Sunday, 20 October 2013

The Origins of Money

This blog partly comes from my reading in preparation for an economics reading group in Birmingham, UK. If you live around the Birmingham area and are interested in joining us then leave a message and I will give you details of the gathering.

Positive Money's book (2012) starts with a chapter on the history of money. In the chapter, they relate two histories. These are the textbook history and the historical reality.

The textbook history assumes that barter preceded the creation of a token of exchange or value (money). Money in this context removed the limitation that both parties had to have what the other party wanted. It also removed the time restriction in the sense that both parties didn't have to have the goods available at the same time. Money supposedly removed the difficulties of the barter system.

The historical reality perspective takes a different line of reasoning. It is argued that historically, people gave goods freely with the caveat or expectation that the receiver would return the favour in the future. To some extent, this practice is still seen in some tribal communities and family units.

The concept of a unit of account for the debts and credits grew out of these exchanges possibly when it was perceived that there was a failure to uphold the obligation or that people felt that they were not receiving what they expected from the system.

My interpretation is that we became protective of what is or was ours and sought to ensure that we gained equivalent in value in return for what we gave away. At some point in the system, we lost a certain amount of concern for the needs of others and our ability to meet those needs and turned to a system of protecting our assets even at the expense of others whose needs might be greater than our own.

The difficulty that we have with any historical interpretation is that we are tainted by our own cultural heritage and to some extent, we read into the evidence values from our culture and not necessarily those of the culture that we are seeking to learn about. All our observations are influenced by our perceptions and it is difficult to cast these off. To some extent, it is easier to see evidence as supporting our perceived theories when they could in fact be pointing to something quite different.

If we take the understanding of historians then the development of a credit system wasn't last in the development sequence. In fact, it seems that the development was possibly in the reverse sequence with the development of a system of credit (virtual money) first, followed by coins (money) with barter being a by-product of the use of coinage.

As I reflect on this development and wonder about the notions of plenty and scarcity, I am wondering when there was a shift from a notion that there was enough to satisfy everyone's needs (plenty) to a notion of limited resources or resource exploitation that needed to be hoarded or protected for personal advantage.

As I turn to look at the section on the history of banking, there seems a lot of uncertainty about the original origins. However there seems to be evidence of debt bearing loans dating back to Mesopotamia but there seems to have been times when these faded in and out of existence.

It seems initially in England that money was in medieval times under the authority of the sovereign. However, goldsmiths began to function in a role of exchanging coinage and then the distribution of notes as a promise to pay. These promissory notes became the means of exchange with the coinage being left with the goldsmiths or banks.

The consequence through a number of historical events was a shift away from sovereign money to money based on the promissory note where there were more promissory notes in circulation than actual coinage produced. In the process, the crown or its representative the government of the day also lost control of the creation of the money supply and the ability to have first use.

Although this history is interesting, we need to explore the way the current banking system operates in order to understand why it is no longer fit for purpose. However, the history shows that alternatives have existed and that to some extent the current system may have grown more by accident than design and that maybe self-interest has taken over from a concern for the welfare of others.

Reference:

Andrew Jacksom and Ben Dyson (2012) Modernising Money: Why our monetary system is broken and how it can be fixed. London: Positive Money.

Sunday, 13 October 2013

Economics Table Talk

In the tradition of our peace church, we held a table talk on Friday, 11 October, around the theme of economics. A table talk is as much about the fellowship of sharing a meal as it is about the theme under discussion. With 11 people attending, we were in for an interesting discussion.

As the starters were served, we started the discussion around looking at what we understood economics to be. This included the ideas that economics is the study of the social interactions of how we exchanged resources, and the examination of how we protected our resources and assets. We also discussed the way we see the current system operating and the development of currency. The question was asked, why did we develop currency and move away from barter or 'gift' economy. It is possibly easier to see why we moved from barter systems to the use of money but why a shift from a 'gift' economy where the focus is on meeting need with the only expectation being that our needs would be meet in return. There was the suggestion that 'gift' economies still operate within the family context where dependants are not able to pay for what is provided by their carers. We didn't look at the wider community and those who were unable to pay for what they needed to survive.

We then looked at what made something a currency. Although the gold standard was raised, it was recognised that this hasn't applied for sometime and that this really didn't influence what society accepted as currency. The argument was raised that a currency is accepted because of trust between the participants but is reinforced by the fact that government accepts the currency for the payment of taxes. This led to the idea of sovereign currencies issued by the state for what they wanted to achieve and collected back in as taxes. A concept discussed by Mary Mellor (2010).

Does this same principle apply to regional currencies? Maybe not. Although some regional currencies (Kennedy, Lietaer, and Rogers, 2012) are supported by local government some seem to rely entirely on the trust of the participants that others will accept the currency for the exchange of goods. Of course the issue was raised as to whether we needed a currency at all (Boyle 2012).

We wanted to go beyond what happens currently in society so we turned our focus to economics and the bible. We found that the bible has a lot to say ranging from the ideas of Sabbath rest (every seven year) for the land, jubilee concepts, the tithe being a shared celebration and not a gift to the priests and levities, Zacheus giving back four fold, Jesus over turning the money table, the early church sharing everything in common, the shared feasts, Paul's working as a tent maker while sharing the gospel, and the idea that he who will not work will not eat. The message seems mixed although coming through is concern for the welfare of others and less about the self interest of gathering wealth for self.

We then turned our attention to issues of how to bring about change. A key issue here was the idea of working locally rather then focusing on global or macro changes. How we interact locally with others was seen as higher priority than fighting for change in the global context. If you haven't changed your own way of operating then you can't really expect to change anything greater. We need to be the example of what we believe should happen at the higher level.

References

M. Boyle (2012) The moneyless manifesto: Live well – live rich – live free. Permanent Publications.

M. Mellor (2010) The future of money: From financial crisis to public resource. PlutoPress.

M. Kennedy, B. Lietaer, and J. Rogers (2012) People money: The promise of regional currencies. Triarchy Press.