Thursday, July 25, 2013

Another Muddled and Hopeless Quest to Abolish Money

Hugh Macdonald (Chief Sports Writer) of The Herald (Glasgow) (7 July) reviews Felix Martin on “The Power of Money” HERE 
It is a source of some shame that this correspondent's philosophy of money is not primarily derived from the genius of fellow countrymen Adam Smith or John Law but instead from Neil Diamond, that singing sage, who advised the world that ''money talks, but it don't sing and dance and it don't walk''.
Those sceptics who doubt the verbal dexterity of money may be convinced by the deeply felt assertion that it always says goodbye to me.
He begins with a flourish, casually dismissing any notion that money was ever a substitute for the barter system. Money is a different beast entirely and it is necessary to understand its birth, growth and capacity to wound if economic problems are to be addressed in any meaningful way.
Martin bounds through his subject, casually throwing out fascinating observations on the Iliad, the Irish famine and quantum physics with the zest of a successful gambler tipping a casino doorman. However, the importance of the book should not be underestimated. It addresses matters that affect lives. Money, of course, is merely transferable credit. It has the curious quality that 97% of it does not exist in any physical form but this does not diminish its power to ravage the world with a devastating regularity.
The rhetoric of austerity, the reality of global hunger, the political squabbling over agendas all owe much to the awful truth that while most do not understand money, no one is able to control it.
The declaration of Thatchersim that the markets ''would decide'' was always imbecilic but the effects of that stance can now be viewed in their full 3D grotesqueness. This is a world where debt is parcelled together and people – educated people – queue up to buy it and then recoil in shock when it is revealed that snapping up the mortgages of a garage attendant in Louisiana who has seven properties, most made out of tar paper and costing a combined hundreds of thousands of dollars,  may not be the wisest investment.
The result of this state-approved madness is that capitalism causes huge disruption and money is the virus that paralyses us all .…
… This fate is elusive for most of the rest of us who are the victims of a system that is, at best, capricious and, at worst, so flawed that regular financial depression is not just to be guarded against but to be expected.
This is the most stark, brilliant and chilling central theme to Martin's extraordinary book. What if it is the system itself that produces crises?  What if money, which is only confidence in another form, does not deserve the faith we put in it? What if it is not just the corrupt or avaricious or incompetent human beings who are to blame but money itself and the unsustainable demands it makes on economies? …
… The first reverberations of the crash of the noughties had just been felt when this was said by a personality who looked at economics with a stunned incomprehension.
''I found a flaw. I have been very distressed by that fact. I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works."
This awful realisation was made by Alan Greenspan, the longest serving chairman of the Federal Reserve and perhaps the most influential and knowledgable figure about the workings of the global economy in the two decades leading up to the crash.
Not only did he not see the catastrophe coming but he fears the system's failures mean it must happen again. And again. Mr Greenspan is defeated and demoralised.” 
Allowing for the fact that the author of this review of “The Power of Money” by Felix Martin, is not a practicing economist and the author of the book is well qualified academically to be one, it is difficult to disentangle the reviewers erudite and articulate writing from what may be worthwhile or worse in Felix Martin’s ideas in his book.  Frankly I am not convinced.
That Felix Martin quotes from Alan Greenspan, a mainstream neoclassical economist of the first rank, whose personal surprise at the unfolding economic and banking crisis included a sort of retraction of his former belief in the modern invented myth of Adam Smith’s “invisible hand”, is revealing.  He didn’t retract anything about the theory of money so vividly expressed by Felix Martin.  I am not surprised. 
Martin has his own theories on money and unimpressive they are too.
Leaping across the millennia since the evolution of money in the late millennia of early history BCE right to “capitalism”, an unknown word in English until used by Thackeray in his novel the ‘Newcomes”, in 1854.  Hence long before “capitalism”, a distinctly original development in the evolutionary developments in nascent market economies since classical Greek and Roman times (and ancient Babylon, Egypt and China before then).  In short money and its roles have a long history in various regimes before the late 19th century (CE).
The thesis that Adam Smith was wrong about the long history of “Truck, Barter, and Exchange” (since the origins of the faculties of language and reasoning, WN I.i-ii) recently has been rehearsed several times recently, notably by David Graeber, an anthropologist, in his “5000 years of Debt” and is asserted too in this book by Felix Martin.
I think the assertion is not well founded. Hugh Macdonald  says Martin writes: “He begins with a flourish, casually dismissing any notion that money was ever a substitute for the barter system. Money is a different beast entirely and it is necessary to understand its birth, growth and capacity to wound if economic problems are to be addressed in any meaningful way”. I am sorry to assert that this is too hasty, even for “casually dismissing any notion that money was ever a substitute for the barter system.” 
Dr Graeber is also too hasty. Note that Smith was using 18th-century language to explain a fundamental notion of “exchange” throughout the millennia, of which not too much detail was known at the time.  Today, at the press of a few buttons massive details of many details of daily life in early human societies is knowable, none of it available to Adam Smith (or anybody else).  Smith was examining the long generation of relationships as he conjectured they evolved from the hunter-gatherer societies living still close to the exploration range and the few overseas settlements of Europeans at the time (Africa, the Americas).
He used the common words for exchange of effort for physical goods (“Trucking” – made illegal in 1822) and goods for goods (“Barter”) (still legal and widely practised). 
He also added the word “exchange”, widely misunderstood to be solely synonymous with “traded bargains” (e.g., Graeber, et al).  It isn’t solely nor predominantly synonymous with “trade”, nor does it necessarily have anything to do with traded transactions in market like environments.  Here the anthropological belief of some scholars has misled them into error about Adam Smith, not to mention all those modern economists who make similarly misleading conclusions (few of them have any idea of economic history, hardly taught now in universities, even in most economic departments).
In Smith’s works he deals with a great deal of historical context, in, say, his “Lectures on Jurisprudence”.  But also the historical context dominates in his History of Astronomy (first three parts); his Origins of Language; throughout both his Theory of Moral Sentiments and Wealth Of Nations.  In all his Works, exchange runs through them all.
It also is present significantly in most anthropological accounts, though many of the researchers seem to miss it, primarily I believe, because their attention is locked on “exchange” as bargaining alone. 
Even here they tend to characterise bargaining as an interchange in which one party “wins” and the other party “loses” (see Chris Stanford’s “The Hunting Apes: meat eating and the origins of human behaviour” (1999) – an otherwise worthy popular account.  Also the same error is broadcast in Graeber’s “5,000 Years of Debt”.  If true, why would anybody negotiate to “lose” regularly in a market economy?  Power dimensions would enforce the ruled into losing in social exchange, as they did, and unfortunately still do in totalitarian societies.
The error enables Graeber to characterise such exchange transactions as a man attempting to pay for his debts by his wife and children going into “debt bondage” to the creditor – including the effective prostitution of his wife and female children - as a “human economy” somewhat superior in his thinking to market exchanges!
Felix Martin’s overall picture of the “state-approved madness [that] is capitalism” allegedly causes huge disruption” such that “money is the virus that paralyses us all”. 
Yet at no time in the entire history of humanity did the pre-market societies raise living standard for the majority of the populations living in market economies to anything close to that (still) experienced in the so-called “austerity” few years in the current crisis. 
Indeed, the average income and access to technology of those earning it today makes them incomparably richer that the most powerful rulers of their predecessors through all the ages experienced by those same predecessors and their, often, quite vile rulers (Smith’s words for them!).
People blinded by ideology fail to see what is happening before their eyes - and as experienced in their own comparatively pampered lives, as ex-Yale and ex-Oxford graduates.


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