Thursday, April 12, 2012

Money then Maths

This morning I saw a quote attributed to Mervyn King, Governor of the Bank of England. I'll share it with you.

"There is no reason products and services could not be swapped directly by consumers and producers through a system of direct exchange – essentially a massive barter economy. All it requires is some commonly used unit of account and adequate computing power to make sure all transactions could be settled immediately. People would pay each other electronically, without the payment being routed through anything that we would currently recognize as a bank. Central banks in their present form would no longer exist – nor would money."

The quote has encouraged those folks who are interested in finding new ways to exchange goods and services, and creating alternative currencies. 

I'm all for the exploration of Money. But I'm not happy to see Money as 'just a technological problem to be solved'. I remember back in the early naughties there was a project set up with some government funding - I think it was called timebank, but I might be wrong - which sought to create a website where services could be swapped. So I could swap two hours babysitting, for say 30 minutes of acupuncture, or whatever. Service suppliers would be reviewed by users and given a reputation score, like on Ebay. I applied for a job with them. Didn't get it. I don't think the project ever really got going.

Anyway, the point I want to make is that when you see money 'as a technological problem to be solved' you are assuming something that might not be true.

The story of most people believe is that we were little more than monkeys until 50 000 years ago, then we evolved language and learned to count. Sometime later, most likely between 10 000 & 5000 years ago, after we started farming, we invented money. Money is a tool - a technology - like methods of farming, or flint axes, or ipads that help us to do stuff better.

But we don't know that's true.

I think that Money came before Maths and Language. I appreciate that seems like an odd thing to say. But (thankfully) I'm not the only one to suggest that Money has had a crucial role (perhaps a causal role) in the development of abstract thought. 

Although you might think its crazy to suggest Money could have such an existence, the point Mervyn King should remember that its not safe to assume it is merely a technology. Its has some deep relationship with our psyches. That much should be obvious from the words Sir Mervyn uses about money - confidence, fear, worry etc. If Money did come before Maths (in other words if it was giving & receiving, owning & owing, that allowed our mind to conceive of number) then it is unlikely that Money can be accurately replicated by a computer program. 

Hopefully, when my essay on Owning & Owing is finished I can give you something approaching a coherent explanation of my thinking on the origins of Money. But in the meantime, do me a favour. If you ever find yourself writing "Money is just.....", check yourself. If our minds were less shackled by science we'd describe the workings of Money as magic. It does things that we cannot. In ways we do not - as yet - understand. Stay humble, folks. 

Wednesday, April 11, 2012

Money Wisdom #29

"On the most basic level money is linked to number, and one of the significant effects of monetization is the expansion of the place of numerical calculation in everyday life. Isidore of Seville underlined the link between money and number in the Etymologies, when in chapter 3 under the heading "What number is" he wrote: "Nummus (coin) gave its name to numerus (number) and, from being frequently used, originated the word." A similar association of number and coins can be found in the work of Islamic mathematicians where the common unit was called dirham after the name of a common coin."

Joel Kaye Economy and Nature in the Fourteenth Century p.211 (1998)

Sunday, April 8, 2012

The Invention of Money

"So impressed were [C14th] scholastic thinkers by the measuring successes of money and by the multiplicity of its uses that they credited ancient philosophers with having invented it."

Joel Kaye Economy and Nature in the Fourteenth Century p.198 (1998)

I've been reading a lot about the Greeks of late. Not the modern ones, the ancient ones. It's all good preparation for me to read Richard Seaford's Money and the Early Greek Mind, which has been bubbling away at the top of my reading list for the best part of a year now. I just wanted to make a quick note about something I've noticed; no matter how far back you go, Money has always been thought of as the 'invention' of an earlier time.

You have to be careful about the language. The words have been translated and interpreted, and despite the best efforts of scholars we can't be certain of the exact meaning ascribed. So invention may mean something different to Aristotle than it does to us, now. Talk about 'invention' and the questions that spring to my mind are who invented it? and when? I don't think that Aristotle or anyone else refers to money as an 'invention' in this way; they don't mean someone had a Eureka moment and money was born. It's more likely that in describing Money as an 'invention' what's meant is it's some form of institutional response to a problem (of commensurably, or of judgement). So not a technology created by an individual mind, but successful response to problems experienced within a group. I think anthropologists refer to it as a 'cultural invention'.

I'm not sure all this is very helpful though. Giving a broad definition of 'invention', doesn't help us to understand Money. Really it's just a way of accounting for its existence. Yeah, we invented it. After all monkeys don't have credit cards, do they? Move on. Next question?

If you're going to say Money is an invention then you might just as well say that civilisation is an invention too. Invention ceases to have a definite meaning (or at least a meaning within a range of possibilities) and becomes 'that which has the mind as a causal factor'. And, according to some philosophies at least, that means everything, everywhere, every-time.

'Invention' is just another wizard's curtain. The place to look for meaningful answers about Money and Civilisation is in the development of 'mind' rather than anywhere else. Hence, my excitement about reading Seaford's book, and my defence of, and admiration for Freud. Any coherent explanation of Money (and civilisation) requires a theory of mind.

Thursday, April 5, 2012

Money Wisdom #28

"In seeking to define the technological model of money in administration, many of the elements of money in exchange are applicable. In both cases money serves as an extendable, divisable, graded, and numbered continuum used as a common scale of measurement. But there are important differences. Money in exchange facilitates relation by expressing the diverse and shifting values of all commodities in common numerical terms. Money in administration also facilitates relation but it does so along a single axis. It provides a numbered scale superimposed on pre-existing relationships within a unified field. Within each field it acts as an instrument of proportionalization. Where money in exchange serves as a medium for connecting diverse goods and services by making them commensurable, money in administration serves as a medium for dividing values along a single continuous axis.

Joel Kaye Economy and Nature in the Fourteenth Century p.174 (1998)

Wednesday, April 4, 2012

Money Wisdom #27

"In a chapter entitled 'Who owns the Money?', Oresme lectured the Prince that, although it was his duty to put his stamp on money, he did so on behalf of the community,and he could claim neither lordship nor ownership of it. For money was a 'balancing instrument' invented by the community to facilitate the exchange of their natural wealth, and was therefore the community's common property. The central point of this treatise was that money was the possession of the community, naturally directed toward the common good, and therefore properly ordered and controlled by community decision."

Joel Kaye Economy and Nature in the Fourteenth Century p.155 (1998) 

My Day with Friedrich

Yesterday I watched this video of a speech Hayek gave in 1983. It's a bit dry. It's also a little hard to hear what Hayek is saying at times. But the content is worth the effort of concentration.

(There's also this audio of a similar speech he gave to 33rd Meeting of Nobel Laureates at Lindau also in 1983)

Of Hayek's later work my focus has always fallen on 'The Denationalisation of Money'. That was a controversial work which made people question whether he'd lost his marbles. I thought (and think now) that the ideas are exciting.

But this speech has to do with his last book (which I've not read) called The Fatal Conceit. Its anti-socialism theme didn't really press my buttons, but had I known that there was such an emphasis the 'pre-history' of economy I'd have been much more interested.

Hayek tackles the problem of Lamarckian inheritance - the idea that an organism can pass on characteristics that it acquired during its lifetime to its offspring. He suggests an idea of cultural or group inheritance. He also points out that despite the claims of biologists some mechanism like this must exist - after all, modern humans have only been 'modern' for 50 000 years. (Its worth noting that the denial of Lamarkianism is specific to C20th Western science - it was not the case on the other side of the iron curtain). There are a couple of other fellows that believed that organisms can pass on acquired characteristics - Darwin and Freud. Indeed, Freud's work has been 'rubbished' by science (in part) because his theory of civilisation relies on such a mechanism.

I also caught this short interview with Hayek about Freud.

I think Hayek misunderstands Freud. You'll see this in under a minute. He claims that Freud disregards the fact the civilisation is based on repression. That's simply wrong. Freud claimed that the repression of instinct was what civilisation was built on. See Totem and Taboo, Civilisation and its Discontents, Moses & Monotheism etc. Freud certainly claims that this repression creates a tension. And that tension is what Psychoanalysis seeks to resolve. But resolving tension in an individual is not disregarding its role in the development of civilisation.

It's a shame that Hayek didn't get Freud. I see so much common ground. More so now that I've heard Hayek talk about his ideas of how economy developed.

My key point of discord with Hayek (and Freud) is over Money. (Marx too). But whenever I revisit Hayek's thoughts I'm always impressed with how coherent his explanation of economics is. Basically, (I think) he's right about how markets and prices work, and crucially about the distorting effect governments can have. I like the fact that he's humbled by the magic of spontaneous order. Politicians might claim they're doing a good thing when spend taxes on this or that project, but when you closely examine it you realise that they 'can't' know they're doing a good thing. That in itself though, is academic rather than a political point.

A recent debate from the LSE brings this issue to the fore. Hayek Vs Keynes.

Intellectually, I'm on Hayek's side. But you can sense Lord Skidelsky's frustration (Hayek is on home ground at the LSE) . It can be summed up in the most well known of Keynes' quotes 'In the long run we're all dead'. Even if I ignore the intellectual argument that Keynes' side makes, it's much tougher to ignore the moral one. If people are starving today, they need food now. Being convinced of a policy that will provide for them in the long run, is no good for them.

That doesn't make Hayek wrong. Nor does it make his ideas any less moral. And neither does it make Keynes right. That should be plain from that classic problem of Keynesian theory - that six men digging a hole, and another six filling it in, results in economic growth. It might do - we just don't know. But our common sense tells us it won't. (The Keynesian hole digging thing is discussed in the debate). What we do know is that the taxes use to pay men for digging have been raised on pain of imprisonment. There are plenty of moral arguments in favour of taxes, but it'd be tricky to make one that says governments can raise taxes to spend on men digging holes then filling them in. So as such, a moral argument for tax is arbitrarily contingent.

Anyway, its an old debate - one as old as political economy itself. And if we didn't have this dilemma what on earth would we all talk about, and what would be the point of politicians?

As an aside, I think I've mentioned elsewhere that Skidelsky is the only economic historian whom I've seen mention Keynes and Freud in the same sentence. He scores points with me for that.

And I also side with the Keynesians on something else; Hayek's conservatism (with a small 'c'). I accept that his ideas predicate a conservatism based largely on the spontaneous, complex and unknowable nature of our economic and social systems. But let's be honest, if Keynes & Hayek held a party on the same night, I'd be firing up the Austin 7 and heading up the A10 to Cambridge. Having conservatism underscore one's moral and intellectual being, is a sure way to miss out on a lot of fun. And more importantly, when its backed with political will, it denies others the possibility of living full and satisfying lives. This is something that I think Freud understood, and Hayek didn't.

Hayek is guilty himself of what he accuses Freud. His intellectual project has political impact. When conservatism meets politics its effects can be disastrous for some individuals. Sure, he could argue that the proper expression of his libertarianism would - in the long run - protect the rights of the discontents, but the intellectual power he gives to conservatism is perverted by politics and used as a weapon to alienate and scapegoat those who want to live differently. We need difference in order to evolve; sameness is stasis.

What I hope is that Hayek's ideas are appreciated (regardless of one's politics). Economic ideas always seem to be distilled into charts, graphs, and numbers. They don't need to be, and in fact all that is just a distraction, the wizard's curtain. Hayek creates a coherent line of argument in works like The Road to Serfdom (although I prefer The Constitution of Liberty). The interrelationship of economic and individual freedom is something of which we all have experience. Hayek helps us to make some sense of it and to extend it. This helps us formulate principles around which economic judgements can be made. I recommend Karl Polanyi's 'The Great Transformation' to give a bit of Yang to Hayek's Yin. The books were written at roughly the same time.

I enjoyed my day revisiting the old chap. And I learnt something new. Not bad considering he's been dead 20 years (he died on 23rd March  - Discordians take note!)

Tuesday, April 3, 2012

Money Wisdom #26

"The fact that socialism is the logical result of rationalism does not prove that socialism is right, but rather that rationalism is wrong"
F. A. Hayek On Social Evolution and the Origins of Tradition 
(A paper presented at George Mason University, 22nd November 1983)

Monday, April 2, 2012

Marx - The Spectre

A physicist, a chemist and an economist are stranded on a desert island. Hungry, they are walking along the beach when they notice a can of soup that has washed ashore.

The Physicist grabs the can and says 'I'm going to find a rock and smash it open'.

'No!' says the Chemist. 'Let's make a fire and we'll explode the can'.

'Don't be silly,' says the Economist, 'Let's just assume a can opener'.

The joke comes from a fascinating talk on Marx from John Lanchester (novelist, journalist and contributing editor to the London Review of Books) . He makes a great point about economists (he cites Paul Krugman) who say a particular model shows us something. Models, of course, don't show us anything. They might suggest interesting or helpful things, but they don't show us anything.

Worth remembering that. (I'm thinking particularly of Modern Monetary Theorists, here)

Marx didn't create models..... 'he was looking deep into the heart of reality and discerning its fundamental truth' (as John Lancaster puts it).

During the talk Mr Lanchester utters the immortal words 'What is Money?' Marx, of course, did try to answer this question. Look at The Power of Money for example. It's nice to hear the question. Who knows one day an economist might ask it.

Check out the podcast on the London Review of Books Website together with his 6k word essay (which forms the core of the talk).

This bit resonated with me;

'it looks very much as if Marx’s omission of the word ‘capitalism’, because he foresaw no alternative within the existing social order, was an instance of his crystal ball functioning with particularly high resolution.'

And also this, the closing statement;

As Marx wrote, towards the end of the first volume of Capital, ‘man is distinguished from all other animals by the limitless and flexible nature of his needs.’ Limitless needs we see all around us and they’ve brought us to where we are, but we’re going to have to work on the flexible part.

Much of my own thought and reading for the past year has been around the relationship of Money to this human/animal boundary, the role of Money in the development of abstract thought etc.

I've studied some Marx in the past. I think I need to revisit him and pay particular attention to his philosophical writings. I'm halfway through reading Joel Kaye's Economy and Nature in the Fourteenth Century. The relationship between thought and money is on my mind and I think Marx may provide some illumination on what is a very difficult thing on which to get any perspective. I seem to be at the dark edge of the subjective and the objective.

I'd recommend this talk to anyone, though. Whether you have an intellectual interest or not, and whatever your political persuasion. Like all these powerful ghosts from the past - I'm thinking of Freud in particular - Marx can be very misunderstood. Mr Lanchester helps you hear the resonance of Marx's ideas, whilst underscoring them, quietly and modestly, with his own misgivings.