Money, sex, economics and stuff

by Chris Bertram on September 16, 2011

Aside from containing a brilliant exposition of how blogospherical “rebuttal” actually works—basically endless posts by halfwits repeating that X (an eminent scholar) is an ignoramus because X has contradicted the received wisdom of a tribe—this post by Dave Graeber at Naked Capitalism has to be one of the most informative and entertaining pieces I’ve read in a long while. What happens when the findings of anthropologists about earlier societies clash with the a priori assumptions of economists about how things must have happened? Well, you can guess. The really interesting stuff is in the anthropological detail, so read the whole thing, as they say, but I’ll just quote Graeber on economics and scientific method:

Murphy argues that the fact that there are no documented cases of barter economies doesn’t matter, because all that is really required is for there to have been some period of history, however brief, where barter was widespread for money to have emerged. This is about the weakest argument one can possibly make. Remember, economists originally predicted all (100%) non-monetary economies would operate through barter. The actual figure of observable cases is 0%. Economists claim to be scientists. Normally, when a scientist’s premises produce such spectacularly non-predictive results, the scientist begins working on a new set of premises. Saying “but can you prove it didn’t happen sometime long long ago where there are no records?” is a classic example of special pleading. In fact, I can’t prove it didn’t. I also can’t prove that money wasn’t introduced by little green men from Mars in a similar unknown period of history.

{ 128 comments }

1

Chris Bertram 09.16.11 at 7:58 am

Incidentally, I did a little search to see if we’d discussed Graeber before at CT. We have, back in 2005, when Yale denied him tenure:

http://crookedtimber.org/2005/05/18/the-right-to-be-fired/

2

aj 09.16.11 at 8:35 am

“In the 1940s, an anthropologist, Ronald Berndt, described one dzamalag ritual, where one group in possession of imported cloth swapped their wares with another, noted for the manufacture of serrated spears. Here too it begins as strangers, after initial negotiations, are invited to the hosts’ camp, and the men begin singing and dancing, in this case accompanied by a didjeridu. Women from the hosts’ side then come, pick out one of the men, give him a piece of cloth, and then start punching him and pulling off his clothes, finally dragging him off to the surrounding bush to have sex, while he feigns reluctance, whereon the man gives her a small gift of beads or tobacco. Gradually, all the women select partners, their husbands urging them on, whereupon the women from the other side start the process in reverse, re-obtaining many of the beads and tobacco obtained by their own husbands. The entire ceremony culminates as the visitors’ men-folk perform a coordinated dance, pretending to threaten their hosts with the spears, but finally, instead, handing the spears over to the hosts’ womenfolk, declaring: “We do not need to spear you, since we already have!”

Sorry to lower the tone, but there’s a great porn movie in there somewhere…

3

Chris Brooke 09.16.11 at 9:16 am

That is fun.

Graeber has also recently been interviewed by the New Left Project’s Jamie Stern-Weiner on “debt, slavery and our idea of freedom” in two parts, one and two.

4

Martin 09.16.11 at 10:19 am

I do hope you do not base your opinion on what transpired purely on Graeber’s own account? Mr. Murphy gives a pretty nuanced version of the events and his position himself here: http://blog.mises.org/18371/murphy-replies-to-david-graeber-on-menger-and-money/

5

Jeff 09.16.11 at 10:23 am

Murphy replies here.

So we see that the existence of communities—whether in the distant past or even in our times, in isolated regions of the planet—where the members don’t use money or barter, is hardly a problem for the economist. What I do have a problem with, is Graeber telling me that money could have emerged from such a non-market framework. This was my fairly modest point.

6

Chris Bertram 09.16.11 at 10:33 am

No Jeff, your link is to Murphy’s original attack on Graeber to which the item linked in my post is a reply. Is there a Murphy reply to the item I linked to?

[Ah yes, see Martin’s link 2 up – well sort of, it is a response to Graeber’s comments at the Mises site]

7

Roger 09.16.11 at 10:34 am

Graeber’s post is indeed a powerful corrective to a certain habit economists have of making assumptions for the sake of intelligibility – that is, for the sake of creating a model – and then projecting those assumptions upon social reality, which of course gets the understanding of social reality exactly backwards.

8

John Quiggin 09.16.11 at 10:41 am

That was fascinating. I’d never really thought about this, but I guess I would have expected that money emerged more commonly as a result of taxation, rather than, as suggested, from a scale of penalties in civil litigation.

I think, though, that the implied sociology of economics is a little bit off. Taking the dogmatic adherence of Austrians to long-refuted ideas as representative of the profession is rather like going to Lancaster County PA and then asking why Americans still don’t use motor cars.

9

Chris Bertram 09.16.11 at 10:52 am

I know, John, still, there are enough crazy a priorists (not just Austrians) out there still, as you’ve pointed out in your own posts recently. More generally, the project of working out from scratch how important social institutions “must have” evolved without much (or even any) engagement with empirical research is not limited to economists. Any social philosopher or political theorist with a rational actor model and a computer simulation can now do this kind of stuff, and how they do!

Having now followed the link to Murphy’s latest installment, I can also report that there is additional comedy gold to be found in the comments there.

10

Robert 09.16.11 at 10:54 am

Some other case studies of economists not caring about the empirical evidence:

Daniel M. Hausman and Philippe Mongin (1998). “Economists’ Responses to Anomalies: Full-Cost Pricing versus Preference Reversals”

Thomas C. Leonard (2000) “The Very Idea of Applying Economics: The Modern Minimum-Wage Controversy and Its Antecedents”, History of Political Economy, V. 32, Annual Supplement: pp. 117-144.

You can find downloadable versions of each with a bit of googling.

11

Roger 09.16.11 at 11:07 am

Actually, I think John Quiggen’s point in 8 misses something. If you were looking for ideas that all schools of economists hold, you would, indeed, go to mainstream places and extreme places – you would look at the Chicago School and MIT and the Austrians, etc. Especially in their adherance to a certain element of Adam Smith’s conjectural history – about barter – you might find the Austrians much more forthcoming about this than, say, Greg Mankiw, but – if you find similar suppositions held by both groups – you would have a much stronger sociological sense of what economists believe.

12

John Quiggin 09.16.11 at 11:27 am

In this particular case, an obvious place to look would be

Akerlof 1982, Labor Contracts as Partial Gift Exchange

13

Alex 09.16.11 at 12:14 pm

The weird thing about the Kochtopus wumaodang bat-signal going out is that a system of goods exchange based on credit isn’t a non-market one or at least doesn’t have to be. It’s not, after all, dependent on central planning. Relative values are, indeed, established by mutual agreement in voluntary exchange. The idea that money as such evolved as an accounting unit first, and then acquired its other canonical functions as a means of exchange and store of value, doesn’t actually *have* to be repugnant to an Austrianist.

Unless you consider Austrian economics to be a religious enterprise dedicated to the worship of money, and specifically money rather than markets or any other economic institution.

14

Alex 09.16.11 at 12:16 pm

Actually, I’ve just read the 2005 CT piece on Grueber not getting tenure and it’s pretty obvious that he was targeted because he was in a trade union, which is programmatically repugnant to Austrianists.

15

chris y 09.16.11 at 12:33 pm

Murphy argues that the fact that there are no documented cases of barter economies doesn’t matter, because all that is really required is for there to have been some period of history, however brief, where barter was widespread for money to have emerged.

Assume a spherical cow.

The gag about the cow works because there are situations in physics where massively reductive assumptions are useful and situations where they aren’t AND physicists know which is which. The question is, do economists?

16

Nick 09.16.11 at 12:47 pm

“The weird thing about the Kochtopus wumaodang bat-signal going out is that a system of goods exchange based on credit isn’t a non-market one or at least doesn’t have to be.”

Worth bearing in mind that this crop of ‘Austrians’, I think, are not part (certainly no longer part) of the Kochtopus. See recriminations here: http://www.lewrockwell.com/gordon/gordon37.html

And you are right. Economists (including free market economists) should welcome progress in anthropological history as it might help discover what the pre-requisites are for any widespread beneficial exchange of goods.

17

Barry 09.16.11 at 1:14 pm

John Quiggin 09.16.11 at 10:41 am

” That was fascinating. I’d never really thought about this, but I guess I would have expected that money emerged more commonly as a result of taxation, rather than, as suggested, from a scale of penalties in civil litigation.”

In one of the interviews he mentions that that was one way in which money (originated? was imposed on a population?) – that the government levied taxes payable only in a certain government-issued coinage. This forced people to acquire those coins. He claims that it was associated with how to support a large army.

18

Daniel Butt 09.16.11 at 1:19 pm

This is not even vaguely my field, but there’s support (I think) for the taxation view in Stephanie A Bell, John F Henry & L Randall Wray’s splendidly titled “A Chartalist Critique of John Locke’s Theory of Property, Accumulation, and Money: or, is it Moral to Trade Your Nuts for Gold?”, Review of Social Economy Volume 62, Issue 1, 2004 – pre-publication draft at http://www.csus.edu/indiv/h/henryjf/PDFS/Locke.pdf .

19

Barry 09.16.11 at 1:32 pm

John Quiggin 09.16.11 at 10:41 am

” I think, though, that the implied sociology of economics is a little bit off. Taking the dogmatic adherence of Austrians to long-refuted ideas as representative of the profession is rather like going to Lancaster County PA and then asking why Americans still don’t use motor cars.”

The fact that Austrians who support long-refuted ideas are successful in the economics professoriate is a sign of trouble. Last I heard, there were no phlogistonic chemistry professors, creationist biology professors (at least, outside of fundamentalist colleges), no Newtonian physics professors, etc.

In addition, Krugman has numerous columns on how certain economists at elite schools (Harvard, Chicago, werever Taylor is, etc.) have spent the last three years blithely making predictions, having the data come in directly opposite to their predicted results, and then repeating the same predictions, with zero concern for reality.

20

bobbyp 09.16.11 at 2:00 pm

JQ,

The “implied sociology” ….my god, man, what does Graeber have to say to make it “explicit” to you? That any economist would not go to great lengths to disown this wrong headed hypothesis is an embarrassing shame on the profession. Absolute. Shame.

21

Watson Ladd 09.16.11 at 2:15 pm

Isn’t there an entire section of the Grundrisse about this very fact, that social forms associated to capital appear universal? Then there is the whole second nature thing. Of course there is a way in which I am much more sympathetic to the economists then the anthropologists in this debate. Our ability to see the world as a means makes us wealthy, healthy, and wise. Why just this morning I received an injection of a chemical that will prevent me from dying if I step on a rusty nail for the next ten years. When my knees or hips wear out in a few decades I can get new ones! The perversion of human nature that is so hated is really the creation of a truly human nature. When Smith says man has an inclination to barter and truck, he is referring to the creation of a new human outside of nature, one with the capacity to be free from nature.

22

Chris Bertram 09.16.11 at 2:16 pm

John really doesn’t need me to defend him, but #19 and #20 can’t be regular readers of his, or they wouldn’t be writing as they do about the author of Zombie Economics.

23

Chris Bertram 09.16.11 at 2:17 pm

_I received an injection of a chemical that will prevent me from dying if I step on a rusty nail for the next ten years._

I think I’d rather die than spend the next ten years stepping on a nail.

24

ajay 09.16.11 at 2:30 pm

In one of the interviews he mentions that that was one way in which money (originated? was imposed on a population?) – that the government levied taxes payable only in a certain government-issued coinage. This forced people to acquire those coins.

That sounds vaguely similar to the way that money was imposed in various colonies, certainly. (Vaguely because my memory is vague, rather than because the similarity is.)
But we’re talking here about a money society imposing money on a non-money society, not about money arising in a society de novo.

25

Matt McIrvin 09.16.11 at 2:31 pm

Taking the dogmatic adherence of Austrians to long-refuted ideas as representative of the profession is rather like going to Lancaster County PA and then asking why Americans still don’t use motor cars.

Well, it’s like that would be if the Amish were busy reorganizing the Federal Highway Administration according to their internal social principles.

26

bdbd 09.16.11 at 2:52 pm

So there are gaps in the economic fossil record — no big deal.

27

Scott Martens 09.16.11 at 3:06 pm

There are only 8 references to “financial creationism” in Google and 350 for “economic creationism.” None are apparently related to the topic at hand, and most are instead complaints about inflation. Both strike me as very apt idioms for economists and economic ideologues failing to acknowledge or confront the genuine historical origins of economic institutions. It makes sense by analogy with “market fundamentalism.” Hopefully, it will catch on.

So for future generations of etymologists trawling 21st century Internet archives, I hereby call dibs on this entirely appropriate term. I invented it, you heard it here first.

28

Barry 09.16.11 at 3:06 pm

Chris Bertram 09.16.11 at 2:16 pm

” John really doesn’t need me to defend him, but #19 and #20 can’t be regular readers of his, or they wouldn’t be writing as they do about the author of Zombie Economics.”

I’ve read it. And bought it! What I was pointing out is in economics, it’s not just a few non-elite, unrespected cranks who crank out the crankdom.

As Mark Kleiman once pointed out, when choosing science advisors for a GOP candidate (and looking for the sort of ‘advisor’ who would sign on to endorse GOP ‘science’), one would have to pretty much ignore the elites in every field except economics.

29

Lee A. Arnold 09.16.11 at 3:13 pm

Murphy: “What I do have a problem with, is Graeber telling me that money could have emerged from such a non-market framework.”

Money clearly emerged in the “non-market frameworks” of status rituals in smaller, nonliterate tribes: e.g. Kwakiutl potlatch, Melanesian big-man systems, Nuer brideprice. But these status competitions were always held within ritual boundaries. The money was NOT used to price everyday things — which were not bartered either, but still shared by family lineage and need, etc. (In my opinion, Mauss’ “gift exchange” mangles this a bit, trying to counteract the dogmatic adherence of modern economics to “methodological individualism” by introducing another broad generality, “the gift”.)

It seems likely to me that “status competition” should be added to modern economics’ list of the functions of money (i.e., medium of exchange, unit of account, store of value) — and that it should take first place in that list throughout history until the modern period, when the status function has shifted to the products that can be purchased with it (though fascination with shiny objects might explain part of the gold market).

Indeed I think that any theory of the development of money must explain the concomitant survival of the “just price” (i.e. fixed price) and anti-usuary norms until the early modern period, including the distrust of outside traders. A theory of the emergence of money in small-group status competition would help to do this. As human groups grew in size and complexity and formed permanent central controls of royalty and priesthood, the status transferred to them. Value was mediated by tradition, and only secondarily by supply and demand. Graeber’s theory of non-state institutions such as complex temple economies is very interesting in this regard.

Variable price exchange (what we now call a “market transaction”) may have appeared even LATER, and not until the large ancient empires. I favor an idea I got from reading Karl Polanyi’s consideration of Aristotle: that price exchange originated with lone traders between distant “just-price” systems who realized that the just prices for the same goods in different systems were different and could be arbitraged.

“Barter” is more or less DEAD LAST in this developmental sequence — as a back-formation, after exchange using money is understood, but there is no money around to use. I thought that the claim that “money was invented to replace the barter system” was a classroom heuristic derived from Smith, but I did not realize that anyone actually believed it!

30

Yarrow 09.16.11 at 3:17 pm

John Quiggan @ 8: I guess I would have expected that money emerged more commonly as a result of taxation, rather than, as suggested, from a scale of penalties in civil litigation.

Graeber talks about a number of different mechanisms: taxation (with Egypt as an early example); temple bureaucracy (Mesopotamia and China); and the penalty scales. I read him as seeing temple bureaucracy as being more important early on, and creating money in the sense of credit and debt, while taxation mostly came later and was essential for money as coinage.

My impression from the book is that the scales of penalties were customs that made it easier to adopt money, in societies that came late to it, rather than the engines of the change.

31

Barry 09.16.11 at 3:18 pm

Chris: Taking the dogmatic adherence of Austrians to long-refuted ideas as representative of the profession is rather like going to Lancaster County PA and then asking why Americans still don’t use motor cars.”

Matt McIrvin: ” Well, it’s like that would be if the Amish were busy reorganizing the Federal Highway Administration according to their internal social principles.”

That puts it better than I had. The key point is not that there are cranks and frauds, but that they are influential, rather than people huddling in their basements reading proclamations to each other.

32

Watson Ladd 09.16.11 at 3:22 pm

But why do the origins of money matter for understanding modern society today? An engineer doesn’t need to know about the big bang to make a bridge.

33

Lee A. Arnold 09.16.11 at 3:23 pm

I take one thing back: the Nuer brideprice was’t exactly a status competition, but more like one of Polanyi’s three types of trade: “reciprocity”, which is a transaction between actors with similar status positions in extended family structures. The rich uncles of the Nuer groom would give cattle to the uncles of the bride because, in turn, she would be producing children in the groom’s lineage.

34

Robert 09.16.11 at 3:27 pm

I have seen mainstream economists use”economic creationism” to dismiss non-mainstream heterodox economics. They also use the term “anti-economics”. As far as I am concerned, this usage marks the mainstream economist using it as anti-intellectual (that is, pro-stupidity). My name links to a book that I might read some day for comedy value.

I think there’s a tension in Quiggin’s writing, in how far he will go in criticizing professional norms and in urging non-professionals to criticize economics. On the other hand, some find me elitist in the theoretical arguments I put forth in my hobby.

35

William Timberman 09.16.11 at 3:42 pm

To the extent that human beings are not rational creatures, even when they’re on their best behavior, economists today are at even more peril of seeming irrelevant than philosophers once were, and politics will always be where the action is. This is less regrettable than it seems, especially in periods like the one we’re suffering through now, when good and decent economists tell us that they know what to do, but not how to get anyone to do it. Politics has levers available to the ordinary sufferer, however difficult they may be to reach. Economics doesn’t.

A shorter version of this dismal and unscientific observation: The Theory of the Leisure Class can evoke gales of embarrassed laughter from any reader who’s been around the block a few times. If that reader then turns to the latest ruminations of Ben Bernanke, or Jean-Claude Trichet, his laughter will be stilled.

36

Hidari 09.16.11 at 3:56 pm

I’ve already quoted from Graeber in a comments thread on CT before. There’s an extremely interesting interview with him below:

http://www.newleftproject.org/index.php/site/article_comments/debt_slavery_and_our_idea_of_freedom_part_one

37

P O'Neill 09.16.11 at 3:59 pm

Economists liked the double coincidence of wants idea because there were all sorts of stochastic modeling bazookas that they could fire at that problem, regardless of its relevance.

38

hartal 09.16.11 at 5:30 pm

What about the argument that while money is likely to arise out of relations among people constrained by kinship, religion, hierarchy, it could be the outcome of exchanges between communities foreign to each other. This was essentially Marx’s argument, as Fine and Costas L. have argued. Marx did not claim that money arose out of barter within a community

39

hartal 09.16.11 at 5:31 pm

sorry for mistake. Meant UNLIKELY

What about the argument that while money is UNlikely to arise out of relations among people constrained by kinship, religion, hierarchy, it could be the outcome of exchanges between communities foreign to each other. This was essentially Marx’s argument, as Fine and Costas L. have argued. Marx did not claim that money arose out of barter within a community

40

john c. halasz 09.16.11 at 5:49 pm

hartal:

Graeber covers that issue. It’s part , but not the whole of his account. (Transactional prices emerge from long distance trade as merchants arbitrage the differences between different and distant “just price’ systems). He’s an anrarchist, seemingly well versed in Marx.

41

Chris Bertram 09.16.11 at 5:52 pm

hartal: did you even read the linked piece before commenting?

42

R.Mutt 09.16.11 at 6:04 pm

What about the argument that while money is UNlikely to arise out of relations among people constrained by kinship, religion, hierarchy, it could be the outcome of exchanges between communities foreign to each other.

Graeber discusses this too in the NC post.

43

hartal 09.16.11 at 6:08 pm

I did not comment. I asked a question. What does Graeber say about the idea that money arose out of essentially foreign trade? As far as I know, he has as strong anthropological evidence against such a Marxian theory as he does against the money out of barter-within- a- community account. Love to know more. Will find the time at some point to read Graeber’s book.

44

Lee A. Arnold 09.16.11 at 6:12 pm

hartal, As I just pointed out in #29, in the ethnography, money clearly arose in nonliterate status rituals that have nothing to do with provision of everyday sustenance, much less with barter or markets. If we want to discover the originations of money, we should look for its appearance in the smallest possible social systems, acephalous if possible.

What astonishes me is that there is a huge available literature on this, as Graeber points out. As well as a theoretical literature that blossomed under the likes of Polanyi, Melville Herskovits, and Marshall Sahlins. Economists should have discovered this stuff long ago.

45

Henri Vieuxtemps 09.16.11 at 6:15 pm

I believe the piece understates the extent of moneyless/favor-trading economies in this modern life. The Soviet Union would be, of course, one of the prime examples, but there are, of course, plenty of similar social networks in the west too: masonic lodges, churches, good ol’ boys, colleagues, etc, etc, etc. So, it’s not just that money emerged as a mode of exchanges between communities foreign to each other, to a significant extent it’s still the case.

46

cian 09.16.11 at 6:30 pm

I think one of the reasons economists cling to this stuff, is that it supports part of the religious adherance to the idea of ‘rational economic man’. The theory goes that modern economic interactions are ‘natural’, or biological, in some shape/form. The idea that trade is innate, and something we’ve always done underpins this.

47

Bloix 09.16.11 at 6:33 pm

Economists generally don’t like to acknowledge the role of the state in the creation and maintenance of markets, so it’s not surprising that they are wedded to a creation myth that has money arising out of individual market transactions without any large-scale institutional intervention. The idea that money came into existence through state action – whether as an outgrowth of the penal system, or taxation, or something else – would be ideologically difficult to swallow.

48

Jim Harrison 09.16.11 at 6:49 pm

Most economists have a narrowly technical education, so technical that they don’t even have much understanding of the history of their own discipline. It’s no wonder they regard the current system or rather an idealized image of the current system as somehow natural or inevitable. In the impoverished mental universe of neoclassical economics, there are no alternatives.

49

Harold 09.16.11 at 6:49 pm

Economists like to think of anthropology as “bird watching” rather than science.

50

John Quiggin 09.16.11 at 7:00 pm

There are very few self-identifying Austrian School economists in academic positions of any standing – Peter Boettke at GMU is probably the most prominent (I’m sure there are some I’ve forgotten about, but not many). I actually think we could do with more Austrians and less of the mainstream Chicago School types who are the main target of Zombie Economics. The Austrians were first on some important points (Austrian Business Cycle Theory was a big advance when in came out), and still have something to offer, even on points where they are wrong. By contrast, the recent performance of people like Barro and Lucas has been an exercise in forgetting things they once knew.

I get a bit annoyed at the view (expressed almost identically, but with a reversal of values from two different directions) that economics=simple-minded market liberalism. These guys are certainly winning the political fights, but they aren’t a majority of even the US economics profession, and distinctly in the minority for the world as a whole.

51

Bloix 09.16.11 at 7:05 pm

Apologies, Prof Q. I’m a lawyer by training, and my exposure to economics is primarily via “Law and” – so most of the stuff I think of as economics was strained through an ideological filter before it ever got to me in the first place.

52

bianca steele 09.16.11 at 7:07 pm

That Naked Capitalism post made me very appreciative of Crooked Timber’s typeface.

53

Watson Ladd 09.16.11 at 7:11 pm

Hayek was at Chicago for at least some of his career. But we are missing something crucial here: when the only color that matters is the color green, we have the making of a society that can accept different groups. I also can’t imagine a Chicago School person caring that much. They really should be folded into the math department as studying the properties of optimization problems, and would probably regard speculation about the origins of commercial society as the Pope would regard inquiries into human parthenogenesis. They would be very happy to show you how unhappy you would be without it.

54

Metatone 09.16.11 at 7:21 pm

@John Q.

You’re not going to like this, but I’ve expressed it before a couple of years ago to Mark Thoma (and even slightly persuaded him), so I feel honour bound to try with you… you’re not going to solve that perception until the profession itself is prepared to tar and feather people like Lucas and Barro. And so far, “professional self-regulation” has been a big fail in this area.

55

John Quiggin 09.16.11 at 7:31 pm

@Metatone

Well, that won’t happen until Zombie Economics is on the NYT bestseller list, so get out and buy more copies :-).

FWIW, I was at a Brookings event today where Barro’s claims about the effects of unemployment insurance were treated with much derision – partly because they were based on sloppy back-of-the-envelope numbers, but also as being totally off the mark. I think the financial crisis has produced a divide that will become more evident over time.

56

b9n10nt 09.16.11 at 8:00 pm

Bloix 47:

Economists generally don’t like to acknowledge the role of the state in the creation and maintenance of markets

Exactly. And the relevence is: any anti-tax zealot who says “the govt takes too much of my money…”…well, that’s like the epitome of false-consciousness.

57

TheF79 09.16.11 at 8:22 pm

Back in the day, there was a SNES game called “Secret of Evermore,” and in Act II you had to engage in barter transactions in a Roman-esque bazaar that had no common medium of exchance. After spending an enormous amount of time trading 7 chickens for 3 bags of oats for 2 chairs for 4 ingots of iron for a jade statue to defeat the evil robot queen (or whatever), I quickly came to the conclusion that an entire economy based on barter would be simply ludicrous. So in that respect, the fact that barter economies were not the forerunners to monetary based economies doesn’t come as much of a surprise, at least to this economist.

58

ScentOfViolets 09.16.11 at 8:27 pm

More generally, the project of working out from scratch how important social institutions “must have” evolved without much (or even any) engagement with empirical research is not limited to economists. Any social philosopher or political theorist with a rational actor model and a computer simulation can now do this kind of stuff, and how they do!

Yeah, economists are certainly some of the most visible people who commit this sort of malpractice. But isn’t this mostly because of their outsize influence on public policy? And in fact, don’t significant numbers of physicists, sociologists, medical researches, etc. blithely and routinely engage in that same style of analysis that economists are so often and so rightly called on?

In other words, the problem is a very general one, and manifests itself across all disciplines: in this particular era, making models and running simulations is easy, in fact almost radio-button fill-in-the-blanks easy. Showing they have any relevance or correctly model real world phenomena is hard, in large part because collecting the data that would confirm or discredit them is hard. As I constantly exhort my stat students, once you’ve got your representative and non-biased random sample, testing hypotheses and making correct inferences is easy (which to them – and to most people – seems counter-intuitive). Actually getting that representative non-biased random sample? Well that’s the hard part, what causes all the arguments and leads to headlines like Dewey defeats Truman :-)

59

bianca steele 09.16.11 at 8:33 pm

Here’s my new theory, and it answer’s SoV’s objection too: Why should we care about history and anthropology and such? I can’t come up with an argument that would convince anyone who doesn’t already care. Therefore, it must be the case that when we say, “economics originated with barter,” we are really saying, “our economy (the important parts) is essentially still barter, nothing has changed.”[1] So, we can explain pithy sayings like, “Money is the root of all evil,” as “Those who think in terms of money do not truly understand the world and their place in it, and all of their actions are evil and conduce to evil.” But I’m open to contrary arguments.

Thus no need for empirical confirmation.

60

Barry 09.16.11 at 8:38 pm

John Q: “I get a bit annoyed at the view (expressed almost identically, but with a reversal of values from two different directions) that economics=simple-minded market liberalism. These guys are certainly winning the political fights, but they aren’t a majority of even the US economics profession, and distinctly in the minority for the world as a whole.”

John, when more economists are willing to go Krugman, and beyond Krugman (i.e., calling elite frauds elite frauds, in public) and possibly freezing out their students, then there will be change in both the meat and reputation of economics.

I would apply (Planck’s?) theory of ‘science advancing one tombstone at a time’, which would predict the decline of this junk science, except that the right has shown that it can produce such people in large numbers, and also that they won’t learn. A 30-year old econ Ph.D. who believes in this stuff is quite capable of not learning (for an existence proof, see ‘USA, Post-Crash, right-wingers keep on going’).

“FWIW, I was at a Brookings event today where Barro’s claims about the effects of unemployment insurance were treated with much derision – partly because they were based on sloppy back-of-the-envelope numbers, but also as being totally off the mark. I think the financial crisis has produced a divide that will become more evident over time.”

Excellent. Step 2 would be stop inviting him to anything. Step 3 is to double-check all of his students, to make sure that they aren’t continuing his garbage.

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elm 09.16.11 at 8:46 pm

SoV, I don’ think there are any schools of physics, medical research, or sociology that reject empiricism in the same way as Austrian economics does. The ratio of anti-empirical vs. empirical practitioners in economics also appears to be worse than in other fields.

I will grant that economics appears to have an unjustifiably-large influence on public policy, but it’s not clear which direction the influence runs. Does economics actually have a large influence, or do moneyed interests promote freshwater economists because it’s favorable to them?

It’s hard to imagine that the zombies identified by JQ are animated by some force internal to the discipline of economics.

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Colin Danby 09.16.11 at 8:48 pm

It’s not just the state. If you listen to the anthro and historical record, it tells you that money emerges from tax and credit systems with complex time structures in which most transactions are forward, not spot. (Pure barter when observed, like in Malinowski’s “gimwali,” is socially marginal.) It also tells you that there is no bright line between exchange and gifting — Graeber is very good on that point. What this means is that your analysis wants to start with relatively thick and complex social institutions, and that it has to include meaning-making (culture!) in a substantial way.

So there’s a lot at stake in (ignoring all that and instead) starting with barter. Starting with barter lets you begin with an atomistic society with arms-length transactions, *and never have to complicate your social model* — the barter nexus just becomes the cash nexus. It lets you start with a fundamental transaction that has no time dimension and assumes both parties act without coercion, so that each gets something they value more. Once you assume that, money just slides right in to make that kind of rationality easier and more efficient. And so forth. When this hardens to orthodoxy, it becomes a reason for walling off econ from other social science, let along the study of culture.

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More Dogs, Less Crime 09.16.11 at 8:48 pm

“Remember, economists originally predicted all (100%) non-monetary economies would operate through barter”
I’ve read Graeber say that, but I can’t recall him actually quoting economists saying that (I haven’t read Graeber’s book). Murphy thinks it’s completely obvious that we had neither barter nor money for a long time.

Quiggin is right that Austrians are completely marginal in academia. But in part because their lack of success there, many like Rothbard decided academia can rot and the gospel must go directly to laymen. Now they* are all over the internet.
*Per Philip Converse, most people are not capable of maintaining a coherent ideology. And a system of economic thought is more complex than that. So the typical internet Austrian is not even going to have more than a shallow understanding of his creed. Not that Boettke going on about Duhem-Quine is much more of a worthwhile read.

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Colin Danby 09.16.11 at 8:52 pm

Incidentally, the people yammering on about Austrian economics really ought to read some. Yes, there are loons among them, but also geniuses. I’ve learned a lot from Don Lavoie’s work, for example.

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Harold 09.16.11 at 8:54 pm

People don’t believe in the possibility of a “representative sample” — they think you have to count each and every person, which is impossible, hence their radical skepticism of the social sciences, and indeed of all science except for physics.

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bianca steele 09.16.11 at 8:57 pm

“Representative sample”–that’s the guy who’s most average, right?

67

elm 09.16.11 at 8:57 pm

More Dogs, Less Crime: Here’s Murphy saying essentially that:

We can trace the purchasing power of money back through time, until we reach the point at which people first emerged from a state of barter.

He assumes that barter was some earlier or less-developed state than an economy based on money. He also “explains” (via storytelling, naturally) how this occurred/must have occurred.

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bianca steele 09.16.11 at 8:57 pm

Or most “normal.”

69

ScentOfViolets 09.16.11 at 9:00 pm

I get a bit annoyed at the view (expressed almost identically, but with a reversal of values from two different directions) that economics=simple-minded market liberalism. These guys are certainly winning the political fights, but they aren’t a majority of even the US economics profession, and distinctly in the minority for the world as a whole.

Mark Thoma has made that point repeatedly over on his blog. But I question your direction of causality here. It seems to me that the guys who are winning the political fights are employing those simple-minded market liberalism types as a weapon in their ongoing battles, not that the guys winning the battles are doing so because of their adherence to simple-minded market liberalism.

Of course, this makes the practicing of economics as unbiased academic inquiry all that much harder :-(

70

Walt 09.16.11 at 9:05 pm

Colin, you have this recurring tic where whenever people talking about something where 99.9% of something is shitty, saying “but don’t forget about the 0.1%”. Sure, it’s sad that the 0.1% have the bad luck to be tarred with the same brush as the 99.9%, but at the same time we’re not going to stop talking about the 99.9%.

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Lee A. Arnold 09.16.11 at 9:14 pm

Money didn’t come into existence as state action, exactly. It may have come into existence as the accounting, in a ritual of centralizing status — the Big Man, the one with the biggest pile of bark blankets at the potlatch. You might even burn them in a big fun bonfire. It is putting someone at the center. Money is a decentralized type of central institution.

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TheF79 09.16.11 at 9:19 pm

“The ratio of anti-empirical vs. empirical practitioners in economics also appears to be worse than in other fields.”

This is not true. Of the 23 papers in the recent AER, only three of them are theoretical exercises, while the remaining 20 papers are either pure empirical econometric exercises, or a theoretical portion providing testable hypotheses that are then tested with data. Perhaps in some disciplines (marco, auction and bargaining theory) there is a too must theory and not enough empirics going on, but it certainly isn’t true across the spectrum.

I share JQ’s and Thoma’s frustration with the idea that the economists and viewpoints that most non-economists hear/read/see are representative of the profession – the economists with megaphones are not a random sample!

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Watson Ladd 09.16.11 at 9:25 pm

Bianca, disguising moral claims as fact claims is misleading. Saying “money is the root of all evil” means that all evil stems from a desire for money. Reading it any other way is sophistry, and by removing it to the value dimension when its pressured you aren’t do anyone any favors. Bet on facts, vote on values!

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elm 09.16.11 at 9:38 pm

TheF79,

It’s good to hear that academic economics publishing favors empiricism. I don’t follow economics journals, as it’s not my field. I have read interesting econometric papers recently and it’s the branch of economics that I feel has the most promise towards improving people’s well-being.

I also agree with you regarding “economists with megaphones” and hinted at that in my post. It appears to me that many economists with megaphones were given those megaphones by wealthy people who would like to have the public believe what those individuals claim. Thus any idiot can cite the Laffer Curve (and a great many idiots do) and other pro-wealth economic pseudoscience.

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ScentOfViolets 09.16.11 at 9:54 pm

SoV, I don’ think there are any schools of physics, medical research, or sociology that reject empiricism in the same way as Austrian economics does. The ratio of anti-empirical vs. empirical practitioners in economics also appears to be worse than in other fields.

I was speaking of economists in general, not Austrians in general. Let me try this one again, starting with the quote I was responding to:

Any social philosopher or political theorist with a rational actor model and a computer simulation can now do this kind of stuff, and how they do!

My point is that whenever you have a situation where “rigorous” models are easy to generate but empirically hard to verify or falsify, of course you’re going to see these sorts of schisms and disputes.[1] And because people’s reputations and careers and livelihoods often depend on the popularity of their particular school of thought, of course they vigorously promote their own brand while doing what they can to undermine competing theories, and of course these sorts of disputes can become viciously “political”.

One more time: My thought is that it is when empirical verification is so hard, and when what can be legitimately empirically verified is hedged with so many qualifications that you see this sort of nonsense arise. And that when objective empirical verification is easy, you see good practices as the norm and as a matter of course.

Now, you might think this can only happen with any frequency in the fuzzier social sciences, but as a matter of fact it also occurs even in traditional enclaves like physics. The most recent and obvious example would be string theory, which after twenty years of repeated promises has produced bupkas in the way of anything that can be actually be tested for and verified but won’t be discarded any time soon on account of it’s promotion by a contingent of very active and very powerful supporters.[2]

[1]The shorter, less pompous, and arguably more quotable version is: Opinions are like assholes. Everyone’s got one :-)

[2]In that 20-year interim, a lot of young Turks who got their job on the basis of being string theorists are now older guys who hold senior research positions, which can be very cushy spots indeed. Being – ironically – very typical human beings with a lot of their self-worth invested in their work instead of the sort of rational actors economics like to posit, they don’t take it well when guys wanting their jobs legitimately point out these failures of string theory and then on that basis demand they vacate the premises.

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Cahal 09.16.11 at 10:11 pm

@bdbd

‘So there are gaps in the economic fossil record—no big deal.’

No. There aren’t any fossils at all.

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walter willis 09.16.11 at 10:20 pm

Barry and ScentOfViolets
It isn’t just Professors of Phlogiston and Deans of String Theory, it’s the entire “massive salt deposits formed because of seas drying up” geology groupthink.
It’s not just wrong, it’s statistically absurd in so many ways.
I’ve got to write an essay on that.

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Watson Ladd 09.16.11 at 11:52 pm

Walter, got another explanation with predictive value? I bet salt deposits are formed in flat beds, and when they are bent there are signs of faulting, with surrounding rocks being sandstones and clays. In fact I will do even better and predict that salt deposits do not exist in areas with evidence of large vegetation growth at the same time.

79

Colin Danby 09.17.11 at 12:12 am

Possibly, “Walt,” we may want to develop more careful terms for discussing schools of thought than “shitty.”

The minor irony of this is that the hermeneutically-informed Austrians like Lavoie and Lachmann are probably closer to Graeber’s position than most other kinds of economic heterodoxy.

80

bcgister 09.17.11 at 12:15 am

Ajay, 24: “That sounds vaguely similar to the way that money was imposed in various colonies, certainly. (Vaguely because my memory is vague, rather than because the similarity is.)”
As I recall from my graduate studies, that was certainly the case in southern Africa: I believe studies issued by an institute operating in Northern Rhodesia in the 1940s and 1950s found that a requirement for taxes to be paid in money forced younger men to leave villages for work in the mines, thereby introducing money to what had been non-money economies.

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Meredith 09.17.11 at 12:36 am

In the direction that Lee A. Arnold has been urging here, I think…. We do have one society we can study in some detail as it shifted from gift-exchange and reciprocity to money, and not because monetization was imposed from without, by a colonial power or the like (the problem with trying to learn about this shift from most of the societies traditional anthropology has studied): archaic Greece. A number of quite brilliant scholars have been studying the complexities of gift exchange, reciprocity and monetization in archaic Greece (the period of polis-formation) for decades now, among them Marshall Sahlins, but also classicists who have an intimate knowledge of that society, the kind of knowledge that Sahlins himself believes one must have to understand a society’s economics. Of particular interest is the recent (if sometimes controversial) work of Richard Seaford, especially Money and the Early Greek Mind (Cambridge U. Pr. 2004). A quick google search yields this review, which summarizes the book pretty well, chapter by chapter:
http://ndpr.nd.edu/news/23014-money-and-the-early-greek-mind-homer-philosophy-tragedy/
You can also get a feel for Seaford’s thinking in this address he gave:
http://entertainment.timesonline.co.uk/tol/arts_and_entertainment/the_tls/article6518502.ece
Other scholars include David Schaps and Leslie Kurke and — well, it’s a long list. You could work back and out from Seaford.

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gordon 09.17.11 at 1:13 am

Bcgister, yes, that was the famous “hut tax”, imposed to get those lazy natives to work for the whites. Without it, the natives showed a depressing indifference to the benefits of civilisation. They didn’t seem to realise that the “neoliberal project” was going to raise their standard of living, that a rising tide would lift their boat, that the Washington Consensus was actually good for them. Even seminars on Austrian economics and how barter economies must inevitably give way to money economies seemed to make no impression. That was what David Livingstone was actually doing in Africa, you know; giving those seminars. H died a disappointed man. Didn’t get tenure, either.
http://en.wikipedia.org/wiki/Hut_tax

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hartal 09.17.11 at 1:34 am

Colin at 62 says: “Starting with barter lets you begin with an atomistic society with arms-length transactions, and never have to complicate your social model—the barter nexus just becomes the cash nexus.”
But beginning with exchange between foreigners does not have you begin with an atomistic society; the atomization of society, i.e. making members of society foreign to one and another, may well be the result of the transformation of society by foreign trade.
In his rival account that I find at times hard to follow and at other times pretty speculative, Graeber criticizes the idea that money or at least important aspects of money arose out of exchange among parties which did not share custom, kinship or religion. It might be that Marxian account cannot be squared with the historical and anthropological record, but Graeber recognizes that it is different from Smith’s and Menger’s. I found it hard to decipher what he thinks the rival Marxian account actually is and which evidence he believes vitiates it. But I’ll read the Naked Capitalism piece again.
It’s an interesting debate indeed.

84

hartal 09.17.11 at 1:51 am

Meredith, thanks for linking to address by Seaford. I remember being mesmerized by it when I first read it.
If this is what we mean by the emergence of money, a social relation–“An entirely new feature of money is that its possession renders unnecessary in principle all pre-monetary forms of social relationship: reciprocity, redistribution, kinship, ritual, and so on. Money allows you to fulfil all your needs. It provides the power to increase itself. And it tends to promote predatory isolation. Hence the focus of much Athenian tragedy on the extreme isolation of the individual – from the gods and even (through killing) from his closest kin. I know of no precedent for this in literature, certainly not in the pre-monetary society depicted in Homer. This horrifying possibility is embodied in the figure of the tyrant (turannos), who in historiographic, philosophical and tragic texts characteristically kills his own kin, violates the sacred, and is much concerned with money as a means of power”–then I am not sure how Graeber is explaining the emergence of money, as such a social relation.

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hartal 09.17.11 at 2:06 am

Section 4 of this paper seems to present the Marxist account of the origins of money that Graeber wants to criticize.
http://tinyurl.com/3mm42qc

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ezra abrams 09.17.11 at 2:08 am

violets at 75
what you say about to many models without verification resonates with me
I was just at Brad Delongs blog, where he praises a paper on gov’t action and risk premia
I looked at the paper, and certainly didn’t understand it, but it seemed to have way to many assumptions and way to much math.
But you raise another question: why do we care so much about macro econ models ? Almost everyone cares a lot more about being happy, or getting laid, or taking care of their kids then money, yet we don’t have a council of psychological advisors to the president, and we don’t have a Federal Reserve Happiness institute, whose chairman regularly appears in the mass media
So not only are the economists, particulalry the macro guys, doing theory that has no connection to data, they have a lot of power and status connected to those theory; I mean P Krugman and G Mankiw, etc ect – these guys, and guys like them, they areplaying for serious stakes.

87

ezra abrams 09.17.11 at 2:14 am

Elm at 61
It may be true that biomedical research is strongly emprical, but that doesn’t mean the avg quality is any higher; it is just as easy to do worthless experiments as worthless theory.
I mean, every day, there are hundreds , maybe thousands, of papers in hard core disciplines like enzymology/biochemistry or colloid science or whatever that are almost 100% reporting experimental data that no one bothers to read (citation index of 0 or 1; citation rates can be abused, but when a lot of papers are at 0 or 1, that says ain’t noone listening)

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bad Jim 09.17.11 at 3:32 am

When I was a teenager I think I did step on a nail every year. Back then all of Southern California was a building site. One summer I stepped on a rake instead.

89

Watson Ladd 09.17.11 at 3:44 am

Yes, and tetanus vaccine has been around a lot longer, invented in 1924. But for long before that a puncture wound could easily be fatal. We’ve forgotten just how bad disease can be. My grandparents were the last western generation to suffer famine. I’m not sure anything that a greater sense of community can do to compensate.

90

E. L. 09.17.11 at 3:58 am

ScentOfViolets at 75:

“One more time: My thought is that it is when empirical verification is so hard, and when what can be legitimately empirically verified is hedged with so many qualifications that you see this sort of nonsense arise. And that when objective empirical verification is easy, you see good practices as the norm and as a matter of course.”

Indeed. The philosopher Mario Bunge, while not that famous anymore, has been preaching this about superstring theory, neoclasical (rational-choice) economics and now evolutionary psychology.

As to economics, from my amateurish perspective, while hardcore, aprioristic Austrians (Randian or Rothbardian) are even proud of ignoring the empirical evidence, much of the neoclasical approach is tainted by Friedman’s instrumentalism. Again, Bunge’s work is very valuable here.

91

Gene O'Grady 09.17.11 at 4:21 am

I was going to stay out of this, but since Meredith has mentioned archaic Greece and Seaford’s Classical Association presidential address, I wonder if it is relevant that our evidence for archaic Greece (roughly 700-480 b.c.), which is largely either archaeological and epigraphic, or based on the Ath Pol which was discovered about 1890, would have been unknown to people like Adam Smith. Presumably Smith had a better classical education than I do, but his models for the period of ancient Greece would have been later classical theorizing rather than the much better evidence we now possess (plus the anthropological/sociological framework and comparative studies that didn’t exist in Smith’s time).

92

Felix 09.17.11 at 6:32 am

John Quiggin,

I just spent a long time reading the comments in that post and Graeber does go to lengths to emphasize that he really had no beef with Austrians, but that someone on an Austrian blog just happened to go after one of the points in his book (a point which, I believe, only is made in one chapter) and he rebutted that blogger in that forum and was suddely accused of critisizing that school specifically.

As to the point that he is generally painting economists badly, I’m afraid that’s my read of him too.

However, I can’t wait to read the book because everything I’ve read from him so far is very provocative and exciting.

93

Felix 09.17.11 at 6:33 am

John Quiggin,

I just spent a long time reading the comments in that post and Graeber does go to lengths to emphasize that he really had no beef with Austrians, but that someone on an Austrian blog just happened to go after one of the points in his book (a point which, I believe, only is made in one chapter) and he rebutted that blogger in that forum and was suddenly accused of criticizing that school specifically.

As to the point that he is generally painting economists badly, I’m afraid that’s my read of him too.

However, I can’t wait to read the book because everything I’ve read from him so far is very provocative and exciting.

94

bad Jim 09.17.11 at 8:06 am

Given the soaring price of gold, and the conviction of the libertarian fringe that money inevitably becomes worthless unless backed by an immutable store of value, it’s striking to learn that credit is historically the root of exchange.

It’s not surprising, since few of us have much use for precious metals as commodities, but the history of money has been attended with more nonsense than sanity. Come to think of it, since sanity is currently short in supply …

95

Tim Worstall 09.17.11 at 11:46 am

“FWIW, I was at a Brookings event today where Barro’s claims about the effects of unemployment insurance were treated with much derision – partly because they were based on sloppy back-of-the-envelope numbers, but also as being totally off the mark.”

Barro’s just stating that extending unemployment insurance will, in part, extend the time period of unemployment, isn’t he?

Hardly an controversial view: Richard Layard has been saying this for decades. He specifically has pointed out that the difference in long term unemployment rates between the US and Europe is that unemployment benefits in the US are time constrained and usually not so in Europe. Hmm, perhaps not quite so strong: this contributes to th e different rates, not necessarily entirely explains them.

That’s it’s true in part seems obvious. The difficulty being in determining how large that part is.

So what is it that you’re actually complaining about?

96

Chris Bertram 09.17.11 at 12:12 pm

Anyone who has been a member of a Marxian groupuscule, complete with apparatus of theoretical journals etc, has a flash of instant familiarity on encountering the various libertarianish sects, perhaps especially the Austrians, because we’re familiar with things such as the hairsplitting distinctions that generate inter-sect anger and incredulity, but also with the endless stream of articles explaining that what the founder-figures wrote about some topic (say Engels on the family) is basically correct, and can be demonstrated from first principles, despite the “ludicrous” attempts of “bourgeois” theorists to show otherwise with their laughable empiricist fact-mongering.

97

John Quiggin 09.17.11 at 12:41 pm

@Tim W On Barro specifically, as stated previously, his numbers were rubbish.

On the general claim, it doesn’t work well in a recession, as was shown by the paper presented by Rothstein (largely confirming previous work I’ve read). Extended access to UB increases measured unemployment but mainly by reducing the number of workers who leave the labor force (US participation has been declining for some time) often onto disability benefit, which commonly implies permanent exit.

The net effect on the number of unemployed who become re-employed is close to zero.

That doesn’t mean there aren’t problems under more normal conditions. OTOH, the poor performance of the US labor market in the 2000s has to cast a fair bit of doubt on conclusions drawn from the 1990s.

98

Brett Bellmore 09.17.11 at 1:17 pm

People don’t believe in the possibility of a “representative sample”—they think you have to count each and every person, which is impossible, hence their radical skepticism of the social sciences, and indeed of all science except for physics.

I don’t think it’s so much a disbelief in the hypothetical existence of “representative samples”, as a healthy skepticism about the feasibility of obtaining them, given how heterogeneous human populations actually are.

Given the soaring price of gold, and the conviction of the libertarian fringe that money inevitably becomes worthless unless backed by an immutable store of value, it’s striking to learn that credit is historically the root of exchange.

Is this really a matter of dispute? Any given fiat currency does become worthless over time. Our own currency has declined in value by 95% since we went off the gold standard. Isn’t that close enough to “worthless” for practical purposes? With passbook savings accounts paying fractional interest rates at a time when the real rate of inflation is between 5 and 10 percent, you can practically watch the value of dollars melting away. Of course, any given fiat currency will eventually be replaced by another fiat currency, so that, at any given time, the fiat currency in actual use will have some worth.

Isn’t the ability to render them worthless after incurring debts denominated in them one of the reasons governments prefer fiat currencies? I’m just not sure that makes fiat currencies better for anybody else.

99

Tim Worstall 09.17.11 at 1:32 pm

@98, Ta for the explanation.

100

Chris Bertram 09.17.11 at 2:26 pm

_Our own currency has declined in value by 95% since we went off the gold standard. Isn’t that close enough to “worthless” for practical purposes?_

Well, if you’d like to paypal me a large amount of this worthless stuff, get in touch.

101

dsquared 09.17.11 at 2:48 pm

Almost everyone cares a lot more about being happy, or getting laid, or taking care of their kids then money, yet we don’t have a council of psychological advisors to the president, and we don’t have a Federal Reserve Happiness institute, whose chairman regularly appears in the mass media

thank god for that; if we did, you could guarantee that within a decade, it would only be the rich who got laid.

102

Watson Ladd 09.17.11 at 2:59 pm

Chris, very true about the groupsicles (but they aren’t frozen.) However, both Austrian economics and Marxism would argue that empiricism is missing the point. For the Austrians empiricism would be meaningless because it generalizes about desires in ways they don’t believe you can, since humans can reflect on their conditions. (I think this is right, but someone who knows Hayek better can feel free to correct me) For the Marxists it would be that section of the Grundrisse on how population is itself the formation of a complex set of social relations that make population matter, and that empirical studies cannot be critical of their own formation. I’m obviously much more sympathetic to the Marxist point then the Austrian one: We can infer things about desires to some extent, while the critique of the limits of empiricism in the social sciences is much stronger.

There’s also a deeper point: Empirical reality for an iguana or a grass seed is entirely determinative of what that thing will do. Humans have the ability to change the conditions under which they live, and so empirical reality is just the reality we haven’t mastered yet.

103

LFC 09.17.11 at 3:08 pm

…why do we care so much about macro econ models ? Almost everyone cares a lot more about being happy, or getting laid, or taking care of their kids then money, yet we don’t have a council of psychological advisors to the president, and we don’t have a Federal Reserve Happiness institute, whose chairman regularly appears in the mass media

I think the middle-aged handyman/yard worker who has (afaict) no fixed address and regularly knocks on my door asking for money would have an easier time being happy if he had a job that paid a livable wage.

Moreover, despite the recent research on the determinants of happiness, it is still a subjective thing; after a certain basic-needs/comfort threshold is met — as it is not for the person who knocks on my door — what makes X happy may make Y miserable, and short of delving into everyone’s existence in an intrusive way, there would be no good way for a Federal Happiness Chairman to know what to do, even on a purely utilitarian approach.

104

Guido Nius 09.17.11 at 3:08 pm

102: Then also only the rich would have kids and all kids would be rich kids. Yet another argument in support of the Tea Party.

105

Cian 09.17.11 at 3:15 pm

However, both Austrian economics and Marxism would argue that empiricism is missing the point.

There are Marxists who are very big on empiricism, so I’m not convinced that all Marxists would argue this. Unless, I suppose, we are defining Marxists as those who adhere slavishly to interpretations of what the big man supposedly said. I do love fundamentalist Marxists.

106

Shane Taylor 09.17.11 at 3:22 pm

Chris sums up my reaction in comment #97. And I had a similar flash of familiarity when I encountered Harold Camping, gnostic visionary.

107

DaveL 09.17.11 at 4:20 pm

#87 and #102 hit the nail on the head. Any theory which assumes that rational calculation is the totality of motivation in exchange is clearly spherical and mooing. On the other hand, Graeber (in his posts) seems to get moderately close to going the opposite way, in describing meetings among the Nambikwara and Gunwinngu as almost entirely about things other than exchange, even in the face of the latter being economically specialized. Perhaps there is some spheroidal mooing going on there too?

In any case, I am now motivated to read his book, which I point out to him is the best book ever, beautifully written and argued, artistically bound, typeset and printed with care, and easy to read and hold. I have never seen or heard of a more wonderful book…

108

William Timberman 09.17.11 at 4:31 pm

Fact-mongering. Love it, Chris. I imagine wandering in the marketplace of ideas, admiring the sledge-hammers and jeweler’s loupes as I pass from booth to booth. The libertarians have a barker with a bullhorn, the Marxists a CPA with a pince-nez and an account book. Laffer has a starlet in a bikini, Krugman a stand-up comedian, perhaps Woody Allen himself, slumming on market weekends for the sake of his immortal soul, which after so many years among the goyim, he figures he shouldn’t be without.

Oy! Whatever became of the honest workman, who takes fact and theory as they come, using what is useful, and discarding the rest. I’m reminded of a friend of mine, who, upon reporting to a new (blue-collar construction) job for the first time, was sized up very astutely by the site foreman. Don’t worry, son, said the bosses’ chosen executor, You don’t have to think. If there’s any thinking needs doing, we’ll do it for you.

109

Colin Danby 09.17.11 at 6:18 pm

Hartal @84: My comment @62 was mainly aimed at explaining why certain economists cling to the barter theory of the origins of money (and of markets) despite counter-evidence.

The theory you sketch corresponds to the romantic critique of both expanding commerce and Political Economy (e.g. Moser, Fichte, Muller, Carlyle, Ruskin, Sombart) – that commerce and markets start on the edges of a close-knit society, and gradually marketify and atomize it. For purposes of this discussion, and following Graeber, I would ask us to treat this as an empirical question.

I’ll also have to go back to the texts to figure out to what degree Marx is justly criticized by Graeber. I am a big fan of Geoffrey Ingham’s work, who is criticized in the piece you helpfully link to @86.

A point that is relatively persuasive to Ingham and to a lot of Post Keynesians like myself is that money appears to emerge, and generally to exist, in credit systems. Money is simply the asset whose transfer effects final settlement of a debt, and is thus merely a component, though a necessary one, of a more complex and interesting financial system. Financial systems are complex social institutions that require enduring links. This is just as true of local financial structures as of the financial networks that have, historically, tended to undergird long-distance trade — links to foreigners are not necessarily asocial.

Spot transactions are the limiting case of forward transactions; money anchors one end of a larger range of assets. The error of both the neoclassical and romantic origins stories is to isolate spot transactions and money, ignoring the institutional contexts in which they exist, in order to build just-so stories out of them.

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Bruce Wilder 09.17.11 at 6:49 pm

The codification of economics into a system of mathematical theorems by Samuelson unbalanced the discipline, throwing the discursive literary traditions into eclipse, and with them, the institutionalists, who worked at mastering the history and operational details of the actual economy. Macro-economics, and policy economics in general, suffer from the absence of a shared perspective on the practical “second-best” institutional solutions to the pervasive problems of genuine uncertainty, incomplete information, incomplete contracts, dynamic disequilibrium, risk, etc. These pose important theoretical problems, but they are also problems, which simply cannot be “solved” by theory alone. There can be no perfect solution to ignorance of what is to come.

As Colin Danby says, money is at the core of the institutions we use to deal with an inherently variable and uncertain future. The details of how imperfect institutions emerge, work, fail, are repaired or re-emerge, are at least as informative as musing about an imaginary world of certainty, rational expectations and ideal solutions. Economics desperately needs an interpretative methodology — particularly in macroeconomics, where the subject is the progress of the earth’s single industrial revolution — but, instead is saddled with the absurdity of time-series regression and the search by the too-clever, for “natural experiments”. Meanwhile, there are economists wondering out loud about why the yield curve appears to be such a good “leading indicator”, and if that relation might still hold next time.

It’s really no wonder that Lucas, and Barro, and the rest seem to glom onto a hodgepodge of incommensurable and disproportionate “explanatory” variables, before turning to moral analysis.

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Meredith 09.17.11 at 7:05 pm

Hartal@85, I can’t know how Graeber and Seaford might find common ground, of course (especially since I’ve only read Graeber’s Naked Capitalism piece, not his book, while I’m not particularly fresh on my Seaford reading), but I will hazard a couple of areas where they might find it: Greek sanctuaries as repositories of gifts/offerings and as sites of ritual distribution (the latter something Seaford emphasizes), and the importance of legal systems in providing a conceptual basis for moneticization (which Graeber emphasizes; Seaford may also do so in his most recent book on Aeschylus, which I haven’t read yet or read about, either, but already in his address he was talking about the Oresteia, which famously locates resolution of the problems created by the unlimited reciprocity of vengeance in Athena’s instituting the homicide court).
A couple of further observations.
Greek (and for that matter, Roman and all the other peoples operating in Italy, Sicily, Carthage…) temples/sanctuaries in the archaic period often operated not just as repositories and sites of ritual distribution in the ways Seaford examines but as sites for promoting trade and other forms of exchange, even joint colonizing ventures and the like. The Mesopotamian palace and temple sites Graeber discusses may be less valuable for his project than these later sites, in some sort of relation to which moneticization historically did occur (in Greece in the late archaic period; Rome is a different story, but probably illuminating in its own way).
The role of religious sanctuaries in all this — gods, the divine, conceptions thereof — is not irrelevant.

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Colin Danby 09.17.11 at 7:38 pm

This is great, Meredith! Triggers two associations: Montes de Piedad and the whole range of Catholic Church – linked financial institutions, and Pierre Bourdieu’s work on different kinds of power relations in gift/finance systems. Gotta read Seaford.

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David Graeber 09.18.11 at 4:42 am

quick note:

To Meredith: yes, I’m a student of Sahlins myself, and all those authors are cited in my chapter on Ireland, Mesopotamia and Greece. Seaford is superb though a bit of a Greek snob, even arguing that Middle Eastern monetary systems weren’t “really” money.

To Colin: that’s pretty much my argument exactly.

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Meredith 09.18.11 at 4:56 am

ColinDanby@113, Visiting Seaford online (far more interesting that the report I’m supposed to be writing), I found this, his free, open lecture to occupiers at Exeter University who are protesting the Cameron govt’s education cuts to the humanities and social sciences. Note (to keep Graeber fully in this conversation) Seaford’s invocation of the “PAC’s,” passive, atomized consumers, at about 7 minutes:
http://www.youtube.com/watch?v=VmZA6tar8Vg
His open lecture continues at:

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Simon 09.18.11 at 6:05 am

I had the chance to pick up David’s book “Debt” today, and having gotten about half way through, I highly recommend it to all CT readers. A very scholarly work with a forty page bibliography, yet written in fluid prose and replete with provocative implications.

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hartal 09.18.11 at 4:05 pm

Just a few concerns about this debate.

1. It seems that a round of it has already been played by Geoffrey Ingham and Costas Lapavitsas, and it’s not clear what they are arguing about.

2. One worries that the debate suffers from some kind of genetic fallacy. Even if we can determine how money arose, that would not necessarily throw light on its nature and (hierarchy of) functions in a system in which the production of competitively market-valued commodities has become central to the reproduction of economic life.

3. I have doubts about the politics of Graeber’s work. Graeber seems to want debts forgiven or inflated away. This is the old anarchist politics, espoused by Proudhon. It leaves the dominant forms of power intact, and may well not work well.

Consider this from Marx to Engels:

[London,] 14 August 1851, 28 Dean Street, Soho

Dear Engels,

In a day or two I shall be sending you the Proudhon itself, but send it back
as soon as you’ve read it. For I intend — for the money — to publish 2-3
sheets about the book. So let me have your views in greater detail than your
hasty letter-writing generally allows.

The Proudhon business — and the whole is first and foremost a polemic
against communism, however much he may filch from it and however much it may
appear to him in the light of the Cabet-Blanc transfiguration — boils down,
in my opinion, to the following line of reasoning:

“The real enemy to be combatted is capital. The pure economic affirmation of
capital is interest. So-called profit is nothing but a particular form of
wage. We abolish interest by transforming it into an annuity, i.e. repayment
of capital by annual instalments. Thus the working class — read industrial
class — will be assured precedence for ever, while the actual capitalist
class will be condemned to an ever-diminishing existence. The various forms
of interest are money interest, rent interest and lease interest. In this
way bourgeois society is retained, justified, and divested only of its
*mauvaise tendance *[evil tendency].”
*Liquidation sociale* is simply a means of building anew a ‘healthy’
bourgeois society. Quick or slow, *peu nous imports* [it matters little to
us]. I want first to hear your views on the contradictions, uncertainties
and obscurities of this liquidation as such.

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hartal 09.18.11 at 4:28 pm

I do agree with Godelier and Graeber that a sense of indebtedness among the oppressed, resulting from what Maurice Bloch calls inverse causation in that the oppressor appears as the fount of life itself, is probably more important than naked coercion in securing the reproduction of divided societies. Godelier finds the roots of such a sense of existential indebtedness among the oppressed in ancient Egypt. This is a non-monetary form of debt that plays an important part in society, and we shouldn’t lose site of it in discussions of obligations.

The other thing to remember here is that modern market economies do not marginalize barter. As Kaushik Basu points out, we find barter in such activities as a member of an exclusive club granting membership to someone from whom he expects a contract in the future or an investor in a politician expecting contracts to reconstruct a country after it has been destroyed in a war.

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Salient 09.18.11 at 7:43 pm

Our own currency has declined in value by 95% since we went off the gold standard. Isn’t that close enough to “worthless” for practical purposes?

Well, if you’d like to paypal me a large amount of this worthless stuff, get in touch.

That’s the obvious brush-off response, but I feel like it’s missing the point in the worst possible way. If a given quantity of currency devalues to nothing over the course of a few generations, that is a very good thing. Brett has, presumably unintentionally, happened upon one of the best justifications for remaining off the gold standard: the fiat money system discounts long-term savings and is naturally resilient against multi-generational hoarding.

If money’s supposed to be a common medium of exchange, we want to avoid manipulative persistent non-exchange employment of the medium as much as possible. Brett’s world of 5-10% inflation and 0-1% accumulated interest would be rather utopian for a market-based economy, provided that wages were distributed equally enough to ensure people could obtain a flourishing life year to year with what they receive year to year. In any such society we wouldn’t want people to be able to save up resources over the course of generations, intending for their descendents to achieve disproportionate purchasing power. That would introduce instability into the system in the worst possible way: it gives one an incentive to break the system and exacerbates the problem of thrift.

Saving up money is a smart move for an individual within our currently existing system, because being a low-risk creditor is always a smart move, and saving money is basically a way of becoming a low-risk creditor by forcibly offering future generations a loan. Dear society: you may have my services for free at this time, because I forfeit my opportunity to obtain my fair relative portion of the world’s goods and resources to which I am entitled. (That’s what it means to save money when one could be spending it.) Generations later, society, you will reimburse me or my descendents with an even larger relative portion of society’s resources. (That’s the incentive to save, when one is earning interest in excess of inflation.)

Very often, what is prudent for an individual to do within a system illustrates problems within the system. (Specifically, any behavior which benefits an individual only so long as few individuals behave that way illustrates a pathology within the system. Not always true, but true often enough to bear in mind, especially because the core of conservatism is the assigning of moral valuation to exactly those economic behaviors which benefit the individual at the expense of their society.)

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trane 09.18.11 at 8:35 pm

Very interesting. Made me think of the following text from a related area:

Gerard J. Gill:
“O.K, The Data’s Lousy, But It’s All We’ve Got (Being a Critique of Conventional Methods)”
http://pubs.iied.org/6052IIED.html

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Meredith 09.19.11 at 6:04 am

Graeber@114, It’s not snobbery, it’s love. And love is blind — but sees, for all that.

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Tim Wilkinson 09.19.11 at 7:08 am

Consequences:

Economic History

1. The sociology of the economics profession as it relates to those adhering to the barter anachronism, G’s exclusion from tenure, and more generally the highly dogmatic approach of the most prominent and influential economists (see e.g. Barry @19, ScentOfViolets @69) has been discussed on CT before in, eg, a Larry Summers thread a while ago.

2. If the correct historical account has no place for money as a response to the problems of barter, then Menger-style ‘invisible hand’ stories of the emergence of money are relegated to a status like that of Nozick’s ‘fundamental potential explanation’ – i.e. a history which is untrue, reductive and lawlike. The merit of this kind of avowedly fictional State of Nature theory is highly disputable, shall we say.

In N’s case, the attempt doesn’t even succeed in its own terms – either he must accept that at some point a general public interest overrides the individual rights he posits – failing to reduce a Humean, merely notional, social contract to actual ‘voluntary’ transactions (albeit they would be only possibly actual – nested modality!) – or he must openly rely on those involved just happening to behave conveniently – thus failing to provide a lawlike account.

This mirrors – not by accident – the dilemma of social contract theory: either the contract is merely ideal, and thus not binding, or it is meant to be actual, and so doesn’t exist. If you want actual antecedents of a situation to be relevant to its justifiability, you can’t then abstract from them and appeal to what could have been justified if we had started from somewhere else (Noz might try one of his two-steps here and say we may do so as a matter of one-off rectification, but never mind that).

I’m not sure that a Menger-style account of spontaneous, non-command money fails on its own terms in this way. I suspect there may be a similar dilemma though, at least if we are really talking about money rather than compact and durable commodities. Either a central authority would have to mandate the currency (defining and policing ‘forgery’, demanding money taxes and otherwise enforcing acceptance as tender) or various coordination problems would just have to be arbitrarily wished away.

In any case, again, fundmental potential explanation (FPE) is not clearly up to the justificatory job required of it – in fact I’d say it is fairly clearly not up to it.

It might be suggested that the Mengerian story provides a kind of causal model which illustrates inevitability – in the ideal case, the FPE would overdetermine the actual explanation: if the actual process had not pre-empted it, the FPE would inevitably have operated (this not necessarily overdetermination, exactly – joint determination or something). This might have force if the lawlikeness of the explanation means it will recur (unless preempted). Then it might be treated as an argument – probably not a good one though – against the feasibility of abolishing money, should anyone want such an argument.

Another possibility – which I favour – is that the whole apparatus is just a picturesque and rather obfuscatory way of claiming that X (monopoly on legit force; money) is now – regardless of its aetiology – not dependent (in some sense) on Y (violation of rights/liberty; central authority). Further argument – not necessarily very cogent – might then draw various conclusions about what may or may not be done by way of taxation, central banking and so on.

This Google-gleaned paper: The Price of Money in a Pure Exchange MOnetary Economy with Taxation might be at least tangentially relevant to establishing the contrary thesis: dependence of money on ‘the state’: the paper (I think) suggests a model in which taxation is necessary if money is not to (possibly – more nested modality here) lose its value. I doubt whether it has very clear real-world implications along those lines, but may be suggestive, and possibly relevant to:

(Empirical) economic theory

3. The actual history provides some evidence against the idea that discrete bilateral exchange of possessions is a ‘natural’ tendency built into the standard incidents of ownership as a matter of moral necessity, and irrepressible as a matter of fact. JQ’s reference observes that actual behaviour of many natural persons manifests ‘gift’ like behaviour. This is defined as (knowingly?) making a contribution more than needed to elicit the other party’s (actual) contribution in exchange – though this is a potentially troublesome formulation which brings in the regress and convolution associated with the ideas of ‘rent’ and ‘surplus’. More generally, this ‘gifting’ is governed not (directly) by calculation of profit but (mediated) by ideas of, for example, fairness. This is just another bit of data undermining further the idea of the rational actor as standardly conceived.

4. G also citesDillard, Dudley, ‘The Barter Illusion in Classical and Neoclassical Economics’, which suggests a thesis independent of the historical account but clearly linked to it in the tangled rhetorical web of ideas: that certain areas of microeconomics – or microfounded attempts at macro – are deficient because they assume that the economy is in effect based on barter. There is some stuff about lags in effective demand, hoarding and speculation which are particular problems for GE theory – Wikipedia tells me an underlying technical issue is known as ‘Hahn’s Problem’.

A more tractable concern from my own economically-challenged perspective is that there is something odd about introducing cash money to ‘solve’ the coordination problems of discrete bilateral Pareto-improving exchange, notably the ‘coincidence of complementary preferences’ problem. (After all, the emergence of money from central – potentially democratic – institutions makes salient an alternative solution – a central market-maker which can mediate between ‘traders’.)

IIUC, the token role played by ‘neutral’ money in standard idealised/toy GE theory is just to remove such coordination problems – or to provide partial cover for the fact that they have been removed by assumptions like perfect information. The fact remains that once we start getting slightly more realistic, the need for coincidence of complementary preferences is supposed to be a problem, and money to provide a way of avoiding it (‘avoiding’ allows that the problem may never arise).

In the classic three-way circular bind, each person would like to swap their own good for the one on the left but not for the one on the right, so no Pareto-improving bilateral exchange is possible even though a Pareto-superior allocation is. Not sure why contracts supposedly have to be bilateral, if they supposedly do. Anyway, the idea is that this bind is resoluble once money is introduced and we take into account the anticipated ‘exchange value’ of otherwise worthless money. The introduction of exchange value introduces its own convolutions, but the fundemental problem with this, even assuming we can thus allow the three traders to accept exchange for money as a Pareto-improving transaction, is that we can do the same with any other durable transferable good. If we are intriducing exchange-value, the bind disappears, with or without money. Another bit of Google-flotsam – The Structure of Exchange in Barter and Monetary Economies – seems to make a similar point. The same applies to the difficulty of searching for a suitable partner in trade – once not artificially restricted to exchanging for use value, you can exchange for whatever commodity you think most liquid without needing a sui generis medium of exchange – and others with whom you trade will do so too, etc. I suppose there might be a bit less messing about involved with an actual currency – but there would probably be even less with a democratically-controlled ‘market maker’, say.

This seems to suggest that money can’t in fact eliminate the admitted problems of basing property rules on discrete bilateral exchange – at least if these are meant to be fundamental problems rather than a matter of a bit more or a bit less messing about – it is itself a commodity like any other, albeit in its pure form having the irrelevant property of 0 use-value. So if there is a problem which can’t be solved without money, neither can it be solved with money, since money brings nothing new to the table.

The response would presumably be that nonetheless, even if money is not for these purposes qualititatively different from a rare-ish metal or a small range of widely-accepted exchange commodities, that doesn’t matter: the point is really that we will have prices (including prevailing ‘exchange rates’ between the common commodities). It’s the price mechanism that is really important, not the exact form of money or money-like commodities.

And the reason why the price ‘mechanism’ is important (so the account goes) is that it provides signals about the exchange-values of various things, so that decisions about buying and selling are made easy for each individual. But of course this supposes another assumption of the perfect competition model, that everyone is a price-taker and has perfect information about the prices they are taking. Again, a rank assumption, and one which we could apply to goods directly, using ‘money’ only as a numeraire. The relative exchange values of all commodities are known, so again money as medium of exchange has no distinctive role – it just covers for the retention of an unrealistic assumption that exchange ratios are easily determined. Prices are easily determined, you see, because there is a ‘price mechanism’.

This price mechanism – what actually is it, anyway? In fact, people (leave alone firms, other entities) do set their prices, and do haggle and shop around, so are not in any very clear sense price takers. To do these things (sticking with a broadly neoclassical kind of approach) they need information ultimately based on supply and demand. Talking about ‘prices’ doesn’t explain how they get and use this information. The real dirty secret is that much of the economy is based on oligopolistic price-setting firms – so the job of ‘market-maker’ and the central-planning-like functions involved in ‘market research’ and ‘pricing analysis’ are carried on inside (and often between, nudge, wink) those unaccountable institutions. Which makes the idea of publicly accountable market-making institutions sound considerably less odd.

So money looks as though it lacks the magical powers associated with ‘price mechanisms’, while it also has other properties which mean 1. Walrasian GE comes out deficient in a new (to me) and exciting way, and 2. possibly that taxation is not the origin of money – if it is – just by accident, but is also a necessary adjunct to its continued use – at least if it is to retain positive exchange-value and yet be intrinsically worthless.

Political philosophy

5. Against neoclassical liberals/proprietarians: if we stop pretending that an economy with money is really just a continuation of a barter economy, the model of exchange as a sealed and seamless bilateral transaction falls away. Money purchase obviously separates buying from selling into two entirely distinct and indefinitely mutable transactions. This, I think one could argue – so far as any of this makes any sense (perhaps see it as a immanent critique) – tends to undermine the idea of a sacred exchange nexus, interference with which (e.g. by taxation) is a violation or at least an interference in a normatively-loaded sense.

A second way of thinking about a ‘gift’ relation might come into play here. Under a diffuse system of approximate reciprocity, provision of services and goods may be seen as ‘tuistic’. That is, a gift is aimed at the good or satisfaction of the recipient: should said good be frustrated, the gift has failed. Under a system of barter or of money-exchange, that condition is not satisfied, since each ‘gives’ only as an instrument of receiving. This is a problem for a Nozick-style account (sorry to keep going on about Nozick – I happen to be very familiar with his stuff for reasons similar to those of Jerry Cohen or Richard Arneson – he articulates quite well the general approach of a wide constituency). His ‘Wilt Chamberlain’ example rests WC’s entitlement to keep his huge receipts on the choice of spectators to give him a dollar each. But the spectators choose to ‘give’ him a dollar without tuistically ‘gifting’ him a dollar.

This may be of interest because if (arguendo) we take a Nozickian entitlement theory seriously, we are faced with a conception of property as a bundle of Hohfeldian rights and meta-rights which includes the right to transfer the whole bundle permanantly to another. The property rights of the recipient are entirely derived from those of the donor – and from the donor’s choice to transfer this bundle to the recipient. If the donor has not in fact made this choice – has reliquished rather than donated the money – the unimpeachable claim of the recipient to the whole value is less clear (Waldron in TRTPP goes into this to some degree).

To put it another way, while Nozick asks – what is wrong with letting the spectators give their money to WC voluntarily?, we may ask – assuming we want to at least reserve the right to ‘interfere’ here – what is wrong with telling WC that he only has qualified rights to the takings and must return a proportion of the money to the res publica? By hypothesis WC could take a big hit in his receipts and would still perform for the audience, while the audience members don’t actually seek to benefit WC, only to see his skills in action. In other words, all rent/surplus is in principle up for grabs (Gauthier I think comes to this conclusion from a very different direction, but IIRC I think underestimates just how much surplus there actually is knocking about. That’s a tricky question because there’s a regress of opportunity costs, but never mind.)

Sorry, slight digression, but it’s all connected – bringing the barter model back in, it’s useful to entitlement types because it obscures the arbitrarily divisible nature of exchange value – or at least of surplus, more-than-minimally-motivating exchange value. I exchange my apple for your orange – we have each literally transferred an object to each other – how could it be anything other than an outrageous imposition if some bloated bureaucrat then starts demanding a bite of apple or a segment or two of orange (or half of my new pet guinea-pig).

As well as obscuring the fungible nature of surplus exchange value, the barter model also I think tends to lend credibility to a Roman-style conception of property as literally an in re relation – an intimate bond between person and object. First, when we consider barter we tend to think of the natural-ish relation of personal possession rather than more remote or commercially-orientated property rights. Second, we do at least actually have an object- rather than a cash balance – of which to posit this intimate relation, so central to true Liberty. It’s notable that Nozick uses barter as one of his examples (the entrepreneur under socialism) of the irrepressible and unobjectionable tendency to engage in discrete bilateral exchange, and then goes on to justify unlimited capital accumulation and all the rest, by extrapolating from the intuitions thus elicited.

The falsity of the Mengerian barter story exposes entitlement theories – which do after all rely tacitly on a (pseudo-)conservative approach to a certain tradition – as genealogically suspect to the extent that their plausibility rests on generalising from intuitions about stereotypical cases of barter. If the actual history of ‘exchange’ is one of loose reciprocity, and especially of centralised authorities issuing and recalling money as a means of co-ordinating productive activity, that suggests that the ‘natural’ in ‘natural rights’ has t9o be taken even less literally than one might otherwise suppose.

6. BTW it seems unlikely that in a village-sized community reciprocal ‘gifting’ behaviour would even be reducible to bilateral reciprocity at all – it’s at least as likely to be based on fairly contributing to the common weal, I’d have thought. But then I haven’t actually left my armchair so what I would have thought about that is of especially little interest.

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ajay 09.19.11 at 10:05 am

Greek (and for that matter, Roman and all the other peoples operating in Italy, Sicily, Carthage…) temples/sanctuaries in the archaic period often operated not just as repositories and sites of ritual distribution in the ways Seaford examines but as sites for promoting trade and other forms of exchange, even joint colonizing ventures and the like.

Hence the word “money” from the goddess Juno Moneta, in whose temple coins were struck. Who may be an equivalent of Mnemosyne, mother of muses and goddess of memory. (Which seems appropriate if money arose as a method of recording credits… sorry to get all Neal Stephenson on this.)

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Peter T 09.19.11 at 1:44 pm

I haven’t (yet) yet Graeber’s book, but I did do a bit of ancient history, and the same inability to reconcile the usual conceptions of money with the history had struck me. As Graeber points out, money in the sense of coins came late, and often were not used by major commercial networks (eg the Phoenicians). What we do find from very early on are sophisticated financial systems based on a notional unit of account and transferable obligations. You can see examples in the British Museum and we have the records of one of the major Babylonian banking houses. The use of coins – particularly those of any value – seem more related to the need to pay the military than to trade. And it does not take much research to show that actual gold or silver could never have covered more than a fraction of world trade – there simply is not enough of it.

What the history tells us is that money in the sense of a unit of account is not about gold or coinage, nor about the state (which anyway continued to collect and disburse a large part of revenue in kind, using accounting systems that are millenia old, until quite recently). Money is concretely realised as a debt – a social and moral relation.

This was nicely illustrated when Thatcher tried to put Milton Friedman’s doctrines into practice – the attempt broke down because, among other things, the volume of money could not be adequately defined (was it cash, cheques, credit, bank deposits…? The answer was all of the above, and more) .

It would be nice if the barter fable was abandoned, and economics spelled out all the assumptions necessary to a system of multiple bilateral exchanges unmediated by debt and therefore by social relations. Maybe someone has – but it’s not in the textbooks.

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Colin Danby 09.19.11 at 6:26 pm

alternatives

Ingham, _The Nature of Money_ (Polity 2004)
Arestis and Sawyer, _A handbook of alternative monetary economics_ (Elgar 2006)
Wray, _Understanding Modern Money_ (Elgar 1998)
Davies, _A History of Money from Ancient Times to the Present Day_ (U. Wales 2002)

The last has a nice website here: http://projects.exeter.ac.uk/RDavies/arian/llyfr.html
with lots of interesting stuff on blood money, Danegeld, and monetary unions. Re above: “The clumsiness of barter was merely one factor in the development of money, and not the most important one. Banking was invented before coins and reached a high level of sophistication in the Egypt of the Ptolomies. Military conquests, such as those of Alexander the Great, spread the use of coins which became the most convenient means of payment.”

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hartal 09.19.11 at 7:53 pm

Again it’s not clear to me what work these origin stories are supposed to be doing beyond the obvious point that we should not read into the past the set of motivations and behaviors that is the result of the generalization of money as as the cause of the generalization of monetary relations in the first place.

Is the argument here really that since money relations cannot depend on hard money because they did not originate on the basis of hard money (note: genetic fallacy), governments should be free to ignore calls for a return to the gold standard or even inflation targeting aimed at keeping a currency relatively stable not in relation to gold per se but in relation to some basket of commodities (I would claim, and so would Eichengreen, that inflation targeting is simply a somewhat more flexible form of commodity money)?

Fine but that does not mean that there is a fair, prgamatic program for debt forgiveness that would eventuate in real, long-term change; or that an inflationary program would in fact work, and not at the expense of intensified international tension, expropriation of small savers and substantial losses in real wages. Would a bout of inflation so disturb relative prices that decision-making would become difficult and speculative activity take off? Is monetary policy a panacea? Don’t crises bring to the forefront every kind of money crank–Major Douglas and Ezra Pound for example.

Is the point also that since money originated as a promise to pay, there is really nothing but the balance of power that stands in the way of restructuring or even dissolving debts?

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Peter T 09.19.11 at 11:59 pm

Following on from hartal, I think there is a general point that human societies are very much on a trajectory through time. Where you are going is in considerable part where you come from, or history MATTERS. So getting the history right is important.

But the point re money is that seeing its origins clearly directs you away from some semi-mystical notion of a circulating fluid and towards some useful questions. After all, the questions you ask about a debt are – what is it backed by? how can I pay? can the debtor pay? will they pay? Can I get them to pay if they do not want to? All of which would have been good questions to ask about the trillions backed by CDOs.

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Tim Wilkinson 09.20.11 at 12:37 pm

hartal @126 – I don’t have answers to your questions, but I would point out that while ‘money relations do depend on hard money because they did originate on the basis of hard money’ could be a case of the genetic fallacy, money relations cannot depend on hard money because they did not originate on the basis of hard money isn’t, unless you rely heavily on your own choice of words.

If money once existed in the absence of x, then it is indeed the case that it does not (ontically) depend on x. With ‘hard money’ substituted for ‘x’, and if ‘hard money’ means cash, then it’s worth noting that a second counterexample to the generalisation ‘money cannot exist without hard money’ seems to be on the horizon: a huge and increasing proportion of monetary transactions are now performed by updating bank accounts electronically.

Some where in my previous comment (which I now see is pathologically, rather than just a touch self-indulgently, long, and unlikely ever to be read) I suggested that barter theorists might be trying a (valid) argument of this kind, with ‘x’ being replaced by ‘a coordinating authority’. The accurate history then serves to rebut that argument by showing it unsound, since the seamless-emergence-from-barter story which purports to provide a counterinstance to the generalisation ‘ money never exists in the absence of coordination’. Of course rebutting the argument dioes not establish the falsity of its conclusion.

There are some other suiggestions for why the matter might be thought to be of significance beyond the historical issue in that comment, if you can be bothered to track them down.

Peter T et al., re: money as debt:

If debt is an obligation concomitant to a claim, I’m unsure how cash as we know it, embedded within the institution of property as we know it, counts as debt – who is the debtor, and who the creditor? If I hold cash, I can generate obligations in others by getting them to accept my money, or perhaps if they have made a general offer to trade on standard terms, I may simply hand them the money to trigger the corresponding obligation (unliateral contract, duty to accept legal tender, antidiscrimination laws). But until I do that, neither I nor any other party is under any obligation as a consequence of my holding cash, so far as I can see. (I assume we’re not supposing all cash backed by gold etc). Maybe there is supposed to be an imperfect obligation, so that someone – or society – owes me something but until I spend it’s not clear on whom the obligation devolves. I’m probably missing something, but can’t see what.

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Peter T 09.20.11 at 1:15 pm

TW

I think it’s clearer if you trace the evolution. Money started as a tally-stick or similar – a token denoting the possessor’s claim on someone (initially for something concrete). This morphed into a claim in generic terms (so many standard units – mina of silver, iron spits, whatever). It also became a claim on a group rather than an individual (typically, in Sumeria, a claim on a temple), Then the claim became transferable, then tradable (you can see clay tablets in the British Museum, recording transfers from Assyrian traders in Anatolia to parties in Assyria – the original recipient is just the first in a list, which ends when all transactions using this debt are netted out and the final balance settled). This still survives informally in hawala networks and formally in interbank transfers.

Coin came in late – I think primarily as a means of paying mercenaries. They were foreign, so had no interest in running a local tab, footloose, so had no interest in recurring transactions that could be netted out, and had little fear of being robbed (although probably a lot of interest in robbing) . But most transactions were still settled, then as now, without using coins.

As the state became the largest single actor, it ended up setting the terms. As military expenses made up by far the largest percentage of state cash expenditure , and as coins symbolised claims to rule, there was a strong focus on them. But the bulk of exchange was and is done by creating/acknowledging a claim and setting off counter-claims. We do it with computers where Victorians did it with ledgers and Normans with tally sticks.

Cash is just money untied to any particular debtor other than the state, but acceptable to all because the debtor is the state (and the claim vanishes when the state vanishes, as happened with South Vietnamese piastres or Confederate dollars). But most exchanges involve someone (a bank, company, person) issuing a credit note or otherwise registering a claim (Visa, your bank, your store card…), and you then trading with that claim.

Or that’s how I see it.

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