Money--Designed or Emergent?
By Arnold Kling
Economists generally take for granted, if only tacitly, a teleological view of money’s historical development, according to which it first takes the “primitive” form of mundane commodities such as cowrie shells and cacao seeds, and then advances through various stages, culminating in the national fiat monies most economies rely upon today.
Money, Markets, and Sovereignty offers a spirited rebuttal to this naively “whiggish” perspective. Instead, its authors — Benn Steil and Manuel Hinds, senior and former fellows, respectively, of the Council on Foreign Relations — argue that the principal effect of national monies consists, not in their contribution to economic prosperity, but in their capacity to assist national governments in their efforts “to extract wealth from their population and to exercise political control over them.”
In some ways, it is appealing to think of money as an emergent phenomenon, arising to serve the needs of market exchange. However, as you know, I prefer to think of money as designed top down, to serve the needs of government. The warlord wants to write a contract with soldiers, promising them booty in exchange for service. That contract takes the form of coins. Initially, those coins can be used by soldiers to claim their share of booty from the warlord. However, because they are accepted by the warlord, they are also accepted by other people within the warlord’s jurisdiction, so that they circulate as money.
Evidently, there is some overlap between my views and the views of the book that Selgin is reviewing. Thanks to Don Boudreaux for the pointer.