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Describing Money

Economics needs a clear, coherent and comprehensive description of money. Most people would consider money to be one of the essential components of our economic system. In this, they differ from many economists who treat money as merely a ‘veil’ obscuring the essential nature of exchange of goods.

An accurate description of money is particularly necessary now. The financial crisis of 2008 was caused when large amounts of money appeared to vanish because they were based on over-optimistic assumptions about mortgage repayments. When things are running smoothly we may be able to get by accepting money as it is, without asking questions. But when economic life does not go smoothly and financial adventures lead us into a crisis similar to the depression of the 1930’s, then we need to tear aside the veil, find our way though the mists and establish a firm theoretical basis for re-building our financial system.

Predictably, the banking crisis of 2008 has led on to a sovereign financial crisis in 2010. The current crisis with the Euro arises from fundamental weaknesses in the way it was established. A basic uncertainty about the nature of money enabled European nations to remain uncertain about the commitments implied by a common until a crisis developed.

Problems with money and shortage of demand have led to a renewed interest in money flows or ‘Monetary Analysis’ such as J.M.Keynes’ “General theory of Employment, Interest and Money” as opposed to the ‘Real Analysis’ more usual in economics (Schumpeter 1954 p277). However, without a robust description of money, monetary analysis is always likely to have difficulty defining a shortage of effective demand, (basically a shortage of money) – as so memorably described by Keynes:

“Malthus, indeed, had vehemently opposed Ricardo’s doctrine that it was impossible for effective demand to be deficient; but vainly. For since Malthus was unable to explain clearly (apart from an appeal to the facts of common observation) how and

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Robin Latimer Describing Money Page 2 why effective demand could be deficient or excessive, he failed to furnish an alternative construction; and Ricardo conquered England as completely as the Holy Inquisition conquered Spain” (Keynes 1936 p32)

This paper explores a definition of money as the socially acceptable way of paying wages. This definition of money is shown to be correct. Defining money as the socially acceptable way of paying wages matches better with the historical record than either commodity theories or state/ theories of money.

The basic argument can be summarised quite simply. Any enterprise (or any army) employing a large number of people needs a standard medium in which wages are paid – to avoid bargaining every pay day. Producers and shopkeepers have to pay wages and are therefore likely to require payment for goods in the same currency that they use to pay their staff. Thus any sizable economy requires a social convention about the way that wages can be paid and this will, in turn, determine the commonly acceptable currency for exchanging goods.

A wages theory of money has the advantage of being based on an essential factor in the ‘real’ economy. But money as wages has some essentially different characteristics from money considered as a commodity. It brings into the theory elements of the theory of power and an aspect of relative value so it leads to much possible future research.

The following sections will develop a coherent description of money. I have deliberately used the term ‘description’, rather than ‘Theory’ or ‘Definition’. What is needed is a bit more than a definition, and it is too ambitious to attempt a complete theory in one paper. A coherent description will - Be consistent with the historical facts - Be consistent with the current situation - Be consistent with the most common current use of the term ‘money’ - Include a definition - Provide the basis for answering the questions posed by Ingham (2004 p69): - What is money - How is it created (and destroyed) 2

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- How does it maintain or alter its value - How much money do we need in circulation

A coherent description of money must take account of the historical facts about money. This is the subject of section 1 of the paper. Section 2 looks in more detail at , Credit and Money. Section 3 considers the different forms of money. Section 4 presents the principal existing theories and discusses the problems they face. Section 5 presents a novel view of exchange, based on exchange of services, instead of exchange of goods. This forms the basis for the definition and description of money proposed in Section 6. Section 7 draws out, briefly, some suggestions for further work based on the material in the previous sections and concludes.

Section 1 A brief

It is difficult to date the earliest use of money. The earliest writing was a basic form of accounting record, though this could be a record of crop storage rather than a record of money. The record is made more uncertain because many different items have been used as money. J.M.Keynes wrote, possibly with some poetic exaggeration; money

“like certain other essential elements in civilisation, is a far more ancient institution then we were taught some few years ago. Its origins are lost in the mists when the ice was melting and may well stretch back into the paradisaic intervals in of the inter-glacial periods when the weather was delightful and the mind free to be fertile of new ideas – in the Islands of the Hesperides or Atlantis or some Eden of central Asia.” (Keynes 1930 p13)

Our earliest knowledge of transactions and accounts goes back to the Sumerian culture of Mesopotamia in about 3500 BC. This is thousands of years earlier than the invention of coinage as we know it, which dates from about 600 BC. The Sumerian civilisation was dominated by temples and, later, palaces. Silver was held in the temple treasuries, as bars, not . For most ordinary transactions, while the amounts were calculated in silver, payment was made in available commodities, such

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Robin Latimer Describing Money Page 4 as barley. Merchants and the markets seem to have operated largely on credit, with occasional use of large value silver transactions (Graeber 2011 p39)

As early as 2400 BC, we have a royal inscription by one Mesopotamian king, calculating the exact amount of the rent and interest that he claimed he should have received on a tract of land that a neighbouring king had unjustly occupied. Two years later, the same king, having won a war and re-captured the land, issued another edict, cancelling all and releasing people bound in debt servitude. “He restored the child to his mother and the mother to her child; he cancelled all interest due”. Such debt cancellations appear repeatedly in later centuries. (Graeber 2011 p216)

This is the logical point to mention what are called primitive . A multitude of different items have been used as forms of primitive money including amber, beads, cowrie shells, eggs, feathers, gongs, hoes, ivory, kettles, leather, mats, nails, oxen, pigs, quartz, rice, slat, thimbles, vodka, wampum, and decorated axes. Many of these were what Graeber (2011) describes as social economies, where payments were made for ceremonial, religious or social purposes, including purposes such a bridewealth or blood money – payment for the loss of services of a daughter or the loss associated with the death of a relative. It is arguable whether these were payments in the sense we use today, since they recognised social debts that could, in a real sense, never be repaid. No payment will compensate for a lost father or husband. You could not return your wife and get your money back

The earliest recorded use of money in Europe was for social payments of this kind. Professor Glyn Davies lists the non-economic forces that gave rise to primitive moneys as bride-money, blood money; ornamental and ceremonial; religious and political. (Davies 2002 p 24). In many areas of Africa and the pacific, social economies like this existed well into the twentieth century and these are obviously the ones we know best (see descriptions in Graeber 2011). Often these items made a transition from ceremonial or religious use into use for economic purposes. Some of them, like cowrie shells or cows, were accepted currency over quite wide areas well into the twentieth century.

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The idea that money was invented to replace , first conceived by Aristotle and repeated by and innumerable economics textbooks is rejected by all current authorities. A truer picture is probably that money evolved out of earlier forms of social exchange rather than as an alternative to barter. This topic will be covered in more detail in the next section. . The earliest forms of metallic currencies were ingots of with some form of state stamp to authenticate their weight and quality. They occur from about 2000 b.c. in Cappadocia and later Crete. These were gradually improved until the first versions that might recognisably be called coins were produced in Lydia on the southern coast of what is now Turkey in the seventh century B.C. though there is still a debate among archaeologists about some of the details. From Lydia, coinage spread throughout ancient Greece and became an element in the political contests among Greek city states and between them and their Persian neighbours. Coinage was both a symbol of economic and political prestige and also a practical resource enabling the states to employ and equip armies or to buy the allegiance of smaller states.

Some authorities have suggested that coins were invented in order to pay soldiers. In fact, the development of coins was part of a more complex process which included the development of a patchwork of warring states, a free peasantry, who were available for employment and provided recruits for armies, more advanced military techniques that required trained professional soldiers and the widespread use of mercenaries. The first coins may well have been produced by private citizens, but minting coins quickly became a state monopoly. (Graeber 2011 p225) Whether or not they were originally invented to pay soldiers, it is clear that coins were soon used widely for this purpose. Graeber describes a military-coinage-slavery complex. Coins paid soldiers, soldiers took prisoners who became slaves, slaves mined silver – which became coins to pay the soldiers. Military conflict certainly contributed to the rapid spread of coinage. Coins were a convenient way of paying armies. Minting coins created extra ‘seigniorage’ revenue needed to pay for armies and soldiers who returned home took coins with them. Some authorities suggest that coins were a practical way of paying soldiers with some of the loot from conquered temples (Graeber 2011 p226)

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On the other hand, coins were not necessarily used for trading. The Phoenicians, though they were merchants and bankers did not strike any coins until 365 BC, nearly 250 years after they were invented and when Carthage minted coins, it marked them ‘for the people of the camp’ . The coins were clearly intended for the soldiers, not for trading.

At about the same time, coins also developed separately in India and China. The first Indian money was bars of silver with a standard weight and marked by an official punch. Early Chinese coinage shows signs of evolving from social currencies. They were bronze cast in the shape of cowries, discs or spades.

.A prolific and stable coinage was part of the economic infrastructure that enabled Alexander the Great to conquer Greece and large parts of Asia in 334 -326 B.C. The coins required to pay Alexander’s army are estimated to have weighed half a ton of silver a day. Thus, from very early times money was used to pay soldiers. It seems difficult to imagine how a large army could be paid without a standard and transportable standard of value and exchange. Money supported armies, but conquest also spread the use of money. The first celtic coins were copies of Macedonian coins, minted in order to pay for armies in the wars with Rome. (Davies 2002 p115). As Rome took over the Macedonian empire, and established its own widespread and long-lasting empire, it similarly spread its coinage over the world.

After the end of the Roman Empire, it becomes difficult to separate facts from later preconceptions about how exchange took place. Coins are the clearest archaeological evidence, but we do not necessarily know how they were used. Nations, as we know them today, did not exist. There was a patchwork of small kingdoms. Some kings minted coins but many did not. Such evidence as we have suggests that some coins, with higher prestige and quality, were used as a . That is, they were used to calculate payments, but, with myriad different coins in circulation, payments were often made in whatever coins were available, or payments were made in kind. In 1226, Louis of France minted the ‘Livre Tournois’ to a high standard which was both a current and a unit of account until minting stopped and it became solely a unit of account. It was used as a unit of account until as late as 1803. Coins used for a large transaction in Normandy in 1473 illustrate the diversity of payment.

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Nine kinds of French, English, Flemish and German coin were itemised. All were rated in terms of the unit of account, livres tournois, and a small amount of ‘white money now current’ was added to make the exact amount. (Ingham 2004 p111).

In the eighteenth century, payment in kind was still used. The examples given by Adam Smith of payment by cod and by nails, were not barter but payments in kind based on amounts calculated in a money of account. (Wealth of Nations Chapter 4; Innes 1913).

Wooden tallies were a common way of keeping financial records. They were used for English government accounting until the late 17 th century. Wooden tallies were made with notches to mark the exact amount of money due. There were two copies of each tally, one for the debtor and a copy for the creditor, or for the exchequer to show how much debt or was due. Government bills could be paid by giving the exchequer tally to the person who provided the service. This would give them the right to collect the tax. It also provided a system of borrowing which got around the churches prohibition of usury. The exchequer tally could then be passed on to other traders in payment. So tallies became a form of wooden money, simpler and easier than transporting gold or coins.

The next stage in the development of money involves bankers and the printing press. The first paper bank notes were issued in China in the ninth century A.D. There were several further issues during the next few centuries, but they suffered from a chronic tendency to inflation, because it was so easy to print more money. So after a period of around five hundred years of intermittent use of bank notes, there appears to be no record of Chinese bank notes from about 1450 A.D. until modern times.

Reports on the Chinese use of bank notes from Marco Polo and others may well have helped the development of paper money in Europe. However, this was also related to the development of banking. Money changing and banking goes back to the earliest times, getting a notable mention in the Gospels (Matthew 21, 12). In a world with many different currencies, changing money was an essential service. This soon developed into taking deposits and making loans, particularly for commercial enterprises, like trading voyages. Over the centuries, local traders, millers and other 7

Robin Latimer Describing Money Page 8 commercial agents started to take deposits and make loans. Gradually this grew, becoming particularly closely associated with goldsmiths, who started keeping deposits and issuing receipts. The earliest extant example of an English is an order dated 1659 from one Nicholas Vanacker asking the London goldsmiths Morris and Clayton to pay a Mr Delboe the sum of £400. (Davies 2002 p252). The next step was to issue a note, not to a named person but to “the bearer”. This, then was the start of the modern bank note. In time, written bank notes were replaced by standard printed notes.

Initially, notes were just a record of an amount of gold that was actually in the goldsmith’s . But bankers started to realise that it was possible to issue more notes than the gold they actually had in their safe, because people would not all ask to be repaid at the same time. This was the start of the present fractional reserve system where banks only keep a reserve of a small fraction of the money they create. The advent of printed bank notes meant that government lost control of the production of money since any bank could decide to print its own bank notes “at the beginning of the nineteenth century no proper system existed for controlling the flood of notes issuing from a motley collection of many hundreds of banks which were springing up over most parts of Britain.” ( Davies 2002 p285)

Gradually over the years, government power over currency has been restored by regulating banks and by the establishment of government central banks. The Bank of England was set up in 1694 with an initial loan of £120,000 to the government, in return for which it got the right to issue bank notes. Thus all our bank notes are based on an initial loan and promise of repayment from the government. So that , which are technically records of transferable debt, have become treated as money alongside coins which have a different origin.

The need for a stable currency means that governments need to limit the freedom of banks to take risks but also to act as a ‘lender of last resort’ so that if a bank is in danger of running out of money, the government steps in. However, since the nature of money is so fluid and difficult to define, governments still only have partial control over the creation of money. For a period in the late nineteenth century, there was a stable and flexible international currency system, based on the pound sterling which 8

Robin Latimer Describing Money Page 9 was managed by the Bank of England and convertible into gold at a standard rate. By a skilful use of Britain’s world wide trading network, the Bank of England was able to maintain a stable currency, backed by gold with a remarkably low reserve of gold.

The stable international currency system based on the pound sterling and its convertibility into gold broke down at the start of the First World War and the attempt to revive it in the late 1920’s was disastrous. Much of J.M.Keynes’ life was spent in managing finances during two world wars and attempting to maintain some British influence in spite of the growing economic power of the United States. The pound Sterling went off the in 1931.

Under the ‘Bretton Woods’ international financial system, negotiated at the end of the second world war, the U.S. Dollar became the International Reserve Currency. When President Nixon decided to allow the gold price to float in 1971, links between currency and gold were finally broken. Holding currency is no longer holding gold at one remove. All money is now ‘Fiat’ money, based on government decrees. Like many other decisions about currency, this decision was based on political reality at the time. The absence of a robust definition of money means that there is no clear theoretical basis for analysing the consequences of such decisions. One of the effects, of the removal of the gold standard has been that U.S. Treasury bonds have become an international . This allows the U.S. government to borrow at low and stable interest rates but, as the U.S. budget deficit continues to grow, it leaves open the question of what might happen if the U.S. government got into financial difficulties.

When the Euro was created in 2002, this was also primarily a political decision to link the currencies of 17 different countries. Once again, the lack of a robust definition of money allowed a wide- ranging debate about the necessary conditions for the stability of the new currency.

The computer age has made money even more intangible. Bank deposits are now just numbers on computer files. Plastic cards have enabled new methods of , through instant personal loans via credit cards. Computer trading of shares and bonds has not only increased flows of money traded on small marginal 9

Robin Latimer Describing Money Page 10 differences in value but has also enabled the creation of multiple complex derivatives based on valuing risk and trading future commodities. A long period of comparative financial stability came to an end in 2008, when it became clear that many U.S. sub- prime mortgages were likely to default. This meant that many complex financial derivatives, based on U.S. mortgages, lost their value overnight leading to the collapse or takeover of many banks. As governments took on bank debts, in an effort to maintain stability, this has led on to a crisis in sovereign debt. Some countries are likely to default and the stability of the Euro is uncertain.

Section 2 Debt, credit and money

Before going on to discuss different theories of money in more detail, it is worth discussing barter, credit and debt as methods of exchange.

As mentioned above, current authorities reject the idea that coinage evolved out of barter. In fact, they reject the idea that barter was ever a common means of exchange.

“On one thing the experts on primitive money all agree, and this vital agreement transcends their minor differences. Their common belief backed up by the overwhelming tangible evidence of actual types of primitive moneys from all over the world and from the archaeological, literary and linguistic evidence of the ancient world, is that barter was not the main factor in the origin and earliest developments of money .” (Davies 2002 p23)

No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnographic evidence suggests that there has never been such a thing. Caroline Humphrey – (quoted in Graeber 2011p 29)

“There is an essential difference between the negative approach used by many generations of economists who attributed the origin of money to the intolerable inconvenience of barter that forced the community to adopt a reform and the positive approach suggested here, according to which the method of exchange was improved 10

Robin Latimer Describing Money Page 11 upon before the old method became intolerable and before an impelling need for the reforms had arisen……… The picture drawn by economists about the inconvenience of barter in primitive communities is grossly exaggerated. It would seem that the assumptions that money necessarily arose from the realisation of the inconveniences of barter, popular as it is among economists, needs careful re-examination.” Einzig (quoted in Davies 2002 p15)

In order to get a better understanding, it may be helpful to look again at the reasons why barter has never been a common method of exchange. In any settled community, the essence of village life is a complex network of relationships between members of the community. This includes numerous gifts or loans of useful items or tools, but also occasional help in a crisis, emotional support, family relationships. Within this network there is no need, or expectation, that a debt should be settled immediately. If you give me a loaf of bread today, I may repay it with the loan of a bicycle next week. Neither of us will keep detailed accounts. Indeed, being over-anxious to settle debts exactly may well be viewed as anti-social, a rejection of the network of inter- dependence on which village life is based (Graeber 2011 p105).

Where trading is done on a larger scale, so that such informal trust networks become inadequate, then a mixture of credit and accounting is used, usually based on a unit of account, which could be a weight of precious metal, but more recently has been a well-known standard coin. But there is no need for the actual coin to be available, or even current, for it to be used as a unit of account. Arrangements like this were used before coins were invented and the same preference for credit or debit continues today. A brief observation in any large store will show that the majority of transactions are on credit and debit cards. Overall today, there may be a large number of small value coin transactions but almost all large purchases are made by credit or debit.

Theories about the development of coins from barter are based on an incorrect view about people’s preference for immediate payment. The point about coins is that they are immediate payment. In their original form they were a bit of precious metal in your hand. That sort of immediate payment is very important for soldiers, especially if they think it possible that they could be on the losing side. But settled communities 11

Robin Latimer Describing Money Page 12 and merchants generally tend to prefer credit or debit arrangements (provided, of course, that they believe that they are likely to be paid in the end.) Some of the reasons are:

• The importance of personal relations - in a village you want to know your neighbours will help you out in a time of need. • Maintaining continuing business relations – It has probably always been true, as it is today, that a shop will take a loss on an individual transaction, in the interest of building a long-term purchasing relationship • Credit and debit can be arranged over long distances by letter or electronic message where it would be inconvenient to carry cash and a credit letter is less likely to be stolen than cash.

Hower, credit and debit arrangements have developed further than merely being an alternative to coins, to the stage where, as banknotes, they are considered interchangeable with coins. Consider how banknotes developed: 1. goldsmiths held gold on and issued receipts 2. some goldsmiths realised that they could issue more notes than they held gold, since the notes would not all be redeemed at the same time (Technically they went into debt, possibly illegally) 3. The custom of issuing notes became more widespread 4. Some people became bankers and started issuing printed notes 5. The issue of banknotes was centralised and put under government control (e.g. through the Bank of England 6. Banknotes became treated as alongside coins. 7. Banknotes still contain a ‘promise to pay’ which is technically an acknowledgement of debt.

Bank money is, essentially, debt used as money. The basic arrangement is that if A owes money to B, then B can make a payment to C by transferring the debt, so that A now owes money to C instead of B. Keynes puts this succinctly, “ the use of Bank-Money depends on nothing except the discovery that, in in many cases, the transference of the debts themselves is just as serviceable for the

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Robin Latimer Describing Money Page 13 transference of the money in terms of which they are expressed. A title to a debt is a title to money at one remove, and, to the extent, and within the field that confidence is felt in the prompt convertibility of the debt into money, the element of remoteness is irrelevant to the serviceability of Bank-money for settling transactions ” (Keynes 1930 p15)

According to recent research, bank money makes up 97.4% of all the money used in the economy in the UK. (Ryan-Collins et al 2011) “By far the largest role in creating Broad Money is played by the banking sector…..When banks make loans they create extra deposits for those that have borrowed” Bank of England 2007 quoted in (Ryan-Collins et al 2011)

Thus almost all of what most people understand as money is made up of balancing amounts of debt and credit. To understand why debt and credit play such a large role in the payment system, it is necessary to understand the aggregate as well as the individual nature of the money system. An individual could sell all his assets and turn them into a money value. But this can only happen if someone else buys them. An individual sale makes no difference to the amount of credit in the system as a whole. It is simply a transfer between individuals. The only way that the total amount of credit can be changed is for the government to create more money. When the international monetary system was based on gold, the only way that new money could be created was for more gold to be mined.

Given these aggregate limits, by far the easiest way to gain more credit is to persuade someone else to agree to go into debt. In effect, what the first goldsmith bankers did was to take on nominal debt and thus create additional credit to keep the money system going. Governments accept debt in this way, all the time, especially in times of war. The attraction of creating extra credit explains why bankers often encourage people to take on debt and have played an active role in creating debt crises by enabling people to take on debts that they may not be able to repay.

The origins of the 2008 financial crisis lie in the duality between debt and money. Debt is as good as money, so long as the promise of repayment is believable. Thus mid-west mortgage debts were treated by the banks as assets like money. Until it 13

Robin Latimer Describing Money Page 14 became evident that the promise of repayment was unreliable, then, with remarkable suddenness, a loss of confidence meant that a whole range of assets became valueless.

The duality between debt and money raises questions about the nature of money as a definable entity. Most forms of money, except coins and precious metals, are obviously forms of debt and credit. Our current money system is a complex network of credit and debt, so complex that even experts lose track of who owes money to whom. Even so, any credit system is based on regular payments. So a final method of payment is still necessary. The following summary of payment and exchange systems may be useful:

Early stable civilisations (up to 600 B.C.) - Payments made in commodities (e.g. Barley) calculated on a unit of account based on silver

600 b.c. – 400 A.D. Payments probably made in coin, based on the Graeco-Roman military/coin/ slavery complex

400 A.D. - about 1700 A.D. - Patchwork of small kingdoms; coins become scarce; payments calculated on a unit of account based on particular high-quality coins, payments made in whatever is available in a preference list roughly as follows; high-quality coin; local coin; local tokens e.g. from shops; payment in kind

1700 A.D. onwards – modern states become defined ; use of banknotes means the increases; it becomes customary and then obligatory to pay in the currency of the state where the payment is made.

Section 3 What is money?

One of the reasons why the nature of money has been allowed to remain remarkably vague is that most people think they know what money is. However, a more detailed examination soon shows a remarkable uncertainty about what should be included in the definition of money. There is also uncertainty about how money should be defined and what functions it must perform. Rather than allowing some of this 14

Robin Latimer Describing Money Page 15 uncertainty to pervade the rest of the discussion, it is better to set out the options at the start.

Money could include; - A unit of account - Precious metals (either silver or gold) - Other items used as currency e.g tokens - Primitive currency or social currency - Coins - Banknotes - - Bank deposits – available on demand - Bank deposits – available with advance notice - Credit accounts (Visa/mastercard) - Balances in other payment systems (such as phone credit apparently commonly used in Kenya)

Money could be defined: - By historic legitimacy ( A is money, B is a substitute for A, therefore B is also money) - By function (see list below) - By declaration (an appropriate authority (the state ? ) declares what is money)

Functions for money: - Exchange of goods - Payment (for goods or debt) - Payment of wages (not so commonly included – but essential) - Store of value - Unit of account

In view of the wide range of options, some definition is needed. This needs to set out some clear criteria for what should be considered to be money but it also needs to provide a basis for a more comprehensive theory. 15

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To simplify the list of functions of money, it will be helpful to identify functions that are uniquely performed by money, to form the basis for a definition. While money can be a store of value, so can many other things, like land or houses. Money cannot be defined as the only store of value.

The historical record shows that coins were often used as a unit of account when they were not available for payment, even long after the coins ceased to be minted. So the function of unit of account needs to be considered separately from the function of coins as payment. However, the function of exchange of goods can be considered as a combination of valuing the goods (using a unit of account) and making payment so exchange of goods is not really a separate function. This leaves:

Two possible essential functions of money: • Unit of Account • Payment (for goods, wages, debt, ) Subsidiary or derivative functions: • Store of value • Exchange of goods

However, a unit of account is no more than a measure, like a metre, or an hour, or a weight. It is an abstract concept. The common understanding of money is that it is something more substantial, basically a means of payment. Having money means that you can pay for something, not merely that you are able to work out how much you need to pay. Thus the essential function of money is that it is a means of payment. This still leaves several options about the type of payment that might be implied, e.g. payment for goods, wages, debt or taxes.

Considering the different forms of money, once again, the aim is to inform a definition of money, so it will help to decide which of the forms of money are definitely understood as money by most people. A century ago, gold might have been considered as the fundamental international money. However, with the general

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Robin Latimer Describing Money Page 17 acceptance of fiat currency, it can now no longer be considered as current money so cannot be a fundamental element of a definition of money. The range of money measures used by the Bank of England, gives some help: M0 – base money – includes coins, banknotes and reserve balances at the Bank of England M1 – notes and coins plus sterling current accounts M2 – M1 plus sterling time deposits with less than 3 months notice or up to 2 years fixed maturity M3 – M2 plus repurchase agreements, money market funds and debt securities up to two years M4 – M3 plus other deposits at UK Banks and Building Societies.

Leaving aside the technicalities of defining different types of bank deposit, it seems that bank notes and coins are considered as fundamental forms of money. Bank notes are a more recent invention than coins and might be considered a form of debt (see discussion above) so this leaves coins as an fundamental form of money that must be included in a definition.

Existing definitions of money It is useful to compare these preliminary conclusions with existing definitions of money. A variety of definitions of money are available. They are all based on the function of money: e.g.

“Money may be defined as any generally accepted ” (Lipsey, Positive Economics 1989)

An asset that is generally recognised as a medium of exchange (Pass, Lowes and Davies, Collins Dictionary of Economics 2005)

Money is anything that is widely used for making payments and accounting for debts and (Davies 2002 p29)

Money is anything that is generally acceptable as a means of settling debts (Bannock, Baxter and Rees - Penguin Dictionary of Economics 1985) 17

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(followed through two more definitions – for debt and credit – turns out to mean anything generally acceptable for making payments)

These follow the general lines of the discussion of functions of money above. As discussed above ‘means of payment’ seems to provide a more detailed and functional definition, in preference to ‘medium of exchange’.

This focuses the discussion on which form of payment is primary. If something is used as payment for goods, will it also be a valid payment for wages, or debt or taxes? Or is the primary payment taxes ? If something is used as payment for taxes, will it also be valid for payment for goods and wages ? Perhaps this question already provides a hint of the answer. Credit cards can commonly be used for payment for goods and taxes, but are not generally acceptable for payment of wages. So in current practice tender that is valid for payment for goods and taxes is not necessarily acceptable for wages. A more detailed examination will show that wages are the primary form of payment. If something is valid to pay wages, it can be used to pay anything else. But before coming on to discuss this in more detail, it is necessary to consider existing descriptions of money.

Section 4 Theories of money

The neo-classical theory of money The orthodox neo-classical theory can probably best be summarised by two quotes given in Ingham (2004 p15)

“Monetary facts have no significance for economic welfare. In this sense, money clearly is a veil. It does not comprise any of the essentials of economic life.” Pigou 1949: 14

“Even in the most advanced industrial economies, if we strip exchange down to its barest essentials and peel off the obscuring layer of money, we find that trade between individuals or nations largely boils down to barter.” Samuelson 1973 55

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The essential story is that money has developed as a way of simplifying barter relationships, as a means for avoiding the need for a ‘double co-incidence of wants’ i.e. that both parties to an exchange want the goods that the other has to offer before an exchange takes place. The neo classical story is that a convenient commodity became treated as money and then this was transferred into a standard international commodity (gold) and following from that in a logical sequence (not necessarily an exact historical sequence) were coins, paper money and then and electronic currency.

This is an interesting combination of a definition by function (money is a generally acceptable medium of exchange) with a definition by historic legitimacy. The implication (though it is rarely made explicit) is that some of the properties associated with the mythical origin in barter, also apply to modern currency.

An essential element in this theory is that selling good A and then buying good B is exactly the same as exchanging good A for good B – but more convenient. It is suggested that money does not affect the transaction. It is difficult to see how this can be true, even on a basic economic reasoning. Any commodity chosen as money must be more easily available to some people than others and easy access to money must give those people who have it, an advantage in the marketplace.

A more complex scenario is that richer people might be able to get better prices by stockpiling money and so restricting the money in circulation. This would force prices down and enable those with money to purchase goods they want at a more favourable price. This may or may not have happened in practice, but it does suggest that a choice of money cannot be neutral but must favour some people more than others.

When the neo-classical story is compared with the evidence it falls apart. Firstly, the initial myth about the creation of money out of barter economies, is comprehensively rejected by the experts. Secondly, trading was carried on for three thousand years before coins were invented. Thirdly, credit or debt is much more convenient than money because it can be transferred by writing and does not require physical transport. This is as true today as it was in 3,000 B.C. A unit of account is needed, 19

Robin Latimer Describing Money Page 20 but this an abstract concept. There does not even have to be any actual physical coins corresponding to the unit of account. Credit or debt requires eventual payment, but this has not always been made in money. It is only in recent centuries that payment in money has been expected.

The function of the myth of the invention of money from barter is to place the creation of money into a vague pre-historic past and suggest that the choice of currency was somehow achieved by general concensus. In reality, history is full of arguments about the choice of currency. Thus in the early days of coinage; Persian kings boasted “I will conquer Greece with my archers” – referring to coins with archers in the design. Greek states each developed and jealously guarded their different designs for coins. (Davies 2002 pp67-70)

Examples are the debate between the currency school and the banking school over the establishment of the Bank of England, The Greenback party advocating paper currency in the U.S.A in the 1870s or arguments about the use of silver or gold as the standard for precious metal. For example, the campaigns of Williams Jennings Bryan for the presidency of the United States with the slogan “ You shall not press down upon the brow of labour this crown of thorns, you shall not crucify mankind upon a cross of gold” (Davies 2002 p498)

Some economic writers also confuse a shortage of money with a shortage of wealth. In order to clarify this, it is worth exploring the idea of money as a commodity. The definition of a commodity is simply something that can be traded, so, following that definition, money must be considered as a commodity. However, just because they can be traded, does not mean that there is any general relationship between the supply of different commodities. For example, consider two very different commodities, say, houses and tomatoes. They are very different. Houses last much longer than tomatoes. Tomatoes are consumed, whereas houses are not. Tomatoes grow, whereas houses need to be built. Is there a relationship between the supply of houses and the supply of tomatoes ? In a general way, there may be an indirect relationship, people live in houses and people eat tomatoes, so where there are a lot of houses, there is likely to be a need for tomatoes. But there is not a direct causal relationship. If there is a poor season for tomato growing, it does not mean that houses will fall down. 20

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Any relationship occurs through the production process. If there are too many houses and not enough tomatoes then prices will change so that labour is likely to be diverted from house –building to tomato growing, and over a period of years this will even out the disparity.

Money, however, is an unusual commodity. The production of money is controlled by government to maintain its value. There is, of course, a very large literature about the methods and effectiveness of government control of money supply. However, for the present discussion it is not necessary to go into this detail. It is sufficient to note that because government controls production, the relationship between the quantity of money and the quantity of other commodities is broken. This makes the quantity of money an independent variable and not just a ‘veil’ or ‘an obscuring layer’.

This clearly corresponds with practical experience, in financial crises, such as the present one, there seems to be a shortage of money without any obvious shortage of other commodities. If the neo-classical theory was correct, that money is simply a convenient commodity to arrange exchanges, then one would expect that people would simply arrange exchanges using a different commodity, like oil, perhaps, or corn or even by an electronic accounting system. It would even be possible to copy our ancestors and use paper accounting, wooden tallies or clay tablets. The reason why this is not done and would not work, is that producers would find it difficult to persuade their workers to accept payment on paper, wood or clay. Money is needed to pay wages.

Credit or State theories of money. The principal alternatives to the commodity theory of money are the state and credit theories of money. There have been some echoes of these in debates about banking at different times. One of the early statements of the credit theory of money was two articles by A Mitchell Innes in 1913 and 1914 ( Reprinted in Wray 2004). Essentially he suggests that all money is credit and that rather than money preceding credit so that money was first created and then the possibility of lending it was considered, his alternative explanation was that credit arrangements and accounts existed in pre- historic times and money was then invented as a means of paying off debts. Knapp 21

Robin Latimer Describing Money Page 22 took this a stage further by identifying the state as the ultimate authority which requires payment of taxes and also creates currency that can be used in payment. Thus in some statements of the State currency theory, the state determines all prices either by statute or by setting the price that the government pays for these services. Though generally the preferred method is to stabilise one price and then let the others adjust to avoid “arbitrage” profit making. One proposal is to use a ‘buffer’ labour stock with the government acting as “Employer of last resort” and employing all those who cannot get work in the private sector (Wray 1998 ).

Another variation of this, held by Paul Davidson based on Keynes General Theory, is that money is legally required for contracts, which have an element of uncertainty, because they require delivery of goods in the future and, according to Keynes, there must always be some unknowable uncertainty about the future. (Davidson 2002).

Clearly these theories make some valuable points. Today, bank credit and most obviously credit cards act just like money for purchasing goods. Paper money has no value in itself. Its value derives from its acceptance as payment both commercially and, crucially its acceptance in payment of taxes. There are numerous instances where a conquering colonial power has imposed both taxes and a currency to be used to pay the taxes as a way of ensuring that the native population either work for the colonisers or sell their produce to them. (Graeber 2011 p50). Gold, which has been treated as the standard ‘money’ commodity for much of history, is not valuable on its own. You cannot eat it, or build houses with it. Apart from specialised uses, Gold is only valuable because you can exchange it for something else. So in some sense, all money is only a promise of the ability to supply some other commodities which are more useful. Alexander the Great was only able to pay his soldiers in gold, because Macedonia produced sufficient food to enable the gold to be exchanged for food. In some sense, the gold might be considered as a credit note for food and housing.

There remain, however, some problems about the state and credit theories of money. . It seems particularly difficult to link the multiple different examples of primitive currency with any particular credit or state arrangements. Coins were used during considerable periods of history between the end of the Roman Empire and medieval times when there was no consistent system of credit or state money. And coins have 22

Robin Latimer Describing Money Page 23 been found regularly outside the state where they originated (e.g. Macedonian coins in Britain).

A disproportionate amount of money may be circulated through banks and government. However, a model that means that the only role of farmers and industry is to provide directly or indirectly for the needs of banks and government seems to overstate the case. Why would farmers and small traders choose to co-operate with such a system? It would be in their interest to set up a separate trading system that cut out the government.

How does the state or the banking system ensure that the price of bread is at an appropriate level to supply the needs of the major part of the population? It would be fairly commonly accepted that the state can affect the general price level by supplying, or permitting the circulation of an increased amount of money, but it would be very difficult for the state to set prices for all commodities.

Probably the most widespread question among economists would be about the link between state and credit theories of money and ‘real’ transactions. To put it simply people need to work both to feed and clothe themselves and also to support the government

For example, Wray (1998 ) explains in detail how “taxes drive money” but does not discuss at all how labour is exchanged for food and shelter in the ‘real’ economy. He is aware of the limits of a chartalist approach: “Further, as we will note, there is no evidence to support an extreme position that taxes alone will be sufficient to create a monetary economy out of a traditional economy. Real world governors also relied on force. Even though taxes would generate a supply of labour, development of ‘private’ markets required destruction of the traditional economy .” (Wray 1998 p57)

A better way to explain the major role of government and banking in money transactions is that government and finance do not produce any consumable goods, so they cannot pay wages in kind and have to pay wages in money.

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If the only source of value for money was the ability to pay taxes, then all monetary value would be equal to the tax to be paid in the production of the commodity. The end result would be that people worked solely in order to pay taxes. It is, of course, true that people work in order to pay taxes, but they also work in order to put food on the table and houses over their heads. Probably the best summary of the real situation is that acceptance for taxes is one source of value for currency. But as currency is based on social convention, so that almost anything is acceptable, provided everyone else accepts the same , then state approval and acceptance is sufficient to establish the form of socially acceptable money, which is then used for all other purposes.

In recent times, the ability of 17 States to establish the Euro as a common currency has demonstrated the way that government decisions can establish a currency with comparative ease. But the present difficulties, and possible collapse of the Euro, also show the limits of government authority. Money has a vital role in the real economy and this cannot be altered just by government decisions.

In summary, both the commodity and the credit models of money describe aspects of monetary circulation. But they neither seem to correspond entirely with the known facts about the development of money. Neither model corresponds with the archaelogocial and historical records. The commodity model gives a better description of the relation of money to real transactions, but money is clearly a special commodity because its production is controlled. The state and credit theories explain how the production of money is controlled, but the description of how this is related to real transactions gives a disproportionate role to government and banking.

Considering these theories of money in the light of the general classification above, the neo-classical theory identifies the function of money as the payment for goods, the state and credit theories of money identify the function of money as payment for either taxes (Wray) or contractual debt (Davidson and Keynes General Theory).

It has been shown at length above that money has not always been used as payment for goods, historically, payment in kind is probably far more common. The neo- classical theory also leads to a circular argument about the value of money. It is not possible to explain the process by which money gains or loses its value. This has led 24

Robin Latimer Describing Money Page 25 to lengthy debates about the causes of inflation, which cannot be covered in more length here.

While the historical record shows that money is used as the accounting system of the ruler or the state, it seems more likely that expenditure in money preceded taxes in money, rather than the other way around. The state used coins as a way of paying for soldiers and state officials and then also found it necessary to accept taxes in money. Many early states did not tax their citizens, only levying taxes on tributary neighbouring states. (Graeber 2011 p63)

Fortunately, it is possible to prove a more general description of money that meets all the problems raised by the existing models. The next section will lay the foundations for this description.

Section 5 Social convention and exchange of services One point about money seems to be fairly generally accepted and consistent with the facts. Money is a human social convention. Money is valuable to any individual, because other people believe it is valuable. There are many different items that have been treated as money, the most important element is not the exact choice of object or account, but that everybody agrees that a particular object shall be treated as money. Like choosing the side of the road you drive, it can be either left or right, so long as everyone uses the same side. The point is made in more detail in Swanke (2004). “Social conventions are actions undertaken because the actor believes that the action is appropriate in the circumstances and that other people will, or are, acting in the same fashion in similar circumstances .” One of the effects of social conventions is that people expect certain objects to be treated in a particular way and so people sometimes see them as non-human creations “ checks and currency are created by humans, but people treat them as separate entities (on par with a tree or rock: part of the world) and so people are shaped by this socially-created reality ”

Swanke questions the neo-chartalist view that money is created by government, citing two areas in the United States where non-standard coins are used. People are constantly modifying and re-creating money, even while they believe that it is an 25

Robin Latimer Describing Money Page 26 external reality. The evolution of the is a good example of how money was changed by people. In the case of bank notes, governments were forced to adapt to a socially created reality by regulating the issue of bank notes through central banks. However, the power of government to create new currencies should not be under- estimated. Most currency was originated by the state and this obviously happened in many colonies as an expression of colonial power. More recently, the Euro was created by a multi-state decision. The creation of money is best understood as a process of negotiation. Governments can propose or impose currencies, but these are only viable if they are socially acceptable. There are also practical realities that cannot be ignored. Governments have not yet managed to control the value of money in a consistent way and the Euro is running into practical problems.

A different view of the economy: Exchange of services In order to make sense of money, we need to subtly change the focus of our economic view. It is generally agreed that commodities include both goods and services, but in most economic theory, without any explicit acknowledgement, the focus subtly shifts from services onto goods. Most economic theory focuses on exchanging goods to meet individual needs.

But exchanging services is an even more primordial requirement of human life than the exchange of goods. The evolutionary success of humankind arises from our ability to communicate and act as a group and this requires an ability to exchange services and to follow directions. Some people build the trap, other people drive animals into it. Men may go hunting while women gather berries. Some sort of social hierarchy and the need to exchange services is necessary for hunter gatherer communities that may not have a need for property and ownership.

As larger and more settled communities developed, both social hierarchy and the exchange of services became centred around larger communal centres. These were probably first religious centres, then temples, then kingdoms. Along the way, social rituals, like paying compensation for killing a man, or paying a bride price for a wife developed. And it is in this context that we see the first examples of primitive money.

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The same change of focus to emphasise services rather than goods can be carried forward to today. Eating a meal in a restaurant is classified as a service, though it is expected that the restaurant will supply the food as well as the cooking. This can be taken a step further. Buying a paper can be seen as a service. In this case, the shopkeeper provides the service of keeping the shop open and also supplies some goods, the newspaper.

The whole supply chain can be seen as a series of personal service transactions connected with actions or permissions. The purchaser pays the shopkeeper for giving them some goods. The shopkeeper pays the wholesaler for giving them the goods. The wholesaler pays the transport company for bringing the goods. The transport company pays the producer for allowing the goods to be taken. The producer pays workers for assembling the goods and pays raw material suppliers for producing raw materials. Raw material suppliers pay farmers for growing crops and miners for digging raw materials out of the earth. Thus the supply chain is seen as a series of personal service transactions connected with actions instead of a chain of material transactions connected with goods.

Section 6 – Definition by deduction This leads to a definition of money by deduction which is slightly more technical than the common definition. But is also more use for developing a more general theory because it avoids economic terms that can lead to circular logic. This definition can be based on two, fairly unexceptionable premisses.

1. That money is a human social convention 2. That when we make a payment ( rather than a gift) then we expect that either ourselves or another person or organisation of our choosing will benefit from it.

From premiss 1 it follows that humans can recognise money. People recognise money – but this also means that only people recognise money. Obviously animals do not recognise money, nor can you plant it in the ground and grow crops. It does not grow on trees ! If money is only recognised as money by people, then it follows that

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Robin Latimer Describing Money Page 28 the only thing that you can do with money is to pass it to someone else. It is only a person who will recognise money as money.

Often machines take money, but this does not alter the essential argument, because machines act as agents for people. A person empties the machines, someone programmes the machines to accept some coins and not others. Similarly, people and machines often act as agents for companies, but that does not alter the essential requirement that the decisions about prices and acceptable money is taken by a person even if this person is a manager in a company

And it also follows that, assuming that you are not simply giving the money away, you must expect that the person who receives it changes their actions in some way as a result of receiving it. This produces a core theory of money. Money is something that one person gives to another person with the intention and result of changing the way the recipient acts. But money also needs to be defined as a product of a society. It must be recognised as money by most people in the society.

So the suggested definition is: Money is an item, coin or credit in an accounting system, determined by social convention, which a person holds in the expectation that by passing it to another person they will be able to alter the actions of the recipient.

This is a general definition for all money. Because money has a fuzzy boundary, there are going to be several different forms of money. A general definition can then be adapted to provide more detailed definitions of terms like Government fiat money, Bank credit money etc. Primitive currency, for example, would be included as money under this definition. For money in a modern commercial economy, we expect that money can be used to pay for work. In straightforward language, this means that money is determined by the socially acceptable form of paying wages.

In individual transactions, it may be possible to pay people in kind by individual agreement. But it is fairly easy to recognise that an army or any sizeable enterprise employing a large number of people requires one standard, socially acceptable

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Robin Latimer Describing Money Page 29 method of payment to avoid endless discussions and arguments. This, quite simply is the essential role of money in our economic system.

To put it another way, it is very difficult to purchase goods without purchasing a service. A shop needs to pay its staff. Delivery drivers need to be paid. So the seller needs to receive an asset that can be used to pay their staff. This means that the asset that is used to pay wages will also be an asset that is acceptable for purchasing goods.

The definition does not include any explicit reference to the value of money. This reflects the reality that money only has the value that it is given by each recipient. Of course, what happens in practice with the exchange of money for services is the same as what might happen in the exchange of money for goods, each recipient accepts money because they expect that other people will value it. So the recipient gives a service in exchange for money because they expect that they, in their turn will be able to pass the money on to someone else and receive a service from them in exchange. Thus money facilitates an exchange of services, In the same way that it used to be thought it facilitated an exchange of goods. As money is evaluated by each recipient on the basis of what he or she expects they will be able to obtain in exchange for it in the future, then its value can slip upwards or downwards without being entirely under government control.

Section 7 Summary and Further research In summary, a review of the archaeological and historical evidence shows that trading in goods took place for three thousand years before the invention of coins. Coins, were the origin of our modern money system and became widely used in a time of constant warfare because they were used for paying soldiers. There is no evidence that coins developed by concensus out of a barter system but clear evidence that they were treated as a resource for political and military warfare.

Examining the essential functions of money clarified that money is essentially a means of making payments. Four different types of payments were identified; goods, taxes, debt and wages. Neo-classical theories focus on money as payment for goods, credit and state theories of focus on money as payment for debt and taxes. These

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Robin Latimer Describing Money Page 30 theories all seem to have substantial theoretical weaknesses and are not consistent with the historical evidence.

A theory that is consistent with both practice and history can be constructed by shifting the focus of economics onto the exchange of services rather than the exchange of goods. Prehistoric people must have exchanged services long before there was any private property. The exchange of services is a wider and more comprehensive category than the exchange of goods. It is possible to provide a service without selling goods, but in a modern economy, almost all sales of goods also involve the provision of a service (e.g delivering the goods to the buyer.)

Then a definition of money was derived from two basic premisses; that money is a social convention and that payments are intended to benefit the payer or serve some other purpose identified by the payer. Simplified, this definition amounted to the idea that money is the socially acceptable way of paying wages. Though this definition was derived independently, money as a means of paying wages, especially wages for soldiers, is more consistent with the historical evidence than any other theory. A wages theory of money is also a much more robust theory because it bases the value of money on the most universally available and most universally acceptable form of value; human labour.

A wages theory of money also simplifies the problems of value in exchange and value in use. Under a wages theory of money; money is a socially accepted token that recognises the fact that the holder has provided a service in the past ; and also entitles the holder to ask for a service in the future. Thus money enables a continuous exchange of services, since every time it is passed on, a service is given in exchange. So that exchanging money and using money, happen simultaneously.

Money is also authorised by government as a means of paying taxes and settling legal contracts. This gives it additional value and enables the government to decide on the legally authorised form of money and thus influence the socially acceptable forms of money within limits of public and political acceptance. The strength of this view of money can be shown by attempting to prove the opposite. It would be very difficult

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Robin Latimer Describing Money Page 31 to show that money is not used for paying wages or that the ability to employ people is not a valuable resource.

On this basis it is possible to define money in a way that fits well with the historical and archaeological evidence and resolves inherent difficulties in defining money as a way of exchanging goods.

Further Research It is only possible here to give an outline of how the theory of money as wages can be used to provide answers to the questions in section 1 - How is it created (and destroyed) - How does it maintain or alter its value - How much money do we need in circulation

in a way that is distinct from more conventional theory about money as medium of exchange. To answer these questions thoroughly will take more research and thought.

A wages theory of money differs from the description used by J.M. Keynes in the General Theory, but it has the same result , it shows that money is necessary for financing any enterprise, not because of legal contracts and uncertainty, as Keynes suggested, but instead because money is needed to pay wages.

Paying wages for services is an expression of power. Money is ‘portable power’ in the phrase used by Niall Ferguson (2008). People are paid to do things that they would not otherwise do. Anything that changes people’s actions is a form of power, so some of the political and sociological theory relating to power will also be applicable to money. This can be seen in some of the examples given above where money was used by colonial governors as a way of forcing native populations to behave in ways desired by the colonisers.

Money used to pay wages is a relative, rather than a summative asset. The conventional Pareto economic efficiency criterion assumes a summative asset. If you own a house your ability to use it and enjoy it is not affected by whether I own a house. For money used to pay wages, however, then the amount that I pay will be 31

Robin Latimer Describing Money Page 32 affected by the amount you pay. I may be able to pay say £100 to get a room painted, if everyone else offers the same amount. However, if someone else decides to offer £200 to get a room painted, I am likely to find that I can only get half a room painted for my £100. In other words , the value of my money depends on how it relates to the money that other people have.

A money/wage economy is a dynamic economy, unlike the static economy described in equilibrium theory. In the neo-classical theory, a good can only have one value, the value that is paid for it. As a result there is no clear theory about changes in value. There is an extensive literature about competing theories of inflation and no way of explaining sudden changes of value, such as the sub-prime housing crisis of 2008. A wages theory of money, however, gives two values to a good; the cost of producing it; and the price for which it will sell. As any entrepreneur knows, it is possible to spend a lot of money making something that no-one wants to buy. Alternatively, a profitable enterprise will generate more money than the production costs. So money as wages, produces money as commercial income for the business, which then becomes wages again; either the real value of money spirals up ( a profitable business) or it spirals down ( a failing business). Aggregated for the whole economy, this can produce a theory of inflation, possibly similar to that suggested by Innes (1913) - inflation is low in a prosperous economy and high in a failing economy. It should also be able to give a place in theory to collapses in value, like the sub-prime crisis.

If the circulation of money is essential to the economy, forming, as suggested above, a counter-flow to the exchange of services, then unpayable debt, can kill the economy as the authorities accumulate money to pay off the debt, instead of keeping it circulating. This was clearly understood by Keynes in his response to the Versailles treaty and his plans for an international monetary system. (Skidelsky 2003)

A wages theory of money would mean that the Euro area links the wages in all the member states, which may produce some interesting insights into the viability of currency unions.

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Overall, a wages theory of money is robust, coherent and consistent with history. It produces many leads for future theory and research.

References

Davidson, P 2002 Financial Markets, Money and the Real World Edward Elgar, Cheltenham, UK Davies, G. 2002 A History of Money University of Wales Press, Cardiff Ferguson, N. 2008 The Ascent of Money , Penguin, New York Graeber, D. 2011 Debt Melville House Publishing, New York Ingham, G. 2004 The Nature of Money Polity Press, Cambridge: Innes, A.M. 1913 What is Money? Reprinted in Wray 2004 Innes, A.M. 1914 The credit theory of money Reprinted in Wray 2004 Keynes, J.M. 1930 A Treatise on Money Harcourt Brace, New York Keynes J.M. 1936 The General Theory of Employment, Interest and Money Harcourt Brace, New York Pigou, A.C. 1949: The Veil of Money Macmillan London Ryan-Collins,J.,Greenham,T, Werner,R & Jackson,A. 2011 Where does money come from? New Economics Foundation, London Samuelson P.: Economics 9 th edn. McGraw Hill New York Schumpeter, J.A. 1954 History of Economic Analysis Oxford University Press Skidelsky, R. 2003 John Maynard Keynes Pan Macmillan, London Swanke, T.A. 2004 Money as a social Convention in Contemporary Post-Keynesian Analysis ed. L.R. Wray Matthew Forstater Wray, L.R. 1998 Understanding Modern Money Edward Elgar, Cheltenham,UK Wray, L.R. 2001 Money and Inflation in A New Guide to Post Keynesian Economics Routledge, London and New York Wray, L.R. (ed.) 2004 Credit and State Theories of Money - The Contributions of A. Mitchell Innes Edward Elgar Cheltenham, UK 33