Tuesday, February 5, 2013

Confusing Money and Currency - ARRGH !

I just read this in Einzig;

"Nettels [in The Monetary Supply of the American Colonies before 1720 p203] makes the observation that the reason why the colonies chose to supplement the inadequate supply of coins by the monetary use of commodities was that they must have felt it imperative to prevent the prices of their staple products from being depressed by the scarcity of money. But for the monetary use of commodities, the inadequacy of the supply of coins would have unduly depressed local prices, and would have influenced the terms of trade strongly against the colonies; that is larger amounts of exports would have been required to pay for the same amount of imports."

Paul Einzig Primitive Money (1948) p.288

This sort of thing happens when you apply economic theory your currency/money soup. It makes me realise how well David Graeber did in his Debt - the first 5000 years to avoid stuff like this (although he still shows the usual confusion over currency/money). I think Graeber - and anyone who has read his book - would immediately pick up on what would be the first thing that happened in the event of a shortage of coinage; the use of credit would expand. The link between a shortage in the 'money supply' and a fall in prices is proposed by economic theory (less 'money' chasing the same amount of goods, prices fall; more 'money chasing the same amount of goods, prices rise).

But Einzig and Nettels applying it to a real life situation is making an is (or rather a was) from an ought. Clearly prices did not fall unduly despite the shortage in coinage. So Nettels looks for a reason. Unsurprisingly, he finds one. This is standard fair in Economic History. And it pisses me off.

Money cannot be scarce (or abundant). Applying a quantitative measure to it is philosophically wrong. I mean, what the hell do you think Money is? Stuff? Its nonsensical to talk about in such terms.

And currency (and commodity) is arbitrary. Recognise this (as clearly the early settlers to 'the colonies' did) and it is clear that all objects are currency (or at least can be regarded as such).

Price is put on such a pedestal in economics (not least by Hayek) that it blinds us to the truth of it. Split up these two conceptions of currency and Money and you get a different view of price. One that, whilst recognising the 'natural dynamics' that Hayek identified, can also place currency and price within a context of social and structural relations - which is where they actually exist! 

Rant over.

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