Puzzling over money, and debt

by Chris Bertram on March 27, 2012

I’ve just sent back the proofs for the new edition of Rousseau’s Of the Social Contract and Other Political Writings (edited Bertram, translated Quintin Hoare) that Penguin Classics are publishing in September. One of the “other writings” is the Constitutional Proposal for Corsica . Reading through, I suddenly alighted on an sentence and thought, “hang on, that makes no sense!” The relevant phrase in French (OC3: 936) is

…quand le Prince hausse les monnoyes il en retire l’avantage reel de voler ses créanciers …

For which we had

…when the Prince raises the value of a currency he derives the real advantage of stealing from his creditors …

But, but …. Surely what the prince needs to do to steal from his creditors is the exact opposite? You inflate. You inflate away the debt. You make the currency worth less, not more. Isn’t Rousseau just writing nonsense then?

It turns out not, and, thanks to the help of the estimable Chris Brooke I now understand. My thinking on this, and that of just about all modern readers I suspect, is formed by thinking of fiat currency. But if we have currency that (purportedly) derives its value from its metallic content (such as gold) then you can debase the coinage by raising its face value whilst keeping the metal content the same. (Or alternatively, you could adulterate the metal or clip the coin to get the same effect.) Finding out this kind of thing really is great fun.

{ 21 comments }

1

Sandwichman 03.27.12 at 10:16 am

Chris, you have got to read Carl Wennerlind’s Casualties of Credit.

2

ajay 03.27.12 at 10:20 am

My thinking on this, and that of just about all modern readers I suspect, is formed by thinking of fiat currency. But if we have currency that (purportedly) derives its value from its metallic content (such as gold) then you can debase the coinage by raising its face value whilst keeping the metal content the same.

And this actually happened several times in various countries, as Rousseau was doubtless aware. Byzantium, notably. It’s a major plot point in Neal Stephenson’s Baroque Cycle books as well…

3

JDC 03.27.12 at 10:23 am

Entertainingly worked through in Neal Stephenson’s “Baroque Cycle”.

4

Kevin Donoghue 03.27.12 at 10:37 am

Presumably you’re going with something like: when the Prince raises the face value of a currency?

Next step: translate Keynes into algebra so that modern economists can read him.

5

Chris Bertram 03.27.12 at 10:51 am

Yes exactly Kevin, I’m lobbying for an explanatory note too, but I may not get that at this stage given the knock-on effects on pagination etc.

6

marcel 03.27.12 at 10:55 am

Next step: translate Keynes into algebra so that modern economists can read him.

There have been a number of well known attempts along these lines, the best known being the Keynesian cross and IS-LM (well, more graphical than algebraic) and Modigliani’s 1944 article, which became the basis for the neo-classical synthesis. Post-Keynesians have introduced their interpretations, many of which are largely verbal but some of which are algebraic or graphical.

The problem is that more than most economists (Marx is an obvious exception) Keynes is Whitmanesque, containing multitudes. As he explained at the end of his preface, “The composition of this book has been for the author a long struggle of escape, and so must the reading of it be for most readers if the author’s assault upon them is to be successful,— a struggle of escape from habitual modes of thought and expression. The ideas which are here expressed so laboriously are extremely simple and should be obvious. The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.”

As a result, readers of the General Theory are much like the blind men and the elephant, and one result was the dispute about “What Keynes really meant,” not of much interest to most.

7

ajay 03.27.12 at 11:00 am

4: or “raises the face value of coinage” might be even clearer, given that we’re talking here about what number is struck on the face of an actual physical coin.

8

Scott Martens 03.27.12 at 11:56 am

Small correction: “…quand le Prince hausse les monnoyes ****il**** en retire l’avantage réel de voler ses créanciers …”

[Thanks Scott, typo fixed. CB]

As for the confusion, it’s with the verb: “hausse les monnoyes” – in modern French “la hausse des monnaies” is the rise in market value of a currency, but the Academie Francaise dictionary of 1765 (http://tinyurl.com/d9es47v) specifically lists as a definition of “hausser”:

Hausser la monnaie, le prix des monnoies, en parlant de la valeur numéraire.

That is, specifically raising its “face value”. Recall that “monnoyes” means *coinage* – not national currency in exactly the modern sense. The same usage appears in Voltaire’s biography of Charles XII: “Il avait été réduit à la mauvaise ressource de hausser les monnaies.” Winifred Todhunter’s translation renders this as: “He had been reduced to the bad expedient of raising the value of the coinage.”

I’d argue the translation is flat wrong. Either change “value” to “face value”, or change the phrase to “raises the value of the coinage”. Both seem to follow reasonably well from contemporary dictionaries and other translations of the same usage.

9

Scott Martens 03.27.12 at 11:59 am

On second thought “raises the nominal value” seems more to the point to me.

10

Phil 03.27.12 at 11:59 am

The composition of this book has been for the author a long struggle of escape, and so must the reading of it be for most readers if the author’s assault upon them is to be successful

Had he read Wittgenstein? That’s very like the ladder image.

Less charitably, I’m also reminded of the get-out-of-jail-free card Raoul Vaneigem plays at the start of The revolution of everyday life:

If the element of boredom it cost me to write it comes through when you read it, this will only be one more argument demonstrating our failure to live.

“It is boring! That’s the point! Life is boring!”

11

dsquared 03.27.12 at 12:15 pm

Had he read Wittgenstein? That’s very like the ladder image.

Yes, or it might have been the other way round. Keynes invited LW to join the Apostles and was a massive admirer of his. Apparently Piero Sraffa was just about the only person in Cambridge who Wittgenstein really enjoyed talking philosophy with.

12

TheF79 03.27.12 at 12:52 pm

This is precisely why we need to go back to the gold standard, so that the Fed can’t manipulate the value of money… oh wait…

13

ajay 03.27.12 at 1:02 pm

12 FTW.

14

Tim Wilkinson 03.27.12 at 2:35 pm

Surely the idea is that what appears to be merely commodity money (a gold standard) is in fact a currency in the abstract sense, which becomes or is revealed as a fiat currency when it is devalued by fiat, the devaluation being made in relation to gold in particular.

15

mpowell 03.27.12 at 2:45 pm

What is being described is actually a devaluation of the currency with respect to its backing commodity (gold or silver). This will either cause inflation or change the price of these precious metals or a little of both. But the way people thought through these things was different so the way they express this idea is also different, I think.

16

shah8 03.27.12 at 7:59 pm

Heh…

We’re seeing the same thing right now with the emergency measures of the ECB. Inflate the value of various national bonds with bad collateral, with its own reputation…

17

john c. halasz 03.27.12 at 9:01 pm

Umm… it’s usually referred to s Gresham’s Law and is scarcely news:

http://en.wikipedia.org/wiki/Gresham%27s_law

Though nowadays it would more aptly apply to credit (or business practices generally) than to currency.

18

Kevin Donoghue 03.28.12 at 9:21 am

Quite likely Rousseau knew about Gresham’s Law, but there’s no reference to competing types of money in the pronouncement which Chris quotes.

19

bexley 03.28.12 at 10:04 am

This happened a lot during the late Principate. Each new emperor had to raise money to pay off the troops and the easiest way to do it was to water down the precious metal content of the currency.

20

Ken 04.03.12 at 1:12 am

So, is one way to think of it: The same government that can fix the price of gold at $35/oz can also fix the price of gold at $350/oz? If so, interesting, because I’ve met (online) a lot of gold bugs who advocate the former, but don’t seem to have realized it implies the latter.

21

GBH 04.03.12 at 11:24 pm

Around the time of the great default crisis there was some talk about an obscure law that would allow the secretary of the treasury to mint a coin out of platinum and assign it any value he or she wished to assign. Thus the secretary could apparently have minted a single coin worth one trillion dollars, and thereby cover the impending dept. A very odd situation, to say the least.

From The Economist, July 29, 2011
“Sovereign governments such as the United States can print new money. However, there’s a statutory limit to the amount of paper currency that can be in circulation at any one time. Ironically, there’s no similar limit on the amount of coinage. A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds.”

Comments on this entry are closed.