Friday, February 19, 2016

Commodity Theory & the Origins of Money

ECONOMIST: "It is not from the benevolence of"


ECONOMIST: Imagine I have some economic lectures, and you have some animal skins. Now what? Unless you happen to want what I have, and I happen to want what you have, we can't trade!

ECONOMIC SOCIOLOGIST: That would never happen although you're right about not wanting the economics lecture

ECONOMIST: In primitive society, it must have been pretty inconvenient to get what you want!

ECONOMIC SOCIOLOGIST: I mean no more inconvenient than this. Look I'll just give you the skins. We can remember or write it down. I'll give them to you

ECONOMIST: Nowadays, economists like to say

ECONOMIC SOCIOLOGIST: They like to say "economists like to say"

ECONOMIST: that a barter society would have "high transaction costs."

ECONOMIC SOCIOLOGIST: You guys really like to say that, waaay more than economic sociologists like to say "economic sociologists like to say" anyway. Although I kind of liked saying that just now.

ECONOMIST: But not only that!


ECONOMIST: Not all commodities are easy to carry or divide. If you have to cut one of your skins in half

ECONOMIC SOCIOLOGIST: I won't do that. It's not a problem. Do you want the skins? Take my skin. Take my actual skin.

ECONOMIST: it might be worth a lot less!

ECONOMIC SOCIOLOGIST: Please don't say Jevons. Please don't say double co

ECONOMIST: What Jevons called "the double coincidence of wants"

ECONOMIC SOCIOLOGIST: He didn't invent that idea and he didn't call it that.

ECONOMIST: prompted barter societies

ECONOMIC SOCIOLOGIST: He did say "coincidence between persons wanting and persons possessing"

ECONOMIST: to eventually agree to use

ECONOMIC SOCIOLOGIST: "Agree"? Wait Menger basically made up you guys's commodity theory and Menger would have hated that. And he was being a bit literal but he almost had a point, it wasn't like one day in the olden days the olden day guys all sat down and agreed

ECONOMIST: some intrinsically valuable commodity

ECONOMIC SOCIOLOGIST: But it's funny you should say agree because you know what economic historians and anthropologists and sociologists agree on they agree there have never been barter societies that is a thing they agree

ECONOMIST: such as tea, or beads, cowrie shells

ECONOMIC SOCIOLOGIST: That reminds me we're almost out of cowrie shells sorry I will shut up and listen what is next

ECONOMIST: or, of course, gold!

ECONOMIC SOCIOLOGIST: Never has been a "barter society" in the way you mean it anyway. Wait, what, gold?

ECONOMIST: What we then see is the gradual evolution of money, from some intrinsically valuable commodity

ECONOMIC SOCIOLOGIST: Gold is not intrinsically valuable -- I'm like right here, why do you never, why are you, why

ECONOMIST: to coinage, to paper money backed by precious metal, to what

ECONOMIC SOCIOLOGIST: Why are you doing this. Gold is not intrinsically valuable it's not even intrinsically pretty

ECONOMIST: we have today


ECONOMIST: namely, fiat money.

ECONOMIC SOCIOLOGIST: Phew cool well that was quite a ride now maybe we can

ECONOMIST: This progression, from barter, to commodity money, to modern fiat money, took a long time.

ECONOMIST SOCIOLOGIST: thousands of years of diverse and complex monetary systems, their transformations and their collapses, all ignored, so not that long

ECONOMIST: But it had to! It had to be gradual in order to build up the necessary trust

ECONOMIC SOCIOLOGIST: Okay cool so the stability of the dollar is at least partly because of the confidence of the Babylonians had in their priest class I totally get that cool, cool, cool

ECONOMIST: since today it is really only trust that makes money valuable.

ECONOMIC SOCIOLOGIST: Nothing to do with the law then? And, like, what taxes are denominated in and

ECONOMIST: Money is backed by trust. If we lose our trust in money, money has no value!

ECONOMIC SOCIOLOGIST: You know what, for what its worth? Trust is a weird sentiment to be privileging here. I know what you're getting at, but your language is loose and misleading. By saying that money is "backed" by trust, you make it sound like using money is an efficient way of trusting each other -- just like using money backed by gold is an efficient way of reassigning claims to that gold. Whereas in reality, just the opposite is true. Money doesn't require that we trust each other. If anything, it requires that we don't. What money is really good at is co-ordinating the activity of people without those people having to gain any intimate knowledge of each other. Here's Henry Peacham telling a kind of joke about that in The Worth of a Penny, or, A Caution to Keep Money (1667):



ECONOMIST: I feel like you're being a bit nit-picky. This is an ideal model. Of course it has lots of assumptions, but it also has explanatory force.

ECONOMIC SOCIOLOGIST: So where did money really come from?

ECONOMIST: You should just trust me on this stuff. So yeah anyways how about a cheeky wee animal skin? I can pay you back Monday.

1 comment: