung

In this important new book, Geoffrey Ingham draws on neglected traditions in the social sciences to develop a theory of the ‘social relation’ of money.

• Genuinely multidisciplinary approach, based on a thorough knowledge of theories of money in the social sciences
  
• An original development of the neglected heterodox theories of money
  
• New histories of the origins and development of forms of money and their social relations of production in different monetary systems
  
• A radical interpretation of capitalism as a particular type of monetary system and the first sociological outline of the institutional structure of the social production of capitalist money
  
• A radical critique of recent writing on global e-money, the so-called ‘end of money’, and new monetary spaces such as the euro.

Leseprobe

The Nature of Money

Geoffrey Ingham

polity

Copyright © Geoffrey Ingham 2004

The right of Geoffrey Ingham to be identified as Author of this Work has been asserted in accordance with the UK Copyright, Designs and Patents Act 1988.

First published in 2004 by Polity Press Ltd

Polity Press65 Bridge StreetCambridge CB2 1UR, UK

Polity Press350 Main StreetMalden, MA 02148, USA

All rights reserved. Except for the quotation of short passages for the purposes of criticism and review, no part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher.

A catalogue record for this book is available from the British Library.

   Library of Congress Cataloging-in-Publication Data

Ingham, Geoffrey K.   The nature of money / Geoffrey Ingham.     p. cm.

Includes bibliographical references.   ISBN 0–7456–0996–1–ISBN 0–7456–0997–X (pbk.)—ISBN 978-0-7456-3803-4 (eBook)

1. Money. 2. Money—Philosophy. 3. Money—Social aspects. 4. Capitalism. I. Title.

HG220.A2I584 2004332.4—dc22

2003017409

Typeset in 10.5 on 12 pt Times

by Kolam Information Services Pvt. Ltd, Pondicherry, India

Printed and bound in Great Britain by MPG Books, Bodmin, Cornwall

For further information on Polity, visit our website: www.polity.co.uk

Contents

Preface

Part I Concepts and Theories

Introduction

Money’s Puzzles and Paradoxes

An Outline of Contents

1    Money as a Commodity and ‘Neutral’ Symbol of Commodities

The Meta-theoretical Foundations of Orthodox Monetary Analysis

Quantity Theory and the Value of Money

An Analytical Critique of Commodity Theory

The Persistence of Orthodoxy

Conclusions

2    Abstract Value, Credit and the State

Early Claim and Credit Theory

The Nineteenth-Century Debates: Gold and Credit

The German Historical Schools and the State Theory of Money

The Influence on Keynes

Post-Keynesian Theory: Endogenous Money and the Monetary Circuit

Modern Neo-Chartalism

Conclusions

3    Money in Sociological Theory

Money as a Symbolic Medium

Marx and Marxian Analysis

Simmel’s The Philosophy of Money

Weber on Money

4    Fundamentals of a Theory of Money

What is Money?

How is Money Produced?

The Value of Money

Part II History and Analysis

5    The Historical Origins of Money and its Pre-capitalist Forms

Origins of Money: Debt and Measure of Value

The Early Development of Coinage

The Roman Monetary System

Conclusions

6    The Development of Capitalist Credit-Money

The De-linking of the Money of Account and the Means of Payment

The De-linking of the Money of Account and the Evolution of Capitalist Credit-Money

The Transformation of Credit into Currency

Conclusions

7    The Production of Capitalist Credit-Money

The Social Structure of Capitalist Credit-Money

The Working Fiction of the Invariant Standard

Conclusions

8    Monetary Disorder

The Rise and Fall of Inflation in the Late Twentieth Century

Debt Deflation and the Case of Japan

Argentina’s Monetary Disintegration

9    New Monetary Spaces

Technology and New Monetary Spaces

Europe’s Single Currency

Concluding Remarks

Notes

References

Index

Preface

This book is the result of my long-standing impatience with the disciplinary boundaries of the social sciences in modern academia. Not only have they become sharper, but there is also greater specialization and fragmentation into ‘sub-fields’ and esoteric niches. Since the division of intellectual labour in the early twentieth century, I believe that there has been a loss of understanding of how the world works. This belief is based on direct experience over a period of almost forty years in the University of Cambridge.

Using the economist Leijonhufvud’s (1973) whimsical classification of the social science tribes – Econs, Sociogs and PolScis – I explained in an earlier paper on money that after initiation in the Sociog tribe, I lived for almost twenty-five years with the Econs in the Faculty of Economics (Ingham 2000b). I became interested in money, and I asked some of their tribal elders for guidance. What is money? Some answered that money, as such, was not really as important as (my) common sense might suggest. I was not convinced, and, in particular, I could not accept the orthodox economic conception of money as a ‘neutral veil’. General equilibrium theory’s inability to find an essential analytical place for money in its sophisticated mathematical models seemed even more puzzling. I had reached an impasse.

Several years later, I contracted to write an introductory text on the sociology of the basic institutions of the capitalist economy. The first chapter on money has now, several years later, grown into this book. However, this time round, one of the more heterodox Econ elders in Cambridge, Geoff Harcourt, pointed me in the direction of a much more congenial post-Keynesian literature. His assistance gave me the start I needed; I could not have begun without his help. I went back to Keynes’s A Treatise on Money (1930) and realized for the first time that parts of the first two chapters were unwittingly, but thoroughly, ‘sociological’. In effect, chapter 2 describes the social relations of production of bank credit-money. At the same time, I came across the reissue of Schumpeter’s posthumous History of Economic Analysis (1994 [1954]). As a graduate student in Cambridge in the early 1960s, I had read parts of this wonderfully erudite and intellectually engaging work. It is probably better for being unfinished and unedited by Schumpeter: one can see the process of thinking with all the doubts, inconsistencies and contradictions. As a guide to the history of the economic analysis of money (and much more), it is unmatched.

Lacking the framework of a formal economics education has enabled me to write this unorthodox book; on the other hand, it has posed obvious problems. Deciphering the lexicons and idioms of the different traditions was slow going – ‘endogenous’ and ‘exogenous’ money took a little time to unravel! (Exogenous to what? At one time I thought that I could find at least three meanings. The reader will be pleased to hear that they do not appear in this final version.) Here again, I must thank Geoff Harcourt; he was the bridge without which I would not have been able to travel between the two tribes. He is always willing to answer my questions and suggest even more reading. The recommendation of the work of the economists John Smithin and Randall Wray has proved invaluable. It is gratifying to know that they in turn have taken an interest in mine. Attention to detail is not my strongest suit. Consequently, I have very good reason to be especially grateful for the highly professional expertise, and forbearance, of Sarah Dancy and her editorial team.

Polity has waited patiently a very long time for this partial fulfilment of the original contract. It is for others to judge whether it was in vain.

Part I

Concepts and Theories

Introduction

Gladstone, speaking in a parliamentary debate on Sir Robert Peel’s Bank Act of 1844 and 1845, observed that even love has not turned more men into fools than has meditation on the nature of money.

Marx 1970: 64

I know of only three people who really understand money. A professor at another university; one of my students; and a rather junior clerk at the Bank of England.

Attributed to Keynes, quoted in Lietaer 2001: 33

Money’s Puzzles and Paradoxes

Money is one of our essential social technologies; along with writing and number, it was a foundation for the world’s first large-scale societies in the ancient Near East during the third millennium BC, and today it literally does make the globalized world ‘go round’. Money plays this indispensable role by performing the familiar list of functions of the economic textbook.1 It is a medium of exchange, store of value, means of unilateral payment (settlement), and measure of value (unit of account).2 Each is fundamental for the continuance of routine life in the modern world.

In the first place, as Adam Smith and the classical economists made clear, a medium of exchange makes for the efficient operation of the division of labour and exchange of products that creates the ‘wealth of nations’. This indirect multilateral exchange is a means of ’translating the work of the farmer into the work of the barber ... [money] is action at a distance’ (McLuhan 1964: 10). Secondly, and perhaps most remarkably, money is able to store abstract value, as pure purchasing power, for longer periods than is necessary for any particular exchanges. The consequences of this property define the freedom and flexibility of the modern world. As Simmel explained, a feudal lord could demand specifically a quantity of honey and poultry from his serfs and thereby directly determine their labour. ‘But the moment he imposes merely a money levy the peasant is free, insofar as he can decide whether to keep bees or cattle or anything else’ (Simmel 1978 [1907]: 285–6). With money, decisions can be deferred, revised, reactivated, cancelled; it is ‘frozen desire’ (Buchan 1997). But, ‘[a]ll of these consequences are dependent on what is, in principle, the most important fact of all, the possibility of monetary calculation’ (Weber 1978: 80–1). This third attribute of money, as a measure of value (money of account), enables the calculation of actual and potential costs and benefits, profits and losses, debts, prices. In short, money is the basis for the progressive rationalization of social life – a process that began, as we shall see, in those empires of ancient Mesopotamia.

However, money should not be seen simply as a useful instrument; it has a dual nature. Money does not merely have functions – that is to say, beneficial consequences for individuals and the social and economic system. In Mann’s (1986) terminology, money is not only ‘infrastructural’ power, it is also ‘despotic’ power. In other words, money expands human society’s capacity to get things done, but this power can be appropriated by particular interests. This is not simply a question of the possession and/or control of quantities of money – the power of wealth. Rather, as we shall see, the actual process of the production of money in its different forms is inherently a source of power. For example, modern capitalist money is bank credit-money that is produced on the basis of credit ratings that reinforce and increase existing levels of inequality by imposing differential interest rates. In the most general terms, as Weber contended, money is a weapon in the struggle for economic existence. Moreover, the dual elements in the nature of money can also be contradictory, in that particular interests’ advantages may undermine the public benefits. This is a familiar theme in the ultra-liberal economic critique of the government’s debt-financed spending that gives it an interest in inducing inflation to reduce the real value of the debt. These issues will be explored throughout the book.

Only a very little probing into these well-known observations reveals long-standing puzzles and paradoxes. Perhaps the greatest paradox is that such a commonplace as money should give rise to so much bewilderment, controversy and, it must be said, error. It is not well understood. Arguably, one of the most brilliant conceptual thinkers in economics in the twentieth century struggled unsuccessfully for forty years to finish his ‘money book’. Midway through my own difficulties, I was dismayed to discover that Joseph Schumpeter, according to one of his close Harvard colleagues, was never able to get ‘his ideas on money straightened out to his own satisfaction’ (quoted in Earley 1994: 342).3 I know what he meant.

Let us start to reveal the puzzles that lie behind everyday familiarity with money by looking more closely at the textbook list of functions. Leaving aside for the moment economic analysis’s misleading implication that the functions explain the existence and nature of money, the presence of multiple attributes in the list raises two questions. Do all the functions have to be performed before ‘moneyness’ is established? If not, which are the definitive functions? In short, how is money to be uniquely specified? For 2,000 years or so, money was identified by the integration of the four functions in the form of coin (and later in notes directly representing coin) – that is, ‘money proper’ in the late nineteenth-century Cambridge economists’ lexicon. The value of the coin (or note) was either the embodiment or direct representation of a valuable commodity. As we shall see, this common-sense designation of money, as a tangible object, persists, and has led to widespread confusions – for example, that electronic money heralds the ‘end of money’. But a closer inspection of the coinage era reveals that matters are not quite so simple. For much of this long period, coins were not stamped or inscribed with any numerical value – that is, they did not bear any unit of account. This meant that the coin’s nominal ‘monetary’ value and bullion value could and did vary considerably. The sovereign usually assigned the nominal values of coins in accordance with a declared money of account. In medieval Europe, for example, changes in the value of money were mainly the result of the alteration of the nominal unit of account by the king in relation to an ‘imaginary’ standard of value – ‘crying’ the coinage up or down, not the alteration of its precious metallic content. Furthermore, many units of money of account – such as the ‘pound’ of pounds, shillings and pence – were never minted as coin (Einaudi 1953 [1936]). Similarly, guineas continued as a money of account – that is, for pricing goods and debt contracts – for centuries after the coins had ceased to circulate.

‘Cash’ – portable things that we take to be money – is still used in 85 per cent of all transactions, but now amounts to only 1 per cent of the total value of monetary transactions (The Guardian, 17 April 2000). In other words, actual media of exchange are now a relatively insignificant element of most monetary systems; but consciousness of money is still formed to a significant extent by the small-scale transactions. The euro’s introduction in the form of notes and coins is dated from 2002, but it had existed as a means of setting prices, contracting debts, and as a means of payment for over a year before it was embodied in these media of exchange. As we shall see, these considerations do not exhaust the logical and conceptual problems of the list of money’s attributes and functions. In short, the question is: where is the quality of ‘moneyness’ located?

There are, in very general terms, two quite different answers to this question. As Schumpeter observed, there are ‘only two theories of money which deserve the name ... the commodity theory and the claim theory. From their very nature they are incompatible’ (Schumpeter, quoted in Ellis 1934: 3). Most orthodox economic theory focuses on the concept of money essentially as a medium of exchange. This has three meanings that are not always carefully distinguished. Money is either itself an exchangeable commodity (for example, gold coin), or it is a direct symbol of such a commodity (convertible note), or it may be the symbolic representation (numeraire) of a commodity standard – cow, barrel of oil, value of a ‘basket’ of commodities.4 In this view, money is seen as the universal commodity, in that it is exchangeable for all others. It should be noted that in this conception ‘moneyness’ is somewhat tautologically ‘exchangeability’ – that is, the most ‘liquid’ commodity. It is at least strongly implied that all other qualities and functions in the conventional list – that is, money of account, means of payment, store of value – follow from, or can be subsumed under, medium of exchange. In sharp contrast, a heterodox ‘nominalist’ argument maintains that money ‘in the full sense of the term can only exist in relation to Money of Account’ (Keynes 1930: 3). (As we shall see, this nominalism is closely linked to the notion that money consists in ‘claims’ and ‘credits’, not merely tradable objects or their symbols.) In this conception, an abstract money of account is logically anterior to money’s forms and functions; it provides all the most important advantages that are attributed to money in general and a medium of exchange in particular. Money of account makes possible prices and debt contracts, which are all that are required for extensive multilateral exchange to take place. Money accounting, with or without an actual ‘money stuff’ (in the anthropologists’ lexicon), is the means of translating the work of the barber into that of the farmer and of producing action at both spatial and temporal distance. In this conception money is abstract – but an abstraction from what?

The crux of the matter, as we shall see, is whether a uniform value standard of the medium of exchange can be established without theprior existence of an abstract measure (money of account). In the orthodox economic account, a scale for the measurement of value (money of account) arises spontaneously from Adam Smith’s primeval ‘truck barter and exchange’. The most exchangeable commodity becomes money which is then counted to make a measure of value, or money of account. However, this raises a fundamentally important problem that will be explored later. Could myriad barter exchanges based on individual subjective preferences produce an agreed scale of values? Can the ‘idea’ of money – that is, as a measure of value – be derived, as Jevons, the late nineteenth-century economist, famously argued, from individually rational solutions to the ‘inconveniences’ of barter? How are inter-subjective hierarchies of value produced from subjective preferences? Posed in this way, the question of money becomes one of the fundamental questions of sociological and economic theory.5

The most startling paradox, which provided the original impetus for this study, is the fact that the mainstream, or orthodox, tradition of modern economics does not attach much theoretical importance to money (see Smithin 2003 for an overview of this mainstream tradition). Two assumptions in orthodox economics account for this counter-intuitive position; both are fundamentally mistaken. First, as we have noted, it is maintained that money is a commodity. Obviously, since the demise of precious metal currencies and/or standards of value, it is no longer argued that money need consist of a material with an intrinsic exchange-value. But for modern economic theory, money is a commodity in the sense that it can be understood, like any other commodity, by means of the orthodox methodology of microeconomics – ‘supply and demand’, ‘marginal utility’ and so on. The analytical structure of the modern orthodox economic analysis of money is derived fundamentally from the original Aristotelian commodity theory in which money is conceptualized as a ‘thing’ that acts as a medium of exchange because it possesses value (see chapter 1 for an outline of Aristotle’s theory). In this conception, although ‘cash’ is now reduced to insignificance, there can, nevertheless, be a ‘stock’, or ‘quantity’ of ‘things’ that ‘circulate’ or ‘flow’ with varying ‘velocity’. But, as we shall see, these metaphors are as misleading as the underlying theory on which they are based. As Schumpeter quipped, the velocity of money may be so great that it finds itself in two places at the same time (Schumpeter 1994 [1954]: 320). Even in this orthodox view, money has to be, at the very least, a rather special commodity. For example, apart from the many other considerations that we shall encounter, the production of the supply of money is always subject to rigorous control, and is not permitted to respond freely to demand. (The severity of the punishments meted out to counterfeiters is testimony to the rigour.) The scarcity of money is always the result of very carefully constructed social and political arrangements. As the populist US presidential candidate William Jennings Bryan explained in the late nineteenth-century debate on the gold standard, ‘if you want more wheat you can go out and raise wheat ... but if the people want more money they cannot bring money into existence’ (The First Battle, 1897, quoted in Jackson 1995: 18).

The ‘neutrality’ of money is the second paradoxical tenet held by orthodox economic theory. As we shall see in chapter 1, it is held that money is a ‘neutral veil’ over the workings of the ‘real’ economy. It is neutral in the long run because, it is argued, variation in its quantity can affect only the level of prices and not output and growth in the economy. Indeed, money is not even accorded an analytical place in some of the most prestigious mathematically sophisticated models of the economy – such as Arrow–Debreu’s general equilibrium. In short, I shall contend that mainstream economics cannot provide a satisfactory explanation of money’s existence and functions; that is to say, orthodox economics has failed to specify the nature of money.

Moreover, this has not been, as they say, a mere ‘academic’ problem. In anticipation of the discussion in chapter 1, we might refer to one or two of the difficulties that have followed from the application of the ‘neutral veil’ conception and the ‘quantity theory’ to ‘monetarist’ policy. In the late 1970s and early 1980s, it was thought that regulating the quantity of money in circulation could control inflation, as it was believed occurred under the gold standard. It failed. In the first place, it should be noted that there was an apparent contradiction in the insistence that something without efficacy (the ‘neutral veil’) should be rigorously controlled. This was resolved with the time-honoured distinction between the short and long runs. In the long run, equilibrium between the quantities of money and goods would prevail. But short-run harmful disequilibria in which the supply of money outran the supply of goods, causing a rise in the price level, could occur and should be eradicated. However, as we shall see, it soon became apparent that monetarists could not reach agreement on what ‘money’ was and precisely how it got into the economy. Regardless of any other practical or operational problems, controlling a quantity of something that could not be clearly identified was well nigh impossible. Within a short time, measures of money proliferated in those countries whose governments practised monetarism – numerous Ms were progressively introduced from M0 (notes and coins and cheques) to M10 and beyond. But they were all measures of what? Furthermore, it became evident that the imperfectly identified and measured quantities of money did not seem to be as closely related to prices as the basic quantity theory maintained.

As a practical policy doctrine, monetarism was very short-lived – it scarcely lasted a decade in the USA and UK from the late 1970s. But, as we shall see, the underlying theory on which it was based has been retained in mainstream economic theory by attributing the anomalies in the relation between quantities of money and prices to short-run, temporary and analytically ad hoc factors. Consequently, the very same conception of money persists as the theoretical underpinning of a different kind of monetary policy, in which quantitative money aggregates are no longer considered to be important. Quantity theory’s axiom of long-run monetary neutrality in the equilibrium of nominal money and real economic variables remains the ostensible foundation for policy, but no longer gives guidance to practical action (Issing 2001). In short, the relationship between the orthodox conception of money in economic analysis and practical monetary policy is now tenuous to the point of incoherence.

More recently, as I have already hinted, the same orthodox analytical framework has led to the conjecture that advances in communication and information technology will replace money in the operation of economic systems (see chapter 9). Even the governor of the Bank of England has entertained the idea that such an ‘end of money’ could render central banks redundant (King 1999). As we shall see, these conjectures are as profoundly mistaken as earlier monetarism, and the error stems just as directly from the same confusion over the nature of money. To identify forms of money and their circulation with the quality of ‘moneyness’ is to misunderstand the phenomenon. It is a basic category error, which, as we shall see, has persisted since the classical Greek commodity theory of metallic coinage. This misidentification of money has produced enormous analytical difficulties and quite bizarre intellectual contortion in orthodox economics’ treatment of the so-called dematerialization of money since the late nineteenth century.

Yet, the other social and historical sciences have fared no better in the analysis of money. As a direct consequence of the division of intellectual labour in the social sciences after the methodological dispute (Methodenstreit) of the early part of the twentieth century, they have been unable to provide a more satisfactory account. In the mistaken belief that it is essentially an ‘economic’ phenomenon, the other social sciences have abnegated all responsibility for the study of money, by either simply ignoring it or uncritically accepting orthodox economic analysis (Ingham 1998). Modern sociology is almost entirely concerned with very general descriptions of the consequences of money for ‘modern’ society (Giddens 1990), its ‘social meanings’ (Zelizer 1994), and, more indirectly, with the Marxist problem of ‘finance capital’. As Randall Collins (1979) perceptively observed, modern sociology appears to have neglected money because it is not ‘sociological enough’. Money’s existence has been taken for granted. A recent revival of interest in the subject only serves to highlight the longer-term neglect (Dodd 1994; Zelizer 1994; Leyshon and Thrift 1997; Ingham 1996a, 1999, 2000a, 2000b, 2001, 2002; Hart 2000). There are, as we shall see, a very few notable exceptions (for example, Carruthers and Babb 1996). Aside from reiterating the obvious importance of ‘trust’, sociology has not addressed the problem of the actual nature of money, how it functions and how it is produced and maintained as a social institution. For example, an otherwise exemplary and important work, Fligstein’s The Architecture of Markets: An Economic Sociology of the Twenty-First Century Capitalist Societies, (2001), does not contain any discussion of what I shall argue is the pivotal institution of modern capitalism. There is not even an entry for ‘money’ in the index.

It is very significant that the analysis of money was a prominent issue in the Methodenstreit that shaped the disciplinary divisions in the social sciences in the late nineteenth and early twentieth centuries. As we have noted, Schumpeter referred at the time to the incompatibility of the theories of money that were held by the opposing sides. As we shall see, the ‘claim’ or ‘credit’ theories of money had existed, at least since the fifteenth century, as alternatives to the dominant Aristotelian commodity conception. They were favoured and developed further by the historians and sociologists who were scorned by the economic theorists in the Methodenstreit. Unfortunately, sociology was subsequently unable to develop this important early work. Picking up the threads a century later, what follows in this book may be seen, in part, as an exercise in the ‘intellectual archaeology’ of the social sciences. But of course this can only be the beginning; the aim must be to construct an adequate theory of the nature of money as a social phenomenon.

An Outline of Contents

A theory of money should provide satisfactory answers to three closely related questions: What is money? Where does it come from, or how does it get into society? How does it get or lose its value? Part I examines the answers given by the main traditions in the social sciences. Chapter 1, ‘Money as a Commodity and “Neutral” Symbol of Commodities’, outlines the development of the analysis of money to be found in mainstream or orthodox economics. Here I elaborate my contention that this understanding of money is deficient, because it is quite unable to specify money – that is to say, how money differs from other commodities. It follows that if the question of what money is cannot be answered, then the other two – where it comes from and how it gets or loses value – are also likely to be unsatisfactory. Indeed, the question of how money gets into society has been dismissed as irrelevant by one branch of orthodoxy. As Milton Friedman famously remarked, economics might just as well assume that money is dropped by helicopter and then proceed with the analysis of the effects of different quantities on the price level. The quantity theory of money is deeply infused in both the academic and the common-sense answer to the third question of how money gets or loses its value. But I shall argue that there are good grounds for challenging the presumption of direct, linear causation between the quantity of money and the level of prices. Chapter 2, ‘Abstract Value, Credit and the State’, attempts to draw together the strands in the alternative conception of money which Schumpeter identified and which have occupied what Keynes referred to as the ‘underworld’ of monetary analysis. This account has two aims. The first is to make heterodoxy’s commonalities more explicit and to trace their linkages. The second is to make more explicit what I take to be the inherently sociological nature of these nominalist, credit and state theories of money. Chapter 3, ‘Money in Sociological Theory’, is not a comprehensive survey. Rather, I wish, first, to illustrate deleterious effects of the narrowly economic conception of money (both neoclassical and Marxist) on modern sociology and, secondly, to rebalance the exegetical accounts of Simmel and Weber on money. Their work on the actual process of the production of money, as opposed to its effects and consequences, was informed by the Historical School’s analysis. I intend to restore and use it. These extended analytical critiques form the basis for chapter 4 in which the ‘Fundamentals of a Theory of Money’ are sketched. This is organized in relation to the three basic questions referred to above. In effect, I shall attempt to reclaim the study of money for sociology. But it is not my intention simply to perpetuate the existing disciplinary divisions; nor do I advocate that a ‘sociological imperialism’ replace economics’ hegemony in these matters. Throughout this work, ‘sociological’ is construed in what is today a rather old-fashioned Weberian manner in which, as Collins (1986) has persuasively argued, the social/cultural, economic and political ‘realms’ of reality are each, at one and the same time, amenable to ‘social/cultural’, ‘economic’ and, above all, ‘political’ analysis.

Moreover, by a ‘sociology of money’ I intend more than the self-evident assertion that money is produced socially, is accepted by convention, is underpinned by trust, has definite social and cultural consequences and so on. Rather, I shall argue that money is itself a social relation; that is to say, money is a ‘claim’ or ‘credit’ that is constituted by social relations that exist independently of the production and exchange of commodities. Regardless of any form it might take, money is essentially a provisional ‘promise’ to pay, whose ‘moneyness’, as an ‘institutional fact’, is assigned by a description conferred by an abstract money of account. Money is a social relation of credit and debt denominated in a money of account. In the most basic sense, the possessor of money is owed goods. But money also represents a claim or credit against the issuer – monarch, state, bank and so on. Money has to be ‘issued’. And something can only be issued as money if it is capable of cancelling any debt incurred by the issuer. As we shall see, orthodox economics works from different premisses, and typically argues that if an individual in a barter exchange does not have the pig to exchange for the two ducks, it would be possible to issue a document of indebtedness for one pig. This could be held by the co-trader and later handed back for cancellation on receipt of a real pig. Is the ‘pig IOU’ money? Contrary to orthodox economic theory, it will be argued that it is not, and, moreover, that such hypothetical barter could not produce money. Rather, I will argue that for money to be the most exchangeable commodity, it must first be constituted as transferable debt based on an abstract money of account. More concretely, a state issues money, as payment for goods and services, in the form of a promise to accept it in payment of taxes. A bank issues notes, or allows a cheque to be drawn against it as a claim, which it ‘promises’ to accept in payment by its debtor. Money cannot be said to exist without the simultaneous existence of a debt that it can discharge. But note that this is not a particular debt, but rather any debt within a given monetary space. Money may appear to get its ability to buy commodities from its equivalence with them, as implied by the idea of the purchasing power of money as measured by a price index. But this misses out a crucial step: the origin of the power of money in the promise between the issuer and the user of money – that is, in the issuer’s self-declared debt, as outlined above. The claim or credit must also be enforceable.6 Monetary societies are held together by networks of credit/debt relations that are underpinned and constituted by sovereignty (Aglietta and Orlean 1998). Money is a form of sovereignty, and as such it cannot be understood without reference to an authority.

This preliminary sketch of an alternative sociological analysis of money’s properties and logical conditions of existence informs the historical and empirical analysis in Part II. Having rejected orthodox economics’ conjectural explanations of money’s historical origins, an alternative is presented in chapter 5, The Historical Origins of Money and its Pre-capitalist Forms’. First, the origin of money is not sought by looking for the early use of tradable commodities that might have developed into proto-currencies, but rather, following the great Cambridge numismatist Philip Grierson, by looking behind forms of money for the very idea of a measure of value (money of account). This again takes up and builds on the nineteenth-century Historical School’s legacy, and adds from more recent scholarship. The second part of the chapter, which discusses early coinage and its development to its sophistication in the Roman Empire, has two aims. The first is to cast doubt on the almost universally accepted axiom in orthodox economic analysis that the quantity of precious metal in coins was directly related to the price of commodities – that is to say, for example, that debasing the coinage caused inflation. The second theme resurrects another contentious issue from the Methodenstreit – the question of whether the ancient world was ‘capitalist’. At the time, the economic theorists argued that their explanatory models applied universally across time and space; ‘economic man’ and his practices were to be found throughout history. The Historical School, including Weber, argued otherwise, and I elaborate their case with a more monetary interpretation of pre-capitalist history. Chapter 6, ‘The Development of Capitalist Credit-Money’, pursues the theme by arguing that capitalism’s distinctive structural character is to be found in the production of credit-money. Capitalism is founded on the social mechanism whereby private debts are ‘monetized’ in the banking system. Here the act of lending creates deposits of money. This did not occur in the so-called banks of the ancient and classical worlds. Aside from its extended application of the theoretical framework, this chapter is also intended as a correction of the standard sociological account of the rise of capitalism. Here there is an overwhelming tendency to adhere to a loosely Marxist understanding in terms of the relations of production combined with a cultural element taken from The Protestant Ethic and the Spirit of Capitalism. One-sided emphasis on this book has led to a quite grotesque distortion of Weber’s work (Ingham 2003). Chapter 7, ‘The Production of Capitalist Credit-Money’, involves a partial break with the historical narrative, to present a tentative ‘ideal type’ of the contemporary structure of social and political relations that produce and constitute capitalist credit-money. Again, I attempt to draw out the implicit sociology in some of the more heterodox economic accounts of the empirical ‘stylized facts’ involved in credit-money creation. As far as I am aware, no such analysis exists, and this chapter constitutes little more than a pointer to future research. Attention is drawn to the ‘performative’ role of orthodox economic theory in the social production of the ‘fiction of an invariant standard’ (Mirowski 1991). Case studies of three types of monetary disorder comprise chapter 8. The purpose is to illustrate the difference between the orthodox economic conception of money and the one being presented here. Orthodoxy has difficulty in accounting for monetary disorder, because of its commitment to the notions of money’s neutrality and of long-run equilibrium as the normal state of affairs. If, however, money is seen as a social relation that expresses a balance of social and political forces, and there is no presumption that such a balance entails a normal equilibrium, then monetary disorder and instability are to be expected. The rise and fall of the ‘great inflation’ of the 1970s, the protracted Japanese deflation of the 1990s, and Argentina’s chronic inability to produce viable money are examined. Chapter 9 again provides empirical examples to illustrate the approach. The first is a critique of the many recent conjectures that the impact of technical change (e-money, etc.) might bring about the ‘end of money’. These are the result of the fundamental and widespread category error whereby ‘moneyness’ is identified with a particular ‘form’ of money. The second looks at the claims that local barter schemes, using information technology, might significantly encroach or even supersede formal money. Thirdly, the different analytical approaches to the eurozone single currency experiment are examined. A short Conclusion attempts to tie the argument and analysis together.