A Ramble on Ingham's Nature of Money

You can read my review of this very fine book here.

Pac-a-mac? Sturdy boots? Flask? Let's go.

First thing, Geoffrey makes no distinction between Money and currency. This is old ground for us. But I wonder why Geoffrey ignored it. It's probably because he thinks they're the same thing. Most people do. But if so, YOU MUST SAY SO ! I actually think that his failure to make a distinction, or to say clearly that there is no distinction, is at the heart of the problem with this book. I'll come back to this.

What Geoffrey does brilliantly is to make the point about the chronology of Value-Money-Price. This is one of the most important critiques of dominant understandings of Money and economy (which see the chronology as Value-Price-Money). It's the central idea on which most alternative views of economy are built (at least the broadly collectivist ones). And it's true. Money MUST come before Price. (Here's the actual quote from Ingham; it's something he mentions repeatedly).

The problem is that Geoffrey's (and Knapp's) explanation for how the unit of account function of Money came into being, is a muddle. It's no wonder Austrians and Neo-classicist alike give State Theories of Money a proper kicking. State theory identifies a huge crack in current (and historical) understandings of Money. But then just paper over it. I can't even remember the muddled arguments. Something about states collecting taxes, wergeld, and value vs valueableness. Just stuff and nonsense to me, I'm afraid.

What they miss - and Geoffrey comes close with his framing of the word 'moneyness' (JP Koning has arrived at this conception separately) - is that the aspect of enumeration, the dynamic that creates the money of account function is within Money itself. And expressed through currency. (Don't forget, currency IS any object). The only thing logically anterior and historically prior (to use Geoffrey's phrase) to Money is VALUE.

You can pay a high price for ignoring something as mundane as the distinction between Money and currency. You see by separating out 'moneyness' from Money, Geoffrey takes a step in the right direction. He's identifying a feature of Money; specifically its ability to enumerate. But because he hasn't clarified his thought on Money Vs Currency he takes two steps back. He gets drawn into an explanation of how 'moneyness' is established in currency (the story he tells is by the State). He's answering the wrong question.

The real question is how Money enumerates Value. The answer of course, is 'though currency'. Thinking about currency 'containing' moneyness in whatever degree is an ontological error. Money cannot be quantified. Money is the quantifier.

It would be easy to say that #bitcoin puts a hole in the arguments of State Theorists. But I think Geoffrey might respond that #bitcoin is an asset class denominated - for the most part - in dollars. In other words, without dollars (or pounds, renminbi, yen etc) #bitcoin would not be able to express its value. Given the way most folks tend to think about money (and don't distinguish between money and currency) this is a reasonable argument. I don't think its true. But it is reasonable.

In my view - which sees currency as an arbitrary term, and that all objects are currency - I see #bitcoin as something which performs a particular set of functions very well. Some not as well as the dollar, but some better. Its enumerative capacity is born from its relationship with Money, not the dollar. Of course we compare the two. But that's just us. It in no way proves that one relies on the other for its existence.

We could ramble on to Geoffrey's critique of theories of value (which is good, imo) but we've been there before. I picked up a secondhand copy of Zen and the Art of Motorcycle Maintenance yesterday. As a give-away book. I have it in hardback, softback and on my kindle already. Email/DM me and I'll send it to you.

Well, that was a quick one. I think the landscape is becoming more familiar. You know how journeys seem to go faster when you know the route.

A Review of Geoffrey Ingham's 'The Nature of Money'

This review appears on Amazon. Please pop over there and give me a 'like' if this review is useful to you. 

Ingham's book was first published in 2004, prior to the credit crunch of 2008 and before the birth of bitcoin. However, it would be a mistake to regard this work as anachronistic. The first 85 pages of the book, sectioned together as 'Concepts and Theories' is quite simply the best appraisal and review of theories of money that I've ever read. Ingham shows clearly the inconsistencies of thought that have riddled the various academic schools of thought on Money across the centuries. He explains how economics has claimed possession of the money phenomenon, which in turn has led the work of other disciplines, in particular sociology, to be neglected. Ingham does a brilliant job of explaining the important aspects of Simmel's work on money, and bringing into the light the work of Weber whose contribution seems to have been hidden in the shadow of his more famous work on the nexus of religion and capitalism. Ingham gives a penetrating critique of both the orthodox/Austrian view of Money and the Marxian view of Money. My only criticism of this first section is that it does not deal with the question of the difference between the terms currency and money. But this omission - I don't think Ingham sees any real difference between the terms - is not enough of a fault within the dynamic of the book for me not to award it 5 stars.

The second section of the book may be more problematic for some. Effectively Ingham endorses a view of Money akin to 'State Theory'. In 'History and Analysis' he gives his account of how Money is both born from and impacts upon social structures. He doesn't go quite as deeply as some anthropological texts do, in regard to the formation of indebted relations, but nevertheless provides a consistent and persuasive account of Money and power. His examination of the role of central banks is particularly strong. However, if you find that Inghman's emphasis on the role of the state grates against your libertarian or anarchist sensibilities, you'll find much to make you huff and puff in the second section of this book. What you won't be able to do though is make any claim as to a lack of rigor or consistency in Ingham's arguments. Indeed, his work challenges you to strengthen your own arguments.

For what its worth I do disagree with thrust of Ingham's argument. For me, there are fatal weaknesses in his non-differentiation of Money and currency, and in his (short) discussion of theories of value. I also think that the advent of Bitcoin creates questions which Ingham would find difficult to answer.  But, nevertheless this is one of the most important books written on Money in the noughties. It may not have the popular appeal of David Greaber's tome 'Debt', but at just over 200 pages it is both profound and succinct. Anyone claiming to understand economics should read it.

Money Wisdom #107

"In a Weberian social theory of value, calculability in money terms (stable money) of the capitalist economy is the result of the underlying predictability of the clash of interests in which money is a weapon. Stable money expresses a stable, but not necessarily equal, balance of power."

Geoffrey Ingham The Nature of Money (2004) p.203

Money Wisdom #106

After "moneyness" has been established by the issuer's money of account and embodied in a particular form (metal, paper, electronic impulse, etc.), only then does it take on the status of a commodity that may be bought and sold, for example, in foreign exchange markets. In other words, once money has been produced, then economic analysis is applicable, but it is essential to understand that it cannot explain the existence of money. [my bold]

Geoffrey Ingham The Nature of Money (2004) p.198

Money Wisdom #105

"As it is constituted by real social relations, money is an active element in social life - in Weber's terms, a weapon, as I have constantly stressed. The attribution of real force and efficacy to money does not entail a metaphysical nominalism, or more prosaically in orthodox economics' terms, a 'money illusion'.  This appears to be the case only if the economic system is taken to comprise nothing of importance other than the 'real' exchange ratios of commodities produced by individual optimizing strategies of economic agents. But this weapon.... ....is not only used despotically by the different interests in the constant economic struggle; it is also a collective resource - that is, infrastructural power. The advance of human society's organisational capacity has been accelerated by changes in the social production of money - most notably by the balance of power between money-capitalists and the state in early modern Europe. As Weber also concluded, capitalism, thrives on a delicate balance of its economic interests that prevents one group achieving monopoly dominance. He believed that too great a concentration of power in the hands of one class - labour, producers, rentiers, etc - would inhibit the dynamism of the struggle. Following the conception of money as a neutral medium in a frictionless system of economic exchange, the Maastricht Treaty attempted to de-commision the weapon. By doing so, the European Union has temporarily enfeebled itself. The logic of the situation suggests, but of course can never determine - that it regains the power only by placing its money in the hands of a sovereign body."

Geoffrey Ingham The Nature of Money (2004) p.196

Money Wisdom #104

"...I have argued that much of the early work on e-money has been the result of its conceptualization of money exclusively in terms of the function of medium of exchange. Many of the debates are strikingly similar  in their confusion to those that arose with the acceleration of the transition from metal to paper during the nineteenth century."

Geoffrey Ingham The Nature of Money (2004) p.187

The Bank of England's Dreaming

Yesterday this post - A Plea for Neutral Money - from @Britmouse appeared in my twitter timeline.

Now, leaving aside the issue of whether Money is or can ever be neutral, the thrust of the post is that the Bank of England is making it up as it goes along. Britmouse claims that "The actions of the Bank have not been consistent or logical since 2008" and at the end summarises by saying " if the patient is hyperactive, do not prescribe steriods." We'll come back to that last one.

Coincidentally, before reading Britmouse's post I'd just read this in Ingham's Nature of Money. I'll quote the whole thing. It's rather long but worth bearing with it. At the very least, after reading it you'll be able to totally rule any dinner party discussion around central banking.

"... academic economics sees the relationship between theory and practice as one in which the later is brought closer to the theoretical optimum. However, on closer inspection, it is clear that the expertise and transparency of monetary policy making is not securely grounded in the basic tenants of mainstream monetary economics. To be sure, the central bankers pay lip-service to the basic tenets of orthodox monetary theory, especially in the long-run correspondence of the quantity of money and the level of prices. But they acknowledge that this cannot guide their practice in dealing with what they see as short-term disequilibria. It is conceded that there is no satisfactory way of constructing empirically based models of these short-run effects, or of judging the relative merits of the models (Issing 2001 p7,21). If 'the key issue of exactly how monetary policy impacts on "real" variables over time is still only imperfectly understood' (Issing 2001 p7), how then do central banks and their experts actually go about their business? It seems that they do as they have done for several decades. Central banks depend upon accumulated conventional wisdom on the most important empirical signals of impending inflation. These conventional signals are, of course, modeled in ad hoc econometric analysis, but 'a straightforward selection of the "best", if not the "true", reference model becomes a matter of faith (Issing 2001 p40 emphasis added by Ingham).

Geoffrey Ingham The Nature of Money (2004) p.145-146

The book to which Geoffrey refers is Monetary Policy in the Euro Area by O. Issing (2001). 

So, central bankers aren't scientists. They're pragmatists. I'd say that the theoretical basis of their decisions is less relevant and less revealing than the political basis of them. It's just so much hot air. Look at what Montagu Norman, said of his time as Governor. "....we collected money from a lot of poor devils and gave it over to the four winds." I watched Mervyn King on Bank of England video say that "... money is just bits of paper, really". Really? It's a wonder why poverty is such a bugger to deal with then, if all you need to solve it is bits of paper.

Some folks liked Andy Haldane's 'Occupy was right' speech. For me it was more evidence of the inherent political 'nature' of central banks. The very thing they're not supposed to be, but inevitably are. I'd suggest the excellent Lords of Finance by Liaqaut Ahamed (my ramble on it) if you're unconvinced. It's a very well written history and the portraits of the four central bank governors are exquisitely made. My criticism would be that in judging the merits of the Governor's decisions Ahamed does labor under the idea that this economics malarkey makes some kind of sense. A mistake in my view.

I really think Central banks are sophists. But it's not like they have a choice. They have to be. It's their job.

Wanting them to be 'consistent and logical' is all well and good. But what we really want is reassurance. Reassurance that they know what they're doing and that everything's going to be all right. Whereas infact, we're asking them to turn lead into Gold; to deliver monetary and financial stability using mix of broken and partial theories about economy. And clearly they have no more of a clue as to what Money is, or where Value comes from, than anyone else. Or at least if they do, it's tacit knowledge. It's not available for deconstruction, modeling and prediction.

A few years ago I read Economics and Reality by Tony Lawson. A Cambridge colleague of Geoffrey Ingham. I'm not sure I understood everything Lawson was saying, but effectively what he was trying to do was to give a coherent philosophical basis (of 'critical realism') to the 'science' of economics. He (respectfully) critiqued Hayek and argued for a 'rule of thumb' approach to economics. He didn't mention Money once, nor I think does he mention central banks. I have his follow up Reorienting Economics unread on my book shelf.*

This gives you a flavour of Lawson's beef with economics.

"...the continuing failure of the discipline [of economics] must be put down to the often quite irrelevant, typically formulistic, methods and techniques which economists naively and unthinkingly wield in a forlorn hope of thereby gaining illumination of a social world that they do not 'fit'.

Of course, a failure to appreciate this, coupled with the corresponding persistent failure of the project to achieve any result of interest leads, in its turn, to the development of immunising strategies, ever increasing levels of technical complexity of models, the resort to computer simulations, and so forth. It leads, in short, to any response that is consistent with the misconceived, taken for granted, yet hardly fruitful standard conception of science being sustained." (p 225)

So its not central banks you should blame. It's economics and its ill-fitting white coat.

I'd say I'm more pragmatic libertarian than collectivist who believes in individual freedom (although I recognise the contradictions in both those descriptions). I'm more Hayek than Keynes. However, I do find myself in some agreement with Ingham and Lawson and the undercurrent in Modern Monetary Theory (MMT) that to some extent, it is science that will have to change if economists are to act as Keynes hoped as "trustees, not of civilisation, but of the possibility of civilisation". There's something wrong with science. Money and Value exist and science's failure to get to grips with them is not their failure, it's science's failure. Having said that, I don't think MMT, Lawson and Ingham are on the right path with their projects. I think ultimately a true understanding of Money and Value will be concomitant with a science that's tighter and narrower rather than looser and wider.

And not to let Freidrich off the hook either, as I've explored briefly in recent posts (and at length in some unpublished posts) his whole Value-Price-Money thing is wrong. Ingham is right on that. Money comes before price.

I think Hayek would agree about wanting economics to exist in a tighter and narrower science, rather than a looser and wider one. He was very hot on all that sort of thing. He doesn't generally give a great soundbite, but this is not too bad. If you watch the video you'll see a cheeky, almost self-satisfied smile after he says it.

"The fact however that socialism is a logical result of rationalism does therefore not prove that socialism is right, but rather rationalism is wrong."
(here at about 41 minutes)

You wonder why we bother listening to central bankers at all. (Or perhaps we don't?)

[I recommend keeping an eye on Magic, Maths and Money by Tim Johnson for a high-level critique and discussion of the maths/money/science nexus (I don't claim to understand all of Tim's work - I feel mathematically illiterate when I read his blog)]

Anyway, back to that patient being hyperactive, but prescribing steroids (originally from an article in FT - it's paywalled so I won't bother linking). Economists/central bankers being like medical doctors is a good comparison. (Although I'm not sure the steroids/hyperactivity metaphor holds water, but we get the gist).

Nassim Nicholas Taleb NNT says “Doctors most commonly get mixed up between absence of evidence and evidence of absence” - You could equally apply this to central bankers.

I have a problem with Doctors, too. For me, the very idea of medical science sounds a klaxon in my head. If there's a blog out there like this one, except by a van-driving frustrated biologist or medic, instead of 'What is Money?' their question would be 'What is Life?' I suspect that the exploration of either question would expose the same deep fissure in science. Below the level of NNT's complaints about evidence there are fundamental problems with theory. With ideas. Specifically with descriptions of phenomena (Money, Life) morphing into definitions.

However, just like the general population with the proclamations of central banker, if I, or a loved one feel ill, I'd visit a doctor, listen to what he has to say, and whatever my thoughts on the efficacy and applicability of scientific methodology to the health of living organism, I'd probably follow the doctor's advice.

Unless of course, I felt otherwise. And my faith in my feeling outweighed the credibility and authority of the doctor's advice.

It all comes down to Value in the end.

* mindful that NNT says;

“Read books are far less valuable than unread ones. The library should contain as much of what you do not know as your financial means, mortgage rates, and the currently tight real-estate market allow you to put there.” The Black Swan. The Impact of the Highly Improbable

Money Wisdom #103

"Capitalist credit-money connects the state with the bourgeois classes. The institutional structure of this form of money consists in three-way debtor-creditor relations between the state, rentiers and taxpayers, which are mediated and reproduced by a public bank, an efficient bureaucratic administration and a robust Parliament."

Geoffrey Ingham The Nature of Money (2004) p.131

Money Wisdom #102

"In effect, the privately owned Bank of England transformed the sovereign's personal debt into a public debt and, eventually in turn, into a public currency."

Geoffrey Ingham The Nature of Money (2004) p.128 [original emphasis]

Money Wisdom #101

"..early coins represented a transition between money (fixed by money of account) and a convenient medium of exchange with a variable exchange rate."

Geoffrey Ingham The Nature of Money (2004) p.99

Money Wisdom #100

"...by 3000BC in agrarian command economies, counting and writing were integrated in a system of money accounting to represent goods, debts, symbols of status and, most importantly, the mediating link between the sacred and the profane."

Geoffrey Ingham The Nature of Money (2004) p.94

Money Wisdom #99

"Wergeld expressed the two meanings of "worth" that derive from the two basic elements of social structure: the utilitarian and the moral."

Geoffrey Ingham The Nature of Money (2004) p.92

Money Wisdom #98

"Money lies behind coinage."

Grierson (1977) p.12 quoted in Geoffrey Ingham The Nature of Money (2004) p.89

Money Wisdom #97

"...the economic ties that are constituted by the vast network of credits and debts fundamentally comprise a 'moral' network that depends on the keeping of promises."

Geoffrey Ingham The Nature of Money (2004) p.77

Money Wisdom #96

"In short, the monopolistic imposition of a money of account, and a refusal to accept any other than the approved credit tokens of the issuer, go hand-in-hand with the monopolization of physical force."

Geoffrey Ingham The Nature of Money (2004) p.76

Money Wisdom #95

"The identity between quantity and quality, which is found in Measure, is at first only implicit, and not yet explicitly realised. In other words, these two categories, which unite in Measure, each claim an independent authority."

Hegel, Georg Wilhelm Friedrich The Logic. Encyclopaedia of the Philosophical Sciences (1874) p.108-109

Money Wisdom #94

"Furthermore, this [orthodox] approach strongly implies a teleological, functionalist explanation of both money's origins and its continued existence. It is held that money evolved to overcome costly inefficiency in market exchange for both individuals and the system as a whole. Money clearly does have efficient consequences, but unless they can be shown to have been in the minds of the earliest users of money, they cannot be taken to be causes of origin. As we shall see, the historic record does not support these conjectures. Moreover, it is also obvious that mere knowledge of money's advantages is not sufficient to bring about a viable monetary system or to guarantee its persistence. Money has definite social and political conditions of existence; it is an 'institutional fact' with 'constitutive rules' (Searle 1995:13). "

Geoffrey Ingham The Nature of Money (2004) p.70

Money Wisdom #93

"Typically, Weber confronts both economic orthodoxy and its socialist critics.* Prices, which in conventional theory are the result of the interplay of supply and demand, are seen as the 'product of conflicts of interest [that] result from power constellations' in 'the struggle for economic existence'. Consequently, money is not economic theory's 'neutral veil' draped over exchange ratios of commodities. Rather, money 'is primarily a weapon in this struggle, and prices are expressions of this struggle, they are instruments in this struggle only as estimated quantifications of relative chances in this struggle'.**

* Weber 1978: 78-80, 107-109    ** Weber 1978: 108

Geoffrey Ingham The Nature of Money (2004) p.67

A Review of Art and Money by Marc Shell

Here's my review of Marc Shell's Art and Money. I've put on amazon here so if you like it, as ever, please do pop over to amazon and 'like' it. I love getting a few 'likes', it really makes my day.

"This is a beautiful book. It's made me into a fan of Marc Shell's work.

I read Shell's 1982 work 'Money, Language and Thought' some months back. I found it a difficult work to digest. I'm not used to the language and style of literary criticism and had read only some of the literature he examined. But I got enough from the book to make me want to read 'Art and Money'.

I was rewarded. Having the image alongside the criticism is hugely effective. The arguments he makes are often complex, but then so is the subject matter. The book leaves you with more questions than it answers. The language used is also at times difficult. But the book is relatively short at 140 pages or so.

You get a sense of a deep-thinking man enthralled with his subject. I found the section on Christianity particularly fascinating. There is an element of psychoanalysis in Shell's work. It takes us to places where no other text on money has. For example, the Myth of Danae and the golden annunciation are scrutinised as representations of sex/money symbolism; a shower of gold from above. The theme of the Holy Grail (covered very well in 'Money, Language and Thought') reoccurs in Art and Money. Like money the Grail is 'both homogeneous and heterogeneous with all things' (p.20). And there is also the thorny issue of usury. That most unnatural form of reproduction, money from itself, is mentioned in several places. Most enthralling was placing it in the context of the immaculate conception.

There's even a chapter on the Holy foreskin.

It's quite an expensive book (I got mine secondhand) but I heartily recommend it. Shell has included some images of his own. I imagined them to be pictures he'd taken on overseas vacations where he just can't stop noticing the links between art and money and enthusiastically pulls out his camera to take a photo, possibly annoying the hell out of his traveling companions. And the book has a sort of on-a-journey feeling, really. It has a tempo to it. And whilst the terrain is challenging, your guide in the form of Shell is hugely well-informed, well-read and fascinated with his subject. You know he could have written a book twenty times as long, but instead composed a travel-log of the most interesting bits of his journey through Art and Money."

Money Wisdom #92

"Money is that 'which purely in itself is of no material use to man but which acquires such an estimation from his opinion of it as to become the universal measure of what is called value' (quoted in Schumpeter 1994 [1954]: 297)"

Sir James Steuart (circa C18th)  quoted in Geoffrey Ingham The Nature of Money (2004) p.40

Money Wisdom #91

"The labour theory of value committed Marx, and his successors, to a version of the commodity theory of money, with all its attendant errors. To this extent, Marx's general theory of money was mistaken. He could not have been more wrong, and the error could not have been more unequivocally stated. 'The principal difficulty in the analysis of money is surmounted as soon as it is understood that the commodity is the origin of money ' (Marx 1970: 64). Most importantly, this attachment to the labour theory of value of commodity-money prevented Marx from realizing that his theory of capital as a social relation applied also to money."

Geoffrey Ingham The Nature of Money (2004) p.61