Polity, Cambridge U.K., 2004, 254 pgs., index, references, notes,
Reviewer Comment - This is the best 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
Martin. But Dr. Ingham focuses on the aspects of these ancient forms of
money relevant to consideration of what money is today.
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.
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
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
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
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
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
3. The variation in he quantity of money causes price movements, and no vice
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
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
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
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
This resulted in complete refusal to believe that "all forms of money,
including commodity-money, are constituted by a social relation of
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
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
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
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
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
Then comes the section: "Post-Keynesian Theory: Endogenous Money and the
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
The final section is: "Conclusions"
Dr. Ingham summarized the complex history into four themes included in these
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
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
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
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
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
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
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
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
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
(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
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
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
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
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
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
2 - some sovereigns began borrowing from their wealthy merchants to finance
their activities, war, and their promises of repayment became 'public
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
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
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'
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
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
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
The author next discusses, 'The private sector endogenous demand for
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
"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
"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
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
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
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.
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
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
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
"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
Glyn Davies - A History of Money
G. L.S. Shackle - Epistemics and Economics: A Critique of Economic
Perry Mehrling - The New Lombard Street: How the Fed Became the
Dealer of Last Resort
Nicholas Wapshott - Keynes - Hayek: The Clash That Defined Modern
Hunter Lewis - Where Keynes Went Wrong
Jerry Z. Muller - The Mind and the Market - Capitalism in Western
Philip Coggan - Paper Promises: Debt, Money and the New World
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