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Between Heterodoxy and Orthodoxy: the Pursuit of a “Third Way” in Monetary Theory and Its Implications for the Global Political Economy

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Between Heterodoxy and Orthodoxy: the Pursuit of a “Third Way” in Monetary Theory and Its Implications for the Global Political Economy Between heterodoxy and orthodoxy: The pursuit of a “third way” in monetary theory and its implications for the global political economy by Neil Kasselman A dissertation in fulfilment of the requirements for the degree MA International Relations in the Department of Political Sciences at the UNIVERSITY OF PRETORIA FACULTY OF HUMANITIES SUPERVISOR: Dr Robin Bourgeois October 2018 DECLARATION OF ORIGINALITY Full name of student: Neil Kasselman Student number: 20198265 Degree/Qualification: MA International Relations Title of dissertation: Between heterodoxy and orthodoxy: The pursuit of a “third way” in monetary theory and its implications for the global political economy I declare that this dissertation is my own original work. Where secondary material is used, this has carefully been acknowledged and referenced in accordance with university requirements. I understand what plagiarism is and am aware of university policy and implications in this regard. Signature of student:…………………. Date:…………………………………… Signature of supervisor:……………… Date:…………………………………… Abstract The agenda of this research dissertation is the exploration of a “third way” for theorisation in monetary theory and a study of the implications of this for contemporary deliberations on the effects of monetary policy on the global political economy. Traditionally, such questions are polarised according to the traditional ideological and paradigmatic positions, emanating as they do from academic debates between orthodoxy and heterodoxy. These academic debates similarly revolved around money and its origins. In many ways, the results of the “Methodenstreit” or “method debate” represent one of the great deceptions of the twentieth century. Humanity is presented with two oppositional arguments. The logic of the state and the logic of the market. The logic of the state begins from a position of debt, where society is constituted by groups and individuals indebted to one another, with no hope of ever repaying this. The logic of the market begins from a position where all are individuals and none indebted to anybody. These arguments are mutually exclusive, incompatible and oppositional. Similarly, as presented, each claims sole ownership of any real prospects for human organisation. But this dichotomy is false and moreover historically inaccurate, resting on nothing more than fictions. The project of this dissertation is to locate theories, paradigms and ideologies which fall between such arguments and look to actual historical and market practices, worldwide, for a more realistic depiction of the production, circulation and historical origins of one of the most important institutions in the modern world, money. Beginning with a critique of traditional conceptions of its origins and governance, the research will explore alternative theories of money, often marginalised, and the production of value to find theoretical consistency with an ideology that has, since its inception, pursued a “third way” between the liberal and socialist traditions which influenced orthodoxy and heterodoxy, respectively. Furthermore, this research will also present alternative forms of money which emanated directly from this positive anarchist tradition in economic theorisation. Keywords: International political economy, international monetary and finance structures, anarchist economics, monetary theory, central banking, complementary currencies. ii Table of Contents Abstract ................................................................................................................................................. ii Table of Contents ................................................................................................................................. iii List of Tables ..........................................................................................................................................v List of Figures ........................................................................................................................................v Introduction............................................................................................................................................1 1. Chapter 1: Money; its origins, theories and regulation .............................................................5 1.1 Introduction ...........................................................................................................................................5 1.2 The myth of barter ................................................................................................................................6 1.2.1 The plausible origins of money........................................................................................15 1.2.2 Theoretical questions emerging from an alternative origin of money .............................19 1.2.3 Alternative theories of money ..........................................................................................23 1.2.4 Debt theories of money ....................................................................................................28 1.2.5 Neochartalism ..................................................................................................................31 1.2.6 Primordial theories of debt...............................................................................................36 1.2.7 The seeds of something different: Georg Simmel and his philosophy of money ............43 1.2.7.1 “Perfect”, “conceptually correct” and “stable money” .................................................45 1.2.7.2. The “perfect society” ...................................................................................................48 1.2.7.3 Monetary value: Simmel’s critique of just price ..........................................................51 1.2.8 Value as an institution ......................................................................................................57 1.2.9 Theories of monetary creation .........................................................................................60 1.2.9.1 The credit creation theory .......................................................................................61 1.2.9.2 The fractional reserve theory of banking ................................................................63 1.2.9.3 Financial intermediation theory of banking and money..........................................65 1.2.9.4 An empirical test; Where is money created? ...........................................................67 1.3 Conclusion ..........................................................................................................................................69 2. Chapter 2: An alternative ideology and agency for money .....................................................71 2.1 Introduction .........................................................................................................................................71 2.1.1 The philosopher of poverty; Pierre-Joseph Proudhon .....................................................72 2.1.2 The key economic contributions of Proudhon: mutualism ..............................................76 2.1.3 A surprising connection to modern macroeconomic theory ............................................80 2.1.4 The laissez-faire socialist: Silvio Gesell ..........................................................................84 2.1.5 The micro- and macro-economic foundations of Gesell’s theory ...................................85 2.1.6 “Free money”: The monetary theory of Silvio Gesell .....................................................89 2.1.7 “Free land”: Gesell’s forgotten reform ............................................................................91 iii 2.1.8 The International Valuta Association ..............................................................................95 2.1.9 The legacy of Gesell’s theories ........................................................................................96 2.1.10 WÄRA, Wörgl and WIR: Early Gesellian money in practice .....................................98 2.2 Conclusion ........................................................................................................................................103 3. Chapter 3: Case studies; modern complementary currencies and cryptocurrencies .........105 3.1 Introduction .......................................................................................................................................105 3.2 Complementary currencies ...............................................................................................................108 3.3 The formal institutions of tomorrow? ...............................................................................................111 3.3 Cryptocurrencies ...............................................................................................................................118 3.3.1 The beginning of cryptocurrencies ................................................................................119 3.3.2 The what and how of cryptocurrency ............................................................................122 3.3.3 Is cryptocurrency money? Yet? .....................................................................................124 3.4 Conclusion ........................................................................................................................................131 4. Concluding remarks and observations ...................................................................................134
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