I have never spent much time thinking about money, perhaps because I have never had enough to worry about keeping or losing it. Ignorance, however, is no serious obstacle to the hardened pontificator, who, armed only with coffee, tobacco, and access to the errors of Wikipedia, feels up to tackling any subject. The American publishing industry—academic presses in particular—is proof of Pope’s observation on the bliss that rewards ignorance and condemns wisdom as folly.
Since money is so much a part of how we live and think, it is impossible not to have some curiosity about what it is and how it evolved. For that reason I looked forward to reading Niall Ferguson’s The Ascent of Money, hoping to learn something about the nature and evolution of money. I found it an informative and absorbing work, but, although he did have some interesting things to say about banking and the Rothschilds, Ferguson seems to know even less than I do about the origin of money and the first two millennia of its history.
Ferguson is content to quote the conventional view of money as “a medium of exchange, which has the advantage of eliminating inefficiencies of barter; a unit of account . . . and a store of value, which allows economic transactions to be conducted over long periods as well as geographical distances.” This description of some of money’s characteristics falls far short of being a functional definition a philosopher might accept, and the addition of other conventional attributes—“available, affordable, durable, fungible, portable, and reliable”—supplements the confusion with details but without enhancing anyone’s understanding.
To be fair to the man, Ferguson is interested primarily in the triumph of money over reality, a march that began in the Renaissance, and not with the nature of the beast. He accepts the conventional view that money is essentially a means of facilitating exchange without any intrinsic value, which is what nearly every major economic thinker since Adam Smith has believed. But what if Smith and his successors are as wrong about money as they are about every other aspect of moral philosophy?
After offering his unsatisfying description of money, Ferguson plunges immediately into a discussion of the first known currency, electrum coins issued in Lydia, and, although he notes the shortcomings of electrum (a gold-silver alloy of unpredictable proportions), he hardly even takes up the question of why precious metals should have been made the basis for money except to note that “the value of precious metals is not absolute” but depends—like tulips, peppercorns, or animal skins—on the laws of supply and demand.
This observation, while true, is misleading. Throughout most of its history, money, to be money, had a perceived value independent of the decree of a moneyer (or, rather, his ruler) that declares something—say, a small green rectangular piece of paper—is legal tender for all debts, and labels anyone who says nay a traitor. Long before the Lydians began issuing weights of gold with a designated value, precious metals were a prized commodity. An ounce of gold could already get in exchange X ounces of silver, Y number of cattle, Z amount of a bride-price. I think this point is essential if we are not going to fall into the trap of subjective value that afflicts even libertarian gold bugs, who prize gold for holding its value independently from government dictates but still think that value, like beauty, is in the eye of the beholder.
Real money does not have to be made of gold and silver, but it must be a precious commodity. I know this flies in the face of the “classic” discussions of money from Georg Simmel to Ludwig von Mises, but unless you are prepared to accept the theory of subjective value in aesthetic and moral discussions, you should proceed with caution when the argument is applied to money. Money is, admittedly, an evolving human institution that manifests itself in various ways in different times and places, but the same might be said of marriage, the family, and homicide law, where the theory of subjective value leads to same-sex marriage, the parens patriae power of government educational systems, and slaps on the wrist for brutal murderers.
It is not that economists have not added powerfully to our understanding of how money functions in a society, but that their analysis has left out the glaring historical fact that money, however creatively it might be developed or reduced to an abstraction, takes its origins from metals regarded as possessing intrinsic worth. Philosophers and statesmen from Aristotle to Saint Thomas to Thomas Jefferson took for granted the intrinsic value of gold and silver coinage. It is with the development of the shenanigans associated with modern finance and business—bills of credit, and fractional-reserve banking—that the picture gets clouded.
In converting bullion into money, first Lydians and then Greeks both added and subtracted something from their gold and silver. What they added was a guarantee of value. A ruler might force his people to accept (temporarily) debased coins, but he would be putting his merchants and bankers at a disadvantage in foreign markets that would quickly discount or reject the cheaper products. The coin was given both a numerical value and an image of the king or city that issued it. This is a point worth emphasizing.
Christians will recall Jesus’ observation when asked if it was right for Jews to pay taxes to the Roman Empire. Calling for a coin, He asks whose picture is on the face. Informed it is Caesar’s, He tells the Pharisees to render unto Caesar the things that are Caesar’s. In addition to the many important insights to be gained from studying this passage, it helps us to understand the relationship between money and political power. The face on the coin is that of the ruler whose regime guarantees its weight and composition. Naturally, when the king gives with one hand, he takes with the other: States issuing coins regularly overstate the value of the metal in order to cover the costs of making and circulating money.
Money, then, from its inception is something of agreed-upon worth, on which the ruler stamps his image or symbol along with an official value. The integrity of a regime is intimately bound up with the authenticity of its money. Roman emperors of the third and fourth centuries were faced with the serious problems occasioned by inflation (that is, by debased coinage) and by corrupt mint officials who abstracted some of the silver and gold for their own use. Powerful rulers like Aurelian and Diocletian took strong measures to restore Roman coinage, just as they built and repaired walls and disciplined their troops.
Diocletian, while he was so unwise as to attempt to fix wages and prices, knew that he could not turn lead into gold by declaring “fiat” (a Latin translation of Sir Paul McCartney’s refrain, “Let it be”). Fiat money is no kind of money at all but a debt owed by a government to the people forced to use inherently worthless paper as a means of exchange on pain of arrest and imprisonment. If you don’t believe this, try the experiment attempted by some friends of mine who set up a labor exchange and filled in with gold coins. They were harassed, humiliated, arrested, and imprisoned by the agents of the U.S. Treasury that jealously preserves the government’s monopoly on money, which is remarkably like Monopoly money—valuable only as long as one is playing the game and accumulating paper assets.
All honest libertarians and many conservatives object to fiat money, which is, in essence, a government coup that nationalizes wealth and property. Some of them are beginning to have similar reservations about the government’s seizure of control over other basic human institutions such as marriage and childrearing, but they typically fail to grasp the philosophical or rather ideological justification, which is the abolition of objective judgment and its replacement by various forms of the theory of subjective value. If money can be whatever a government says it is, then so is marriage, parenthood, moral decency, art, music, and—ultimately—basketball. Despite the obvious fact that female players cannot compete successfully with males, women’s basketball is protected and subsidized by government.
There is no end to this Sherman’s march through natural and traditional values. Today’s obscenity is tomorrow’s tolerated eccentricity and next week’s obligatory virtue. And, since there is no limit to the amount of fiat money that can be issued, we can live out Stevenson’s little fantasy:
The world is so full of a number of things,
I’m sure we should all be as happy as kings.
Modern Americans and Europeans, certainly, have so much of it, whatever the “it” in question is, that they are rolling in the stuff. Ordinary people are so rich that they can afford to buy any number of things: houses the size of cathedrals and creature comforts beyond the avaricious dreams of Caesars, Bourbons, and Habsburgs. We are so affluent that we can afford to diddle our brains away, texting, sexting, and nexting inanities that the least of the Caesars’ slaves would have been ashamed to mutter, as he carried in the imperial chamber pot.
By “nexting” (a term I just coined) I mean our obsession with having every new gadget or application, even before we know if it is good for anything. As soon as “Frank” (name changed to protect the guilty) got his iPhone 5, he was champing at the bit for upgrades and apps, and within a few months he was already pining for the arrival of the 6. It is no longer the specter of communism but the ghost of Steve Jobs that is haunting the capitalist world.
The infatuation with Apple products is a caricature of consumerist greed, and while it has not actually been the cause of the growing stultification of the American middle classes, it is certainly a dramatic illustration of what can happen to people who devote themselves to comfort and process at the expense of creativity and production. If money to buy things—and not the quality and integrity of your work—is to be the criterion for success, then the failure to become seriously rich is an existential failure. A man might devote himself to music and consider himself happy and successful if he made a decent living teaching the violin and playing in a municipal orchestra, but an aspiring rock star will chew on his liver his entire life if stardom eludes him. Those who fail to make it as American idols—whether as a Kelly Clarkson or as a Bill Gates—must be content to be merely American idolaters.
Since before the Great War, each generation seems to know less about how to spend its excess wealth and free time. Nonetheless, their money and stuff (at least until the recent crash) continues to pile up almost as high as their debts. Even if it is unreal, so much buying power is a puzzle. Someday some people, presumably, will have to begin to pay the price—or will they?
This question becomes acute when our official national debt is over $16 trillion, which in principle should be paid by the roughly 100 million people who pay federal taxes (as opposed to those who file returns), of whom a significant percentage are net tax-consumers who depend directly or indirectly on government for their income. My wife and I together owe, depending on how you count, over $300,000 or a great deal more, and if we are permitted to take 30 years to pay off our debt-mortgage at a rate of five percent (today’s artificially low rates cannot last), it will be something more like $1,300,000. Even 3.5 percent would get us over $800,000. Think of this the next time some union-dues-paying Democrat tells you how Obama is guaranteeing his mortgage, bailing out his industry, and paying his medical bills. Every politician who signed off on the Bush and Obama deficit increases should be put in the stocks, especially those fine fiscal conservatives like Mitch McConnell.
Obviously my generation will never be able to pay off the debts that we and our parents—the greatest generation—ran up, nor will our spoiled children and grandchildren pay it. What happens then, when Americans begin to realize that they are paying tribute (not taxes) to an alien and oppressive regime that is almost entirely devoted to taking care of its own—namely, crooked congressmen, incompetent bureaucrats, corrupt cops, illiterate schoolteachers, busybodying welfare workers, and parasitical welfare dependents who are draining the lifeblood out of the American working class, which these days includes doctors and lawyers as well as plumbers and carpenters?
Inevitably, some frustrated readers will ask what can be done. The question is naive. If the American people had any sense at all, they would not have incurred this debt. They are for the most part like the greedy homebuyers who allowed themselves to be conned into taking on mortgage debt they could not possibly pay off except on the improbable scenario of an ever-increasing rate of rising housing prices. The best we can hope for is a massive debt repudiation aimed at punishing imprudent foreign investors in the empty American treasury and the bankrupt American future. That was Murray Rothbard’s prescription to Chronicles readers some years ago, and it is still valid today.
So long as we are building castles in Spain, why should we not go back on the gold standard? Economists, an entrenched block of theorists as impervious to facts as adherents of phrenology or the phlogiston theory of combustion, will give you dozens of arguments against gold. Let us suppose they are right. In our world, real value can be measured in terms of energy production. We could create some sort of oil-and-gas market and issue paper on the basis of gallons or cubic feet—we might, as a joke, even call these petrodollars. Fluctuations in value could easily be evened out by an averaging formula and/or restrictions on the intervals at which calculations are made. The point is that wealth would no longer be whatever is decided by Tim Geithner or Hank Paulson or by Ben Bernanke or his Randian predecessor.
If we are ever going to be free again—a dubious prospect, I have to admit—we have to begin to think a great deal more creatively on how to strip government of the power to declare value, whether the value of the dollar or the value of marriage. Everything else is a childish game designed to distract Americans from reality. We are not so much rearranging the deck chairs on the Titanic as we are going to the bottom oblivious to everything but the poker we are playing with the officers who deal from the bottom of the deck. We know the captain is a crook, but we trust the Republican purser and steward who understand business.