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.
READER COMMENTS
Bo Zimmerman
Nov 6 2009 at 10:51am
Jefferson once said “It is the natural order of things for liberty to yield and government to gain ground”.
Is it possible then that both are right? After all, you may explain a national currency by conquest, but how would international trade be possible then, and how would people have done indirect trading before the warlord showed up?
Mike Sproul
Nov 6 2009 at 11:20am
Speculation about how money develops is sometimes useful, but it’s better to look at actual historical cases of newly-created moneys, such as the playing card money introduced in Quebec in 1685, the paper shillings introduced in Massachusetts in 1690, the paper pounds issued by the Bank of England in 1694, the paper money issued by John Law’s Banque General around 1715, the continental dollars introduced in the American Revolution, the Assignats issued during the French revolution, the paper dollars issued by private American banks between 1836-1861, the Greenback dollars issued in the American Civil War, etc.
Try this link:
http://www.csun.edu/~hceco008/papermoney.html
or click on my name above.
david
Nov 6 2009 at 11:23am
The problem with the warlord theory is the near-universality of the use of shell-money for trade, even across vast distances. As Zimmerman above points out, there is the issue of “international” inter-warlord-jurisdiction trade.
Besides, cowry shells were essentially jewellery, so it was a commodity money to begin with. No need to posit exotic warlord theories (which require settled wealth and societies to begin with) in order to give the money value.
ThomasL
Nov 6 2009 at 12:30pm
I’d imagine even in the most desperate times of history the number of transactions related to war and plunder was small compared to the normal business transactions of purchasing bread, cloth, housing, furniture, tools, &c.
My own view would be that commodity money emerges naturally, but is almost always co-opted by the state to serve its own interests.
That is, a little of A and a little of B.
Colin K
Nov 6 2009 at 12:36pm
I think of money as being related largely to scale.
Money is of limited value if your village consists of a blacksmith, a potter, and a hundred farmers, and everyone knows each other. Move to a town with bakers, cobblers, masons, doctors, and prostitutes, and most people don’t know each other, and bartering becomes very inefficient.
Likewise, you cannot have bakers and cobblers without lots of people to grow wheat and tan hides, and you cannot have those that without warriors to prevent the people over the hill from raiding you. In this regard, we can consider warmaking as just another occupational specialization which developed as villages became large enough to support a caste of able-bodied men who did not hunt or gather.
Alex J.
Nov 6 2009 at 12:46pm
“National governments created national monies at the expense of their peoples”, doesn’t prove “National governments created money.” It doesn’t rule out national governments arrogating private monies.
Yancey Ward
Nov 6 2009 at 12:56pm
Maybe we can now answer that age old question of why some people want to steal.
fundamentalist
Nov 6 2009 at 1:59pm
Read the OT in the Bible. Money started out as chunks of silver. People would sell things for specific weights of silver. There were no coins. When states saw the power of money, they wanted to control it. That’s when Kling’s theory of money kicks in.
Ryan Vann
Nov 6 2009 at 3:15pm
I have to agree with Thomas L.
Most money was likely emergent, with various currencies being experimented with by inventive people, became normalized in culuture as a medium of exchange, and was eventually co-opted by government (in part to do the things you mention).
Either way, it is all ancient history now. Knowing whether money was originally emergent or originally designed by some ruler doesn’t explain much of the current world.
James A. Donald
Nov 7 2009 at 2:45am
But we have observed early money, most recently in late stone age papua new guinea, where money was dog’s teeth and salt.
No warlords involved.
Primitive capitalists involved, not in issuing money, but in borrowing and lending at interest, in a story that could have been written by anarcho capitalists.
Juan Fernando Carpio
Nov 7 2009 at 3:38am
But, Mr. Kling, money can’t be designed.
Governments do pay their servants with bonds, etc, but that’s not money, those who get them try to get rid of them in favor of real money ASAP. Money has a demand, there’s the desire to hold it.
Inflation (thanks for fiat money and central banking) is so pervasive, that it makes money less desirable and this essential difference between fiduciary media and real money is thus obscured. Us Austrians should try and and keep categories clear in our minds at all times and be able to devise counterfactuals.
Jacob Oost
Nov 7 2009 at 5:01am
Money is definitely emergent, although much like markets they often wind up being co-opted by governments. Think of cigarettes in prisons/POW camps. No authority issues them as money, they are rationed as goods, but the *need* for money leads to their emergence as a money supply.
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