THE NATURE OF MONEY

Geoffrey Ingham

Polity, Cambridge U.K., 2004, 254 pgs., index, references, notes, paperback

Reviewer Comment
- This is an excellent book on Money that I have found so far. Not surprising, I guess, that it is written not by an economist but rather a sociologist. Thus, he maintains that money is a social instrument. The author completed his writing in 2003. I wish we could learn what he thinks about the subsequent financial events during the last 13 years. There are many striking comments throughout and I will attempt to highlight them below. The bibliography and end notes are also a mine of great value. The first four chapters are mostly a discussion of theory. Then, with Chapter 5 the author wants to tell the story from as near the begining as possible - a short bit on tribal and clan versions of money, then a bit more on the role of money in the early Egyptian and Mesopotamia societies which had money but not coinage. Then comes the advent of currency - money made in metallic coins used in Greek and Roman societies. All this is described at length in more detail in Davies and Martin. But Dr. Ingham focuses on the aspects of these ancient forms of money relevant to consideration of what money is today. Now the two essays by Mitchell Innes reprinted in Randall Wray's book Credit and State Theories of Money are very important. And an essay by Ingham is in that book as well.
The story becomes more complex in Chapter 6 on the evolution of money in medieval Europe, because the social - political environment in which money developed was very much more complex. He shows that it was this complex social- political situation that created such a complex monetary result in which 'credit' used throughout history became more significant and wide spread. Then in Chapter 7 he describes the completion of the process in which the result was the full deployment of 'credit' as the major form of money. In Chapters 8 and 9 he discusses the recent, current, and possible future developments of 'money' have been and may be.

Readers who only want to understand the nature of money today and believe the author can begin with Chapter 7, but for those who cannot believe, without study of the extensive historical record of money before their eyes, may need to begin with the evidential record the author has laid out from Chapter I.
As much as this is a brilliant explanation of the real concept of money and its misunderstanding by establishment economists, it still does not address the more fundamental problem - that is the real nature of 'value'. It is confusion over what is 'value' and how it is created that in turn poses the problem of representing 'value', let alone measuring it, in terms of money.
Other excellent references are Jacob Goldstein - and Peter Bernholz

Introduction
- Dr. Ingham writes here a full summary of his theories and the arguments he will use in subsequent chapters. To begin, "Money is one of our essential social technologies, along with writing and number."... "Money plays this indispensable role by performing the familiar list of functions of the economic text book, It is a medium of exchange, store of value, means of unilateral payment (settlement), and measure of value (unit of account)"
Right off, he asks if money has to perform ALL of these at the same time. I say NO. And he notes that by attempting to define or explain money by a list of functions, theoreticians have skipped answering the questions, "Well what IS money?" And 'Where does come from? And Who makes it?' He begins with description of what Adam Smith and 'classical' economists thought. Smith noted that in its function as a medium of exchange it makes easier the division of labor and exchange of products by making multilateral exchange practical. Adam Smith contrasted this with the presumed primitive method of 'barter'.

(Smith and his contemporaries could not know better, but as Graeber shows no such method of exchange as barter for internal use has been discovered among ancient societies.) Next, money is a method for 'storing abstract value'. (I will discuss 'value' later.) And Dr. Ingham lists several more related consequences.

The author continues, quoting Weber, "All of these consequences are dependent on what is, in principle, the most important fact of all, the possibility of monetary calculation". (For discussion of Weber see Muller) This third attribute of money, as a measure of value (money of account), enables the calculation of actual and potential costs and benefits, profits and losses, debts, prices. But there is much more. Dr. Ingham describes social functions as well. "This is not simply a question of possession and/or control of quantities of money - the power of wealth. Rather, as we shall see, the actual process of the production of money in its different forms is inherently a source of power."

Here is a vital truth, hardly understood or believed today. "For example, modern capitalist money is bank credit-money that is produced on the basis of credit ratings that reinforce and increase existing levels of inequality by imposing differential interest rates." And further, " 'Cash' - portable things that we take to be money - is still used in 85% of all transactions, but now amounts to only 1% of the total value of monetary transactions. In other words, actual media of exchange are now a relatively insignificant element of most monetary systems, but consciousness of money is still formed to a significant extent by the small-scale transactions."

He asks, "Where is the quality of 'moneyness', located?" In other words, what attributes can one designate that makes something 'money'? And he answers that in general there are two concepts about this; one is the commodity theory and the other is the claim theory. Standard economic theory considers 'money' a 'medium of exchange'. But this has three meanings. One is that money is a commodity that can be and is exchanged. another is that it can be a symbol for the commodity or it may be a symbol for a representation of a group of commodities. This means money is a 'universal commodity' 'one that can be exchanged for all others.' In this theory all the other functions identified that 'money 'may perform are included in this general function.

But an alternate and quite different concept is that 'money' only exists as a 'Money of Account'. And this idea links 'money' to 'claims' and 'credits'. This theory means that 'money' is an abstract concept used as an accounting entity. As a quantity shown in accounts it enables statements of prices and relationships in contracts. So what does 'abstract money' mean?

Now Dr. Ingham gets to the problem. He writes, "The crux of the matter, as we shall see, is whether a uniform value standard of the medium of exchange can be established without the prior existence of an abstract measure (money of account). We will find out as we read further. But it seems to me that this relationship between 'money' and actual 'value' has been the source of confusion and misunderstanding from the very first thousands of years ago. He continues, "In the orthodox economic account, a scale for the measurement of value (money of account) arises spontaneously from Adam Smith's primeval 'truck barter and exchange'. But we know that Smith, lacking historical information, was mistaken about barter in ancient societies. Nevertheless, money, as the most exchangeable commodity becomes 'money' and "is then counted to make a measure of value, or money of account."

Right here, to anticipate the content of later chapters, I note the double problem. By using a commodity that itself is used and desired, hence has a variable 'value' itself it is not a fixed quantity, like inches and meters. And, second, what it is being used to establish 'value' does not 'have' value because 'value' is not an attribute that can be attached TO any asset - it is relative in time and space and relative supply and demand and ultimately a psychological feeling - desirability - of the members of the society, unless it is arbitrarily fixed by some sovereign authority.

In other words we are trying to measure something - an asset - that is constantly varying in 'value' due to factors external to itself in terms of another asset that is also changing constantly in 'value' due to other factors also external to itself. And tben pretending to guess at the 'values' of each for years in the future. Conversely, we construct elaborate graphs that claim to depict the changing 'value' of one realtive to the other over a past time period without even considering that both were changing in different ways due to different external factors.

Dr. Ingham continues with mention of concepts such as that of Jevons and considers the "question of money one of the fundamental questions of sociological and economic theory". He considered, "The most startling paradox, which provided the original impetus for this study, is the fact that the mainstream, or orthodox, tradition of modern economics does not attach much theoretical importance to money. Two assumptions in orthodox economics account for this counter-intuitive position, both are fundamentally mistaken." One is the theory that money is a commodity. The other is that money is 'neutral'. He describes both of these theories well and demonstrates the problems with each.

This is the same issue that has prompted me for years to seek answers from the economic literature, without success.

He describes some of the practical problems that have faced both theoreticians and officials seeking to base official policy on a firm concept of money. Efforts to regulate the quantity of money have failed. Relationships between money and inflation are not understood. Exactly what IS the quantity of money in society, what specific physical assets constitute money? He mentions one popular 'school' of thought - monetarianism. Issues related to the great decline of coined money in common transaction, and the increase in use of electronic money are not clear. Some authorities posit the 'end of money'. There is confusion over the 'nature' of money. He notes, "To identify forms of money and their circulation with the quality of 'moneyness' is to misunderstand the phenomenon."

At this point the author mentions another of my particular complaints. "As a direct consequence of the division of intellectual labour in the social sciences after the methodological dispute (Methodenstreit) of the early part of the twentieth century, they have been unable to provide a more satisfactory account." Here he refers to the academic disciplines of economics, politics, and sociology.

I experienced this soon in college. The professors in each of the fields were not talking to those in another. The former unified concept of 'political-economy' was no more. That, plus the rather desperate efforts to be proven 'scientific' by employing mathematical concepts made me wonder about the real value of it all. Not only were the disciples of each academic field not talking but rather they were engaged in controversies of fact and theory. As Dr. Ingham notes, including over the nature of money. Later, reading White, I could see that all these competing theoriticians were similar to the Dominicans and Franciscans at Universities of Paris and Cambridge in the 13th century, and for the same reason, to gain the position of power to influence rulers..

Next, Dr. Ingham provides a summary description of the book's contents chapter by chapter. He repeats, "A theory of money should provide satisfactory answers to three closely related questions. What is money? Where does it come from, or how does it get into society? How does it gain or lose its value?" The chapters are organized to provide his answers to these or at least show where the controversies lie. The chapter titles are descriptive.

Chapter 1 - Money as a Commodity and "Neutral' Symbol of Commodities
Dr. Ingham writes: "The late nineteenth century theorists who established the methodology of modern economics held to one version or another of the commodity theory of money. 'Money proper referred to either precious metal or its convertible paper symbol. Money was essentially material and tangible' it could be stored and passed from hand to hand - it circulated. " This theory was the basis for the 'gold standard'. In this concept money is different from credit - and credit has two different meanings as well. It includes credit instruments put out by banks, or it also means the credits and debts ( assets and liabilities) on balance sheets. Dr. Ingham continues by noting that this theory was quite old and had been espoused by Locke, Hume, Cantillon and others based on Aristotle's description. Then Adam Smith also agreed with this theory. So later 19th century economists simply followed tradition and accepted precious metal coins into their theories of marginal utility and supply and demand.

He continues by noting that in the 20th century, despite the elimination of precious metal coins, the same theory persisted. It remains the fundamental theory - assumption - of establishment orthodox economics today.

NOTE this statement
Dr. Ingham directly writes, "I shall argue that this intellectual provenance is the root cause of the significant deficiencies in main-stream economic thinking on the nature of money".

He comments that Aristotle was writing about the ethics of the practice of the pursuit of 'value' as an end in itself in the form of money. He based this on his 'idealized 'concept of a 'natural' economy that had nothing to do with markets or 'capitalism'.

Dr. Ingham then describes the current theory. "The theorems of modern economic micro-economics that deductively model the decision making of rational utility-maximizing individuals and the exchanges between them are derived from a stylized conception of a simple trading economy in which exchange ratios of commodities express their 'real' values. (production function and utility function.) He quotes Schumpeter about the idea of 'Neutral Money'. (the theory of 'neutral veil') In this role the purpose of 'money' is only to eliminate the difficulties in the presumed barter economy that otherwise did and would be the norm.

But the real examples of barter given by economists were of exchanges between parties of different societies that did not have a common unit of account or medium of exchange.

Nevertheless modern economists stuck to the idea of money as a commodity in its role as a medium of exchange. The author cites Menger's 'rational choice analysis of the evolution of money ' as the basis still today.

I mention here that Menger was also the instigator of the Methodenstreit. The whole theory is based on the concept of the 'economic man' the fellow who seeks utility maximization.

Next, Dr. Ingham discusses the 'quantity theory and the value of money'. He points to four basic propositions.
"1. Money does not interfere with the operation of any laws of value.
2. The value of money is determined by the value of the precious metals it contains.
3. The variation in he quantity of money causes price movements, and no vice versa.
4. The existence of bank liabilities in the form of notes and bills are acknowledged as part of the money supply only if they are convertible into gold and/or silver."

Other important forms of credit were simply left out of the calculus. This involves an "evasive and inconsistent and unclear distinction between 'credit' and 'currency'". He hits the 'proverbial bull's eye. "Eventually, as we shall see, the incoherence of the efforts to maintain the distinction between money and credit proved to be the most problematic for orthodox analysis."

And thus it remains today for many commentators.

Dr. Ingham then discusses more economic theoretical problems, especially over the vexatious question of 'value' and the causes for the supply and demand for money at any time. And this, then, involves this idea of 'velocity' of money. He hits another bull's eye. "Theoretically, this meant that the questions of what money is and how it actually gets into the economy were subordinated to the question of how much of it is demanded at any time."

Next he gets into Fischer's theory (assertions) about the relation of money supply to prices. He reproduces that infamous algebraic relationship.

MV + M'V'=sum pQ=PT

He indulgently states that this is not a tautology because there were two independent variables inserted - V - velocity of circulation and T transaction volumes. But in actual practice today V is NOT an independent variable - it is defined (not independently measured) in the relationship M=PT/V.

In this relationship M is considered to be notes and coin plus check deposits. V are their velocities of circulation, p is the money price of any good, Q is its quantity so P is the general price level. Fischer insisted that this was logically true but did not demonstrate any transmission mechanism from quantity to price nor provide any empirical data. In other words he does not show which way the cause and effect relationship works. Also, a change in PT could be just as likely from an increase in M and decrease in V or the reverse. But, I maintain, the whole insertion of V into the concept is due to the economists failure to include 'credit' as the main component of M - that is 'credit' created not only by the central bank but by all the many 'credit' creators in the society.. A disacussion of the history of this concept is in White.

Now another gem.
"Despite the inexorable growth of bank credit-money, orthodox academic economists clung, with increasing desperation, to the anachronistic theory. Their model of money supply was, in effect, an empirical generalization of naturally constrained supply of a metallic monetary base provided by a central authority (the mint) that was outside the market." And, "The direct question of whether credit was money was studiously avoided in orthodox circles."

This resulted in complete refusal to believe that "all forms of money, including commodity-money, are constituted by a social relation of credit."

Exactly, refer again to that false equation above.

The next section is "An Analytical Critique of Commodity Theory".
Dr. Ingham states the case as follows: "the historical record does not support the orthodox theory of money's sequential development from barter to commodity-money to 'virtual' money." "The orthodox theory of money, as a medium of exchange, is unable uniquely to specify money except in terms of a purely 'logical description'." He devotes several pages to describe this, including quotations from Samuelson. "A huge literature has resulted from the efforts to resolve the problem; but it would appear to be incapable of a solution within this school." Given "the tenet that all phenomena must be explained as a result of their utility for the maximizing individual, orthodox economics cannot answer the question it poses." For instance, he writes, "Is money a means of final payment (settlement) because it is a store of value? Or, conversely, is it a store of value because it is accepted as a means of debt settlement?"

Of course, I maintain that 'value' cannot be stored because it is not an attribute OF any good or service including a piece of gold, but rather is a psychological idea in an individual's mind. More on this and the role of 'value' as a measure of priority.

The next section is: "Capitalism and credit: the 'real' economy and the 'natural' rate of interest".
Dr. Ingham again: "The model of the natural barter economy with its 'neutral veil' of money is singularly inappropriate for understanding the capitalist monetary system. In the 'real' economy, money exists only as a medium for gaining of utility through the exchange of commodities".... "Capitalism, it will be argued, is distinguished by the entrepreneurial use of credit-money produced by banks to take speculative positions regarding the production of commodities for future sale, or with regard to fluctuations in the value of money itself."

Again I ask, how can 'money' be an abstract measure of value if it has a fluctuating value itself? One could not make a useful measure of the length of a brick if the size of the increments in the yardstick was changing.

Dr. Ingham next discusses Wicksell's concept of comparing a theoretical economy with only cash and a theoretical economy of only credit. Wicksell showed that an economy with only credit could function quite well using the Giro method of balancing credit and debit between accounts in a central ledger. Further, the classical theory that 'deposits make loans' does not exclude the actual process in which 'loans make deposits."

The next section is: "The Persistence of Orthodoxy and then Monetarism"
This topic is focused on the economic theories that attempted to explain the inflation of the 1970's. The monetarists were busy promoting ideas about how the central bank could control the supply of money and the rate of interest. The author writes that the efforts failed. "Monetarism's policy incoherence directly reflected the theoretical incoherence of the revamped orthodox theory of money, which, it must be remembered , was already anachronistic at the time of its refinement by Fischer in the early twentieth century."... "Credit -money and bank clearance, which accounted for virtually all the significant transactions of the capitalist economy, were excluded from this category of money-proper."

The next section is: "Rational expectations and inflation"
"With the failure of Monetarism, orthodox monetary policy has become ever more detached from orthodox monetary theory." And, "'Rational expectations' theory contends that rational economic agents will wish to avoid inflation." The policy makers believe that 'sound' monetary principles exist and that they can be used to control the economy.

But what does it mean 'to control the economy"? And it seems that plenty of government bureaucrats and politicians DO wish for inflation to solve their debt problem.

Seems to me that this means to channel the people's choices into decisions and actions desired by the rulers through their control of money as a symbol of 'value'.

Dr. Ingham presents his conclusions so far. He has found four basic theories that are the basis of orthodox economic belief. He then analyzes these in terms of possible answers to the main questions about the nature and origin of money. His final conclusion so far is: "How can such inadequate intellectual underpinnings remain the basis for conduct of monetary affairs."

Yes, how, one has been wondering for years, but not only in relation to strange concepts of 'money'.

Chapter 2 - Abstract Value, Credit and the State
This is an important chapter in which the author narrates and comments on the history of monetary theory and some of the actual practices in the use of money as can be seen from the title. But it is much too lengthy and detailed for me to include here all the details. He begins by noting the continued influence of the Aristotelian theory of the commodity-exchange nature of money. Then he notes that the 'dematerialized bank credit of early capitalism' led to new efforts to develop theory.

Note his statement., "dematerialized bank credit'. He is stating as fact that credit instruments issued by banks was surpassing coined cash as the major vehicle for 'medium of exchange' in the real economy. Something that I read some authors today refuse to believe.

He mentions briefly here the role of credit - not coin - in ancient Babylon as a money of account and record of debt - but the credit=debt accounts were not transferable - that is used between third parties. It was and is this transferability of credit=debt into a universal means of payments between third parties, that he writes is characteristic of modern capitalism. One theories of the nature of money came to include credit along with currency some 'savants' came to consider a theory that ALL money is credit. This means that currency is merely a symbol of a credit-debt relationship rather than having a value in itself. He notes that the arguments over these ideas generated the dispute between the 'Banking and Currency Schools' of monetary theory already in the 1830's. These two groups of theoreticians come in for more discussion further on, but this is getting too deep into background topics. Another rather tangential dispute he mentions here is over the 'state theory' of money proposed by the German Historical School which in turn was very influential into the 20th century.

(In more ways than one, I might add, since many early American professional academic economists studied in Germany prior to 1900.) For instance Weber, Simmel and Keynes were all influenced. The main opposing 'school' was and remains the 'Austrian School'.

Next topic is: "Early Claim and Credit Theory"
Dr. Ingham writes, "Intellectual efforts to understand the emergence and spread of new forms of credit-money, issued by banks and states across Europe during the seventeenth century, produced the first systematic challenges to commodity-exchange theories of money." The issue was the 'declining' of the role of 'money of account' and 'actual form of money' that is in daily commerce. As noted above, these two roles were united in ancient temple economies and (as the author shows later) into the Greek and Roman economies, but were split during the anarchy of the European middle ages. During that period the 'money of account' became a purely abstract concept, as records of financial transactions between organizations were kept in notations like Roman pounds that were never actually minted. The real world practices in the daily use of money and efforts by intellectuals interested in what it all meant (trying to match practice and theory) continued during those centuries.

The next topic is: "The Nineteenth-Century Debates: Gold and Credit"
Dr. Ingham describes two debates that developed about the nature of the English monetary system. This again, was between the 'Banking and Currency Schools' over the issue of which is real money - gold or credit instruments. By this time it was not an 'academic' or only philosophical issue. Both were in constant use in commerce. Everyone was interested in what, if any, influence each had on inflation and what should be the exchange ratio between them. Also there was the matter of trustworthiness of the instruments and their creators. Of direct practical interest was the influence of money on export and import prices and volumes. The conclusions were of great political importance and Parliament passed many critical laws as a result. The author's discussion and analysis fills several pages. For more on this read Martin.

The next subject is: "Greenback and gold in post-bellum America"
Dr. Ingham skips discussion of the arguments over money and banking between Hamilton and Jefferson and the resulting nature of money in practice in pre Civil War America. During those years the private money issued by banks was dominant in practical commerce. But it was the direct creation of the first Federal government sanctioned paper money - the so called 'greenback' to help finance the Civil War (along with bonds) that generated a new conflict over the nature of money - and this is an excellent example of the way in which opposing 'theories' (claiming of course scientific bases) are actually political statements - arguments to provide legitimacy for a political position that will favor one interest group over another. Gold standard money and inconvertible paper money each favored different social interest groups. The Gold standard was re-established in 1879. Then the struggle shifted also to the demand to make silver also coined money. But, the 'greenbackers' lost this battle when the Federal Reserve System was created in 1913. This created the Federal money as sovereign with the dollar as money of account based on gold. But the publication of competing theories of the nature of money continued.

The next topic is: "The German Historical Schools and the State Theory of Money"
Dr. Ingham again cites the Methodenstreit and resulting organizational split between supporters of different theories of money. One pair of opposing theories was (is) over the origin of money - the GHS supports a natural origin - that money comes out of the nature of exchange itself. Dr. Ingham sees the 'state' theory' developing from efforts to explain the value of money as an expression of national will. He describes the various ideas and their supporters. The concept is that money exists as a method of settling debts, initially the debt of paying tax to the state. The development of the theory is complex. The point is that money receives its 'value' because the 'state' declares its 'value' as a unit of account acceptable to the 'state' in payment of taxes. Thus it is the 'state' that creates the money for this purpose. Then the 'state' sets the 'value' of the coins - symbols - equal to the 'value' of the units of account used on the accounting ledgers for payment of taxes. The arguments get more esoteric from there on. But the political outcomes in laws governing money are very real.

The next topic is: "The Influence of Keynes"
Dr. Ingham devotes several pages to Keynes describing the evolution of this beliefs and resulting theories. (See also Keynes.), White, and Muller For a very different opinion on Keynes read Frankel

Then comes the section: "Post-Keynesian Theory: Endogenous Money and the Monetary Circuit".
Yes, the struggle over theories of money continues. This section is even more complex, or rather, tries to clarify the complexity of the theories and their supporting ideas. The complexity is made even worse because the theories are continually changing. I repeat, this is not simply academic lecture talk - the results of what theory is dominant generate real political action - for instance Federal Reserve 'monetary policy'. The results are reflected in the investment advice that pours out of multiple banks and advisory companies.

The next section is: "Modern neo-Chartalism"
Dr. Ingham states that he will confine his discussion to the basic structure of the arguments. Even so it is more than we need to understand who won and what the current dominant theories are, which answer comes later in the book. This theory of 'chartalism' that is sovereign state creation of credit-money read Wray.

The final section is: "Conclusions"
Dr. Ingham summarized the complex history into four themes included in these theories.
1 that money is essentially an abstract measure of value
2 that money consists in a claim or a credit
3 that the state or an authority is an essential basis for money
4 that money is not neutral in the economic process.

But, he notes, these have not been integrated into a single and agreed theory accepted by everyone. Many theoreticians remain confused or expressed contradictory ideas about these themes.
And, ALL four themes "are antithetical to orthodox economic analysis and give different answers to the questions of what money does, how it is produced and how its value is determined." The author describes what are various 'orthodox' views on these conclusions.
His conclusion is "One way or another, the heterodox analysis of money points implicitly to the fact that money is socially and politically constructed and constituted - that is, to say - money is a social relation."

Chapter 3 - Money in Sociological Theory
It is good to find a sociologist - not economist - undertaking an analysis of a vexing topic that has eluded economists for centuries. Of course we can then expect a 'Sociological theory' as Dr. Ingham boldly announces. He begins here by restating the methodological problem that has vexed me since I began academic study.

He writes, "I suggested that the analysis of money had suffered as a result of the division of intellectual labour after the Methodenstreit. Economics abandoned any theoretical interest in the ontology of money, and sociology appeared to shun those very sociological and historical questions about money that were an essential part of the methodological battles."

Yes indeed, but what about the separation out also of political theory? Specifically, about money, surely it is a major political tool, thus a subject that should be included in political theory. And what about the deleterious impact of the division into three in the study of all real world events, processes, causes and effects? But in this case at least we will learn about one view point outside economics.

Dr. Ingham begins with an overview of the history of the limited sociological addresses to the question of money. We know of Weber's and Simmel's ideas about money. He reminds us that they were more sociologists than economists. (Note that Jerry Muller includes biographies and discussion of their ideas in his The Mind and the Market.)

The first section is: "Money as a Symbolic Medium"
Here he briefly outlines some ideas about money being a symbol of value.

Next comes "Marx and Marxian Analysis"
Marx is naturally recognized for his adoption of 'the labor theory of value', which Dr. Ingham notes resulted in a host of errors. He credits Marx with this analysis. "But Marx's distinctive departure from classical economics is to show that monetary relationships do not merely represent a natural economic reality, but also mask the latter's underlying reality of the social relations of production in a monetized alienated form." He criticizes Marx for. "In company with all commodity theorists, Marx failed to consider money as abstract value, defined by a money of account and sustained by its own social relations of production." "Like orthodox economics, the Marxian analysis of money has been disabled by the search for the value of money in the commodity." There is more of the author's analysis here.

The next section is Simmel's The Philosophy of Money
Dr. Ingham comments, "Unfortunately, sociology has taken Simmel at his misleading word that The Philosophy of Money is not really about money, but rather about how money expresses the essence of modern life." He states, "unfortunate' because he shows that Simmel's work provides much more insight into the nature and roll of money, that is 'unfortunately' over looked. He writes that Simmel rejects all orthodox economic theory. "the value of money does not derive from the costs of its production or supply and demand, or labour value. Rather, money is the representative of abstract value, it is 'the value of things without the things themselves'."

Fine, but I claim that 'value' is not actually 'abstract' but the result of mental prioritizing of each choice from among the vast quantity of potential assets (choices) available at a specific time and place in order to exercise (select) which asset to choose.. The history of the use of money by government shows the conflict between the ruler's efforts to dictate the availability of the assets (choices) and their results (selections) and the freedom of individuals or collectively as a society to have and make such choices.

Dr. Ingham writes much more in both description of Simmel's theories and in analysis of their strengths and weaknesses. The chapter is very enlightening. He concludes that Simmel was not quite able to go beyond a description of the process by which modern credit money is created. Dr. Ingham writes, "For example, he failed to see that if all money is credit, then Hildebrand's 'barter - commodity-money - credit' evolutionary scheme is contradictory."

My view is that Simmel does not recognize that 'value' is not an attribute of any material or non-material asset. For much more on Simmel's theories and a brief biography see, again, Frankel who compares and contrasts the theories of Simmel and Keynes with approval of the former.

The next section is: "Weber on Money"
Again Dr. Ingham hits a core point, "The enormous secondary sociological literature on Weber's analysis of capitalism scarcely refers to his analysis of money." "The emphasis on religion has led to a distorted view of his work." Further, he quotes Weber in this analysis, "Money expands market, or 'indirect' exchanges by which it is 'possible to obtain goods which are separated from those offered in exchange for them in space, in time, in respect of persons involved, and, what is very important in respect to the quantity in each side of the transaction'." Dr. Ingham notes Weber's agreement that there is a difference between 'valuableness' and 'value'. He recommends that G. F. Knapp's major work State Theory of Money, and Weber's Economy and Society be studied. He notes Weber's view that the market is a power struggle and 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'"

Exactly what I meant above that the entire subject of these theories is really political activity, so it should be included in political theory - and whether economic, sociological or political should be based on real world history.

Chapter 4 - Fundamentals of a Theory of Money
In this chapter the author states that he will bring together his analysis of the three interrelated questions - What is money? How is money produced? How does money obtain, retain or lose its value?

First, "What is Money?
Right on, Dr. Ingham notes that, "Taken on further, the textbook list of money's functions does not provide a satisfactory specification of money's properties." For one thing the relationships between the three functions and their relative importance are not clear. For another, many other 'things' than what is called 'money' can accomplish one or more of the three functions. More fundamentally, he writes, "Moreover, the focus on money, as a medium of exchange, results in a category error in which specific forms of money are mistaken for the generic quality of 'moneyness'." In addition, 'money' is considered to be a means of storing and transporting this abstract value. He elaborates on the many confusions and problems this misunderstanding has created. The conflicting theories he describes go round and round - too many times to enumerate here. But achieving a real understanding of the question, let alone any answer, is critical. He well poses the inherent problems resulting from trying to assign 'money' these three functions at the same time. Or rather, assigning these three functions to the same concept called 'money'. He continues, "Furthermore it is this property of money that creates the ironic contradiction that was at the centre of Keynes' economic analysis". And, "All money is constituted by credit-debt relations - that is, social relations." And, "Whilst all money is credit, it is not true to say that all credit is money, as some credit-money theorists imply." "The origins of modern capitalism may be traced to the expansion of the assignable privately issued debts from the sixteenth century onwards".

Dr. Ingham elaborates on the concept of money as credit. He discusses various examples such as credit cards as well as currency and giro accounts. "Coins and notes should also be seen in this light, and might be referred to as 'portable debt'. Coins were never simply distributed by the monarch as a 'public good' as is sometimes implied in economic explanations. They were issued in payment of a specific royal debt." And, "their acceptability was guaranteed by their assignability conferred by re-acceptance in payment of a tax debt owed to the monarch." "The coin is simply reusable credit in myriad credit and debt relations."

But I believe a fundamental problem is to think that this 'money' can be both a 'medium of exchange' and a 'measure of account'. As a 'medium of exchange, 'money' is said to conform as a commodity to the rule of supply and demand. But as a 'measure of account - that is abstract value' it is said to measure the 'value' of commodities analogous to the way a ruler measures length. But rulers are not commodities that have supply and demand.

Here is one of the most brilliant statements in this book. Dr. Ingham quotes Wray (2004) "'Once the state imposes a tax on it citizens payable in a money it creates, it does not need the public's money in order to spend, rather the public needs the government's money to pay taxes. This means that the government can buy what ever is on sale in terms of its money merely by providing its money,'" In other words for free. For a lengthy explaination of justification of this theory and detailed description of how it actually works in economies today that isssue credit as sovereign money read this later (2012) book by Wray.

The public should understand this fundamental relationship when discussing such issues as a Federal government 'balanced budget'. What that really means is that the government issues (exchanges) credit in payment for goods and services it acquires (including especially the salaries of its bureaucrats) and then takes back the same sum of credit to extinguish the people's tax debt. Meanwhile the people have used the credit instruments to finance production of wealth in the course of which the credit-money has shifted from only consumers toward the producers of wealth. The government then assesses the taxes unevenly (progressively) in accordance of its desire to take more back from the producers than from the consumers. This also critically relates to discussion about the size of the current Federal 'debt' and what it actually is.

Next up is: "How is Money Produced?"
Dr. Ingham quotes Simmel beautifully, "Money is 'one of those normative ideas that obey the norms that they themselves represent'." More explicitly, he continues, "Money is a promise, and the production of a promise involves trust. The importance of trust is increasingly recognized in orthodox economic theory. Significantly, however, it is treated here in exactly the same way as money itself, and, consequently, the logical circularities, are compounded."

The author's description and analysis of this critical question is fundamental. But it is very difficult to summarize in a clear explanation in brief. Fundamentally, money IS credit and negotiable credit IS money. It has always been so and continues today. Money is created when issued by either the sovereign or another trusted institution some times called a 'bank' or a 'shadow bank' in the form of a 'credit' with the simultaneous entrance of a 'debt' on the issuer's account books. This credit-debt relationship was created by an exchange of assets. The 'value' of the credit is that it can without question be returned to the issuer to erase that debt. In the ancient temple-palace sovereign economies the credit-debt relationship was personal, individual, between the person and the sovereign. The genius of the modern capitalism is that the credits so created are not limited to being only personal but are transferable, that is they can then be used in further exchanges of assets and generate new credit-debt connections between anyone in the course of these exchanges. The sovereign creates credit to exchange with people for assets the sovereign wants (goods and services) and marks a 'debt' in its account books. The sovereign has the special power of coercion made effective in the power to tax. Thus the 'value' of the credit issued by the sovereign rests on the sovereign's absolute rule that such credit will be accepted back in exchange for the demand to pay tax, thus extinguishing the 'debt' on the sovereign's account book. It does not matter if the 'credit' was put in material form by a gold coin or by a knocked 'Talley stick' or simply a notation on paper. When a private entity such as a bank or 'shadow bank' issues credit its continued 'value', when exchanged between various asset holders, lies in trust by all parties in each other and the sovereign's coercive power to enforce laws that demand repayment of these credit instruments to extinguish the debts.

Dr. Ingham describes the multiple theories about this process and also the influence these theories had on people's decisions and actions. The actual way money was produced varied between different societies - their political organization - and other societies. And this created political struggle.

Next is: "The Value of Money"
Dr. Ingham writes, "This is the quintessential economic question. Since separating from the other social and historical sciences in the early twentieth century, theoretical economics has insisted that the only acceptable explanation of value must be in terms of value in exchange." The argument have been intense. "If the methodology of supply and demand, marginal utility, etc., could not explain the value of money, what could it explain?'

Indeed, brilliant question. What about political theory explanations? Well, Dr. Ingham claims that 'the answer to the question of its value must be sought, a least in part, from outside orthodox economic theory." But he is then focused on sociological explanations. to which he devotes the remainder of the chapter. His description and analysis stresses the role of the 'state' (that is the sovereign as I note above) but only in sociological terms. He writes, "The conception of money as a social relation, rather than a thing that circulates with velocity, also directs attention to the fact that its value depends on a fundamental core, or 'critical mass', of continuous (re)payments - that is an efflux-reflux of debits and credits. Money is created and destroyed through indebtedness and repayment, as in the double-entry balance sheet. The production of 'new' money involves the creation of new debt that is as yet unmatched by a credit reflux".... More important ideas here. But further, "From an empirical standpoint, the role of the state as an economic agent is central to the maintenance of this critical mass of the efflux and reflux of money. ... "The state not only establishes the valuableness of money by its declaration of what it will accept in payment of taxation; it also determines its substantive value by influencing what must be done in the economy in order to earn the income to pay the tax." There is much more to this chapter.

Absolutely wonderful explanation. But the 'state' is itself another abstract concept developed to create a legitimacy for the political activities of rulers - the sovereign. So lets invoke political theory as well. But for a start, note that this is exactly why it was essential , when creating the Federal Reserve System with the power to create credit, that the Constitution be amended to give the Federal government unlimited power to tax. It also explains what is the real meaning of a government 'balanced budget'.

Part II - History and Analysis
Chapter 5 - The Historical Origins of Money and its Pre-capitalist Forms
Dr. Ingham again states, "as the logical foundation of money is to be found in money of account, it is here that we should attempt to locate its historical origins, . not in the excavation and dating of money-stuff."In the following chapters Dr. Ingham goes back through the same history that was the basis of his analysis of economic theory about money in the first chapters, to fill in with more of the story of how it all happened.

First section is: "Origins of Money - Debt and Measure of Value"
Dr. Ingham recounts the theories of how debt and its measure go far back into primitive societies in the form of personal debts due to transgressions or to the society in which they lived. He discusses various theories of wergeld and notes that the idea of 'value' was associated with a measure of the size of the appropriate wergeld in relation to the status of the individuals as well as a graded list of possible injuries.

Graber devotes chapters to this issue.

Dr. Ingham switches to discuss the economies of ancient Egypt and Mesopotamia. He ignores ancient China and India. These societies were centralized economies in which the producers (grain and goods) passed them into the government warehouses in exchange for notations (or token) symbols of value established by the government. The workers then could draw for their needs by exchanging back a token or ledger account balance All this explanation is informed speculation due to the lack of more information.

The author proceeds to discuss Standards of value and equivalencies. He considers three ideal types 'for allocation of economic resources - reciprocity, redistribution and market price. He credits Polanyi with defining these categories of conduct. In these societies, "Political, economic and ideological control was centralized and exercised through the money of account." Reciprocity refers to primitive societies in which allocation of resources such as food was accomplished by mutual 'gift giving'. Redistribution refers to early settled societies, especially those controled by ruling groups who took in all the production of the peasantry and then distributed it from the palace of temple.

In other words it was the rulers (priests and kings) who established the relative 'value' of various goods and services against each other and then expressed these in terms of money as a symbol. Individuals then had to conform their prioritizing of choices to the relative 'values' set by government, which of course included their own income. (A year of work counted for so much silver, while a bushel of grain also counted for so much silver.)

So Dr. Ingham shows that contrary to many orthodox economists, money not only existed but played a central role. His discussion fills several pages. Another contentious issue for theorists is the existence or role of banks in these societies. (See Reden) But instead he quotes Polanyi again. And see also Landes. What is clear is that in the absence of the yet to be invented coinage, economic calculations and registration of relationships to ownership or use of assets was effected in terms of credit and debt. Some theoreticians compare these methods with the modern Giro methods widely used in Europe today. In other words direct comparison and netting of credits and debts between participants by the central record keepers.

But Dr. Ingham also writes, "In the absence of coinage, most financial transactions in Babylon were based on the 'transfer and assignments of credits' organized by the temples and palaces, and were based on their control of the stores of grain. The extent to which the clay tablet records refer to private transfers between individual depositors or merely to budgetary redistribution by the bureaucracy is not at all clear. But all the evidence leads to the conclusion that private transfers outside the command economy comprised an insignificant part of total financial transactions." See again Landes for considerations of 'insignificant'.

But he relies on A. M. Innes (1913) and Weber (1927). There has been much more study based on a much greater recovery of Mesopotamian financial records since these early authors. See again Landes. Credit money, yes, but small private use of it, no.

The next section is: "The Early Development of Coinage"
Again, Dr. Ingham zeros in on the problem. "For two millennia after the seventh century B.C., 'money' was identified with coin, and the intellectual confusion over the nature of money began." (AND continues.) He continues, "In the commodity theory of money the exchange -value of the money-stuff (precious metal) determines its purchasing power. coins embodied a measure of value within a conveniently portable medium of exchange and acceptable means of payment." He continues with a narrative of the well known creation and expansion of use of coin in the eastern Mediterranean. He contends (rightly I believe) that a change from the long-standing credit methods of the empires would be beneficial, rather the introduction of coin would be detrimental to government control. He claims (again rightly it seems) that the critical change was in the political disintegration of these empires and the expansion of small polities, kingdoms and independent cities. And with this the increase in commerce between all these entities. Most interesting is his idea that it was the spread of larger mercenary armies that required portable payments that really expanded the role of metal coinage. But his example of the necessity for Alexander the Great to have a portable and universal payment system is clear. The author provides data, Alexander's army received 120,000 drachmas pay per day "requiring over half a ton of silver". Plus they paid local vendors sums that would reach a million drachmas. Note Dr. Ingham cites Davies.

(One can also note the Crusades. The example of Count Raymond of Toulouse is well documented. He exchanged (mortgaged or sold) property and other assets to amass chests full of coins to finance his expedition into the Holy Land. The other leaders did the same. )

Dr. Ingham continues ,"Although coinage was a jealously guarded instrument of state, it inevitably enabled economic power to escape from state control through the massive injection of portable abstract value into the relatively loosely integrated Greek and, later, Roman empires."

The next section is: "The Roman Monetary System"
See Reden for a more detailed discussion and also Davies.
Dr. Ingham provides some very interesting summary points. He writes "Half the national product was monetized, and all imperial trade 'was conducted entirely on a cash basis'," quoting Goldsmith. He notes that the Roman government was a major participant in the total economy despite directly owning a much smaller part than did the ancient Egyptian and Mesopotamian governments. But its use of direct coercion to collect and its coinage enabled it to exert power over the very wide area. Another quote, from Hopkins is interesting. This author claims that provinces had to export grain and other assets to Italy (Rome city) for which the merchants were paid in coin which then returned to the province and was collected as tax back to the Roman government. Dr. Ingham claims the Roman government did this because it had to buy its supplies 'privately'. And he writes that , "During the first phase of imperial expansion, expenditure released far more coins into the provinces, via the superb network of roads, canals and sea routes, than were collected back in taxation."

I have to wonder at this idea. Perhaps more 'coins' were sent but vast amounts of wealth flowed from provinces to Italy in the form of tribute and slaves. And I believe the emperor himself claimed Egypt as a personal domain and it was a source of considerable grain. And much grain also came from slave plantations in Sicily. Dr. Ingham writes that the Roman government did not sell bonds to its citizens and there was no 'public debt'. But coins issued in exchange for assets are a liability. He writes, "the system depended on the maintenance of three interdependent elements; the control and inflow of bullion, an effective system for tax collection and sufficient economic activity (mainly the state's) for the generation of income in coin to meet tax debts." He notes that the government had a huge expenditure for payment of its army and bureaucracy. He discuses at some length the fiscal- monetary problems that developed and Diocletian's attempt to stabilize the economy. Further, he writes, "the heavy demands of state expenditure on dwindling resources, the slowing down in the supply of slaves and the effect of the rising demand for land were the real underlying causes of the rise in prices." And the higher the level of taxation the more local wealthy land owners sought to be outside the commercial and taxable economy.

Some specific facts he does not mention include: During its best of times, Rome imported over 250,000 new slaves (human robots) a year and this supply dwindled along with offensive strategic campaigns during the later Empire. Eventually the former prohibition of legionaries marrying was abolished so that a married soldier was then expected to live off family production rather than rations alone, thus saving the government money supply. There was increasing drain of silver to Asia to pay for luxury goods. And there was drain of gold to payments to 'barbarian' leaders across the frontiers, especially, for instance, to the Huns.

Finally, Dr. Ingham notes that much modern economic analysis of Greek and Roman economic activity sees it similar to modern activity - such as banking and credit operations - when it was not. The social basis for money was different. Then, with the political take over by the barbarian war lords the whole monetary system collapsed.

The final section is: "Conclusions"
This is a summary of the narrative on the early 'creation' of money as a 'means of calculating obligations and debts in pre-market tribal and clan society' on into the development and expansion of early empires and finally the classical Greek and Roman societies. "The first money-calculating societies for which records exist are the command economies of the ancient Near East." The link between money and political and administrative control eventually led to a greater extension of territorial control in a 'taxation-coinage multiplier'".

Chapter 6 - The Development of Capitalist Credit-Money
This is a very complex chapter describing the evolution of monetary activity and the theories about what money was actually doing during a 1500 or more years' time period. The reality and most theoretical explanations of it don't match. Later explanations based on then current ideas attempt to see earlier different conditions in terms that don't apply. The most important concept to learn from the chapter is the process by which paper credit (as opposed to currency-credit) again became a major form of money.

Dr. Ingham writes that the concepts - theories - about money by neoclassical and classical Marxist economists reduce it to a 'passive role'. But, he claims, the very nature of capitalism is based on its adoption of a "distinctive credit-money system." This evolution did not happen suddenly nor in one place, nor without struggle. The ''credit-money'' system was developed by private bankers and merchant groups and was sometimes opposed more or less by sovereigns who demanded that their 'coin based' money have a monopoly as an integral aspect of sovereignty itself - naturally enough since they obtained significant profit from seignorage and from manipulating legal tender by 'crying up' or 'crying down' the 'value' of money. But sovereigns typically did not have enough of 'their' money to finance war, so had to borrow from the bankers and merchants.

Dr. Ingham writes, quoting Schumpeter, "The crucial element is that the production of credit-money in a banking system is a self-generating, relatively autonomous process in so far as the 'banks can always grant further loans, since the larger amounts going out are then matched by larger amounts coming in'. And many more important thoughts, such as, "The essence of capitalism lies in the elastic creation of money by means of readily transferable debt."

Yes, but I believe what is transferred is the 'credit'. But note that when one company buys another the 'debt' on the books of the acquisition is counted when evaluating the transaction.

He continues, "As we shall see, capitalist credit-money was the result of two related changes in the social relations of monetary production in medieval and early modern Europe."
1 - private media of exchange was used by the merchants and became detached from relation to specific commodities and then also became detached from relation to a specific individual merchant.

(In other words it became completely transferable to third parties as 'private money'.)

2 - some sovereigns began borrowing from their wealthy merchants to finance their activities, war, and their promises of repayment became 'public credit-money'..

Dr. Ingham notes that orthodox economic theory does not understand this.

The next section is: "The De-linking of the Money of Account and the Means of Payment"
Dr. Ingham writes an interesting idea here. He notes the finding of large buried 'hoards' of coin in England and northern Europe dating from the so-called Dark Ages. I usually read accounts of this as an argument that coinage did NOT go out of use during these centuries. But he cites Davies for a reverse idea, that buried 'hoards' were the result of worthless coins being dumped. At any rate it is well known that by the 11th century the developing kingdoms and even the other smaller polities were minting coins again. In fact coins were produced in such volume by different mints in such varied size, weights, quality that the whole profession of 'moneylender' developed to keep track and evaluate one coin versus another in commercial transactions. (With a nice profit from arbitrage). The varied coins were all related to each other via the common 'money of account' decreed by Charlemagne but based on the by then abstract Roman system of pounds, shillings and pence. Even though these were not actually minted.

I insert here that today the trading desks in the big banks are reaping the same profits as moneylenders.

Dr. Ingham stresses, "It is essential to understand that the 'imaginary money' was invariable, in that people continued to count in these ratios regardless of the debasement, clipping, or deterioration of the actual coinage." and "Thus, by the late Middle Ages, when people priced things, they had in mind not coins, but commodities and obligations denominated in money of account." Again, he comments that orthodox economic historians miss this point. The real purpose for the decree and system was not to facilitate markets but to standardize transfers of 'value' between Catholic Church facilities. Thus a specific exchange might be accomplished by a pile of various coins from different mints but each evaluated against the international standard to provide a agreed sum. His description continues in great detail, again noting that, "variations in metallic content did not have any obvious and direct impact on prices, as orthodox economic theory maintains." In conclusion of this section he writes, "In short, medieval money was produced in a struggle for control of bullion, coinage and the money of account; it was anarchic and chaotic, but the turmoil provided the conditions for a significant monetary development."

The next section is: "The De-linking of the Money of Account and the Evolution of Capitalist Credit-Money"
Dr. Ingham begins with, "The separation of moneys of account from means of payment and the free circulation of coins with multiple territorially determined values had two important implications for the development of modern capitalist banking and its distinctive forms of money." He continues with details of what happened including increasing 'money changers', increase of deposit banking and development of the bill of exchange. these developments also required that governments be strong enough to enforced the transferability of credit-debt instruments. The process developed as a result of or in spite of economic and political conflict between effected parties. But the lasting result was the separation of an abstract money of account with the means of payment. The 'money of account' is an abstract concept while the means of payment is a specific, concrete 'thing' one can hold. In practice a result was that many different 'things' (currencies) could all suffice as the embodiment of the abstract idea of money as an account. He cites the Italian, Pacioli, who wrote that there were 9 different ways to make commercial payments. Dr. Ingham stresses that the necessity for this development in the social- economic use of money was due to the fragmented political structure of medieval Europe. Strong political structures enabled international commerce but their fragmented nature demanded a relevant monetary system that could cope with this.

Dr. Ingham specifically cites four relevant elements. 1 -re-emergence of banks of deposit; 2 - creation of public banks; 3- expanded use of the bill of exchange as private money; 4- gradual 'depersonalization' and transferability of debt (credit) that enabled the private money to act as public money. This resulted in the 'integration' of private and sovereign money into a 'dual' system.

And what is so important and so many commentators still refuse to believe today is, as he writes, 'It was the late twentieth century before the latter coins) finally disappeared to leave money in its pure credit form".

The next section is: "'Primitive' banks of deposit"
Here Dr. Ingham provides the historical detail of the process given above going back to ancient Egypt and Mesopotamia. The key concept to grasp is the distinction between a bank making loans on the basis of its deposits and a bank making loans purely as a process of creation of new money (yes, NEW money) - credit-money in the form of its own notes and bills. Again, he stresses the credit instruments must be 'bearer' that is not a simple record of a credit-debt relationship between two parties nor related to a specific commodity - but a transferable credit instrument exchangeable by ANY holder to finance exchange of ANY assets.

The next section is: "Early public banks"
Dr. Ingham continues to historical account through the creation of the Spanish and Italian banks. The story includes the manner in which both sovereigns and republican cities borrowed (that is received credits) from these private banks. So something useful to enable the exchange of real assets now included not only the sovereign's coin, but also private paper money. Of course while the sovereigns made a profit on the issue of their coins as credits (seignorage) now the private bankers also made substantial profits through the discount of paper money. The resulting political struggle between some sovereigns and banks was alluded to above Similar struggles took place within many Italian cities.

The next section is: "The bill of exchange"
Here the author elaborates on the nature of the development. "The transformation of the social relation of debt into the typically capitalist form of credit-money began when signifiers of debt became anonymously transferable to third parties." The section elaborates on the process mentioned in the previous section. He divides the historical development into two periods, first in the Italian city states and second in Holland and England. The change is called - into fiduciary money - that means the public governments (by now run by bourgeois rather than royal sovereigns) accepted the role of government backing also for this private form of money.

This is a critical change that Dr. McCloskey does not stress in her excellent books on the significance of the bourgeois.

Dr. Ingham's description is very interesting. He notes that with the proliferation of different sovereign coin money generated by the proliferation of sovereigns coining money not only did the 'money of exchange' become fragmented but also the 'money of account'. In contrast, the private merchant bankers were using the medieval Carolingian standard of an agreed upon 'money of account' when processing the disparate piles of coins. Their commercial relations required both a network of trusted traders and a network of trusted bankers. This enabled international trade across long distances. Again, Dr. Ingham stresses, "it is essential to understand that it was the particular geopolitical structure of late medieval Europe that created the circumstances in which exchange by bill could not only flourish, but also develop further into private money existing alongside the sovereign coinages." He continues with description of the process whereby the private bankers became exceptionally wealthy. Again, he stresses the local situation that enabled the Dutch and English merchant bankers to prosper by means of writing the enabling laws that recognized debt. Moreover, he notes that the powerful absolutist French state by taking full control over its monetary system by means of reconnecting the money of account and means of payment eventually was an act of self destruction.

The next section is: "The Transformation of Credit into Currency"
This is a more detailed description of how the process noted above took place. It was complex and intermittent (back and forth).

The process, again, was the conflict between public and private money. Each form of money favored different political interests and was therefor supported or enforced, by one side. The author shows when the small Mediterranean polities could not create a sufficiently large public to enable their public- private monetary systems to expand into widely used currencies. Their markets were too small. The reader should be knowledgeable about the general political history of Europe to understand what was going on in its financial history (described in outline here but generally ignored in basic political history books). Each account of history makes the other better understood.

The next section is: "Sovereign monetary space in England"
Here we get into the specifics of the relationship between political and financial histories. Dr. Ingham quotes Davies quite a bit from his much more extensive financial history. The story is that, while the absolutist states regained control over their financial systems (nature of legal money) the English monarchs lost control when they lost political control culminating in the 'Glorious Revolution' and creation of the Bank of England as the private bank of the merchants - (The bourgeois and Dr. McCloskey terms them). This focused on the conflict between the two forms of money - coin and credit. The result was the victory of the form of state credit-money. But this, in turn, required a firmly established specific, trusted, basis on which the promise to pay could rest. Mere promises had already been shown to be unreliable.

Again, this relates to Dr. McCloskey's description of the bourgeois adherence to their 'virtues'. Dr. Ingham does not cite her, but does emphasize the moral basis in society - trustworthiness. He writes, "Rather, it had to be created not only by legal enactment and enforcement, but also through culture - drama, ballads and poetry. Universalistic trustworthiness, which could be claimed by acting in a reputable manner, replaced the obligations to honour agreements based on particularistic ties of family or kin." This is exactly what Dr. McCloskey stresses in a different manner.

The next section is: "The dual monetary system: the hybridization of credit and coinage"
The section includes a short history of the Dutch and English wars with France and how this related to the development of new financing mechanisms. Here is the result in direct and simple statement. "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." And simultaneously the private issuers of credit received sovereign backing for the public support of private debt. "The fusion of the two money's ,which England's political settlement and rejection of absolutist monetary sovereignty made possible, resolved two significant problems that were encountered in the earlier applications of the credit-money social technology." He also notes that during the same period in which the Bank of England solidified the trust in bank note - credit-money it also strengthened the quality and stability of the currency - coinage credit system. And most important, Parliament passed the law that anchored both by linking the payment of interest on the loans in taxation and excise duties.

The final section is: "Conclusion" The author summarizes with a comparison between England and France. It is well understood that England was able to defeat France in a century of expensive warfare due to its ability to finance war through credit=debt while France could not. Further, he notes, that the two most successful capitalist nations since 1800 have been Great Britain and the United States, also the most highly in debts.

Chapter 7 - The Production of Capitalist Credit-Money
In this chapter Dr. Ingham gets down to the real, current monetary system. He writes, "The capitalist monetary system's distinctiveness is that it contains a social mechanism by which privately contracted debtor-creditor relations - for example, bank loans, credit card contracts, are routinely monetized. Private debt in its various forms (cheques, credit cards, promissory notes and so on ) are converted into the most sought after 'promise to pay' at the top of the hierarchy of promises." He writes that the system is complex and ever changing. And also that professional economists have a variety of theories about the subject. He mentions what we already know, that many financial writers do not believe that the FED itself understands the real nature of money. Or, rather, that it is functioning on the basis of an alternative conception of money.

The next section is: "The Social Structure of Capitalist Credit-Money"
Dr. Ingham begins with, "In a pure credit-money system in which private debts are monetized, the question of the production of money may be considered in terms of demand and supply for credit. But the approach taken here differs in a number of important respects from the treatment in orthodox economics."

Now here is the statement that demands to be printed everywhere and drummed into everyone's resistant head. "For example, as we shall see, the state's demand for money - that is, its debt - is at one and the same time the basic source of the system's supply of money." Bravo - Credit IS money.
The author next discusses, 'The private sector endogenous demand for money"
The essence of this complex discussion of a complex phenomena is that central banks must supply enough credit to the banking system to maintain their liquidity as they respond to the public demand for credit. He writes, "the appearance of central bank control is carefully managed, but actual control is limited to the imposition of a base rate of interest that is considered to be commensurate with stable money prices."

In other words the central banks have lost real control over the money supply. Just what I have been preaching for years. And further, during recent years the US government and FED are desperately attempting to regain control. The 'shadow banking' system generates a very sizable amount of the national money supply. The real purpose of the so-called Consumer Protection Agency is to eliminate private creators of credit-money.

Dr. Ingham describes in detail some results of the system in which granting and creating credit-money has been usurped by private agencies in addition to vendor financing. For one thing access to credit is manipulated and unequal. Speculative users of credit-money take on excessive risks whose failures result in the disappearance of significant quantities of the national money supply, which then must be covered by the central bank or treasury. Moreover, in many cases cash is used by criminal organizations. And others use cash to avoid connection to the official money system because that means taxation. While some individuals use credit-money in an effort to create more money, others use it purely to pay for consumption.

He next turns to another controversial issue, "The banking system and the supply of money by the 'multiplier'.
In essence he describes the 'fractional reserve' banking system as it creates credit-money. He notes that it is the double entry accounting system that nets out the total asset and liability quantities in the banking system to make it appear that these cancel out - the opinion of establishment economists. But tis ignores the dynamic way in which this is a money-creating system. And he continues, "Any disruption of the system's routines risks the collapse of the credit pyramid and the 'disappearance' of the money that is constituted by the creditor-debtor relations."

"The representation of the process of money creation as balanced credits (loans=assets that are owed to the bank) and debts (deposits=liabilities that the bank has to its depositors) in double-entry form also helps us to understand the otherwise counter-intuitive conclusion that money would disappear if everyone paid their debts. That is to say, the simultaneous repayment of all loans (assets) would also cancel the deposits (liabilities) on the other side of the balance sheet that are the source of money." That means that capitalism would collapse if all debts wee simultaneously repaid in full."

Now perhaps we see why even a smaller repayment of debt in 2008 threatened the financial system. And why the continued expansion of the economy requires more and more creation of credit which is offset on balance sheets as debt.

"However, not every private debt is fully monetized in this way. All money is credit, but not all credit becomes money." This is non-transferable credit-debt . This gets him into 'disintermediation' and further struggles by the banking system.

The next issue is "Public sector demand for money: state debt and the creation (supply) of 'high-powered money'".
A state that can tax sufficiently to always pay the interest due on its credit-debt structure will have no difficulty in generating more sovereign credit. "The state is able to pay its debt to suppliers with cheques drawn on its account at the central bank. These are then paid into the suppliers' accounts at commercial banks. Those banks increase their reserve at the central bank. Thus establishment economics term this 'high powered money'. But Dr. Ingham writes, "The experience of the late twentieth century would suggest that attempts directly to control the aggregate supply of money with high-powered money, or by any other method are unworkable." He cites specific examples from history.

Then he turns to discuss "The creditworthiness of the state's high-powered money: budgets, taxes and bonds".
He explores various popular theories, especially that of the 'neo-chartalists'. Among their theories we read, "Treasury bond sales are not a borrowing operation at all, but a means of removing excess reserves from the banking system in order to maintain interest rates." And also, "Neo-chartalists seek to establish that the state does not in fact have need of its citizen's money from taxation and bond sales in order to spend." He disagrees and maintains that the existing situation is a result of political compromises between sovereign and bourgeois. It is a result of the determination by creditors to establish the ability of the sovereign to pay its debts.

"This is the actual function of sound money principles." In essence, he writes, "The state and the market share in the production of capitalist credit-money, and, as I have stressed, it is the balance of power between these two major participants in the capitalist process that produces stable money."

The next section is: "The Working Fiction of the Invariant Standard"
By this he means the critical belief that there IS an abstract standard of value and that it does not change. Of course inflation interferes with the evaluation in practice. The state formerly attempted to do this by claiming a value for its metallic money and setting by edict the rate of exchange between nominal money and the precious metal content. The current system of orthodox credibility of monetary policy is generally formulated by the government. He describes this process in detail. Please read this section yourselves. The nation's economy depends on the credibility of its government monetary policy.

He shifts then to discuss "Economic theory, performativity and ideology."
Here he links the current monetary policy with two related changes in the social structure of monetary systems. "The first involved the expunging of inflation from the late 1970's. The second - the money markets especially those in state bonds became organized more impersonally, as they globalized after deregulation." "As ever", he writes, "economic theory has played an important role in the reconstruction of the latest versions of the practice of sound money." And, "To be sure, central bankers pay lip-service to the basic tenets of orthodox monetary theory, especially 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 call short-term disequilibria."

This discussion becomes rather deep, but critical. He writes, "The production of capitalist credit-money is at the core of the complex economic 'battle of man with man - that is between debtors, creditors, taxpayers and government bond-holders. The question of sound finance, like the question of the value of money itself, is part of this struggle."

The last section in this chapter again is: "Conclusions"
It all comes down to the struggle between political interest groups in the context of great changes in the structure of power relationships - the core conflict (I maintain this is always) is between debtors and creditors and centers on two inerest rates - long and short. In reality, he notes, central banks do not have the power they claim.

Chapter 8 - Monetary Disorder
Dr. Ingham provides three specific examples of 'monetary disorder' to illustrate his approach to the question. His objective is to show the essential political and social nature of the 'disorder'. One is the results of inflation. Two is the results of prolonged debt deflation in Japan, And three is the disintegration of Argentine money. His approach is to combine a narrative of the history of the events and of major economists' theories with his own analysis.

Chapter 9 - New Monetary Spaces
The first argument - issue - that he discusses is over existing national monetary systems and the progressive goal of establishing a world unified monetary system. The progressive concept includes the idea that computers now can create on-line markets that would enable direct barter thus eliminating exchanging of money in the transaction. He describes various experiments and technical developments. Some advocates call this 'the end of money'. He is skeptical on the basis of the real nature of money itself. He summarizes his position this way, "Money is essentially rooted in the money of account and the final means of settlement that is, of necessity, established by an authority." He notes other problems as well. For instance, direct exchange of assets via a form of electronic 'money' would bypass state taxation systems, a sure source of opposition. He then discusses current forms of local money systems that enable exchange of assets among a trusted group without use of govenment credit-money. These function on the basis of that supply of trust. Another concept is alternate value standards.

He writes, "The idea of an alternative value standard has long been a part of socialist egalitarian writing, but the modern version of Time Dollars was devised by the Washington law professor Edgar Chan in 1986. He notes that this idea also in unworkable. The immediate problem is in setting 'value' in the artificial system for the work time of various individuals.

Dr. Ingham devotes another section to "Europe's Single Currency"
He is rather critical of the basic theories that provide legitimacy to the acceptance of the Euro. He presents many problems for a central bank to establish monetary values across quite different national societies.

Concluding Remarks
This is a summary with some general conclusions added. There is much to study in this chapter and I only quote a few remarks that I find interesting.
To begin, "Inquiry into the nature of money was one of the most serious casualties of the increasing separation and fragmentation of social sciences that was set in train around the turn of the nineteenth and twentieth centuries."

Yes, of course, but as a student long ago I considered the broader and general separation of the academic study of politics and economics, with both divorced from history, as the cause of myopia on all sides. And Dr. Ingram adds - of sociology also.
He focuses on his effort here to at least bring the question of what is money back into some unified discussion, mostly of its sociological aspect with attention also to politics and study of reality provided in history.

"The questions of how money was produced and how it was able to perform its functions were rarely posed." "this entailed a serious logical category error." "Building on neglected alternative conceptions, I have argued that money is a socially (including politically) constructed promise. Regardless of its form and substance, money is always an abstract claim or credit whose 'moneyness' is conferred by a money of account."

"Today the 'promise to pay the bearer on demand the sum of ten pounds' printed on English banknotes would simply be met by an exchange for a note, or notes, of the same value denominated by the same money of account. Contrary to the widely held belief, the exchange under a precious metal monetary standard was essentially the same. The note was exchanged for a weight of gold that was constituted as money by its authoritatively fixed price in the money of account." The note and gold were different forms of the same thing." But, "money is not merely socially produced -- it is also constituted by the social relation of credit-debt." "All money is debt in so far as issuers promise to accept their own money for any debt payment by any bearer of the money." "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."
"in capitalism, the pivotal struggle between creditors and debtors is centered on forging the real rate of interest (nominal rate minus inflation rate) that is politically acceptable and economically feasible."
"Weber's emphasis on money's status as a weapon in the economic battle directs attention to its political nature." (Note, bot domestically and internationally.) The economists are blissfully unaware of this.
"This lacuna is the result of the apolitical conception of politics that is to be found in the mainstream economic meta-theory and, surprisingly as it may appear to some, the Marxist counterpoint."
"The basic elements of the meta-theoretical foundations of modern economics are to be found in Aristotle's ethics."
"Generations of orthodox economists have insisted that money does not comprise any of the essentials of economic life, and that it does not really matter."
"In other words, in the place of the labour theory of value and economic orthodoxy's 'real' theory, I have tentatively disinterred the social theory of value that I detect in Weber's sociology." Not having read this part of Weber's works, I cannot but speculate. But it may be that he was hinting on the very problem I maintain - what is 'value' and who determines how it is applied to real life assets.

Dr. Ingham discusses Weber's and Marx's theories. Then he leaves the question unanswered but poses it for future study and analysis.

Goeffrey Ingham - Capitalism

L.Randall Wray - Modern Money Theory: A Primer on Macroeconomics for Sovereig Monetary Systems

Felix Martin - Money: The Unauthorized Biography

S. Herbert Frankel: Two Philosophies of Money: The Conflict of Trust and Authority

Glyn Davies - A History of Money

G. L.S. Shackle - Epistemics and Economics: A Critique of Economic Doctrines

Perry Mehrling - The New Lombard Street: How the Fed Became the Dealer of Last Resort

Nicholas Wapshott - Keynes - Hayek: The Clash That Defined Modern Economics

Hunter Lewis - Where Keynes Went Wrong

Jerry Z. Muller - The Mind and the Market - Capitalism in Western Thought

Philip Coggan - Paper Promises: Debt, Money and the New World Order

David Graeber - Debt: The First 5,000 Years

Lawrence H. White - The Clash of Economic Ideas

Charles W. Calomiris and Stephen Haber - Fragile by Design: The Political Origins of Banking Crises and Scarce Credit

Anat Admiati & Martin Hellwig - The Banker's New Clothes: What's Wrong with Banking and What to Do about It