The Memory Bank

6. The Changing Character of Money

Money is often portrayed as a lifeless object separated from persons, whereas it is in fact a creation of human beings, imbued with the collective spirit of the living and the dead. We often recognise this aspect of money by speaking of it as if it had a life of its own, animating our lives for better or worse, more often the latter. For some people, money is the root of all evil; for others it is the source of modern freedom. In both cases it makes the world go round. And this leads to the second point: money is associated with movement in space, with change, with the exchange of objects travelling great distances, in other words, with the market; and it is itself in movement through time, hence the history of money is an essential part of the history of society. We will be asking in this chapter “What is money?”, but the answer will not be one static thing or idea, much as we would all like money to stand still and be counted.

The standard definitions do not capture the most important feature of money, its evolution as a means of human interaction in society. Money is made by us, but for most people it has long been something scarce which we take passively whenever possible, without any sense of its being our collective creation. From having been an object produced by remote authorities, it is becoming more obviously a subjective expression of our own will; and this development is mirrored in the shift from “real” to “virtual” money. In the last 300 years or so, the money form has evolved from metallic coins through paper notes to electronic digits. In the process, money has become dematerialised, losing any shred of a claim that it is founded on the natural scarcity of precious metals. Even the authority of states, which stamped coinage and issued the notes with which we are still most familiar as money, cannot long survive the electronic blizzard which is money in the age of the internet.

Money has character, in the sense of having durable qualities, especially moral and ethical, which distinguish a person, a group or a thing from another. This word comes to us from the ancient Mediterranean: it meant originally a pointed stick for inscribing marks in the ground, hence a sign in a writing system, also a branding iron for cattle, a stamp for coins, an imprint on the soul and, in computing today, one of a set of symbols conveying information. The idea of money as a vehicle for the transmission of information may seem new, but it is as old as the institution itself. Nor is the idea new to anthropology. Thus Malinowski says, of Trobriand kula valuables, “Currency as a rule means a medium of exchange and standard of value, and none of the Massim valuables fulfil these functions”. But Mauss replies, “On this reasoning…there has only been money when precious things…have been really made into currency – namely have been inscribed and impersonalised, and detached from any relationship with any legal entity, whether collective or individual, other than the state that mints them… One only defines in this way a second type of money — our own.” He prefers to stress the purchasing power of primitive valuables like those used in the kula and argues that they are like money in that they “…have purchasing power, and this power has a figure set on it.”

If the value of money does not lie in precious metals nor in the power of governments, where does it lie? We will conclude, after the following investigation, that money is mainly, but not exclusively, an act of remembering, a way of keeping track of some of the exchanges we each enter into with the rest of humanity. And that is what makes money an instrument of collective memory. British conservatives who feel that the replacement of the pound sterling by the euro involves the loss of an important part of their cultural heritage have a point, even if it is a narrow one in a world which increasingly uses English as its common language. Once freed of a spurious claim to objectivity, money is revealed as a creature of our shared collective life, as necessary to it as language. Moreover, interpreted in a certain way, its history points to the possibility of economic democracy.

Contrary to the widespread belief that there is only one western doctrine of money, economists have generated many theories on the subject. For, while markets using money prices are perhaps the single most striking feature of contemporary life, this is the historical outcome of different institutional pressures and supports as many varieties of interpretation. Broadly speaking, these may be grouped into two classes, of which the first is by far the most common. In this commodity theory, money is a useful thing like a lump of coal and its price is the outcome of market evaluation. The second class may be subdivided into three types of theory which locate the value of money as a token of society — in the state, the nation and the community, respectively — placing variable emphasis on inequality and equality in social life (on vertical and horizontal relations between members). In this second group of theories, money is seen as a symbol of something intangible (society), rather than as a thing with an objective value. The community theory, the most informal and egalitarian of the three, with its emphasis on trust between people, leads directly to the idea that money is a kind of personal credit, generated by each of us in our social interactions. This in turn opens up an alternative to all standard theories of money as an impersonal object.

Ideas normally lag behind the movement of society; and this chapter begins with a brief history of concrete changes in the money form. Money today is more plural and dynamic than at any time previously. Banknotes and coins have become equally worthless in terms of the costs of their production; and private instruments of credit are multiplying. A short period when nation-states sought to manage their currencies in the public interest is rapidly giving way, under pressure from the international economy, to a phase where money markets, offshore banking and electronic payment systems have sharply reduced the autonomy of national governments. It may be premature to see the communications revolution as a stimulus to the middle-class tax revolt. But it is clear that the certainties of mid-century are being undermined at its close. Unprecedented developments are unfolding under our noses; so that an empirical approach to contemporary economic history is a salutary antidote to the welter of speculation which is the main subject-matter of this chapter.

The history of the money form

J.S.G. Boggs is an American artist who, since the mid-1980s, has been drawing pictures of money, of paper notes in the world’s standard currencies. He tries to exchange these pictures for goods and services; and in this he has been successful, having sold around $1 million’s worth so far. He once paid for an expensive meal in a London Chinese restaurant by drawing for the owners a non-existent £500 note; they gave him his change in normal cash. A collectors’ market has arisen for his money pictures; and their prices have inflated considerably over time. His work is exhibited in museums. He also sells his signature for $100; and there is a trade in these too. As with Picasso, people don’t cash his cheques and sometimes sell them on at a substantial mark-up. The engraver of the heads on dollar bills has done a head of Boggs in the same style. The artist has reproduced this on a limited edition of $100,000 bills which he hopes to sell at face value to pay for legal costs that now amount to $800,000.

For he has, of course, been hounded by the authorities as a counterfeiter, even though his drawings could never be confused with the “real thing”. At London’s Old Bailey court in 1987 he was accused of “reproducing” sterling banknotes. His successful defence was that the banknotes were reproductions; his drawings were unique. In Australia, he was acquitted on charges brought by the currency police and awarded A$20,000 in damages. Juries like Boggs and, in his home country, the United States, the Secret Service has waged a long campaign of legal harassment without going so far as to initiate a jury trial. His alleged crime is “uttering images in the similitude” of actual American currency. The Secret Service did manage to stop his plan to flood Pittsburgh with $1 million in the form of photocopies of Boggs bills, by threatening all concerned with the direst consequences. In 1992 they seized the contents of his studio; and this led Boggs to engage in a series of appeals and civil suits which have so far cost him $800,000, without benefit of either a favourable ruling or a criminal prosecution which would require a jury trial. He cannot get his property back because the government has argued successfully that his drawings are contraband, like hard-core drugs, whose owner cannot demand them back, even if he is not prosecuted.

Boggs is funny, so what is the joke? And why are the authorities so worried about Boggs that the US Secret Service will spend millions of taxpayers’ dollars trying to disrupt his enterprise? Today’s money, the measure of the value of everything, is intrinsically worthless. Not just that, value itself is so capricious that it can be whatever people will pay for something which catches their fancy. Money and art, especially when exchanged for each other, rest on values which are insubstantial or only as substantial as the shifting desires of the people who exchange them. Money, like art, is subjective.

Paper money is the successor of an earlier attempt to persuade people that money was worth what it claimed to be because of its precious metal content. This drive to establish the objective value of money foundered on a crime wave triggered off by the English revolution or perhaps just by modernity. Counterfeiters, coin clippers, bullion smugglers and foreign imitators contrived to make the actual metal content of coinage so unreliable that, eventually, Pitt’s government, in the middle of an expensive war against Napoleon, decided to issue stylish, but almost costless, paper money (the famous black and white £5 note or “fiver”) backed only by its own power to enforce payment. This step away from the “real” to the “virtual” required the support of heavy-handed propaganda asserting that the paper money’s value was immutable, even though, as we all know now, its objective purchasing power is not. The US Federal Government is pursuing Boggs because, for them, his drawings are no laughing matter. Why, people might end up thinking that the mighty dollar was just a picture on a piece of paper and that a maverick artist was the government’s equal. Worse, they might come to realise that money is a figment of their own collective imagination and not an object after all.

So what is money? All the textbooks give the same definitions: it is a means of payment; a unit of account; a standard of value; a store of wealth. Above all, it oils the wheels of exchange by giving buyers something which any seller will accept in return for their goods or services. Dictionaries are even more limited, concentrating on the money form itself which they usually refer to as “currency”, whatever is in circulation: coins, banknotes and other instruments issued by governments. But then what about personal cheques and savings accounts, private notes of bank credit and, more recently, plastic cards of all kinds linking us into electronic networks which greatly increase our spending options? The money form is not standing still and that makes it even more imperative to probe beneath surface appearances and ask what the source of money’s value is and what we can make it do for us.

To understand the significance of paper money, which has lasted roughly as long as the age of mechanisation, we need to look at what came before it and is coming afterwards. For paper money looks back to coinage (state-money) and forward to electronic networks of personal credit (people-money). Its invention came from a combination of state-money and bank-money. Alongside the circulation of the stuff minted by states, there has always been a market for written contracts specifying debts incurred between private persons. And it may be that the temporary convergence of these two circuits in the era of the nation-state is breaking down now. The issue of the money-form is a convenient way of expressing deeper anxieties about the risks involved in relying on markets. People want their market contracts to be secure and this crucially involves the stability of money’s value over time. For we have seen in Chapter 5 that the exchange of goods for money in a single instant conceals the projection of contracts through time. The argument about what form money should take has often been about how to maintain the value of the standard, usually against its deterioration.

It follows from this that the citizens of societies based on markets would be seriously disturbed by rapid and unpredictable changes in the value of money. And such appears to be the case. The conservative governments of the 1980s and their centre-left successors today have been universally committed to sound money, by which they mean low rates of inflation. This follows a period in mid-century, from the 1930s to the 70s, when ruling orthodoxy, inspired by the theories of Maynard Keynes, acknowledged the responsibility of states to stimulate their economies. The method used was to issue more money than was warranted by existing levels of production. Nixon’s statement, just before his downfall, that “We are all Keynesians now” expressed the idea that national government was inevitably the chief instrument of economic management.

Unfortunately, shortly afterwards, inflation rates of over 20% became normal in the leading western economies. This may not seem very much by the standards of the German inflation of the 1920s or of Brazil at any time, but the experience of finding prices in the supermarkets adjusted upwards by 2% every month was definitely unsettling. Businessmen do not like inflation because it makes it more difficult to calculate profits or perhaps because it symbolises the ascendancy of the politicians. Ordinary people just get frightened when the value of money itself is unstable. Accordingly, around 1980, neo-liberal conservatives (Reagan, Thatcher, Kohl) were established in office throughout the western world and their creed was “monetarism”, a rejection of state-made money and a return to the commodity theory which underpinned Victorian civilisation (you are only allowed to spend the cash you have in hand).

In a remarkable article, Keynes once asked: Who gains and who loses from inflation or its opposite? People who hold money in the form of savings or loan credit lose out from inflation, since it means literally the depreciation of their money. And this constituency includes not only bankers as a class, but also pensioners living off fixed annuities. The big winners from inflation, of course, are debtors and those holding real assets whose price appreciates faster than the cost of living. Middle-class home owners with mortgages fall into this category. It is not obvious which side most capitalists would come down on, especially when demand for their products is stimulated by inflation. The deflationary lobby can count on an irrational fear of unstable money, but the general interest in this century has more often been met by governments pursuing mildly inflationary policies. Even so, Keynes concludes that any change in the standard rewards some and punishes others unfairly; and this is the best argument for sound money. But how to arrive at this utopia?

Keynes waged an unremitting campaign against the policy of the day to fix the value of money to an objective standard, gold. This had the consequence, especially after the slump of 1929-32, of engineering a ruinous deflation. Indeed Keynes could be said to have killed off the gold standard, Victorian civilisation’s legacy to the troubled decades which inaugurated our own century. This was itself a revival, after the experiment in free-floating paper of the first half of the 19th century, of British commitment to a metallic standard linking the pound sterling to an international economy of which it was both guarantor and principal beneficiary. And, to understand where that came from, we need to know more about “the father of the gold standard”, John Locke, and his activities in the 1690s, when Britain was engaged in another French war, this one for religious ascendancy in Europe. The commodity theory of money has been labelled “metallism”, for the simple reason that, if a currency was to be a reliable medium of exchange, it was thought that its value should be based on the metals it cost to produce the coinage, precious metals like gold and silver. Locke wrote a number of pamphlets on money in the period 1690-96, the same years in which his major philosophical works were published. The combination of war inflation (William III inaugurated the national debt in 1693) and the deterioration of the currency triggered off a monetary crisis which threatened to undermine the new regime. Everyone agreed that the old currency had to be brought in and a new one issued (“recoinage”). But there were two opposed camps on how that should be done. One, associated with Lowndes and Barbon, held in the latter’s words to a proto-Keynesian position, “The more every man earns, the more he consumes and the King’s revenue is the more increased.” Whereas Locke held that “civil government has its origin and end in the regulation of money”. The crippled condition of the coinage meant that money was outside state control and a way for the criminal classes to undermine the state.

The two sides were also opposed in terms of the weight they gave to the national and the international economy respectively. Here was what each proposed:

Lowndes: remint the same number of coins with a reduced silver content (devaluation).

Locke: return fewer coins with the same weight and silver content as the currency was supposed to have, but no longer did (revaluation).

His opponents accused Locke of favouring Portuguese wine merchants (who would use a reliable international currency) over the national interest, since, they claimed, his own quantity theory of money predicts that a reduced money supply would cause prices and therefore employment to fall. To which he replied that the business of business is making money, not giving pleasure; people who put up with fraud are fools, but governments who endorse it undermine themselves; the world economy was the prime source of accumulation; and something had to be done to check the rise of the criminal economy. For all these, and perhaps other reasons, Locke won the day.

Locke was trying to build an infrastructure for the 18th century and his monetary policies were just part, but a very significant part, of his overall concern that the state should exercise the power and will to establish standards. He wanted the state to secure the currency, but not to take it over as an instrument of its own policy. He thought that adhering to an immutable metallic standard would ensure both these ends; and he helped recruit Isaac Newton to be Master of the Mint, where his scientific credentials could be brought to bear on maintaining the highest possible standards of coin production. In fact, Newton took his job so seriously that he strung up a large number of counterfeiters and other economic criminals on Tyburn Hill. Between them the two greatest English intellectuals of all time devoted their efforts to making the pound sterling the by-word for reliability that it subsequently became.

As it happened, Locke succeeded in the aim of promoting sterling as an international currency, but he failed in his attempt to convince ordinary coin users that they were getting value for money. For, as long as value was based on the measurement of metal content, there were still many ways of illegally altering that measure (clipping, counterfeit and so on). Moreover, the price of gold and silver was itself subject to fluctuations of market supply and demand. In consequence, a century later, the British government, following several Scottish precedents, decided to take the step of counting money rather than measuring it, going for a purely nominal approach, the five-pound note. They hoped to persuade the public that the power of government was a better guarantee of stability than variable metal content. And with this, one of the great steps in the history of digitalisation, they succeeded… for a time. Within half a century, the pendulum swung back and the Victorians rediscovered the virtues of the Gold Standard, a measure which, as Keynes pointed out acerbically, only lasted as long as it did because supplies from the South African mines were able to match the expansion of the world economy. Whether we have reached a stage when we can break out from this ruinous alternation between metal and paper, markets and states, remains to be seen in the sections that follow.

Ours is a time of unprecedented change in the form and organisation of money. Most of us have access to six kinds: coins, banknotes, cheques, savings accounts and a variety of plastic credit and debit cards. The relative significance of all of these is constantly shifting. Money is an index of our relations with society; it measures, to an important degree, the viability of our social connections. Becoming unemployed, for example, is a personal disaster from many perspectives, such as disposable income, public recognition, the opportunity to practise a skill and much else; but the loss of a regular source of money is its most tangible manifestation. When the very techniques of paying and receiving money are in flux and each of us is continuously forced to learn a new monetary repertoire, more is at stake than just earning a living. We have to redefine our whole relationship to society almost on a daily basis.

An outline history of the money form may be summarised briefly for our present purposes. The traditional money form, known as “specie” (coins containing precious metals equivalent to their nominal value), now survives only in a specialist hoarders’ market for gold coins. For two and a half thousand years the only alternative to specie was the note of credit, which took the precise form of bills of exchange in Europe about 600 years ago. Coins were first mass-produced in Britain around 1800. At much the same time, national paper money emerged as a widespread substitute for both specie and promissory notes issued by private banks. Base metal coinage was introduced after the second world war, so that both paper and metal versions of the national currency now became equally worthless, being distinguished largely by function rather than by cost of production. In the meantime, private individuals have continued to issue cheques against their bank accounts; and this source of liquidity has been augmented recently by the issue of plastic credit and debit cards. These are the forerunners of electronic payment systems whose use has been boosted enormously by the convergence of telephones, television and computers in the 1990s (smart cards, e-money, banking by phone etc.)

From the mid-19th century credit was based on the convertibility of money to gold. As we have seen, the gold standard broke down between the two world wars; and it was replaced just over fifty years ago by the agreement known as Bretton Woods. This was a system of state-guaranteed money with fixed exchange rates tied to the main reserve currencies, especially the American dollar. In other words, international trade rested on confidence in the world’s strongest economy, the United States. Bretton Woods broke down in the early 1970s as a result of the convulsions in world commodity markets and associated shocks to national finances brought about by the first OPEC oil price increase. This led to a hesitant acceptance of a free market in money, a process which was accelerated by the development of markets dealing in money futures. These were invented in Chicago in 1975, partly on the initiative of the liberal economist, Milton Friedman, who wanted to teach governments the lesson that “they could not buck the markets”. Before long speculative buying and selling of currencies became the leading activity of international traders, a category which now embraces central bank governors, the treasurers of multi-national companies and pension-fund managers.

In this way, national governments have become subject to international financial pressures which make it less plausible than ever for them to pursue economic policies which don’t meet the approval of the money markets. The eviction of several currencies, including the pound sterling, from the European monetary system on “Black Wednesday” in September 1993 provides the most dramatic evidence so far that individual speculators commanding the resources of a George Soros can bet against the declared policy of a nation-state and win. Most governments (with some notable exceptions such as China and France) have got the message by now. “The markets” deal in such vast quantities of money every day (most of it exchanging money in one form for another) that the finances of individual states are too puny to make much of a difference.

Nor is money standing still on the home front. The virtue of traditional money forms — coinage and later banknotes — was that they could be spent anonymously in a wide variety of commodity transactions. Since their value was apparently objective, there was no need to introduce questions concerning an individual’s creditworthiness. Moreover, governments levied the bulk of their internal revenues on transactions involving this kind of money. But all of this is being undermined by developments in electronic communications. It is now easier to evade state control at all levels of the economy and money has become less anonymous, more attached to persons. The communications revolution offers the best chance to escape from state-made money since medieval merchants substituted private bills of exchange for coin of the realm as the preferred instrument of long-distance trade.

To sum up, the state monopoly of money has, in the late 20th century, been subjected to pressure from above and below. Globalisation of markets, including markets for financial instruments of growing complexity (“derivatives” and the like), has eroded the power exercised by governments over their national economies. In addition, internal devolution of state control over finance has been made inevitable by what are essentially decentralised instruments of credit. So, in a world which has seen national currencies become the plaything of increasingly erratic market speculation, we must look elsewhere for the source of money’s value. What about the banks? What supports their claim to keep our money safe?

The real reserves of wealth supporting a bank’s promise to pay are normally very small and, in the case of national banks, mostly illusory. A modicum of order was imposed on a country’s residents until recently by regulation of the institutions, such as banks, using the national currency, e.g. by insistence on the maintenance of minimum deposits. The last quarter century, however, has seen the flowering of what was at first called Eurodollar banking. After the second world war, the Russians and Chinese, fearing seizure of their New York dollar assets, transferred the money to London and Paris. The financial crisis of the early 1970s led to a more widespread use of this procedure, with London emerging as the main banking centre for those non-residents who wished to hold dollars outside the USA.

Offshore banking can afford to offer interest rates on average one percent higher than those banks who are subject to national regulation, because of the reduced costs entailed in avoiding the necessity for deposits. What then is the basis of the Eurodollar banks’ credit? Not gold or state power, to be sure. Their credit is based on the probability that they will recover outstanding loans. Default on any major loan would call into question the creditworthiness of all the offshore banks, which are, of course, often subsidiaries of the main domestic banks. The banks hedge against such a contingency by spreading each loan between a large number of them, so that the risk of any of them being declared bankrupt in isolation is reduced; and they make it known that they would seize the trade goods of any country involved in a major default . But this nightmare scenario could trigger off a run on the bank which would make the financial failures of the Depression years look trivial in comparison. No wonder then that the high Third World debts incurred in the 1980s are endlessly rescheduled. Neither side can afford a confrontation, although large countries like Brazil have contemplated it from time to time.

This brief attempt to introduce a measure of historical realism to the discussion of money should be enough to show that the pursuit of its objective foundation is illusory. Money is a measure of social interaction; no more, no less. We make it up; but most people prefer to think of it as already made. Above all, the consequences of examining what money really is are so shocking (because more metaphysical than physical) that the world prefers, for the most part, not to think about it. And the struggle for supremacy between states and markets is still very much with us.

Heads or tails? Two sides of the coin

In a century which has seen three world wars (two hot, one cold) fought over the form of state best suited to human economic progress, which is more important in determining the value of money — the state or the market? There are at least four contending answers to this question: states and markets may be seen as inherently opposed and in conflict (the Cold War); states and markets may be seen as being complementary, with one or the other definitely in the driving seat (mainstream socialism and liberalism respectively); or the state and the market may be seen as equally indispensable and forming a dialectical unity (German and Japanese nationalism, for example). The symbolism of the two sides of the coin (heads or tails?) provides a point of entry for an enquiry into the relationship between politics and exchange as the principal source of money’s value. What then is the relationship between coins in particular and money in general?

Maynard Keynes did not think so much of coins, since they epitomised an outmoded adherence to objective money. In the brief history with which he launches his A Treatise on Money, he dismisses the achievement of the kings of Lydia in allegedly first striking coins around 700BC as follows:

“…it may have been as a convenient certificate of fineness and weight, or a mere act of ostentation appropriate to the offspring of Croesus and the neighbours of Midas. The stamping of pieces of metal with a trade-mark was just a piece of local vanity, patriotism or advertisement with no far-reaching importance. It is a practice which never caught on in some important commercial areas…(for example, the Egyptians, the Carthaginians and the Chinese)…The Semitic races, whose instincts are keenest for the essential qualities of Money, have never paid much attention to the deceptive signatures of Mints, which content the financial amateurs of the North, and have cared only for the touch and weight of the metal. It was not necessary, therefore, that talents or shekels should be minted; it was sufficient that these units should be State-created in the sense that it was the State which defined…what weight and fineness of silver would, in the eyes of the law, satisfy a debt or a customary payment expressed in talents or in shekels of silver.”

Keynes held that modern money was as old as the invention of cities and, with them, the State (which he capitalised), that is to say, as old as agrarian civilisation:

“The State, therefore, comes in first of all as the authority of law which enforces the payment of the thing which corresponds to the name or description in the contract…in addition, it claims the right to determine and declare what thing corresponds to the name, and to vary its declaration from time to time – when, that is to say, it claims the right to re-edit the dictionary. This right is claimed by all modern States and has been so claimed for some four thousand years at least. It is when this stage in the evolution of money has been reached that Knapp’s Chartalism — the doctrine that money is peculiarly a creation of the State — is fully realised. Thus the Age of Money has succeeded the Age of Barter…”

The right to re-edit the dictionary! Keynes, a master of the art of writing who knew more about money than anyone in his day, was intimately aware of their connection as means of communication. He also knew of the state’s jealous monopoly of the currency used by its citizens, the same monopoly which is called into question by the developments of our day. Language and money are both intrinsic to a society’s collective memory or culture. But Keynes’s aim in downgrading the significance of coinage was to establish that, as a social creation, money did not have to wait until coins were struck; and it is this aspect of making money rather than finding it in the form of natural objects that he wanted to stress. Money is a thing, but it also has to be named and it is the act of naming with is more truly creative and social than manufacturing per se.

Figure 6.1 lays out Keynes’s definitions of money. These constitute at once a contemporary classification of what is in current circulation and an evolutionary scheme emphasising the gradual replacement of an objective standard of value (commodity money) with symbols of no intrinsic value (token or representative money). This evolution from substance to function, as Simmel puts it, depends on distinguishing the way in which debts, prices or purchasing power are expressed (“money-of-account”) from what is actually discharged or held (“money-proper”); the first being the title or description and the second the thing which answers to the description. The interest of the distinction lies in the possibility that the second may change while the first stays the same. The evolution of money as a convenient means of exchange on the spot, stressed by precursors such as Smith and Marx, seemed to Keynes less important than the emergence of a money standard named by law (the state) or custom (the community).

Money in the above sense, he believed, “…like other essential elements of civilisation, is a far more ancient institution than we were taught to believe some few years ago. Its origins are lost in the mists when the ice was melting, and may well stretch back into the paradisaic intervals in human history of the interglacial periods…” But the first major step towards modern money was the state’s exercise of its “chartalist” prerogative to establish a standard and to declare what answers to the money-of-account. For almost as long as money-proper, says Keynes, it has been recognised that private debts can just as well be used in the settlement of transactions expressed through the money-of-account; and he calls these acknowledgements of debt “bank-money”.

The next stage consists in the convergence of state-money and bank-money as representative (or, in my terms, “token”) money, such as occurs when a debt of the state is accepted in exchange for legal tender. This partial rupture with the principle of commodity money, namely that its value is no longer wholly tied to an objective standard, leads to the last stage in Keynes’s scheme, the invention of “fiat money”, such as paper currency, whose value in terms of scarcity or cost of production is intrinsically worthless. In practice most of the currencies of his day took a hybrid form between commodity- and fiat-money; and they still do. He named this hybrid “managed money”, when a government seeks to maintain a relationship of its currency to an objective standard, while having a value which is intrinsically artificial. This can be confusing: “The public knows Commodity Money and it knows Fiat Money; but, readier to recognise the Standard than the Form, it is apt to consider a Managed Money which has a familiar commodity as its standard as the same thing as a Commodity Money, and a Managed Money with an unfamiliar commodity as its standard as a Fiat Money in disguise.” A familiar commodity might be gold, with the state holding far less than 100% equivalent in reserves; whereas an unfamiliar one might be the exchange rate of a powerful currency like the American dollar.

So token money begins when a currency is no longer composed wholly of its objective standard and becomes fiat-money when the state abandons the objective standard altogether. Keynes admits that coinage may be a step on the road to token money, in that the state which has the minting monopoly may give coins a value higher than their objective precious metal content; but that is not essential to state-made money which, as we have seen, predates coinage considerably. The Romans, he claims, pioneered debasement of the currency as a way of paying for wars; and subsequent debasements became common without constituting a break with commodity-money as such. Token money was rather an invention of modern banking, even though its origins in the settlement of private debts at distance was much older. The Scots took the lead in issuing bank notes in the 18th century, preferring to avoid the risks of transporting money-proper. The invention of paper money followed closely. Although the Chinese are said to have used paper money long ago and John Law bankrupted Louis XV’s France with his precocious experiments in paper instruments, Keynes prefers to credit the French Revolution and subsequent wars with responsibility for the move to paper money on the part of the two leading powers of the day, England and France.

Both countries subsequently reverted to managed currencies, even for a while embracing at least the appearance of commodity money in the form of the gold standard. Along the way, that supreme instrument of modern public finance, the bank-rate, was invented, allowing states to regulate a vastly expanded sphere of private banking while retaining nominal control over the money-of-account. Managed money alone has a relationship to the other three principal forms current today, uniting within itself commodity and token, substance and function, the real and the virtual. This suggests an interdependence between the opposed principles and types of money which we can perhaps approach more easily through the symbolism of the money-form Keynes affected to disparage, coins.

Take a look at a coin from your pocket or purse. It has two sides. One side contains a symbol of political authority, most commonly the head of someone who is or was the head of government, hence heads. The other side crucially contains the information about what it is worth, its quantitative value in exchange for other commodities. Rather less obviously, this is called tails. This example of money therefore has at least two aspects which are related to each other as top to bottom. One emphasises that it is issued by society in the form of the state, here symbolised by a person; it is a token of relations between people. The other stresses that money is itself a commodity, lending precision to trade in an infinite range of commodities; it is a real thing with an objective existence which is independent of the persons who use it.

There is an obvious tension between the two sides of the coin which goes far deeper than appearances may suggest. For Victorian civilisation made a concerted effort to base its market economy on money as a commodity, gold, whose value was allegedly immune to interference by states or any other social agencies. In our century, very much under Keynes’s influence, political management of money became for a time normal and then again anathema. Now there is talk once more of “the markets” reigning supreme and of states losing control over national currencies in a process of globalisation. At stake here is the project, repeatedly espoused by bankers and businessmen, of trying to liberate market economy from the political institutions which give expression to people’s general social interest. Yet the evidence of our coinage is that states and markets are or were each indispensable to money; and some nations have long recognised the value of treating the two sides as symbiotic.

Most anthropologists, contrasting their own society with others they claim to know professionally, speak of “the West” or “Euroamerica” as if its economic culture were monolithic, being based on market logic alone. In this timeless version of the modern world, nothing has changed since the Victorians tried to impose the gold standard on the rest of humanity. Which is a pity; for it is precisely in the diversity of monetary theories and the historical conflicts they represent that the possibility of finding new ways forward lies. What states and markets share, despite the personal symbolism of heads, is a commitment to founding the economy on impersonal money. If you drop the coin and someone else picks it up, they can do exactly the same as you with it, whatever they like. This absence of personal information from the money itself is what recommends cash to people who prefer their transactions to be illegal: it conserves their anonymity. Yet, as I will argue, a more effective route to economic democracy lies through people participating in exchange as themselves, not just as the anonymous bearers of cash; and for such a move we need to examine the antecedents in monetary theory and history.

The commodity theory of money has been labelled metallism, as we have seen, for the reason (illusory as it turned out) that a reliable medium of exchange should be based on the precious metals it cost to produce the coinage. This ancient practice was elevated to the level of economic theory when the British argued in the 1850s for an international standard linking national currencies to the price of gold. But adherence to the gold standard made it impossible for governments to protect their citizens from wide fluctuations in markets. It did not escape notice that unemployment could be reduced and public misery alleviated, if governments spent money they did not strictly possess (i.e. by printing more of it). Indeed the Wall Street crash of 1929 and the subsequent economic slump forced the British to abandon the gold standard in the early 1930s.

The voices of the anti-metallists (or chartalists, advocates of money as something issued by states) grew in strength, as the 20th century crisis deepened. Their position was summed up long ago by Nicholas Barbon, Locke’s antagonist, who said “Money is a value made by law”. The most systematic challenge to the orthodox theory of money as an expression of market logic came from Germany. Adam Mueller was the author of a fully fledged romantic approach, A New Theory of Money, in 1816. Mueller negated everything British political economy stood for — free trade, specialisation, international division of labour etc. — in favour of national economic self-sufficiency, the virtues of working the land and maintaining the cultural integrity of a people. Money for him derived its value from the trust generated within a community and was more specifically an expression of national will.

German monetary theory culminated in the publication of Knapp’s State Theory of Money. He set out to put flesh on Barbon’s dictum, believing that money was a standard of credit issued by the state and that the latter’s freedom in monetary policy should not be restricted by an international system anchored in the eternal exchangeability of gold. In this Knapp was building on a long-running “battle over methods” (Methodenstreit) which had pitted a historical approach against the timeless generalisations of marginalist economics. But it was not just a matter of English economism versus German romanticism. Writers from several countries, including England, felt that there was a moral dimension to money which went beyond the formalism of both market and state theories. For Victorian liberals like Bagehot, the need for trust, credit, banking, “the Englishman’s word” all of this defined money as an aspect of relations between persons, not as a thing, mere cash.

There were thus three types of theory opposed to the classical orthodoxy which regarded money solely as a commodity subject to the laws of competitive markets. These were all token theories which insist that money is a symbol of something intangible, an aspect of human agency, not just a thing. Money as the outcome of state policy emphasises the role of law and government intervention; society in this version is composed of vertical relations between unequals, rulers and ruled, like the top and bottom of the two sides of the coin, heads and tails. A populist theory of money like Mueller’s stresses the framework for money constituted by the accumulated customs of a nation or people (Volk); while to conceive of money as an expression of trust locates value in the morality of civil society, evoking the notion of a community of equals to complement the selfishness of markets; its essence is the management of credit and debt in human relations. Nationalism lies between the vertical and horizontal models of society contained in the other two, since it combines the formality of the state with the informal substance of community.

At the core of these opposed theories lies a contrast between the imaginary and the real. If only money could be tied to an object, a grain of gold for every dollar, we could all rest assured that our money is “real”, a thing like the other objects we can touch. But what determines the price of gold? The answer lies in intangibles like how much some people desire it in relation to how much of it others choose to put in circulation rather than hoard it. An old conundrum asks why diamonds are more valuable than air, since we can live without them and not without the latter. We know now, of course, that diamonds maintain their price as a result of a complex international conspiracy organised by the South African firm, de Beers, in an uneasy alliance with the Russian government and rebel forces in Angola. And that is not to forget the subliminal effects of all that advertising reminding us that a diamond is a permanent guarantee of love.

The idea of money as merely a commodity depends above all for its credibility on a spurious realism. All the other theories of money acknowledge that the value of anything is inevitably symbolic. Society is something unknowably vast. Even the social networks that each of us enters reach a level of complexity which we could never document objectively. So we rely on symbols — words, ideas and things which stand for what we would like to convey. A red rose symbolises the unfathomable depths of my love for you… Banks would not have to occupy impressive buildings if they contained the real resources adequate to meet their financial obligations. As we are constantly being told by the representatives of capitalism, it is confidence that rules the markets and that can be lost for the most imaginary (or perhaps, imaginative) reasons. We have only recently discovered the idea of “virtual reality”; but in the world of money, we have been living with nothing else for a long time.

In the 19th century, the world market consisted largely of things ripped out of the ground as raw materials for industrial manufacturing and mass consumption in the west. Hence “commodities” were (and still are in the financial sections of newspapers) things like tin, copper, wheat, cotton and coffee. The flow in the opposite direction consisted mainly of clothing and household utensils. Services were largely personal and restricted to local social interaction (haircutting, for example). Today, in a country like Britain, more than 4 out of 5 jobs are in services (increasingly information services), only 1 in 50 is in agriculture and the rest work in industry. Moreover, improvements in telecommunications allow a rapidly rising proportion of these services to be performed at long distance. This is to say that the human economy is now more concerned with what people do for each other than with the production and circulation of physical objects. And one measure of the poverty of Africa and South Asia is that so many people there still produce things for a living in a world market which for them remains obstinately tied to the conditions of the 19th century. For those regions which participate fully in the communications revolution, exchange is becoming both more personal and more abstract at the same time. The idea of money’s value being objectively real is ever more untenable under these circumstances.

Theory is always likely to lag behind common experience, especially when its function is to uphold the powers-that-be. Maynard Keynes struggled against the cultural legacy of his Victorian parents to persuade policy-makers that the popular interest would better be served if they put more money into society (through demand inflation) and took less of it out (as savings). He tried to explain that there were not just two types of money, one based on a market for precious objects and the other paper notes made out of thin air, but rather that modern money must be the managed outcome of the interplay between states and markets. Because he gave some agency to the former, he was later represented by market fundamentalists as an advocate of fiat money, of “Monopoly money”. We have seen that he was not, even though he believed that he was operating well within the Age of Money as defined by states. And so he was: the interwar period was the heyday of the corporate state, if any time in recent history was. But he wrote, therefore, as a spokesman for a controlling elite. In the age of electronic money, other possibilities than the hierarchy of heads and tails present themselves. For each of us money management must become a personal responsibility, with money assuming forms as diverse as the associations in which we each participate. In this respect, money could increasingly resemble language, as spoken by a diverse, cosmopolitan people.

In truth, the pursuit of objective certainty in the monetary sphere has wrecked many a modern economy, just as the stabilisation programmes of the World Bank and International Monetary Fund (“structural adjustment”) have brought many Third World economies to their knees today. The interest of increasing international flows of commodities and money is impaired if individual states give priority in their financial affairs to internal political considerations. When impoverishment and chronic indebtedness drives these governments to the international agencies (“undertakers” might be a more appropriate expression than “bankers”), the price they pay to be bailed out of bankruptcy is to “stabilise” the currency by bringing spending in line with what they can afford. The medicine is more or less the same as that administered to any individual debtor or loss-making firm, despite the fact that the livelihood of millions hangs on the outcome, which is invariably very painful.

This practice was inaugurated at the expense of Austria after its defeat and loss of empire in the first world war. Brutally stringent fiscal policies were introduced on the advice of an international team, unemployment mounted and eventually Hitler walked in. As someone said at the time, “The operation was successful, but unfortunately the patient died.” It is no different now. Even though the imposition of market logic on public finances is manifestly unfair and irrational (how can a country come to be declared bankrupt or, for that matter, a multinational corporation be treated in law like an individual person?), the advocates of sound money can always represent their policies as realistic and alternative proposals as dangerous fictions.

We are afraid of taking responsibility for a world of exchanges which is based on nothing but our own ability to initiate relationships. For money is principally a way of keeping track of what people do with each other. It is above all a source of information, a measure of the value of transactions. The President of Citycorp Bank, Walter Wriston, once said (shortly before his own fall from grace), “The information standard has replaced the gold standard as the basis of world finance”. Well, not quite yet. But the time is surely ripe for us to grasp that money is not necessarily an objective cause or limitation of our economic action. The idea of determinate cause underlying Newtonian science (in popular terms, “the billiard ball theory”) was long ago replaced by one of probability (nothing is certain, only more or less likely to happen), an idea permitting the infinite regress of matter in relativity theory and quantum mechanics. In this sense, natural scientists reflect more closely the conditions of modern society than the metaphysical assumptions which still underpin contemporary ideology and social science, especially modern economics.

In Chapter 7, I will explore a scenario in which the communications revolution reintroduces greater personal flexibility to economic activities. The link between production and consumption through exchange would then be provided by money made by each of us. Money would then no longer be left to impersonal agencies, to the death struggle of the disembodied twins, states and markets, heads or tails; but rather would become a question of subjective judgement, a skill to be learned by persons capable of making and remaking society through the exercise of their own judgement of probabilities. In short, money might become more meaningful than it has been of late.

The meaning of money

The word money, as I mentioned at the beginning, comes from Moneta, a name by which the Roman queen of the gods, Juno, was known. It was in the temple of Juno Moneta that coins were struck, making it an early example of a mint (from Old English mynet, coin). Most European languages retain the word “money” for coinage (French monnaie, Spanish moneda, Dutch munt etc.), using another word for money in general variously derived from silver, cattle, some specific coin or a broader category meaning payment, wealth or property. English has conflated the two, taking the word coin from the French word for a corner or wedge used as a stamp. Cash is the English term for ready money in the form of notes or coins; and this seems to be derived from Norman French for a money box, although the word also refers to an Asian coin (from Tamil and Portuguese).

Moneta was a translation of the Greek Mnemosyne, the goddess of memory and mother of the Muses, each of whom presided over one of the nine arts and sciences. Moneta in turn was clearly derived from the Latin verb moneo whose first meaning is “to remind, put in mind of, bring to one’s recollection” (other meanings include “to advise, warn, instruct or teach”; and later “to tell, inform, point out, announce, predict”). There seems little doubt then that, for the Romans at least, money in the form of coinage was an instrument of collective memory which needed divine protection, like the arts. As such, it was both a memento of the past and a sign of the future.

I wish to explore here the possibility that a lot more circulates by means of money than the goods and services it buys. Money conveys meanings and the meaning of money itself tells us a lot about the way human beings make the communities we live in. In a wonderful new book, James Buchan has gone further than most towards rescuing the subject of money from the pseudo-scientists. Buchan’s thesis is that money is principally a vehicle for the expression of human wishes. In order to realise our limitless desires, they are trapped for a moment, frozen in money transactions which allow us to meet others in society who are capable of satisfying them. “Money is one of those human creations which make concrete a sensation, in this case a sensation of wanting…[Q]uite early in its history, money….passed from being a mere conveyance of desire to the object of all desire.” “For money is incarnate desire. Money takes wishes …and broadcasts them to the world…(It) offers a reward that is not in any sense fixed or finite…but that every person is free to imagine in the realm of his own desires. That process of wish and imagination, launched or completed a million times every second, is the engine of our civilisation.”

This formulation is not wrong, but it does not go far enough. Like his main opponents, the economists of our day, Buchan emphasises the subjective wants of individuals and the way these are made temporarily objective in acts of buying and selling. Money may well be evolving towards just such a condition. But it also expresses something social, about the way we belong to each other in communities. We need to understand better how we build the infrastructures of collective existence, or culture, if you like. How do meanings come to be shared and memory to transcend the minutiae of personal experience?

Giambattista Vico was an 18th century Neapolitan who gave some thought to these matters. His career was something of a failure: he could not, for example, realise his ambition to win the chair in jurisprudence at his local university. In 1744 he published a book with the title of Scienzia Nuova, “The New Knowledge”. He believed, as it turned out rightly, that he was breaking new ground in philosophy. Unfortunately, very few people read it during his lifetime and, after his death, the book was popularised by the founder of German romanticism, Johann Gottfried Herder. Vico was recognised posthumously as a pioneer of the Enlightenment after the Enlightenment itself had been succeeded by the Romantic movement. His aim in Scienzia Nuova had been to explain the rise and fall of nations on an analogy with the human life cycle. Beginnings, for him, mattered more than the ends (telos) of Aristotelian philosophy. The origin of nations, their birth (for nations are by definition born), was made (poesis) by great heroes and poets. The cultural capital, we might say, of this formative period underpinned a nation’s maturity as it grew from the poetry of childhood to the rationality and routine of adulthood, became sclerotic and eventually died.

What concerns us here are Vico’s ideas concerning memory. He points out that in the heyday of the Roman republic, the Latin word memoria meant not only remembering, but also imagination. Then, with the coming of the empire, a new word, fantasia, was invented by intellectuals and entertainers who believed that they could make things up without benefit of the collective memory, thereby breaking the link between the two meanings of memoria. He asks us to recall how vivid were the memories of childhood, when compared with their adult successors (David Hume called ideas “pale sensations”). This is because the child relies on the imagination to bring lived experiences to mind and reshape them. This process owes nothing to reasoning. Only later do we learn to rely on rationalisations. We remember the rules we have been taught to abide by and these supersede the act of remembering for ourselves. We pay entertainers to imagine for us. Money may give expression to the child in each of us, by giving vent to our desires. But it is also one of the principal ways through which we learn as adults to participate in normal society.

This was why memory played such an important part in John Locke’s philosophy of money. We have already seen that, when considerations of time are introduced to market transactions, the abstract models of economics take on greater human and social complexity. Locke’s theory of property rested on the idea of a person who, by performing labour on the things given by nature to us in common, made them his own. “Man, by being master of himself and proprietor of his own person, and the actions and labour of it, has still in himself the great foundation of property.” But, in order to sustain a claim on his property through time, that person has to remain the same; and personal identity depends on consciousness:

“For, since consciousness always accompanies thinking, and it is that which makes everyone to be what he calls self, and thereby distinguishes himself from all other thinking things, in this alone consists personal identity, i.e., the sameness of a rational being: and as far as this consciousness can be extended backwards to any past action or thought, so far reaches the identity of that person; it is the same self now it was then; and it is by the same self with this present one that now reflects on it, that that action was done.”

Property must endure in order to be property and that depends on memory. In Caffentzis’s words, “The great enemy of property is oblivion, since the loss of conscious mastery over time and succession leads inevitably to the breakdown of property. Thus the forces of oblivion are antagonistic to the self and property, while all the techniques of mnemonics are their essential allies”. In the state of nature, private appropriation of the commonwealth through individual labour was limited by the needs of the person and by the transitory character of the goods. What drove society to the social contract and civil government was the invention of money (and with it of crime). “Scarcity, for Locke, is not natural. It was only with the invention of money that wealth stopped being defined and bounded by use. With money a man could own more land and produce more than he needed for his own necessities. While still abiding by the natural law, he could accumulate wealth in a quasi-eternal form which he need not share with others.” The impetus to accumulation and to theft was the same. “Money trains its possessor, whether legal or illegal, in abstractness as well as in the potential infinity of satisfaction. The accumulation of money is thus the exercise of our power to suspend our determination, which is for Locke the highest expression of our liberty, before an infinity of choices, while for the thief it is the door to Paradise Now.”

It follows from this that money considerably expands the capacity of individuals to stabilise their own personal identity by holding something durable which embodies the desires and wealth of all the other members of society. An aid to memory indeed. I would go further. Communities exist by virtue of their members’ ability to exchange meanings which are substantially shared between them. There seems little doubt that money is an important vehicle for this. Commonwealths (or communities) communicate common meanings. It is worth exploring briefly the etymological roots these words share.

The first four of the above are known to share a root: kom- with and moin- held in common. See also municipality, communism etc. The American Heritage Dictionary gives as the Indo-European root mei- “to change or move, with derivatives referring to the exchange of goods and services within a society as regulated by custom or law”. It also includes under this heading the word mean in the sense of low or poor, the common people as seen by an elite looking down (cf. German gemeinmean which are usually treated as being independent: mean as in medium or average, to which is linked means, method of achieving something or property/wealth. Then there is the one we are interested in, to which meaning is linked: to mean as to denote, signify, intend, bring about. What if they all three share the same root? It would then be that the common people share meanings (symbols) as means of achieving their purposes together. They form communities to the extent that people understand each other for practical purposes. And that is why communities operate through culture (meanings held in common).

Communities operate through implicit rules (customs) rather than state-made laws. They may be large (the European Economic Community) or small (the village community). To the extent that they regulate their members, they usually do it informally, relying on the sanction of exclusion rather than punishment per se. Social anthropology in its prime focused on the study of small-scale societies ruled by custom, people who exchanged meanings specific to themselves. In the second half of the 19th century, when no-one believed that states, an archaic institution of agrarian civilisation, could govern the restless energies of urban commercial society, the study of “primitive” communities was thought to throw light on the construction of modern societies according to the principles of liberalism. socialism, anarchism and communism etc. The first world war put an end to that. Since then the comparative side of social anthropology has been more or less meaningless, since the modern state seemed inevitable and small-scale alternatives were hardly relevant.

But now centralised states are in disarray to a variable extent, even though their bureaucracies remain powerful. The word is out for devolution to less rigidly organised “communities” or regions. The networks of market economy, amplified by the internet and cheap transport/telecoms, offer more direct access to the world at large. Cheap information allows relations at distance to be made more personal. Now we have to think again about how societies can be organised for their self-improvement or development. And it may pay us to consider money as part of this process of building communities. If money comes from the mother of the muses, it follows that it is an instrument of collective memory, not far in fact from meaning. It is certainly an important means in several senses noted above. I wouldn’t be surprised if communities, in their linguistic origin, once held money in common too, as a special kind of meaning. Even if they did not, there is nothing to stop us running with the idea now. But that requires us to overcome the legacy of alienation which still bears heavily down on how people think of money.

The modern economy, as we have seen, is from one perspective a market, a proliferating network of buyers and sellers. And money is intrinsic to how markets work. We all need it and there is never enough of it. This gives money an almost godlike power — with money all things are possible; without it, most things are beyond our reach. You might think that something so important would be well understood by now; but the opposite is the case. The economists are traditionally committed to obfuscation, while the anthropologists prefer to look the other way. The maverick economist, J.K. Galbraith, in his unusually readable book about money, gives us a clue as to why we are ignorant about something so vital.

He tells a story from the 1960s about a member of Kennedy’s administration being paid off with a directorship of a bank. After his first meeting as a director, he was seen walking down Wall Street in a daze, muttering “I never knew. I never knew.” What hadn’t he known? Galbraith surmises that he may have learned the first principle of modern banking: take money from one party and lend it to another, then persuade both that they still have it. Perhaps money truly is a phantom conjured up by unscrupulous wizards. In which case, most of us would rather not know. We prefer to think that we are standing on solid ground, that the money we live by is real and will not go away. Failing that, we pay experts to look after the problem and are reassured by the sound of their technical jargon. In either case, understanding is unnecessary. It appears that we are not ready for a vision of society as the infinite flux of our own highly subjective encounters, preferring rather to see money as a stable foundation in a transient world of constantly shifting relativities. That is why inflation is so upsetting: when the value of money refuses to stand still, what else is there to rely on? Fear of the unknown leads us into a crippling search for certainty in monetary affairs; and this is as much of an obstacle to effective understanding as was the old-time religion it so closely resembles.

Presumably the sentiment that “money is the root of all evil” is not widely shared by economists or indeed by those who have a lot of it. I know many academic intellectuals who resent bitterly the fact that money has more power to influence this world than their ideas have; and this may have something to do with the low level of salaries in the universities. But, in demonising money, they come close to endowing the institution with a power all of its own, making it the cause of whatever is unsatisfactory in our lives. In a section of the first chapter of Capital called “the fetishism of commodities and the secret thereof”, Marx shows us his dialectical side. The word fetiche is a Portuguese import from West Africa. It refers to the local custom of dedicating a shrine to a spirit thought to inhabit a particular place. So, if you need to swim across a dangerous river, a sacrifice to the spirit of the river will help you succeed. Marx considered this to be an example of religious alienation. In his view the spirit was an invention of the human mind; but the Africans experienced their own creation as an external agency capable of granting life or death. Something similar, he believed, was at work in our common attitudes to markets and money.

Commodities are things made by people and money is the means we have created of facilitating their exchange. Yet we often experience markets as a force independent of our will and that force is usually manifested in the money form. Prices go up and down, more often up, in a way which seems to undermine our ability to manage our own lives. The cost of filling the car with petrol is exorbitant and we feel oppressed. Only rarely do we blame the oil companies, government taxation or “the Arabs” for our plight. More often we experience the impersonal world of commodities and money as animated objects exercising a power over us which is devoid of human content. Marx argued that there is some hope of our overcoming this modern form of alienation since, unlike the spirits produced by our religious imagination, we do know that human labour is the source of the commodities we exchange for money. His book was designed to show the way towards such an emancipation. Even if we do not feel ourselves to be victimised by money as a demonic force, most of us want to believe that the money we live by has a secure objective foundation. This issue was addressed most interestingly by the German sociologist, Georg Simmel in The Philosophy of Money, published at the beginning of this century. Simmel was a liberal who felt that we would have to get used to a society consisting of an endlessly proliferating network of exchanges (in other words, a market). He rejected the British attempt to base money on the objective certainty of a gold standard since this lent support to the idea that money is something outside our individual or collective control. Rather he saw it as a symbol of our interdependence in civil society; and he located its value in the trust that comes from membership of such a society. Like Marx, he identified a parallel between the abstraction of money prices in commodity exchange and the abstraction of thought (scientific analysis) which represents the highest level of our cognitive interaction with the world.

Simmel was a relativist. There is no objective truth out there, no absolute on which we can hang our faith in existence. All we have is our subjective experience and everything is relative to that experience. Relativism is the only theory, he claims, which can explain itself: its truth is relative to the situation in which it is applied. (Remember that this was the time that Einstein put forward his general theory of relativity.) In a similar manner, the value of commodities is not based on some objective standard, but is simply the outcome of what people are willing to pay in relation to all the other goods and services they want and the resources they have at their disposal. Money is the means of making these complex calculations. This is roughly the position of the new marginalist economics of the day. So what marks out money, according to Simmel, is that, in this shifting world of relativities, it is the common measure of value uniting all the independent acts of exchange. It thus stabilises the volatile world of commodity exchange in much the same way that Durkheim, following Plato, Kant and other idealist philosophers, thought the central ideas of society (God, the family and similar sacred notions) lend stability to the fluctuations of everyday life. Money, of course, is itself relative and, as we know all too well today, its value changes also; but Simmel held that it represents an element of coherence in a world of constantly shifting prices. In other words, we are not yet ready to face the complex relativity of the real world and take comfort from money’s symbolic steadiness. Most people prefer to believe that there is something out there that we can rely on. If God is dead and Society has been killed off by the economists, then let Money be something real and enduring.

The meaning of money is thus what each of us makes of it. It is a symbol of our relationship, as an individual person, to the community (hitherto more often singular than plural) to which we belong. This relationship may be conceived of as a durable ground on which to stand, anchoring identity in a collective memory whose concrete symbol is money. Or it may be viewed as the outcome of a more creative process in which we each generate the personal credit linking us to society. This latter outlook, however, requires us to abandon the notion that society rests on anything more solid than the transient exchanges we participate in. And that is a step few people at present are prepared to take, preferring to receive the money they live by, rather than make it. This preference is also revealed in popular ideas concerning the history of money. Perhaps, if we can loosen the grip of these ideas, we may prepare the way somewhat for practical progress.

Money: whence it came and whither it went

The most elementary conceptions of history rest on notions like now and then, here and there. It is one of the features of our world that such simple paired contrasts are no longer as sustainable as they once were. Accordingly, questions concerning the origins of money and its spread between societies at different levels of market economy evoke the ideological premises of contemporary economic practices. Although any attempt to answer the question “Where did money come from?” is inevitably based on historical speculation, it does require us also to look at non-market exchange in the contemporary world, at exchange from which the medium of money is absent. And the impact of modern money and markets on societies which were until recently without them extends this enquiry into how to conceptualise the distinctive properties of exchanges based on money.

Barter is the exchange of commodities without recourse to the medium of money. In this case, the two parties are equally buyer and seller; each must have what the other wants at the same time; and the price is the proportion of each good or service expressed directly in terms of the other. In some respects, as we shall see, barter is close enough to exchanges involving money to be regarded as a form of market transaction. Certainly exchange without money payment is quite common in the commercial world of modern businesses. But many have chosen to see in barter the primitive antecedent of the market, separated from it by the historical invention of money.

Adam Smith’s The Wealth of Nations is rightly considered to be the foundation of modern economic thought. His general aim was to prove that the economy was better left in the hands of a mass of individual buyers and sellers than controlled by a powerful few who thought they knew best. The book starts famously with his observation that “the propensity to truck, barter and exchange one thing for another” is part of human nature. He gives, as a speculative example of this primitive tendency, the case of North American Indians exchanging beaver pelts for deer skins at the ratio of two to one. Barter thus consists of me handing you what you want in return for whatever of yours I want. Smith considers this method of exchanging commodities to be cumbersome and restrictive; and he goes on to suggest that eventually some items will become more generally acceptable. Out of this process of economic evolution, a particular commodity will take on the function of being a specialised medium of exchange — money, in other words. Markets facilitated by general purpose money are thus a more effective way of carrying out a universal human function, namely the exchange of specialist products generated by division of labour.

Karl Marx’s book, Das Kapital, is of course about money, conceived of as a social force organised to exploit ordinary working people. The opening chapter lays out what he thinks money is and where it comes from. The story is the same as Smith’s, but more formally expressed. In the beginning was the commodity, something useful which also had a value in exchange. Commodities could be and probably were initially exchanged without the medium of money. Then some commodities — salt, oxhides, eventually gold and silver — would take on the function of a medium of exchange. Finally, money emerged as a commodity whose only use was to facilitate the exchange of other commodities. It did so by making it no longer necessary for the buyer to have specific commodities wanted by the seller; the latter could hold money instead, until using it to buy from someone else on another occasion. Markets superseded barter because of the greater flexibility introduced by monetised exchange. Finally, money evolves from being just a medium of exchange to taking the form of organised capital; and as such it injects into the circuit of commodities (markets, see Table ) a dynamic of accumulation which lends to ordinary alienation a wholly new impetus.

This origin myth is plausible, but closer inspection reveals that it assumes what any rigorous history of exchange would have to demonstrate. Note especially that primitive barter is here represented as an exchange between individuals each having private property in whatever they seek to dispose of. Yet we have seen in Chapter 5 that this is a highly implausible assumption to make about original economic conditions. Rather small groups would be likely to exercise political influence over the participants in exchange, since the kind of security offered traders by an invisible state apparatus is an exceptional and historically evolved context for commerce. Smith and Marx appear to be trying to represent certain key elements of modern economy as natural by making them aboriginal and therefore eternal. (Although in Marx’s case it has to be said that money is subsequently given a contradictory social history of its own.)

Polanyi, among others, has argued that a more plausible scenario would be to derive market trade from political evolution. First of all, rulers opened up diplomatic exchanges between communities which might later offer an umbrella for their followers to indulge in commerce. Individual barter between strangers was only likely to take place under such circumstances of political protection. Eventually and only if state power was omnipresent, markets based on private property might emerge. This is consistent with the account given of the Trobriand kula previously. Which then are we to suppose came first, heads or tails, states or markets? The origin myth is thus far from innocent, committing us to one side or other of the ideological struggle which has defined our own century.

It is remarkable how deeply inserted into the popular consciousness of western societies is this idea that markets evolved from primitive barter. Yet there are strong grounds for thinking that barter or exchange without money is a phenomenon linked to the cutting edge of modern commercial development. Even Adam Smith’s original example of natives bartering animal skins takes on a different aspect when seen in the light of the North American fur trade of the 18th century which gave him the concrete example in the first place. Far from being the product of intermittent and isolated encounters between savages, this was a lucrative trade driven by a global mercantilism originating in England and France. Money was scarce on the frontier, but the exchange ratio of hides was calculated on the basis of known world prices back home. Deerskin was sometimes used as a unit of account, which is why the U.S. dollar is still referred to as a “buck”. None of this would have been possible without the previous historical expansion of markets and money.

Barter flourishes in the interstices of political authority, especially when conventional money is in short supply. Thus Caroline Humphrey has linked the prevalence of barter on the Nepalese-Tibetan border to economic disintegration, a result of poverty and weak sovereignty. Barter has, of course, long been the mainstay of trade between what were until recently the eastern and western blocs; and today Third World countries who lack the dollars to participate in normal trade reach barter agreements among themselves, such as Nigerian oil exchanged for Brazilian manufactures over a number of years. Much of the international trade in arms is conducted through barter. And multinational corporations increasingly resort to swapping bulk quantities of unsold commodities: thus, for example, a chemicals company offloads 100,000 gallons of surplus paint in exchange for an out-of-season lease of an airline’s half-empty hotels in the Caribbean.

There are two notable aspects of the modern phenomenon of barter. First, shortage of cash is not in itself a limitation on trade, especially when the parallel existence of markets makes it relatively easy to calculate what the trade items are worth. Second, barter disrupts the ability of states to regulate markets and levy taxes from them. Money is an unambiguous means of payment and standard of value; but how can the Internal Revenue Service assess the value of paint and hotel rooms which otherwise would not have found a buyer? Seen in this light, barter is increasing in response to restrictions imposed on exchange both by markets requiring payment in cash and by political authorities seeking to capture taxes from cash transactions. Which of them then is “primitive”?

Clearly there is more to heads and tails than the Cold War idea that states and markets are opposed principles, each with their separate myth of money’s origins. Seen from the perspective of barter, the two sides of the coin are symbiotic and equally restrictive of the possibilities for exchange. In the 20th century the dialectical unity of states and markets has been embraced by Germany and Japan with some success, as well as being endorsed by Maynard Keynes. It matters whether markets based on money issued by states are seen as the end-point of economic evolution or just as a transient phase of world history. And it matters whether barter is thought to be a quaint, outdated and inefficient form of exchange or a growth point in a new era of greater economic freedom.

Throughout Argonauts of the Western Pacific, Malinowski emphasises the contrast between ceremonial gift-exchange and ordinary barter in Trobriand economy. The two differ in the degree of formality, the timing of the return (delayed or immediate) and avoidance or acceptance of conflict in the exchange mechanism. Ceremony reflects high social distance and weak political order, whereas haggling depends on low social distance and strong political order. The question is whether people belonging to different groups feel free to risk the conflict inherent in barter without invoking all the danger, magic, prestige and hierarchy that go with ceremonial exchange. Thus one form is a temporary social framework erected in the relative absence of society; the other is an atomised interaction predicated on the strong presence of society. Both are different means of securing the same ends, the circulation of commodities between communities. Variable conditions over time, a breakdown of the peace or fluctuations of supply will affect the choice of trading method.

So, in the Trobriand Islands economy, there are both political authority of a sort (big men) and markets of a sort (barter). The exchange of valuables erects a temporary framework for trade which, under conditions of peace, gives way to individuated transactions with greater affinity to competitive markets. This example furnishes an interesting point of comparison with 20th century political economy, as Malinowski intended, but in a way that lends support to Mauss’s insistence that individuals and society (read, markets and states, if you like) are each indispensable to exchange.

I have been struck by the tenacity with which ordinary people in the modern world cling to the barter origin myth of money. Can this merely be an example of Keynes’s famous claim that our ideas are nothing more than the echoes of some old economic theory? In a conversation I had not long ago with someone raised in Sudan, he began by asserting that barter between villages was the original economic system of his country; and then, when pushed, he admitted that these villages had belonged to regions involved with mercantile networks and money for thousands of years. Given the obvious similarity between individual barter and markets, it would be more plausible to locate the origins of exchange in the gift, as Mauss, following Malinowski, argued. But to do so would be to insist on a personalised approach to money, to see markets as a form of symbolic human activity rather than as the circulation of dissociated objects between isolated individuals. The general appeal of the barter origin myth is that it leaves the alienating assumptions of the private property complex undisturbed.

Consistent with this vision, the “monetisation” of traditional cultures has usually been treated as a process of subversion, undermining the integrity of ways of life which were hitherto resistant to insidious commerce. Anthropologists, like most academics, are not very happy in the marketplace and this gives many of them a jaundiced perspective on money. The American sociologist, Thorstein Veblen, once wrote a book in answer to the question of how capitalist societies could permit the pursuit of truth in their universities. He concluded that the solution was to persuade academics that they belonged to the elite while paying them the wages of artisans (who earned a lot less then than they do now). They consequently compromised themselves pursuing whatever sources of additional income might help them to maintain a lifestyle they could not afford. Academics are obsessed with money and loathe it, because they never have enough of it.

This “obsolete anti-market mentality” flourishes among the disciples of Polanyi and of these the doyen has undoubtedly been Paul Bohannan. He wrote an article which remains to this day the main point of reference for anthropological discussion of money economy and its presumed antithesis. The Tiv are a numerous people without rulers who, before being colonised by the British at the turn of the century, maintained a mixed farming economy on the fringe of trade routes linking the Islamic civilisation of the North with the rapidly westernising society of the coast. Bohannan did fieldwork among them after the second world war, shortly before Nigerian independence. He argues that the Tiv precolonial economy was organised through “spheres of exchange”. There were three levels of value, arranged in a hierarchy; and like could normally only be exchanged with like within each level or sphere. At the bottom were subsistence items like foodstuffs and household goods which were often traded in small amounts at local markets. Then came a limited range of prestige goods which were linked to long-distance trade and largely controlled by Tiv elders (not unlike Trobriand big men). These included cloth, cattle, slaves and copper bars, the last sometimes serving as a “special-purpose currency”, that is as a standard of value and means of exchange within its sphere. Lastly, the highest category was rights in persons, specifically women exchanged in marriage between male-dominated kin groups; and ideally, through sister exchange, an institution of mutual betrothal which allowed polygamous elders to keep most young men from marrying until well in their thirties.

The norm of exchanging within each was sometimes breached. Conversion upward was an ideal and its opposite a source of disgrace. The absence of a general-purpose money made this difficult to achieve. Subsistence goods are high in bulk and low in value; they do not transport easily and their storage is problematic (food rots). Prestige goods are the opposite on all counts. How many peas would it take to buy a slave? One exception is livestock. Young men could raise chickens and, with luck, convert these into sheep and goats whose increase might lead to the acquisition of cattle. Moreover, by the onset of colonial rule, the content of the spheres had changed: sister exchange had been largely replaced with bridewealth (payment of prestige goods for a wife); slavery was abolished and the supply of metal rods had dried up. Bohannan makes light of all this and insists that, in the absence of a general medium of exchange, Tiv culture was maintained as a series of separate compartments of value.

The introduction of modern money in the 20th century was a disaster, according to him. Anyone could sell anything in small amounts, accumulate the money, buy prestige goods and enter the marriage circuit on their own terms, regardless of the elders. This amounted in Bohannan’s view (and no doubt in the elders’ view too) to the destruction of traditional culture. It is as if the technical properties of modern money alone were sufficient to undermine a way of life. Now this argument has come under sustained criticism, for example, that it is idealist, not enough attention is paid to the organisation of production. Others have suggested that money is just a symbol of a whole complex of economic relations which might be summarised as capitalism. But even these critics rely on a logic of commercial development which downplays the political dimension of historical transformations in the periphery. The Nupe case, cited above, makes the political dimensions of colonial economy brutally clear.

The contributors to the volume edited by Parry and Bloch largely share the view that indigenous societies around the world take western money in their stride, turning it to their own social purposes rather than bend themselves to its supposedly impersonal logic. Thus one of them shows how Malays transform money earned in the wider economy by handing it over to women whose domestic rituals incorporate it into the longrun processes of social reproduction of which they are custodians. The underlying theory is familiar; it is essentially Durkheim’s. There are two circuits of social life: one, the everyday, is short-term, individuated and materialistic; the other, the social, is long-term, collective and idealised, even spiritual. The expediency of market transactions falls into the first category and all societies seek to subordinate them to the logic of social reproduction in the long run. For some reason, which they do not investigate, money has acquired in western economies a social force all of its own, whereas the rest of the world retains the ability to keep it in its place.

Parry and Bloch’s argument, for all the distance they seek to put between themselves and Bohannan, is similar to his in that they postulate a hierarchy of value in which modern money comes second to the general ideas which secure society’s continuity. The whole picture becomes clearer if we apply the spheres of exchange concept to western societies. As Marshall indicated, it is not uncommon for modern consumers to rank commodities according to a scale of value. Other things being equal, we would prefer not to have to trade in lifestyle goods (expensive consumer durables) in order to pay the rent and the grocery bills. And we would normally like to acquire the symbols or means of elite status, such as a first-rate education. If you asked how many toilet rolls a BMW is worth or how many oranges buys an Eton education, most people would think you were crazy. This despite the fact that all can be bought for money and have been for longer than we can remember. So the technical capacity for universal exchange introduced by modern money is not incompatible with the maintenance of cultural values denying that all goods are commensurate. Nor is this just a matter of ideas; there are real social barriers involved. It does not matter how many oranges an East End trader sells, he will not get his son accepted for Eton. And the gatekeepers of the ancient universities insist that access to what they portray as an aristocracy of intelligence cannot be bought.

This provides us with a clue from nearer home to the logic of spheres of exchange. The aristocracy everywhere claims that “you cannot buy class”. Money wealth and secular power are supposed to be subordinate to inherited position and spiritual leadership. Nowhere is this ideology set out more coherently than by Hindu Brahmins. In practice, we know that money and power have long purchased entry into the ruling elite. De Tocqueville praised the flexibility of the English aristocracy in readily admitting successful merchants and soldiers to their ranks. One class above all others still resists this knowledge, the academic intellectuals, for reasons touched on above. We cannot bear to admit that others, through control of resources that we have so little of, have marginalised our ability to influence society through our ideas. And so we line up with Tiv elders in bemoaning the corrosive power of modern money and vainly insist that traditional culture should remain in the driving seat.

When time and space are injected into stories about money, often through the crude dichotomies of now and then, here and there, the result is to bring out, by affirmation or negation the core beliefs associated with economic ideology. There is an interesting study to be carried out of the forms of gift-exchange and barter in the contemporary world; and these should inform the search for alternative approaches to money and markets in the age of the internet. But before making such a study, it is necessary to expose the ideological character of much that has been written so far about the origins and spread of money.

Money in the age of the internet

The transformation of money by electronic communications begins with plastic credit and debit cards. The postwar economic boom led to an explosion in the turnover generated by personal checking accounts in the USA. The banks adopted ERMA (Electronic Recording Machine – Accounting) in the 60s to handle the growing volume of cheques, which doubled in the decade 1943-52 before the boom had properly begun; and in doing so they reduced the labour needed for this task by over 80%. Ever since then, the banks have led the way in mechanising money, encouraging their customers to write fewer cheques, for example, by paying for utilities through monthly direct debits. Credit cards came out of America, of course; they were adopted in Britain in the 60s and rather more slowly elsewhere. Cheques themselves have come to be largely replaced by debit cards. The relationship between credit and debit cards is one to which we will return below. Automatic telling machines (ATMs) have spread rapidly, replacing the need to line up for cash inside the banks themselves and of late providing a viable alternative to travellers cheques for tourists. Direct banking by telephone is a more recent development.

One consequence of all this is that paper has been substantially replaced by electronic media. Banknotes remain a staple of everyday life for all but the very rich. Personal cheques have largely given way to plastic. The current standing of our bank account is more quickly ascertained by ATM or phone than by written statements issued once a month. In the process, as fewer persons are employed to handle a vastly expanded service, negotiation with the banks over credit has become more mechanical and remote. Tales of mismanagement, bureaucratic error and indifference multiply. But the rise of digital money is inexorable. Many people in the rich countries now have several lines of credit, including an array of cards entitling them to run up bills at department stores, bookshops and petrol stations. In this way, the old system of personal credit lines to suppliers has been digitalised. New forms of special-purpose money have arisen in recent years: airmiles, reward points and the like encouraging people to favour particular companies in return for various entitlements and bonuses in kind.

By the time Keynes wrote in the 1930s, the main determinant of the money supply had shifted from whatever governments produced from their mints to the purchasing power of working people, as measured by the ratio of their income to savings and the national currency’s exchange rate. The developments listed above go a long way towards making the money supply depend on ordinary people’s capacity to manage debt, as well as to earn an income. In America today, the plastic credit card companies will often offer $5,000 free credit to new customers whom they know only remotely as names on machines. They have discovered that their losses from bad debts are exceeded by the profits to be made from the new business. In one celebrated case, a dog called Zabau Shepard was offered the benefits of plastic. Of course, as the participants know, there is a “bottom line” in all this, defined by credit card owners’ ability to pay off their debts using the cash they have deposited in their current accounts. And the penalties for failing to keep up necessary payments are dire indeed, involving a permanent blemish on one’s public credit rating which might cause someone to fall out of the credit bonanza altogether. At the other extreme, people who manage their credit reasonably well are inundated with offers of further loans and cards. The system is not equal, by a long way, but a large number of reliably employed individuals have been introduced to a style of personal money management in the last three decades which was unheard of when Keynes wrote about purchasing power.

When credit cards were first introduced, many commentators assumed that they would precipitate large numbers of people into insolvency, simply because they would not be able to resist spending instant credit beyond their means. The average credit card debt of American households today is around $5,000, which hardly suggests uncontrolled spending. Moreover, consumers expand and contract their level of indebtedness in rhythms that are not understood by the economists, but clearly reflect their own collective determination of when they feel comfortable with debt and when they don’t. In countries like France, people have not yet been given the chance to explore the possibilities of plastic credit already enjoyed by their anglophone cousins. There banks in effect offer the facility of debit cards, where funds are drawn directly from checking accounts. In Britain and the USA, the same facility of drawing against deposited funds or an overdraft is offered by the banks, but credit cards proper offer the chance to spend up to an agreed maximum credit limit with minimum monthly payments required. Typically these limits are increased as the customer demonstrates creditworthiness.

In the light of this, it is of some interest to revisit the twin concepts of credit and debt. A credit theory of money emphasises the trustworthiness of a person expecting something for nothing in the short run: I promise to pay in future for what I take from you now. An Englishman’s word is his bond. Failing that, a bank or credit card company can vouch for a cheque or a payment by plastic. The seller has instant confirmation that payment will be made and the guarantor has to deal with the buyer’s ability to pay up in future. Clearly there is a difference between drawing on funds already lodged with the bank (debit cards) and the expectation that eventually the debt will be repaid (credit cards). It seems to me that the Anglo-Saxons can be more daring with the expansion of new money forms and the decentralisation of credit because they have long subscribed to a market ideology which emphasises in principle the personal responsibility of ordinary citizens.

A recent book, La Monnaie Souveraine, rests on the contrasting French idea that money is debt. The context for this book is the coming of the euro, the new European standard which opened as a money-of-account in January 1999 and is scheduled by the year 2002 to replace the franc as French currency (money-proper, in Keynes’s terms). The sovereignty of money, in their understanding, lies in its being a symbol of the debt tying each French citizen to the state. This in turn has its roots in the payments made by fief-holders to the king of the Franks when the state itself was being formed. Individuals owe their means of existence, the very money they spend, to the sovereign state; and they pay for the privilege. It is of interest that the German word for money is Geld, meaning a payment of debt. And we have already encountered Adam Mueller’s romantic theory of money as the trust generated by a people working the land together. Clearly then, the way that the communications revolution affects money in different societies is going to be conditional on such differences of emphasis in the relations between individuals and the collective. We could say, in the relative emphasis given to heads or tails within national cultures.

In all this talk of plastic, cash has not gone away, of course. Carrying cash involves greater risks and costs: the risk of its being lost or stolen, of its being counterfeit; the costs of foreign exchange, for similar considerations of risk, and of handling rather than machine-processing. Many people find it more convenient or are just too lazy to change their habits. The most enthusiastic users of cash are the criminal classes, since they do not want their transactions to be traced to actual persons. In Jamaica in the 1980s, movements in the illegal marijuana economy (whose value was then estimated to be greater than the three biggest legal industries – bauxite, tourism and garments) were monitored through variations in the levels of cash withdrawals from the banks. This leads us to the curious speculation that the state’s legal tender will end up appealing mainly to the criminal elements of society, John Locke’s nightmare of a world dominated by an informal alliance between corrupt politicians and economic criminals.

The shift towards electronic cash has already started. So-called smart cards have a chip in them which gives the bearer a fixed amount of money to carry on his person without having to bother with bank notes. These smart cards can be anonymous or stamped with the bearer’s personal identity, making them harder to lose. Certainly, the use of plastic for small transactions, like buying a newspaper or a cup of coffee, has some way to go. A trial scheme carried out in Swindon, England by the smart-card company, Mondex, showed that it was feasible for people to use cards for everyday purposes normally reserved for cash, as long as the sellers were geared up to swipe the cards through vending machines linked directly to the sponsoring banks. In principle, this does away with shopkeepers having to count cash, carry it to the bank and run the risk of being mugged for their pains. On another level altogether, some European authorities have argued against the issue of smart-cards with values up to £10,000 on the grounds that it would be easier for drugs gangs to smuggle large amounts of money across borders, as opposed, presumably, to having to stow sacks of paper money in the back of their cars. This seems to go against the dismantling of border controls in Europe and the increasing ease of moving money internationally by electronic means. But all these developments of money, from paper to bits as it were, stir up dangerous emotions, such as fear of the unknown and loss of control.

The great potential of the internet is not restricted to the money form in a narrow sense, but lies rather in the expansion of electronic markets, in borderless trade at the speed of light. For electronic money will develop to the extent that it is needed for such trade. This is new to the 1990s, since the internet went public, and it is more of an American phenomenon than anything else. For this reason, it is of interest to note what the US Department of Commerce has to say in a bullish report on “the emerging digital economy” published in 1998. It points out that the market capitalisation of five companies linked to the internet (Microsoft, Intel, Compaq, Dell and Cisco) grew from $12bn to $588bn between 1987 and 1997. There has been significant growth in both the sale of physical goods and digital delivery of services via the internet. Sales of air tickets and securities are already big on the internet (airlines can offer cheaper tickets by cutting out the travel agencies); while computers, software, cars, books and flowers are increasingly sold by this means. Other areas of business with a growing presence on the internet are consulting, entertainment, banking, insurance, education and healthcare. It is already possible to have a virtual check-up, but for obvious reasons this has limited appeal at the present time.

American businesses use the internet to cut purchasing costs; to manage their supplier relationships; to streamline logistics and inventory; to plan production and reduce cycle times; to reach customers more effectively; to lower marketing costs and find new sales opportunities. By 2002 it is expected that there will be internet trade between American businesses worth $300bn, in addition to consumer sales. The internet operates around the clock and around the world, allowing production processes begun in San Francisco to be carried on in Bangalore, while the Californian engineers are asleep. Not surprisingly, there is considerable enthusiasm in America for these developments which, taken together, constitute the principal reason for the strength of that country’s economy in the late 90s.

Businessmen report that their main worries with the internet are four: unpredictable law; uncertain performance of the net; the insecurity of the net; and the potential for being overtaxed by the government. They therefore want, and the government claims to back them in this:

1. predictable, market-driven, legal framework for electronic commerce;

2. non-bureaucratic means of making the internet safe;

3. human resource policies to develop the skills needed.

For commerce to expand, the greatest need is for parties to a contract to be sure of the identity of the person on the other end and that the contract is binding. In response to this need, verification procedures are being developed and recently there has been a rise the use of more secure “extranets” or virtual private networks. The issue, to which we will return, is the lack of overall supervision of the internet. Businesses and individuals would not mind if the public authorities were able to increase their security of transaction; but equally they do not want to submit to economic coercion by governments.

The idea is slowly taking root that society is less an oppressive structure out there and more a subjective capacity that allows each of us to learn how to manage our relations with others. Money is a good symbol of this shift. It first took the form of objects outside ourselves (coins) of which we usually had a greater need than the available supply; but of late it has increasingly been manifested as personal credit, in the form of digitalised transfers mediated by plastic cards and telephone wires, thereby altering the notions of economic agency that we bring to participation in markets. If modern society has always been supposed to be individualistic, only now perhaps is the individual emerging as a social force to be reckoned with. This claim rests on a single overwhelming fact, that large amounts of information can now be processed cheaply concerning the individuals involved in economic transactions at any distance, thereby making possible the repersonalisation of complex economic life. In the process the assumptions which supported mass society for a century are being undermined.

The internet may confirm a trend which liberals have often asserted and socialists once denied, that economic power is being transferred from producers to consumers, from centralised bureaucracy to flexibly specialised markets in which individual consumers carry more weight than we ever did in the days when shopping involved picking undifferentiated products off a shelf. One consequence of the developments reported above is that banking services are becoming much more specialised, less paternalistic and more consumer-driven. Many firms are turning to the new information technologies to tackle a longstanding problem which was intransigent in the days of mass consumption. It is often the case that up to 80% of sales are generated by the top 20% of customers. In future, these customers will be targeted for special attention (it is called CRM or Customer Relations Management) and treated in ways reminiscent of the customised shopping enjoyed by a privileged few before the bureaucratic revolution of a century ago. At the same time, others may find their custom rejected because they do not spend enough to make it worthwhile to serve them. In general, it will be possible to take identification of customers’ needs well beyond the hit-or-miss level of much current junk-mail.

In principle, the internet overcomes one of the chief arguments made by the classical economists for barter’s inefficiency as a form of exchange. This was that, in order for an exchange to take place, one seller has to find a buyer who also has what the seller wants for himself, in the required quantities. The use of traditional money allows this interdependence to be broken, with the seller holding cash against future purchases of his own. Under previous conditions, the constraints of market size and timing restricted the scope for barter. But, with the internet, one can imagine swaps taking place within networks of infinite size and global scope. Wanted: in exchange for the collected works of Milton Friedman, a night in a Bangkok knocking shop. There must be somebody out there… Of course, problems of timing, trust and delivery will not disappear overnight. But we have scarcely tapped the potential for direct exchange as yet. As for internet sales involving cash payments, a whole new industry has grown up concerned with developing forms of electronic money (e-money). It seems likely that a high proportion of these will be special-purpose currencies operating within closed circuits of exchange rather than general-purpose money capable of crossing the boundary between the internet and the rest of the economy.

The internet thus opens up the possibility for people to form closed circuits of labour exchange with their own nominal currency. Local Exchange Trading Systems or LETS schemes (the precise wording is less important than the acronym’s call for us to be proactive) were invented in British Columbia in the early 1980s as a way of generating local employment during a recession. There are perhaps a thousand of these organisations in the world today, with membership ranging from a few dozen to 2,000. In France, SEL (Systemes d’Echange Local, the acronym carries the connotation of salt as a barter currency) have attracted favourable publicity in newspapers like Le Monde as a possible source for the democratic socialist revival. Some schemes operate with paper chits and so LETS is not necessarily a digitalised form of exchange; but the system is obviously more effective when transactions are registered on a central computer. It works like this.

People living in what they feel to be a local community agree to exchange labour services and, less often, products using a money-of-account designated by themselves. This usually has a name related to local history and culture, like “tales” in Canterbury. It may or may not be linked to the standard currency of the country. Thus the original British Columbia scheme used “green dollars” with the same nominal value as the Canadian dollar; but elsewhere any straightforward link between the two may be denied. Members usually pay a small signing on fee to cover administrative costs and list the services they want to offer and receive in a central directory. They contact each other by phone or personal introduction. It is not necessary for the seller and buyer to exchange in both directions, so that transactions are not strictly barter, but market sales using a special-purpose currency which restricts exchange to a closed and usually quite local circuit. Prices are negotiated for each transaction and, because there is no particular emphasis on balancing one’s account, it is quite common for buyers to be generous in setting the price level. The logic of getting something for nothing or of buying cheap and selling dear is largely absent. The transaction is recorded centrally. In most cases, the accounts of individuals are transparent, so that it is possible for anyone to inspect someone else’s transaction record, at least the length of time they have been trading, the volume of business and balance of credit or debt. As in a normal market economy, the health of the system is measured by turnover. It is just as anti-social for someone to hoard credits by never buying as it is to incur debt through buying without ever selling.

Apart from communitarian goals, LETS schemes often explicitly stress an ecological theme (organic vegetables, not the ordinary kind) and the embedded character of transactions (getting to know you, not just buying and selling). In many cases they are geared to the needs of the unemployed and the poor, offering an alternative income when the mainstream economy refuses to make one available. But they are just as likely to bring a small middle-class network together. The main problems they face are: start-up costs (someone usually has to put in a lot of free labour); transaction costs (a lot of effort is taken up with setting up a deal); variable quality of service (how do you tell whether the person you have hired really knows the job?); the network is too small and intermittent to be relied on; plumbers are in higher demand than amateur artists; and quite a few more. These add up to recognising that it is labour-intensive to set up a new market that works effectively. For enthusiasts this handicap can be overcome. But this perhaps explains why most LETS schemes so far are rather small and not particularly durable.

The most interesting feature of the political economy of LETS is the relationship between these exchange circuits and the system of public finance in the wider economy (taxation, unemployment benefits etc). At times officials have taken the hard line that all LETS transactions constitute normal income, to be deducted from eligibility for benefits and added to income tax liabilities. They have insisted that all transactions should incur indirect taxes such as those levied on sales in the normal economy. Given the dependence of modern government on revenues levied from market transactions, one can easily understand why they would want to close a tax loophole which could, in the long run, become substantial. But LETS activists have resisted this ruling and have made their own accountancy more opaque in some cases, by delinking their money-of-account from the national currency. They have argued, often successfully, that their currency is not really money, but a way of recording non-market exchanges between friends, not unlike domestic services within the family. And this battle seems largely to have been won. The authorities have settled on what I think of as a “mice in the basement” formula. As long as LETS participants are not conducting what they, the authorities, consider to be a normal business, but are only part-time employed to no significant commercial effect, they will not be taxed.

So far, computerised exchange systems such as LETS have tended to be small local schemes driven by communitarian, welfarist and eco-socialist ideologies. The largest British LETS scheme, which is in Manchester, however, has made an effort to extend the purchasing power of individuals rather than to promote any idea of local community. It doesn’t make sense, in a large conurbation, to pretend that a small exchange network constitutes a community in any localised sense. Here a number of businesses have been persuaded to take “bobbins” (the LETS currency named nostalgically for Manchester’s long-gone textile industry) in full or part payment for their goods and services. This scheme also insists on integrating its transactions fully into the normal economy, with participants paying income and sales taxes, as if they were conducting a normal business. The emphasis here is just on adding to the range of economic activities that individuals can participate in, if the wider market economy does not yield them the money they need.

This experiment, consistent with the old Manchester liberal emphasis on free trade, has enraged many LETS activists elsewhere who see it as a betrayal of the spirit of William Morris underlying their own communitarian efforts. Rather than integrate LETS into the wider economy, they see it as a way of sealing off a more wholesome kind of circuit from the contaminations of capitalism. It is interesting that the originator of the first LETS scheme near Vancouver, Michael Linton, is closely associated with the Manchester initiative. He envisages a day not so far ahead when many of us will carry a set of plastic cards in our wallets, to match the credit and debit cards we already have in growing profusion, recording our participation in any number of labour service exchange circuits (involving our profession, neighbourhood, sporting interests, church or whatever). These additional ways of working for others will not replace impersonal means of payment for goods and services, employing dollars, euros and the like; but they would extend considerably our capacities to buy and sell without relying on some exogenous source of employment (a job) to finance our purchases.

In America, there is a growing number of similar attempts to establish exchange circuits relying on what people have (spare time) rather than what they don’t have (spare dollars). A recent book by David Boyle, Funny Money, offers a personal guide to some of them. Edgar Cahn’s initiative in setting up an exchange system using time dollars puts the emphasis back squarely on the labour theory of value. People are encouraged to accept service credits for their labour, to be exchanged in the future against services they need. Here the focus has initially been on reaching disadvantaged groups such as old people, the poor and minorities. But, as in most of these alternative economic initiatives, the aim is to reform society itself, from small beginnings, but with big ideas. A similar scheme, with more of an emphasis on community self-sufficiency, is in Ithaca, New York, home of Cornell University. Here the currency for a local exchange circuit is known as Ithaca hours (motto: in Ithaca we trust) and the scheme is strongly associated with a leading activist, Paul Glover, who built up this one after an earlier LETS scheme had failed.

Ithaca, like much of upstate New York, has suffered economic decline in recent decades. For some of its inhabitants it seems as if the money has simply gone elsewhere. The idea of Ithaca hours is to keep more of it within the community by tying transactions to a closed circuit motivated by local interests. The unit-of-account is a time standard, but it is linked to the wider economy, so that businesses who operate in both circuits can easily make the conversion. The hour is valued at $10, rather more than the minimum wage, and participants are encouraged to value their services equally. But it is recognised that some professionals, like lawyers and dentists, can earn so much more in the open market that they are allowed to charge multiples of hours for an hour’s work. An individual or company might offer a couple of hours at the Ithaca minimum rate, a few more at less than market rate and some more at the full rate, but still within the Ithaca-hour circuit, leaving the rest of his time to be charged as dollars in the normal way. The results are already substantial and, whether it advertises itself as such or not, Ithaca has become a leading example of the LETS movement.

The principle of these alternative economies in not new. During the Great Depression of the 1930s, numerous local currencies sprung up to help generate exchange in the absence of liquid cash. One of the most imaginative of these was strips of deerskin known as the “buck”. Before that, in the 19th century, America hosted numerous self-help schemes and communitarian utopias, some of which survive in modified form today. I have already mentioned the communitarian socialism of William Morris and his followers in Britain. What makes LETS and similar initiatives potentially different is their link to the communications revolution. Cheap information – cheap in the sense of both the processing machines and their running costs – changes the scope of these activities. At present we have only seen some very limited small-scale experiments drawing on some pretty conventional ideas designed for another age. Similarly, we have yet to see the pay-off in terms of direct democracy that interactive closed-circuit television networks allow for in principle. But the potential for development is clearly there. When it comes to the world of money itself, there are also some remarkable instances and future possibilities to report. I will limit myself here to two examples.

JAK Members Bank is a Swedish interest-free savings and loan association which was registered as a bank in 1997, but has been operating since 1965. JAK stands for land, labour and capital in Swedish. The association is a telephone bank with 20,000 members and 25 local branches. These branches are for information and study-groups. JAK’s members have deposited £40mn in addition to equity of £5.5mn and this has been allocated as loans to 5,000 members. The insistence on loans being interest-free is linked to a crusading ideology which stresses the avoidance of exploitation of people and nature. Subscribers accumulate “savings points” rather than interest and these are used to determine eligibility for loans. The bank is a non-profit organisation, but recipients of loans are charged an administration fee to cover wages and related costs. The main point of JAK Members’ Bank, however, is to promote dialogue about how to achieve a fair and sustainable economy, as much as it is about financing loans through savings. Average deposits of £2,000 and loans of £8,000 suggest that the bank appeals to people of middle income. The scale of operations is significantly larger than any LETS scheme.

Private owners of capital in the forms of savings, life insurance, pension funds and the like have the chance not just to be more involved in the management of their own portfolios, but to band together as collective institutions exercising a growing influence on financial markets. Robin Blackburn (personal communication) is preparing a paper on what he calls “grey capitalism”, reflecting both the average age of the constituency he is interested in and the murky character of the property law involved. Over half the value of equities in the USA and Britain at this time are owned by pension funds and life insurance companies. What would be the result if contributors banded together under various identities to exert more concerted pressure on the managers? At present, the latter are protected by laws which ask of them only that they demonstrate reasonable caution in their investments. This accounts for the herd mentality of these people, since, as long as they do what everyone else does, they cannot be accused of professional mismanagement.

The scope for increased intervention by investors, acting alone or in groups, but with the benefit of electronic information, is great. Already investment clubs formed on the internet are playing a significant role in the behaviour of stock markets. Institutional investors often follow computerised programmes which, acting together, can precipitate a market meltdown under conditions such as those triggered off in Wall Street by the 1998 Far Eastern financial crisis. Whereas these small investors, pooling ideas, information and resources, have the capacity to act independently in such crises; and by some estimates their actions were critical in generating a recovery from that same crisis. If capitalism, far from being on its last legs, as socialists have been wont to imagine, is entering a strong phase of restructuring as a global phenomenon, then the democratic currents beginning to stir on the internet suggest that, in the heartlands of virtual capitalism itself, the large corporations may not have things entirely their own way.

Finally, we return to the recurrent theme of this chapter, the issue of heads or tails, symbolising the relationship between states and markets which has dominated 20th century political economy. The US Government has a very interesting position on taxation of the internet. It is currently promoting an international treaty which will effectively keep the hands of governments off the internet. This treaty would seek to be consistent with existing international conventions, to be simple to administer and easy to understand. It would avoid double taxation and ban discriminatory taxes and customs duties on electronic transmissions. The report of the US Department of Commerce cited earlier makes it clear that at least some parts of the American government are worried that their country’s apparent lead in the communications revolution could quickly be dissipated, if Congress got round to thinking of the internet as a milchcow for its spending habit, thereby driving electronic commerce abroad to places with a less predatory attitude. They worry that the potential for electronic commerce will be held back by the conventional dispositions of most adult Americans; and they place their hopes for the future partly in a massive educational campaign, but mainly in the children who are growing up with the explosion in information technology which has characterised the 1990s.

In Finland, which by some measures is the world leader in use of both the internet and mobile phones, the local presence of a major supplier has stimulated rapid innovation in the use of mobile telephones as a means of internet connection, with widely ramifying consequences for markets and money. It is even said there that they expect soon to dispense altogether with money in its traditional forms of coins and banknotes. I have limited this account of money in the age of the internet to developments which have already occurred. Some of them may sound quite futuristic, but they are actual, if perhaps still minor phenomena. The economic forms which will dominate the next century are probably already visible in embryo. But, to prepare ourselves for what lies ahead and to influence things in the direction we want, we must also think about what is possible and relate the possible to the actual that we already know. This is the task of the next chapter, in which the future of money and the market becomes the subject of an even more speculative approach.

Guide to further reading

Ah, money! While I was writing this book, friends kept telling me of all the new titles coming out on the topic. I took it as confirmation that I was on the right track. I suggest starting with literary approaches. James Buchan’s Frozen Desire (note 24) is a brilliant, humane book; he knows more about money than I do and he writes better, but I think I have the edge when it comes to historical vision and social theory. Kevin Jackson’s bedtime companion, The Oxford Book of Money, and Granta’s special edition on money are both diverting in different ways. Slightly more serious is the maverick economist, J.K. Galbraith’s Money: whence it came and whither it went (51). The career of the artist, Boggs, is a wonderful contemporary parable (5).

When it comes to the history of economic ideas, I rely on Schumpeter’s History of Economic Analysis as a work of reference (4). But the key theorists, in my opinion, are Locke, Marx, Simmel and Keynes. Caffentzis (6) is much more interesting than anything Locke wrote himself on money (an exception to my normal rule of going to the source). Unfortunately, Marx wrote a three-volume work, Capital, on the subject (see the guide to Chapter 3). Simmel’s The Philosophy of Money was translated into English quite recently and is highly original, if rather dense (19). But Maynard Keynes is still the main source for thinking about money at the millennium. His Essays in Persuasion are a model of clear writing (10); The General Theory is simply the most important economics text written in the 20th century (9); and A Treatise on Money, although written for economists, is largely accessible to the general reader (16). It is worth finding out about Keynes’s life as the context for all this; and Harrod’s biography does the job, even if it is rather long and stodgy. Bagehot’s study of Lombard Street (25) gives an account of the formation of the Victorian financial system whose demise stimulated Keynes’s work.

Anthropologists have paid more attention to non-market exchange and money in non-western cultures than to the operations of money in the capitalist heartlands. The collection on barter edited by Humphrey and Hugh-Jones is authoritative (57), while the Parry and Bloch collection on money in exotic cultures has the strengths and weaknesses of the genre (69). But now Chris Gregory has produced Savage Money, the first serious attempt to combine exotic ethnography with a feeling for modern world history. Thomas Crump’s The Phenomenon of Money is a speculative work by an anthropologist with a great interest in quantification. Mary Douglas has written about money as originally as any anthropologist.

Danny Boyle’s entertaining romp through today’s alternative currencies, Funny Money, has the merit of being up-to-date (74). There is no full-length treatment in English of LETS, the most significant of the new systems of exchange, but Servet’s book on the French equivalent, SEL, is serious and provocative (80). The same can be said of La Monnaie Souveraine, by Aglietta and his associates, which has an anthropological cast to it (75). I found several recent works on “the digital economy” disappointing and turned instead to the solid report published on this topic by the U.S. Department of Commerce (78).

Finally, what to read on money as memory? I can’t say; but I do know that Giambattista Vico’s The New Science (40) probably contains the key. Vico deserves more prominent billing in this work than he gets. See Berlin (41) for an introduction to this fascinating thinker.

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