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CONClUSION

The purpose with this paper is not to discuss the minutia of the distinctions between the different historical accounts or in what instance the view of one school about the opposing theory may be misunderstood; however it is possible to accept that an important part of the reciprocal claims against the other school are based on simplistic and not charitable interpretations and therefore the disagreements could be greatly reduced.

The chartalists’ claim that the catallactic theories of money intend to base their views on the nature of money based on its origin is one of these instances.

It is important to note that the critics of catallactic theories about the origin of money are not disputing the historical account about the evolution from bartering to commodity money per se. The views on money shared by Georg Knapp, A. Mitchell Innes, Lord Maynard Keynes and more recently L. Randall Wray differ from the views of David Hume, Adam Smith, David Ricardo, Carl Menger, Ludwig von Mises and all modern marginalists not only about history but most importantly on their conceptions about the essence of what money is15.

For instance, in the book Prof. Wray, who is one of the neo-chartalists, edited on the contribution of Mitchell Innes, in the introduction co-authored with Prof. Stephanie Bell, he claims that a “state theory of money” and a “credit theory of money” can be integrated and suggests that an early contact with Innes’ credit theory of money (1914) was what led Keynes to an interest in Knapp’s theory and was instrumental in the development of his own theory. Wray and Bell write (Wray, 2004, page 7) that the “conventional” view on the evolution of money, as described by Innes, is that “barter is replaced by a commodity money that can be used as a medium of exchange. Only much later is credit discovered, which can substitute money and thereby reduce transaction costs”. According to them:

“Innes reverses this evolution, arguing that by its very nature, money is credit – even if it happens to take the physical form of precious metal. This leads to a much different take on markets, on money and on credit relations”.

That the origin of a thing does not necessarily explain the essence of that thing is easy to accept. This sort of reasoning that confuses the causal origins of a belief with its justification is usually named as a “genetic fallacy” and probably was first called as such by Morris Cohen and Ernest Nagel in their Logic and Scientific Method (New York, 1934) according to the Oxford Companion to Philosophy (Honderich, 2005, page 331). However, it has been disputed that in any case that the origin of something is called to explain its essence there is confusion. What is understandable is that it may not be accepted, prima facie, that the origin of something necessarily explains its current meaning and context; however, it is perfectly possible that, in a particular case, the origin of something does explain its present form and function.



Let’s suppose that, as a matter of historical account, the chartalists are right in stating that coined money in the western civilization started with the fiscal needs of the state.

Quoting Prof. Thomas Martin (Martin, 1996, page 258):

“The current consensus among ancient historians and numismatists seems to be that the state’s need for a convenient medium of exchange to pay for official expenditures motivated the initial adoption of coinage in the Greek polis”.

Does it prove that a unit of account was first introduced in human society by force of authority and not because it is convenient to think in terms of comparable goods? Absolutely not.

Does it prove that the purpose of money in society is to foster state policy and not to allow and enhance the division of labor? Again, that is a non sequitur.

Incidentally, it is precisely because traditional forms of compulsory service were in disuse as they had been replaced by a market-oriented division of labor that the authorities needed money, as explained by Prof. Martin (Martin, 1996, page 270):

“Lacking a central authority to compel contributions or labor through the threat of force, the urbanizing Greek city-state had to find other ways to pay for and to maintain the common structures and services of its ever more complex physical and festal infrastructure”.

As clearly stated by Prof. Martin, it does not matter much if it can be singled out the original intent in minting coins and found it to be a fiscal one, at the beginning of our civilization coinage was mingled with the evolution of our civilization, from a more primitive, traditionally ruled society, to a more sophisticated, marked-oriented one (Martin, 1996, page 258):

“It seems reasonable to hold as a premise of the investigation that this connection had its roots in the earliest history of coinage in the polis, which of course does not mean that the original reasons for the adoption of coinage by city-states necessarily remained the only reasons that they continued to mint coins over the succeeding centuries. Coinage, like other technological innovations, surely had unintended consequences over the long run. In any case, speculation (and that is all our evidence allows) about the perhaps diverse reasons why Greeks living in city-states originally adopted the use of coinage seems an appropriate way to begin thinking about the multi-faceted issue of the significance of archaic and classical Greek coinage in and for the polis as a political community”.

To summarize, the known evidence does not allow us to establish with certainty what were the motivations of the first rulers that minted coins in ancient Greece; that lack of evidence exists about the introduction of coined money in other civilizations as well, allowing us to generalize that there are no concrete historical evidences about the rationale for the introduction of coinage. That does not imply, however, that the introduction of coinage did not happen at a time and circumstances which demanded for low transaction cost tools for the coordination of economic activity among the individuals; what was in its turn, cause and consequence of the expansion of the division of labor. It was in this environment of multiple relatively small city-states in the Hellenistic world trading and fighting among each other that the circumstances for the introduction of coined money arose. The fact that the fiscal needs of the city-state could be better addressed by the collection of coined money through taxation than by the imposition of Egyptian like forced labor may be understood as an argument to reinforce the catallactic theory of the origin of money and not to contradict it.

As quoted from Mises on note 1, there are no historical or ethnological reliable descriptions of the evolution of human societies before the formation of clans, it can only be guessed. More than that, not only in relation to the origin of society, but also in relation to many aspects of primitive and modern society (Mises, 2007, page 160):

“The task with which science is faced ... can only consist in the demonstration of those factors which can and must result in association and its progressive intensification”.

According to Mises, praxeology solves the problem by the development of the theoretical apparatus about the benefits of the division of labor, its recognition by the individuals and social results (Mises, 2007, page 160): “If and as far as labor under the division of labor is more productive than isolated labor, and if and as far as man is able to realize this fact, human action itself tends toward cooperation and association; man becomes a social being not in sacrificing his own concerns for the sake of a mythical Moloch, society, but in aiming at an improvement in his own welfare”.

The cause why under the division of labor higher productivity is achievable, according to Mises, is that: “the inborn inequality of men and the inequality in the geographical distribution of the natural factors of production – is real.” (Mises, 2007, page 161). And it is the recognition of that aspect of reality that enables us “to comprehend the course of social evolution” in general, and with this paper, it is ventured to say, that it enables us to understand the evolution of money as well.

Basically, the understanding expressed in this paper about the Charlatist’s thesis is that, as a matter of historical record, since money became coined money, almost always, almost everywhere, money production has been monopolized by the state; and as mentioned before, that seems to be supported by historical evidence. However, that does not imply that the purpose of money in society is given by the state, or that money should be (its normative) subordinated to the political goals of the rulers. After all, Knapp himself was in favor of the gold standard, he was not an inflationist.

If we understand their claim in this more limited way, part of the divide between Georg Simmel and the Austrian economists on one side and Knapp and the charlatists on the other side seems to lose its relevance, since one can accept Simmel’s views on the value of money that so significantly influenced Mises’ theory of money’s value or Menger’s views on the purposes of money

for society and still recognize that coined money has been provided directly or indirectly by the state since it was introduced 25 centuries ago.

A complete different thing is to say that money must be provided by the state or that the state is following the most beneficial course of action for society in keeping its monopoly on money production through the legal tender.

From a praxeological perspective, it seems that it is more relevant to focus our attention on the essential character of money as a social institution and that is something not contradicted by the fact that men holding political power have monopolized money production in human societies from times immemorial.

At the time of Rome, the state was responsible for the grain supply, in many parts of the world not long ago, telephone communications were monopolized by the state among many other things that are not controlled by the state anymore.

The fact that money has been monopolized by the state does not imply that it is the right thing to do or that it must continue to be that way. It may be accepted that, framing the claim of the chartalists in this way, it loses some of its appeal to economists that do not develop a deeper analysis in search of the philosophical foundations of the monetary institutions; most economists simply see that money has been provided by the state and from that they accept at face value Keynes’ immoralist conclusions (what obviously are a non sequitur).

It may be argued that acknowledging the claim that coined money has been produced by the state does not preclude a principled criticism of monetary policy.

 

 

Edward Elgar Publishing Limited.


Date: 2015-02-03; view: 738


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