In today’s piece, I will argue as follows: The transaction described by Neal is one that could and did occur more or less as he describes and as is described (sometimes) by Cantillon. However, Neal’s labelling of the diagram is still incorrect, which is a symptom of the fact that he is attempting to reconcile descriptions of two different transactions. The first of these transactions is the exchange per arte, as described in my previous essay. The second transaction is what I will call a standing remittance facility. Where Neal remains substantially incorrect is that, in conflating the two transactions, he presents the second “remittance facility” transaction as though it were the base case of the exchange by bills, thereby losing sight of the fact that it in fact presupposes and depends on the existence of the first market. Because Neal does not appreciate or understand the importance of the dealer market in exchange per arte as it had existed since the medieval period as context for the development of the type of transaction he is interested in, he fails to appreciate the significance of regulatory regime change — the legalization of usury — for the development of this financial activity (indeed the word “usury” does not appear in his book). Neal presents this story as entirely one of “innovation,” with the implication that people had simply never considered the idea of doing “modern” finance until it was “innovated”. As I will argue, however, it would be closer to the truth to say that they were perfectly aware that it could be done but largely refrained from doing so because it was illegal.

Since Neal doesn’t think that the history of financial regulation matters for understanding the history of financial practice, we are left with the entirely ridiculous suggestion that medieval financial participants were simply constrained by a lack of available writing space: “Domestic bills… were typically repaid in installments, so that the backs of domestic promissory notes were devoted to recording the repayments. Foreign bills of exchange were paid in full at the time stated, and so the back of the bill was available for a series of endorsements to third parties” (5). This explanation first of all assumes that the medieval bill was primarily a domestic rather than foreign instrument, which was not the case — indeed, it is the rise of the inland bill which is the more distinctively modern phenomenon. Secondly, it asks us to believe that the reason bills were not negotiated by endorsement in the medieval period was that they lacked writing space on the instruments rather than the much more obvious reason that it would have been usurious to accept the bills at any price other than par, with the consequence that the person accepting the bill in exchange for money would have been, in a licit transaction, taking on counterparty risk without compensation. This fact precludes the development of any active, liquid market in re-negotiated bills (a “discount” market, which we’ll consider below).

Please note that this discussion is somewhat technical and presumes that the audience has read the previous piece.

Let’s have a look at what Cantillon describes in his discussion of Bills of Exchange in Part III, Chapter 2 of his text. First, we have accounts receivable created by the annual imposition of 50,000 livres tax on Châlons, payable in Paris, and the annual sale of wine from Châlons in Paris for the same amount: “The tax collector, in this example, has 50,000 livres to send to Paris, and the distributors have 50,000 livres to send to Châlons’ wine merchants. This double transaction, or transport, may be avoided by an exchange contract known as bills of exchange, if the parties get together and arrange for it.” Cantillon tells us that one way for this can be achieved (Scenario A) is for the wine distributor to take “the 50,000 livres to the cashier of the tax collector’s office in Paris and in return he will be given a check or bill of exchange payable to [read: by] the Châlons’ tax collector. (As we’ll see, this prepositional confusion is not accidental but rather indicative of the problem that interests us here). When these checks are endorsed and transferred to the Châlons’ tax office, the tax obligations of the Châlons’ wine merchants of 50,000 livres will be paid.” Note that Cantillon has called this [emph. mine] a “check or bill of exchange,” and it is the type of transaction described by Neal in which a party A who wishes to send money to party B purchases, for cash, a paper instrument for remittance. There is however another way to do it (Scenario B): “or else, let Châlons’ wine merchants, who have 50,000 livres in Paris, offer bills of exchange” [note that here Cantillon does not add, “or checks”] “from their distributors to their tax collector and endorse them to the cashier of the tax office in Paris, who will in turn collect from the distributors the amount of 50,000 livres, which they owed to the merchants of Châlons for the bills of exchange.” In this transaction, which is the classic medieval case, the paper instrument flows the other way: it is originated in Châlons and flows to Paris, rather than originating in Paris and flowing to Châlons. Cantillon’s point in this passage is that it doesn’t matter, because his concern is to illustrate what it means for the exchange to be “at par”: “Whichever way this offsetting is achieved, whether the bills of exchange are drawn from Paris on Châlons or, as in this example, from Châlons on Paris, ounce for ounce, or 50,000 livres for 50,000 livres, is paid, and the exchange is said to be at par.”

The reason that it doesn’t matter is that the outstanding balances of the two exchange places on one another are precisely equal and both of the parties are forced exchangers in the sense that they are not professional exchange bankers but are simply trying to move funds in order to facilitate their other activities. For them, it’s a great stroke of luck that they both want to move the same funds in opposite directions within the same time frame and are aware of one another’s existence. Let’s call this happy state of affairs the double incidence of funding pressure in a fully transparent market.

Notice also that Cantillon adds “check or…” in the case that it is the paying party who purchases the paper instrument in order to send to the payee (Scenario A), while he does not add this in the case in which the payee is drawing a bill on the payer in order to sell it for cash to the person who will actually remit it (Scenario B). Even though, in this case, it seems to make no difference, we can detect in Cantillon’s terminological indecision a hint of the idea that there may be something that matters about this inversion of the direction of flow of the paper instrument. In the first case (Scenario A), from the perspective of the Tax Office, which is selling the bill to the person who wishes to remit funds, it’s still a bill drawn on accounts receivable due to it by the tax collector in Châlons (and thus a classic “bill” as described in my previous essay). But from the perspective of its purchaser, the payer who remits it as payment to the payee, it has begun to become something else — a check. What sense can we make of Cantillon’s hesitation about terms?

[The French word being translated by “check” is compensation. Cantillon seems, as far as I can tell, to only use this word when the paper instrument is moving in the “check” direction, but he also uses it in a sense that the translator renders “offsetting.” If anyone has wisdom to share on this term, please do.]

The first thing we might observe is that even in this hypothetical in which the exchange is at par and all parties are “forced,” it still makes a difference (though Cantillon does not point it out) which way the bill goes: if the bill is purchased by the merchant in Paris and sent to Châlons, the merchants bear the counterparty risk, while if it is purchased by the tax collector in Châlons and sent to Paris, the risk is borne instead by the tax officials. In the first case the merchant in Paris will bear the risk that the tax collector defaults, while in the second case the tax collector will bear the risk that the merchant in Paris defaults. So a reversal of the directional flow of the bill implies an inversion of the counterparty risk involved in the transaction. Let’s put that fact in our pocket and come back to it later.

Cantillon’s example of bilaterally forced exchange at par is really meant to serve as a null hypothesis against which we can consider what it means for the exchange not to be at par. In order to do this we will need to introduce an agent who makes it their business to price how far from par the exchange is. We will need an exchange banker.

Suppose the merchants exhaust the “forced” demand of the Tax Office to sell bills on the tax collector in Châlons, but still have more money in Paris that they wish to remit to Châlons. They will

go to the banker who has, at his disposal, the rents of the Paris nobility who own estates in that district. This banker will furnish them, like the tax office’s cashier, with bills of exchange to be cashed with his correspondent banker in Châlons, up to the amount which he has at his disposal and that must otherwise be sent from Châlons to Paris. This offsetting will also be made at par between the agents who request that their money be sent to Châlons, as well as from the nobility who ask to have their money brought to Paris from Châlons, unless the banker tries to make a small profit from the transaction for his trouble. If the banker also has at his disposal money in Châlons from the sale of the merchandise imported from Paris, he will also furnish bills of exchange for this amount.

Here the banker is a professional: he has no business of his own that produce funding pressures, but is in the business of accommodating the funding pressures of other parties, which he carries out in conjunction with a correspondent partner in a foreign place. In this initial discussion of the banker, Cantillon is still assuming that the exchange is currently balanced between the two places (that they still owe one another the same amount) but has now introduced the assumption that the market is not fully transparent and the forced drawers with balances that could be netted out do not know how to find one another. In this case, the banker will still make the exchange at par, but will probably “make a small profit from the transaction for his trouble.” Here the banker is acting as a broker and is able to charge a fee in consequence of the fact that they know more about the market than the clients do. Call this Scenario C.

But suppose the merchants still have money to remit, even after buying the banker’s available absent balances at par (minus fees). Call this Scenario D. They have money in Paris but it needs to be in Châlons: “If they offer this money to the tax office’s cashier, he will reply that he has no more funds in Châlons, and that he cannot supply them with bills of exchange or checks to that city. If they offer the money to the banker, he will tell them that he has no more funds in Châlons from which he can draw, but if they will pay him three percent of the exchange, he will provide a bill of exchange. They will offer one or two percent, and will settle at two and half, unable to do better.” According to Cantillon, the banker will then draw a bill on his partner due in “10 or 15 days”, sell it to the merchant at a premium to par (here 2.5%), and then ship gold to his correspondent in order to cover the draft: “This delivery of gold will cost ten livres for each bag of 1,000 livres, or in banker’s jargon, one percent. He will pay his correspondent in Châlons a commission of five livres per bag of 1,000 livres, or one half percent, and he will keep one percent for his own profit.” This analyis purports to explain what it means for the exchange not to be at par: it means that the balance of funding pressure is not equal between two places, and there are more “forced” transactors who wish to remit in one direction than the other. There is, Cantillon tells us, “no difficulty or mystery in all this.”

(The reader should note at this point that Scenarios A and B are not mutually exlusive with Scenarios C and D, although A is exclusive of B and C of D. The first two concern the question of whether the payer-client, i.e. the client who is “forced” to send funds to someone they owe, is buying or selling a bill, and the second two concern the question of whether or not the exchange is at par.)

In what remains of Chapter 2 and in Chapter 3, Cantillon surveys some complicating factors in the system of exchange. These factors include the existence of more than one city in the network, speculative trading, the policy of the various mints, and “diplomatic” payments above and beyond those created by trade. Although he tells us that in the long run “exchanges are regulated by the intrinsic value of specie, i.e., at par, and that their variation arises from the costs and risks of transporting money from one place to another when a balance of trade has to be sent in specie, these complicating factors cause “variations in the exchange rates for short periods of time, independently of the balance of trade. In the long run, however, we must return to this balance which makes the rules of exchange constant and uniform. And though the speculations and credits of bankers may sometimes delay the transport of the sums that one city or state owes to another, in the end, it is always necessary to pay the debt and send the balance of trade in specie to the place where it is due.”

This discussion concludes what we need to notice about Cantillon’s discussion of bills. One gets the impression reading this discussion that Cantillon, an experienced financial practitioner, wishes to make things simpler than he knows they actually are: “My subject does not allow me to further develop the effects of these incidental causes. I confine myself always to the simple views of commerce so as to not complicate my subject, which is already complex by the multiplicity of related facts.” He is speaking for an audience that has trouble enough grasping the basics: “I do not know whether I have succeeded in making these reasons clear to those who have no knowledge of trade. I know that for those who understand exchange rates, nothing is easier to comprehend, and they are rightly astonished that those who govern states and administer the finances of great kingdoms have so little knowledge.”

Things are in fact more complicated, because Cantillon has not actually explained the nature of the exchange banker’s business. As he explains the transaction, it simply represents the rate of profit of a bullion transfer service: the banker in Paris has charged 2.5% to transfer money Châlons, shipped that specie at a cost of 1%, and split the remaining 1.5% with their partner. But if this is all they’re doing, they’re simply acting as a specie shipping service, paying the cost of freight and insurance and charging a profit above that. Otherwise, it’s not clear why he would have business at all: why would the merchant not simply pay the 1% to ship specie themselves?

A reader who has followed my previous discussions of exchange markets may notice that there is something here that Cantillon is probably aware of but deliberately glossing over in order to avoid losing his presumptively lay audience. We can begin to tease it out if we assume that the exchange banker is not simply, themself, a specie shipping service. One way to do this while preserving Cantillon’s numbers is to assume that it takes much longer than 10 to 15 days for the secure specie shipping service to actually remit the coins: if we assume that bills travel faster than coins, then the service of the banker could be described as financing the difference in maturity. But it will perhaps be easier to see the point if we assume that the 1% figure for shipping specie is an “our cost” price not available directly to the client and that the client would not be able to ship specie for any price lower than that offered by the exchange banker, once the profit for the specie shipping service had been taken into account. In this case, the 1% fee for shipping specie is not an alternative option for the client, but simply a cost that must be borne by the exchange banker in the case that shipping specie is actually required. For the sake of simplicity I will consider the second reading in what follows (although the first reading would also lead to the same conclusion, and the truth of the matter probably lies in a combination of the two).

In order for the exchange banker to actually be in the business of exchange banking rather than that of a secure shipping service, they must be able to offer a rate for exchange that is less than the rate that a for-profit shipping service would need to charge clients in order to justify the continued investment of its capital. The business of the banker is, in other words, that of avoiding having to pay the 1% cost to ship specie. How do they do that?

The basic answer is that the banker tries to resolve Scenario D into Scenario C: to resolve a scenario in which their balance sheet is expanding as a result of asymmetric demands for funding between one place and another into a scenario in which their balance sheet can once against contract as these original funding flows are netted out by flows going the other way. Doing so involves two main capacities: 1) the capacity to wait long enough for the flows to balance, and 2) the capacity to find a path along a chain of exchanges that will allow the positions to be cleared by routing the funds through a third (or fourth or fifth) place.

For example: suppose a banker in Châlons accepts cash from a client and draws a bill on his partner in Paris, which his partner pays in cash. The Châlons partner now has a levered position in cash in Châlons, and the Paris partner is short cash in Paris. This situation could be remedied by having the Paris partner accept cash in exchange for a bill drawn on Châlons, which would have the effect, after falling due and being paid, of covering the short position in Paris and unwinding the long position in Châlons. But the bankers may have a more clever solution: the Paris partner can accept cash in exchange for a bill drawn on a third, Amsterdam partner. Now, the Paris partner has covered their short, but the Châlons partner is still levered long and the Amsterdam partner has opened a short of their own. This will be remedied by having the Amsterdam partner accept cash in exchange for a bill on Châlons, after the maturity of which the balance sheets of all the bankers will have contracted again and (if all has gone well) left a profit somewhere on the books of their partnership. Such an operation can be chained through any number of exchange places along any number of legs, which is what makes the exchange business complex and require stable high-trust networks to carry out.

The essence of the exchange banker’s business therefore lies in their ability to roll over their balance sheet long enough to enable them to contract it again at a more advantageous rate that that currently available to their client, possibly by means of a multi-legged operation of multilateral clearing.

The essence of the second aspect of the exchange banker’s business, multilteral clearing, is no different in principle in the time of the Bardi than that of Rothschild. Here, the banker is simply taking advantage of a superior knowledge of the exchange network to find more efficient clearing paths than would be found by any non specialized practitioner. But if we consider the case in which usury is illegal, and therefore in which there do not exist active and liquid short term money markets, then there is somthing about the first aspect of the business — the capacity to wait — that is qualitatively different. In the illegal-usury regime, the capacity to wait is purely a function of the size of a reserve of coins: the bankers can only take a short position on coinage by funding it out of equity (that is, by spending coins they actually have hoarded as part of their own equity as an expense charged to the account of their corresponding partner).

In the legal-usury regime, however, things are quite different, because there does exist a short term money market on which he can draw: the discount market. Since they are an exchange banker, they will have other bills falling due to them in the future which have been sent to them by their correspondents in other places (in a transaction along the lines of Scenario B in the “classic” exchange per arte). By endorsing these bills and selling them on the discount market, the partner can raise the cash required to pay a bill that falls due without having to dishoard reserves at the cost of the discount rate. Thus, they can fund the short position in cash at a cost governed by the prevailing rate in that city’s discount market. (They could also fund the position by borrowing on their note, presumably on worse terms, since an endorsed bill just is a note of the endorser plus the additional security of the other signers). Meanwhile, the first partner has a levered long position in cash: they have acquired some coins that they ultimately owe to their absent partner, but which they can employ in the meantime by purchasing bills in their local discount market. The cost to the partners of expanding their balance sheets is therefore the net of the negative and positive carry in the two places: if the partner with the extra cash is getting 4 percent, and the partner who is short the cash is paying 5, then the total cost to the partnership of rolling over their balance sheet expansion is 1 percent. (We can also imagine a situation in which this position is positive carry, in which case all the bankers would be eager to get their money to the high-yielding discount market and would therefore bid up the price of exchange on that place in the other centers, which would raise the demand for cash in those places and thus their local discount rates).

We are now in a position to return to Neal and see why the “standing remittance facility” business of the exchange bankers is a secondary function that depends on the existence of the first, older market based on the exchange per arte, as well as understand why this was not the business of medieval and early modern exchange bankers working in an illegal-usury regime. The remittance facility business is one in which the banker stands ready to sell a bill, for cash, drawn on a corresponding partner in another place. From the perspective of the client, for whom the internal accounting of the banking partnership is immaterial, this is really a note: the client has in effect purchased an “IOU” from the partnership which they intend to redeem in another place. But internally to the partnership accounting this has been generated as a “You-Owe-Me” issued by the first banker on his correspondent balances with the second.

Now, importantly, if the banker cannot stand ready to quote a price for accepting cash in exchange for their bill drawn on their partner, they will be out of the business of being a remittance facility. So they need to be confident about their partner being able to pay those bills, even if there is a rush of customers wishing to transact in that direction before the arrival of a “long run” in which they will have been netted out by flows going the other way according to the prevailing statistical state of the balance of trade. If the only way to pay those bills is out of an actual hoard of coins, this is a precarious situation: if the rush goes on long enough, the first banker will have to close up shop or else risk drawing bills on the partner that cannot be paid and will thus have to be protested, to the detriment of their credit. But if there is available an active discount market in which cash can be borrowed on security on short term, it is much easier for the partners to expand their balance sheets “on demand” and thus act as a standing remittance facility.

That is why this transaction, as described by Neal, is not the base case of the exchange by bills. It requires as a precondition a pre-existing market in the different kind of transaction by bills carried out per arte, in which exchange bankers do not “sell to open” by selling bills to payers but rather “buy to open” by buying bills from payees and thereby monetizing commercial accounts receivable. Medieval exchange bankers did not stand ready to expand their balance sheets on demand of clients because, in the absence of liquid short term funding markets, they could not have confidence in their ability to meet this demand. Rather, their business revolved around contracting balance sheets that had been already expanded by commercial merchants themselves as they sold goods to one another on credit. This was primarily a buy to open, sell to close operation. Modern bankers, with access to short term funding markets, could do it either way.

That Neal is conflating the secondary, “standing remittance facility” transaction with the primary, “accounts receivable monetization” transaction is shown by the fact that he has labelled the payer-client (i.e. the importer) the “drawee” while labelling the banker the “drawer.” While, in the primary medieval-style transaction the importer would indeed be the drawee, the importer is not the drawee in the transaction Neal describes, since the bill is drawn by the first banker on his correspondent in the city of the payee or exporter, and this correspondent is thus the drawee. The only situation in which the drawer and drawee would be in the same city, as they are in Neal’s diagram, is in the case of a purely fictitious or “dry” exchange in which the transaction is simply a loan at interest in which the drawer has sold the bill to its own drawee. The payer or importer can indeed be the drawee, but not in the case of the remittance facility transaction illustrated by Neal’s diagram. And it was the prior existence of a market in transactions of the first type that made transactions of the second type possible.

Some readers may hold Neal somewhat vindicated by the above discussion. The most that I will say in his favor is that we can now understand a little better how he got confused, since transactions like the one he describes did and could occur in a legal-usury regulatory regime in which there was already a pre-existing market in exchange per arte, which is to say the monetization of commercial paper. Despite this, his argument remains substantially wrong and misleading, because it presents a derivative market as the base case and presents what is really a regulatory story (regime change) as a story about “innovation” and “revolution,” as though the problem were simply that nobody had thought of doing it before, or didn’t have enough room on the envelope.

At any rate, revisiting the modern bills has been a productive exercise, because we can now better contextualize the stakes of what happens when public debt begins to replace discounted commercial paper as the primary collateral asset in short term lending markets. But that is a story for another time.

P.S.: Cantillon’s example centrally involves a tax office as an institution operating as a forced drawer and therefore a potential source of exchange balances for parties transacting the other way. Did he contemplate or intend to imply the obvious conclusion that par clearing could be enforced as a policy by the tax authority by simply imposing new taxes in such a way as to make balances available for the exchange?

I welcome critical comments. Cite at your own risk. I hope, but can’t promise, that I’ve described everything going the right way.

(Edit: I realized after posting that I forgot to explain why it mattered about who takes the counterparty risk. I have other plans for the evening so I’ll leave this as an exercise for the reader).

In today’s post I want to reflect a bit on the political-epistemic category of “conspiracy theory” not just because it seems to be an increasingly pressing problem for contemporary political events but because it relates to fundamental methodological issues in the study of monetary history, which is why it’s been on my mind off-and-on for the last decade or so. As those who follow my work know, I’m very much a facts and evidence guy: a big part of my schtick is simply tracking down citations that nobody has bothered to check in a couple of scholarly generations, checking them, and pointing out that they don’t exactly say what they are cited to say. I enjoy this detective work and find it very satisfying, not just because it allows me to expose the motivated and tendentious reasoning of seemingly scholarly arguments, but because I believe - sometimes a bit unfashionably - that there’s real value in trying to reason from points of objective empirical reference rather than simply from what it would be politically convenient to believe. I believe that it’s worth taking the risk that the world is otherwise than how we’d like it to be, cultivating a discipline of seeking out empirical evidence and allowing ourselves to be surprised by it, and trying our best to avoid making claims that we can’t back up with receipts.

This practice has led me to doubt the truth of theories of money I previously found persuasive (both the Marxist and chartalist accounts) and to develop a project that I have really only barely begun to carry out: to study the empirical evidence of the numismatic record to see what it can tell us about the history of money. It’s my hypothesis that, armed with certain key concepts, we can read a lot more information from their data than has previously been understood: specifically, when we know the theoretical standard of weight and fineness at which the coins ought to have been minted, and we can read the histograms of surviving coins to know both the weight and fineness at which they were actually minted and at which they later circulated (after being worn and clipped, etc), we can learn something about the quantitative magnitude of the monetary premium or the "price of liquidity." It's not my purpose here to explain all of this. The point is just that in my work I've staked a great deal on the claim that it's important to ground our arguments in empirical evidence and to take that evidence seriously, where other writers simply assume they already know what doesn't matter and therefore don't bother to investigate it.

Now, this project runs into a fundamental problem, which is that the empirically observable and archaeologically durable coins we can study are known to us to be only a small part of the total monetary-financial system we wish to study. I don’t just mean that many of the coins have been melted down or lost, making it hard to guess the total size of the monetary supply in any given period. (This is a problem that the study of monetary spreads is intended to avoid, since if we can measure the price of liquidity represented in the coinage spreads we may not need to know how many of them there were in order to draw some other useful conclusions; we also have reasons for thinking that the “quantity” of money is a bit of a red herring in the first place). The problem is that the coins themselves, even if we had a complete set of data about them, are only the tip of the iceberg of the system. The rest is credit. One metaphor for thinking about it is that the system as a whole is like a chemical solution, in which flows of funding circulate in a dissolved form through the credit system. The coins, by contrast, are just what precipitates out of the solution and falls to the bottom of the glass. The fact that something is precipitating out of solution tells us something about the solution (that it is saturated), but that fact in itself hardly exhausts what we might like to know about it. (I’ve now exhausted my hazy recollection of freshman chemistry, so I won’t pursue the metaphor further).

Unfortunately, credit is an extremely difficult thing to study or observe. It’s hard to study in a contemporary context, and it’s almost impossible to study in a historical context. One reason for this is that credit is the “soft parts” of the monetary system: credit is created and cleared on paper or even purely verbally, and thus doesn’t tend to survive as a record in the same way coins do. One solution to this, pursued for example by Sargent and Velde in The Big Problem of Small Change, is (in true economist fashion) to simply assume it away. In that book, the authors assume what they call a “cash in advance constraint,” which amounts to the assumption that all payments are spot payments made in specie and that credit doesn’t exist. Of course, anyone who knows something about medieval commerce or has followed my posts about bills of exchange knows that this is a ridiculous counterfactual: the medieval economy ran on credit at both small and large scales of transaction, such that spot payments in coin constitute very much the exception rather than the rule. So Sargent and Velde have made things easier for themselves by simply assuming away what is probably the most central and salient fact about the system they are studying. Economists, everyone.

Things get worse. Not only is credit non-durable and difficult to observe, we have lots of reasons for assuming that practitioners within the credit system are motivated to put serious effort into hiding their activities, whether to escape the gaze of financial regulators (in which category we can place, for example, the Church and its usury restrictions) or the opprobrium of the public. It’s a bit of a scandalous fact that credit activities have the effect of, in some way, “creating money”: bankers can “create money” by finding cycles in the payments graph and clearing them, allowing transactions to occur “as if” there had been money and thereby creating what we might think of as “virtual” money that exists purely on their balance sheet as a form of credit. Ordinary people, who are liquidity constrained and don’t have the power to simply create money by lending it into existence and clearing it back out, might be a bit resentful about this. Moreover, the financial system is an insiders club, and the insiders aren’t exactly motivated to publish manuals explaining what they are doing and how. So for all these reasons, we know that credit is not only difficult to observe for material reasons, it’s difficult to observe for political and social reasons, because the people who are doing it are often actively motivated to destroy the evidence and disguise their activities.

Recognizing this fact leads the student into an epistemic dilemma, because it makes the object of study of the financial historian into a conspiracy theory. The first horn of the dilemma is: “There is no evidence, and so there is no conspiracy.” The second horn is: “There is no evidence because there is a conspiracy.” Both of these arguments are equally circular. Which horn we choose to fall on has more to do with what kind of thinker we wish to represent ourselves to others as being, than with anything internal to the reasoning process. Are we a sober minded and rational thinker, who has seen it all before and doesn’t fall for flimsy bullshit? We’ll fall on the first horn of the dilemma, and insist on the argument from silence. Are we a thinker who really penetrates to the hidden depths of power, and sees past the veil to things as they really are? We’ll fall on the second horn, and descend into the limitless depths of schizoid, apophenic reasoning.

Here’s a colorful example. One of the things that first got me interested in the topic of money and finance was the suggestion, oft repeated but rarely argued for, that the oracle at Delphi was really a “banker” of the ancient world. There are scraps of evidence for the fact that Delphi was, at least in the fourth century (which is to say, fairly late), a financial center of some kind. We have, for example, an inscription dating from this period that attempts to set a ceiling on interest rates: suggesting that there were a lot of loans being contracted there and also somebody whose concern it was to regulate that activity. But it’s difficult to say whether this was just sort of ancillary or adjunct activity happening at a place where people from far away travelled, or whether it was much more central to the purpose of the institution. And it’s difficult to say how early such activities might have begun. But if we hypothesize that the Delphic oracle and its priesthood constituted, in some way, a kind of financial power, a lot of stories about Delphi take on a new resonance: Delphi is a mysterious power that makes predictions about the future and uses this power over the future to discipline sovereign rulers and foil their plans. When you put it that way, it doesn’t sound that much different than the IMF. And all three of the famous mottos of the oracle (“Nothing in excess,” “Know yourself,” and “An oath leads to perdition”) can easily be interpreted as good advice for participants in financial markets.

The question is whether we are justified to proceed from these resonances to concluding that acting as a financial power is basically central to what the institution of the oracle is all about, and was central to it at a much earlier date than that of the limited evidence we can observe. If we think the answer is yes (and I do think the answer is yes!) we are now in the realm of conspiracy theory. We are falling on the second horn of the dilemma by pointing out that a lack of evidence is consistent with the hypothesis of the existence of a conspiracy, since the conspirators are highly motivated to conceal their true activities behind the smokescreen of cultic activity. One possible rejoinder to this is of course that we are imposing an anachronistically secularized dichotomy between cult and finance, and that maybe these actors did not see any difference between what I’m calling the “smokescreen” and the “true activities.” Maybe they thought of doing the cult and doing the finance as the same thing. But regardless of where we fall on this, it remains that the cult itself is inherently mysterious, and so the problem remains.

Now, for much of the 20th century, the economic history of the ancient Mediterranean world was dominated by the school of Moses Finley, who insisted that there was essentially no credit in this ancient world and that everything was just a matter of physical coins being shipped around. This view, though frustratingly persistent, is now untenable. Edward Cohen has shown at length in his Athenian Economy and Society: A Banking Perspective that classical Athens had plenty of credit and banking, not just coins, and that one of the purposes of this banking activity was precisely to hide wealth from the gaze of the civic authorities, who would expect wealthy citizens to contribute a share to the defense of the city. But if these wealthy citizens could keep most of their wealth in the form of deposits on the account of a banker, it would be hidden: you can go look at a field or a warehouse full of wine, but you can’t just go look at something that possibly exists only in the head of a banker. We also know, for example from James Tan’s Power and Public Finance at Rome, 264-49, that enormous amounts of book money were created and cleared through the patronage networks of Rome’s leading senators. Indeed, the Roman state could be well described as little more than a cabal of loan sharks who used the military power of the legions to enforce the debts owed to them and generate streams of tribute that could be privately financialized.

So, for the monetary historian, there is a problem about conspiracy. We know that credit exists, and we know that assuming that it doesn’t exist, like Sargent and Velde do or like Finley does, is essentially a form of gaslighting. Once the argument from silence has failed once, it is difficult to simply move it a bit further down the field and plant it again. But at the same time, it’s deeply troubling to even hint at opening the door to the logical extreme of apophenic reason: that, since we know that things must exist for which we have and can have no evidence, we can justify ourselves in believing in the existence of absolutely anything and everything. The paradigmatic form of this is, of course, an antisemitic conspiracy theory about how a secret cabal of Jewish bankers rules the world and is particularly interested in you in particular.

This situation is, I think, deeply troubling. We’re stuck between the gaslighter on the one hand (Ezra Klein) and the con man on the other (Alex Jones). Many of us might be happy to adopt one position or the other: to say, “no, no, there is nothing secretly wrong about the world, everything is at it appears”, or “oh yes, the world is run by a ring of sex trafficking Jewish lizards who are pedophiles and did you hear about the Grays.” But of course, neither of these positions seems quite satisfactory to us “critical intellectuals.” We know that there are things that are secretly wrong about the world and things are not as they appear. But we also don’t think, and don’t want to think, that anything and everything is true. So what do we do?

What we do is to formulate the idea of “conspiracy theory” as a transcendental criterion for reasoning about political power (which tells us what we are justified in assuming, in the absence of evidence, can’t be true), while combining it with a “structural critique” (which is an exercise of speculative reason that tells us how things must be behind the surface of appearances). The first, Kantian move is the one we share with the liberal gaslighter who tells us that everything is as it appears: we agree with them that there are some things that we don’t have evidence about one way or another but can dismiss out of hand as impossible on a priori grounds on the basis that they are conspiracy theories. The important thing about this, and what makes it “transcendental,” is that we use this as a criterion for judging the rationality of subjects. We don’t know that conspiracy theories aren’t real on the basis of the fact that rational people don’t believe in them. Rather, it’s that we know who is rational or not based on whether or not they believe in conspiracy theories.

The second, Hegelian-and-Marxist move is the one that gives us a ground to claim to go beyond the liberal gaslighter by revealing the antagonisms that structure the social order and produce the illusions of appearances as an effect. We can then use this procedure to read through what appears to see how it really is. But what is most crucial about this is that what is hidden will not turn out to be a hidden will or intention, but something that is hidden behind will and intention (behind the subject itself) and located rather in the Idea (of Matter).

As Marx puts it in “On the Jewish Question”:

For us, the question of the Jew’s capacity for emancipation becomes the question: What particular social element has to be overcome in order to abolish Judaism? For the present-day Jew’s capacity for emancipation is the relation of Judaism to the emancipation of the modern world. This relation necessarily results from the special position of Judaism in the contemporary enslaved world.

Let us consider the actual, worldly Jew – not the Sabbath Jew, as Bauer does, but the everyday Jew.

Let us not look for the secret of the Jew in his religion, but let us look for the secret of his religion in the real Jew.

What is the secular basis of Judaism? Practical need, self-interest. What is the worldly religion of the Jew? Huckstering. What is his worldly God? Money.

Very well then! Emancipation from huckstering and money, consequently from practical, real Judaism, would be the self-emancipation of our time.

An organization of society which would abolish the preconditions for huckstering, and therefore the possibility of huckstering, would make the Jew impossible. His religious consciousness would be dissipated like a thin haze in the real, vital air of society.

Marx’s complaint here is not that Bauer is an antisemite, but that Bauer’s antisemitism isn’t materialist enough. Marx approves of the project of making the Jew impossible, but he argues that in order to accomplish this we need to look beyond the consciousness of the Jew (their Jewish subjectivity and identification with Jewishness) to their real, material, secular basis: money and huckstering. Money is the structural contradiction or antagonism that lies behind not only the appearance of a rational, liberal society of freedom, but also behind the false appearance of a hidden truth of this society in the form of a conspiracy theory about the intentionality and will of non-universal (paradigmatically Jewish) subjects.

By means of this method of critique, we critical intellectuals try to carve out a ground for ourselves somewhere between the liberal gaslighter and the far-right con man. We, in other words, are the true centrists of political epistemology: we know how to see past the illusions of society, but within the limits of critical reason. In order to do this we cede to the liberal gaslighter the premise of “conspiracy theory” (the premise that what we can never expect to find behind the surface of social appearance is the existence of a malicious will) while distancing ourselves from them by means of our “structural critique”, through which we show that the assumption of a malicious will is an unnecessary one for showing that things are not what they appear. We grant the liberal gaslighter the transcendental schema that rules out conspiracy, while deploying Occam’s Razor to show that we didn’t need this hypothesis in the first place in order to show that things are not what they appear and society is not really free.

This means that we critical intellectuals have to be really touchy about conspiracy theory, because this is the accusation that the liberal gaslighter will mount against us: “your so called structural critique is really just another conspiracy theory pretending to be something it isn’t.” We also have the problem that we’re competing for an audience with (and, let’s admit it, losing it to) the far-right con men who also provide a narrative framework to socially disaffected people that justifies their intuition that society is actually, despite appearances, unfree.

The problem, I think, is that this critical position has always been wrong: the speculative critique of money as the material contradiction underlying social antagonism which would be solved by its dialectical supersession just doesn’t hold up, because what there really is in society isn’t an abstract, immanent law of Capital but just a collection of power networks in which intentionally strategic actors pursue their sometimes arbitrary and quixotic goals and projects of self aggrandizement and competition for status. What there really are are just a bunch of conspiracies. Not just conspiracies of Jews, but conspiracies of everyone and anyone. Kinship itself, falsely supposed by the myth of European modernity to have been sublated by the real sociological abstraction of classes, is really just a form of conspiracy: what is a family but a conspiracy of people who have relations of power between one another that are kept secret from the public gaze? And since kinship lineages and their networks, contrary to political economy’s myth of atomized and abstract individuals, are the real ontological basis of social order, that means that everything is basically a conspiracy and this is totally normal and to be expected. But if that’s true, then we’ve lost our transcendental criterion that allowed us to know what we were justified in believing didn’t exist without any evidence, and, with it, our capacity for distinguishing between rational and irrational subjects.

It’s always been a problem, but it’s especially a problem for us now that it’s become increasingly clear that it really is true that the world is run by a cabal of elite sex trafficker pedophiles with connections to Israeli intelligence. This is a fact that it’s very difficult to integrate into the schema of our positioning as critical intellectuals while keeping intact its foundational features, and its capacity to distinguish itself from the gaslighter on the one hand and the con man on the other. But it seems to me that in a world in which it is increasingly clear to ordinary people that things are much stranger, more lurid, and more conspiratorial than we are supposed to be allowed to believe within the bounds of critical reason, we are in great danger of allowing our defense of this scheme, and thus our reputations as sober minded and evidence-based thinkers, to force us into a de facto alliance with the liberal gaslighters, and therefore cede the terrain of competing for the constituency of disaffected people to the far right.

I don’t think it’s going to work to just insist that the cabal of elite sex trafficker pedophiles is actually something that exists because of the immanent unfolding of the contradiction of money and capitalism, which we can unmask through the exercise of our speculative reason. In a way, the liberal gaslighter is not so wrong to say that the left wing critique of capitalism is just one conspiracy theory among others: when we explain anything and everything by nodding our heads sagely and saying, “well of course, we all know that this is really because of capitalism,” are we really doing anything substantially different at the level of epistemology from the conspiracy theorist? We can’t really explain what “capitalism” is or how you get from point A to whatever point B we take it to be explaining, we just believe and declare as a matter of faith that whatever the actual explanation, we know where it leads.

If we do allow ourselves to defend the legitimacy of our critical reason at the price of taking up cause with the liberal gaslighter, I fear that there will be nobody left to contest the far right for the sympathies of an audience that now knows for a fact that conspiracies exist. The question remains how we will do this without becoming actually a far right parody of what the left once was (as has indeed already happened with certain far right and white supremacist Stalinist currents circulating online).

I have two suggestions. The first is that we need to give up the “Hegel myth” of European modernity according to which modernity supsersedes its own savage past by overcoming the particularity of kinship and lineage with the universal abstraction of class. We need to study families and lineages as the basic unit through which power is wielded and property and wealth are transmitted, which includes studying things like race and theological confession as social problematics that are more fundamental than class.

The second suggestion is that we might begin making some progress if we realize that what we really have is a problem about the pricing of far out of the money epistemic options. What did we learn when we assumed, in 2019, that it would be a “conspiracy theory”, and thus a priori impossible, that the world was run by a cabal of elite sex trafficking pedophiles, and then learned that this assumption was a bad one? We learned that in 2019 we were underpricing (by pricing at zero) the risk that certain ridiculous and lurid things were in fact true. We know that our epistemic model about political power probably underprices tail risk. The question is then how do we deal with that? The problem with that is that buying every tail risk you can get your hands on is one of the most efficient ways to go broke: no better way to lose your money than buying all the options all at once. That’s what turns you into Alex Jones.

So what we need is a better way of thinking about the social ontology of conspiracy as a banal form of social power that encompasses even such ordinary things as families and kinship into its scope. We need to stop trying to see behind the surface of networks to find real universal abstractions that explain everything, but rather take the willful and intentional exercise of power through these quotidian conspiratorial networks as primary causes of what happens. And we need to find a way to get a bit more exposure to epistemic tail risk without going broke and descending into the mist of mystical paranoid apophenia.

A tall order. Perhaps insoluble. But the space between the gaslighters and the con men is getting squeezed and vanishing fast, and if we’re going to continue to try to occupy it, we may need to rethink some of our most cherished and constitutive assumptions.

Since it’s been a while since I posted, I just wanted to drop a brief update.

First item: my post on “Bills of Exchange Medieval and Modern” was cited by Samuel Chambers in his recent book, Money Has No Value. I’d like to thank Samuel for the interest in my work and also issue an apology, as his footnote reproduces an error of terminology that I made in my original post regarding the term “deliverer” in the exchange by bills. The deliverer is not, as I had it, the person who brings the bill to the payer/drawee, but rather the person who buys the bill from the drawer at the city of issuance (and subsequently “delivers” the bill to the corresponding partner who will present it for acceptance to the drawee). Additionally, the term “taker” is synonymous with “drawer,” and not, as I had mistakenly suggested, the same as what is correctly called the “deliverer.”

While these errors do not impact the overall conclusions of the paper, I regret introducing yet more terminological confusion into the literature on this topic. Mea culpa! I’d like to thank Mimbres School Fellow Jan Delaeter for bringing this error to my attention. I’ve now posted a correction on the original post.

Please note that, generally, I try my best to get things right in these blog posts, but there may be errors as they are unedited and unrevised. Cite at your own risk, and if you are intending to cite them, you might consider sending it my way for me to double check!

In other news, I am encouraged to see that many people have read my previous essays and subscribed to this blog. I hope you are enjoying them. I regret that I have not had time to write much this year: I have been very busy with my duties organizing the Mimbres School for the Humanities, which is now a 501(c)(3) organization with 12 faculty in various roles! So my thoughts about money have been rather more practical than theoretical, as I find myself with a rapidly growing payroll to make and Small Business Stuff to do.

A few people have offered to pledge money to this blog: I will not be monetizing it as I cannot guarantee the regularity of posts. However, if you want to support my work, you are most welcome to do so by supporting Mimbres School at https://mimbres.study.garden. Sign up for a class and get a subscription! Subscriptions and tuitions to the School will help me hire more teaching faculty so that I can free up more of my own time for writing and research. We are also now available in the charitable organizations directories that you may be able to access through Fidelity Charitable, etc.

This fall, I will be taking a sabbatical from my normal workload at the School. It’s my hope that I will be able to make substantial progress on the book version of The Difference That Money Makes during that time. I may post some excerpts from the new material here. It’s my hope to have a finished draft of the book by this time next year, assuming I can avoid falling down any more research rabbit holes. (The intention is for the book to be a bit tighter and shorter than the dissertation was, so hopefully it will turn out to a problem solvable in finite time.)

Part 2 of my “Value Concept” essay will be coming at some point next year. I will have to come to a conclusion about Ricardo in order to write the new chapter of the book, which will reprise much of the “value concept” material in order to make a better transition from Marx to James Stuart and Shakespeare. But I will admit that Ricardo so far has stumped me and I was unable to get myself to a place where I felt confident enough about him to finish the essay, which will have to culminate in the Malthus-Ricardo debate about the post-Napoleonic debt: a debate of incredible importance to the history of economic thought that is not often appreciated. If anybody has any recommendations for clarifying secondary lit on Ricardo (not written by Sraffa), please send it my way. I will be teaching a course on this material at Mimbres School probably next Fall.

I also have some plans to write at some point a review essay on some recent popular books much praised by Marxists, which exhibit a general tendency towards insisting on the “autonomous logic” and “mute compulsion” of capital, thereby leading their readers into deep confusion. The renewed popularity of this sort of theorizing is a bad sign, so I intend to complain about it at some length. The essay will also begin developing some themes on “evil” and “freedom” which will be a significant element of my work over the next few years, probably culminating in a book of its own on economics, racism, and the problem of evil.

If you aren’t yet in the Mimbres School discord server, you ought to consider joining, as there are many discussions happening there that will be of interest to readers of this blog. Message me on twitter @drumm_colin for a link or email at colindrumm@gmail.com.

Thank you! Stay tuned!

C

As I am still very much in the process of attempting to think through these problems, I welcome critical feedback on what I’ve written here so far. You can email me at colindrumm@gmail.com. We will be holding a workshop on this essay at the Mimbres School on Nov 4 @ 11 pacific/ 2 eastern, which all readers are invited to join (via Zoom). If you appreciate this work, consider supporting the school at patreon.com/MimbresSchool)

1. How did we get here?

“Value” is the central mystery of Marxism. To operate in Marxist, Marxian, or Marx-adjacent spaces is to expose oneself constantly to the criticism that one has somehow failed to understand it. In this essay, I would like to report on some of my research this year, in which I have tried to trace the history of this concept as it arrives in the hands of Marx: a history that Marx himself was perhaps the first to write, and at least one aspect of which he misrepresents quite seriously. As I will try to show, by tracing the history of the discourse about “Value” back to its origins in the mid 17th century, we can make this concept rather more approachable than it sometimes appears in the hands of the Marxist exegetes. Such an improved understanding may help us re-evaluate what usefulness, if any, this concept has for us today.

The first thing to understand about the Value concept is that it was developed in the context of a debate largely internal to the British ruling class (with some help from their French counterparts) from the 17th to 19th centuries: during and in the aftermath of the Civil War, the so-called Glorious Revolution, the establishment of the Bank of England, and the suspension of redemption of the BoE’s notes during the Napoleonic Wars. These events laid the foundation for what we now call the “modern monetary system,” or a system of credit money based on the monetization of public debt. This was the result of a violent process of constitutional struggle that fundamentally reconfigured the organization of sovereignty within the British state.

The medieval English constitutional order was founded on the premise that the King was, essentially, just the biggest lord, and that the Crown itself would would be funded in the same way they were: via its agricultural revenues (as they put it, the King would “live of his own”). This meant that the Crown would share, with the barons, an interest in the maintenance of sound money: any reduction in the silver content of the English money would lower the value of nominal money rents in foreign-exchange terms. The commitment to sound money, however, produced a dilemma, which was that maintaining the quality of the money constrained its quantity, such that the English economy was chronically short of cash. This constitutional order was irrevocably broken after the ascension of James I, who was the first European monarch to run a permanent fiscal deficit and thus enter into the previously uncharted waters of modern deficit finance.

The emergence of the permanent fiscal deficit in the English 17th century led to violent constitutional struggle because of the simple fact that the King, as the King, was a bad credit risk, because there wasn’t much available recourse if he should choose to stiff his creditors (GAUNT: “But since correction lieth in those hands,/ Which made the fault that we cannot correct...” R2 1.2.4-5). The tension between the quality and quantity of money (or between the FX value of money and the available domestic money supply) was eventually “solved” by the establishment of the Bank of England, which allowed for the creation of a domestic money supply that was merely collateralized by, rather than directly embodying, foreign exchange. But this was a development that could not take place without subordinating the sovereign to Parliament, because doing so was tantamount to establishing a chokepoint at which the central fiscal authority could unilaterally suspend the convertibility of domestic money into foreign exchange. This is something that the medieval constitutional order could never have allowed.

Thus, the development of Parliamentary sovereignty in the English constitution allowed the creation of a “safe” public debt, which would “unhinge” the domestic money supply from the foreign exchange constraint and allow the circulation of intrinsically worthless money that nonetheless enjoyed public confidence. But this fact created a certain degree of metaphysical confusion about the nature of wealth. Previously, it had been fairly easy to understand: wealthy landholders basically sought to convert their landed revenues into money — silver and gold coinage — that directly embodied foreign exchange, which they could use to purchase imported foreign luxuries and even to fund open military conflict against the King himself. Now, however, receiving their revenues in the form of paper and credit instruments, they would be confronted with a puzzle. What was the point of money, anyway? What did it really represent?

2. The Power Theory of Value

The history of the debates over this question begins with Thomas Hobbes. Hobbes is not especially concerned with the question of money, specifically, although he is fully aware (as he makes clear in Behemoth) that conflicts over the fiscal system were a proximal cause of the outbreak of armed struggle in 1642. But in Leviathan he makes two claims that set the stage for the development of the labor-Value concept. The first claim is found in Book 1, Chapter 10: “Therefore to have servants,” says Hobbes, “is Power; To have friends, is Power: for they are strengths united. Also Riches joyned with liberality, is Power; because it procureth friends, and servants: Without liberality, not so; because in this case they defend not; but expose men to Envy, as a Prey.” Here, Hobbes presents what we might call a “power theory” of wealth, coupled with an emphasis on the flow of funds rather than a stock of money: a hoard of cash, he suggests, is really just a security risk. Better to spend it making friends and acquiring servants. His emphasis on the circulation of money continues in Book 2, chapter 24, where he draws a distinction between domestic “mony,” which “passeth from Man to Man, within the Common-wealth; and goes round about, Nourishing (as it passeth) every part thereof” and “gold and silver,” which “have their value from the matter it self” and therefore “have the priviledge to make Common-wealths, move, and stretch out their armes, when need is, into forraign Countries; and supply, not only private Subjects that travell, but also whole Armies with Provision.”

What Hobbes does here is to advance the disarticulation of inside from outside money: while outside money, in the form of foreign exchange, may (perhaps) be usefully understood as a stock, inside money by contrast must be understood as a flow, and a flow whose primary value lies in its capacity to exert power over others rather than any quality or substance inhering in the money itself. Thus, there is a way in which, when it comes to inside money, asking about “how much of it” there is is a symptom of confusion, since, like the blood, the real question is about the circuits through which it moves, and how the movement of money through those circuits mobilizes, recruits, or commands the power of others towards your own purposes.

But Hobbes’ analysis, written on the eve of the Restoration of the Stuarts, leaves unresolved a quite significant problem. If the King were to exercise the power of “Riches joyned with liberality” by spending a lot of money, he would first need to have a lot of money to spend. This (pace the overconfident assertions of the chartalists) meant taxes. Hobbes, in characteristic fashion, simply asserted the sovereign’s capacity to tax as an unconditional and arbitrary power: “the Kings word,” he wrote, “is sufficient to take any thing from any Subject, when there is need; and that the King is Judge of that need” (2.20). Whatever the merits of this view in the abstract, it was far from providing a workable basis for Restoration finance: the Long Parliament had abolished all forms of extra-parliamentary public finance, and Charles II was not eager to risk losing his head in an attempt to reconstruct a system of prerogative revenues. Hobbes was not entirely unaware of this concern, and, under the more general heading of “Equall Justice,” advised that taxes, in order to be most fair, ought to be levied on consumption rather than wealth, on the grounds that the rich man and the poor man nevertheless can be accounted as having an “Equality of the debt, that every man oweth to the Common-wealth for his defence” (2.30).

This rudimentary theory was left to be expanded upon by Hobbes’ erstwhile personal secretary, William Petty, whose “Treatise of Taxes,” written sometime around 1662, is perhaps the first entry into the tradition we now call “economics.” It is a striking fact, given the later trajectory of this discourse, that Petty begins with what we would now call the public sector and he calls the “publick charge”: a set of functions carried out, or which should be carried out, by the government. These functions fall into the following categories: security, justice, “pastorage” (i.e. the church), education (which, Petty acknowledges, is mostly not currently in the public sector, but should be), support for the poor, and infrastructure.

Having established the necessity of the public charge, Petty then turns to a discussion of its funding. He begins with the interesting assertion that tax avoidance is, in itself, a cause of increase in the tax burden, due to the fact that it produces “an unnecessary Charge to collect them, and [forces] their Prince to hardships towards the people” (21). Thus, he begins by acknowledging the existence of a political cost to taxation, a cost which must be borne out of the proceeds of taxation itself. The schema therefore raises the question of optimizing tax revenues over a social resistance function. To this, Petty adds two other difficulties: first, the problem of illiquidity (i.e. the difficulty of meeting the demand for everyone to come up with money at tax time, in a context of general scarcity of cash), and, second, the potential absence of a large and well-assessed tax base (“fewness of the people” and “ignorance of their numbers”). From these observed difficulties, we can infer a positive project: Petty is interested in coming up with a theory for how the English government can tax as much as it can while inspiring as little social resistance as possible, to accomplish which it needs to develop a large and well-assessed tax base (composed especially of “Labourers and Artificers”) and ensure that the economy is provided with a monetary supply sufficient to actually pay the taxes.

Now, Petty is obviously well aware that the “social resistance function” includes states of civil war, and that the “fear of Wars” — both foreign and domestic — is itself a “Cause of encreasing the Military Charge.” Here, then, Petty is making a significant advance on the foundations laid by Hobbes: if, as Hobbes argued, the fear of war is the foundation for public order, and the fear of war has a price, paid in the form of taxes for the “security” component of the “publick charge,” then what Petty adds to this is the observation of the potential for a positive feedback loop leading to a collapse into a state of war: if an increasing tax burden leads to increased social resistance to taxation, which in turn further increases the tax burden by producing additional security risks, then the system must eventually reach a point at which the price paid to hedge against the risk of war becomes too high. This situation will lead to “Civil Wars” caused by “peoples fantasying, that their own uneasie condition may be best remedied by an universal confusion; although indeed upon the upshot of such disorders they shall probably be in a worse.” In other words, there is a point at which the price of security becomes high enough that people imagine (however wrongly, in Petty’s opinion) that they would rather take the risk of anarchy, a price that might actually be reached if the “feedback loop” between security and taxation should be allowed to get out of hand.

William Petty thus inaugurates the discourse of economics by supplying Hobbes’ theory of the state with a (proto-)mathematical framing in which the security offered by sovereignty is priced in the form of taxes funding the public charge, and in which any increase in the magnitude of this price risks initiating positive feedback by provoking political resistance to taxation. This might suggest that the best way to produce social stability would be through fiscal austerity — shrinking the overall size of the government budget. But this is not a solution either, Petty argues, because of the risk of war, both foreign and domestic.

Petty takes a dim view of “offensive” foreign wars, suggesting that they are usually fought for the benefit for private interests rather than the public weal, and acknowledges that one way to avoid such wars would be to constrict the size of the government’s budget: “those States are free from Forreign Offensive Wars… where the chief Governours Revenue is but small, and… which if they happen to be begun, and so far carryed on, as to want more Contributions, then those who have the power to impose them, do commonly enquire what private persons and Ends occasioned the War…” This, in other words, would be the medieval constitution, in which the military was funded out of extraordinary revenues requiring the approval of parliament. But this situation, says Petty, would itself be a source of security risk, since “Defensive Wars are caused from unpreparedness of the offended State for War… Wherefore, to be alwayes in a posture of War at home, is the cheapest way to keep off War from abroad.”

But in addition to the risk of foreign war, there is a risk of a domestic one. One potential cause is, as we’ve already mentioned, excessive taxation. But the tax-paying classes are not the only sources of potential domestic conflict: there are also what Petty calls “supernumeraries,” or a structural surplus population (what Marx would later call the “reserve army of the unemployed”): “Causes of Civil War are also, that the Wealth of the Nation is in too few mens hands, and that no certain means are provided to keep all men from a necessity either to beg, or steal, or be Souldiers.” Petty, following Hobbes’ notion that excessive riches might “expose men to Envy, as a Prey,” posits the idea that a surplus population produced as a result of social inequality might itself present a security risk to propertied elites, which would be worth hedging by means of redistribution through the fiscal circuit. Anticipating Keynes, he even suggests that as long as it were done “without expence of Foreign Commodities,” it would be “no matter” if this surplus population were “employed to build a useless Pyramid upon Salisbury Plain, bring the Stones at Stonehenge to Tower-Hill” (31).

Added together, what this theory does is to supply the price of sovereignty — the tax burden — with an upper and lower bound. The lower bound is given by the risk of war, both foreign and domestic (as well the other necessary functions of justice, infrastructure, etc): if the government budget falls too low, then the security component of the public charge will fall below the threshold needed to ward off the risk of foreign invasion and domestic unrest provoked by the existence of a “supernumerary” population. If it rises too high, it will rise above the threshold after which the domestic tax-paying population is willing to take the risk of civil war and anarchy rather than submit to taxation. The question, then, is about finding an equilibrium between the two points of failure.

In order to understand how the system can be stabilized even in the presence of rising security costs and therefore a rising tax burden, it will be necessary to have a theory about the conditions under which rising taxation produces social resistance and those under which it doesn’t. This is the question that Petty sets out to answer, and it’s this question that posits the initial framework under which the development of the labor-Value concept gets underway. His answer is that social resistance to taxation is a function not of the absolute magnitude of taxation, but rather of positional inequality with respect to tax exposure: “Let the tax never be so great, if it be proportionable unto all, then no man suffers the loss of any Riches by it” (32). Petty here is drawing on an axiom, previously asserted, that “all men would be no poorer then now they are if they should lose half their Estates; nor would they be a whit the richer if the same were doubled, the Ratio formalis of Riches lying rather in proportion than in quantity” (26). His point here depends on the Hobbesian idea that the value of money is power over others: if everyone loses money proportionately, then their power relations vis-a-vis one another might remain invariant even across a change of nominal wealth. And if their power relations vis-a-vis one another are really all they care about, then they might be indifferent to taxation as long as everyone is taxed proportionately.

3. In Search of Parity

It is for the purpose of trying to create a theory of “just tax incidence” that Petty postulates the necessity of discovering a “natural Par” between “Land and Labour.” Over the course of these passages Petty writes a number of things later excerpted by Marx as evidence of a “somewhat confused” theory of the labor-Value concept. Whatever his confusions, says Marx, Petty “determines the value of commodities by the comparative quantity of labor they contain” (TSV i.355-6). But while Marx means this as a compliment, it’s a serious misreading of Petty. As I will show, Marx simply failed to notice that when Petty opposed “Land” to “Labour,” what he meant by the latter term was actually “capital.” In other words, when Petty talked about “the Labourer,” he did in fact mean a working person paid a wage, but when he talked about “Labour,” he meant their employer (c.f. Locke: “the Grass my Horse has bit; the Turfs my Servant has cut…”, Second Treatise, Ch. 5, par. 28). It is only when we read Petty in this way that we can make sense of his numerical examples, and if we read him in this way he no longer appears confused.

Petty begins this analysis at Chapter 4, paragraph 13 of the “Treatise on Taxes” when he considers land as a revenue-producing asset and then goes on to define that revenue in terms of corn: “Suppose,” he says, “a man could with his own hands plant a certain scope of Land… and had withal Seed... when this man hath subducted his seed out of the proceed of his Harvest, and also, what himself hath both eaten and given to others in exchange for Clothes, and other Natural necessaries; that the remainder of Corn is the natural and true Rent of the Land for that year.” Having defined land as an asset throwing off a stream of corn, Petty then proceeds to another question: what is the value of this corn-revenue in money terms?: “I answer, so much as the money, which another single man can save, within the same time, over and above his expence, if he imployed himself wholly to produce and make it; viz. Let another man go travel into a Countrey where is Silver, there Dig it, Refine it, bring it to the same place where the other man planted his Corn ; Coyne it, &c. the same person, all the while of his working for Silver, gathering also food for his necessary livelihood, and procuring himself covering, &c. I say, the Silver of the one, must be esteemed of equal value with the Corn of the other.”

The reader who has gone looking for a labor-Value concept can squint at this passage and try to find one there: we might try to imagine that Petty is saying something along the lines that the “Value” of the rent is produced by the labor that went into growing the corn, and the “Value” of the silver is produced by the labor that went into collecting the silver, and that these Values must somehow be equal because they both embody one labor-year of spent effort. This seems to be how Marx read it. Given this interpretation, however, what Petty is saying here is totally nonsensical, because of the fact that land — as Petty, the prolific real estate investor, knew well — has a price. But given the labor-Value reading of Petty’s example, it’s impossible to explain why land should have a price at all: if a man could simply go to Peru and dig up some silver for the same return on his efforts that he would receive if he were to buy a farm back home and labor on it, then why would he pay for the farm? The chauvinistic bent of modern commentary is content to resolve this problem by ignoring it or assuming that William Petty was simply confused, in order to preserve the standard interpretation of Petty as having a theory with only two “factors of production” (labor and land) and thus lacking the additional, “modern” factor of “capital.”

But Petty’s theory here is in fact not a theory of labor-Value at all, but a theory in which the relative values of products in different sectors are commensurated by the assumption of an equal rate of return on capital: his “single man” is not a laborer but rather an investor of capital, and, given this reading, his example makes sense. What Petty is really saying is that the relative values of silver and corn must be such that, for a given amount of capital, an investor in land and an investor in overseas trade must generate the same rate of return, after subtracting the costs of wages and seed. This obviously sensible interpretation of Petty has been obscured purely on the basis that his commentators wish to read him as describing a “pre-capitalist” economy, and because of their wish to see him at the origin of the labor-Value concept, in the specific sense of a concept according to which products somehow “embody” some “Value” created by labor, or at least according to which (changes in) the relative prices of commodities tend to be determined by (changes in) the amounts of labor required to produce them. But Petty is not concerned with any of this: what’s he’s concerned with is the problem of what we would now call capital asset pricing, or the question of how to compare the values of assets against the revenue streams these assets generate.

Not only does Petty’s statement make more sense, in the abstract, than later commentators are inclined to grant him, it also has a specific contextual purpose within the debates over taxation after the Restoration of Charles Stuart. The pre-Civil War fiscal structure of the English crown was based upon the distinction between indirect, ordinary taxation and direct, extraordinary taxation requiring the approval of Parliament. The attempt, at the Restoration, to put the constitution back on these foundations proved unsuccessful: although Charles had been granted a yearly revenue by Parliament, the indirect taxes earmarked for this purpose failed to raise sufficient sums, and there ensued a search for new forms of revenue — among them a tax on hearths (which could be assessed without violating the privacy of the household, simply by counting chimneys) established in the same year as the writing of Petty’s Treatise. In the following year, 1663, the government turned once again to direct taxation, and attempted to resurrect the subsidy, the hallmark of English public finance since the 14th century. This tax, also known as the “tenths and fifteenths,” was theoretically a tax on moveable goods at a rate of 1/10 in the towns and 1/15 in the country. In principle, this was simple: it meant that the King should receive one out of every fifteen bushels of corn (etc.) at harvest time, and one out of every ten barrels of wine (etc.) in town. By the middle of the sixteenth century, however, the system had fallen into disarray based upon the political difficulty of accurately assessing property: “the requirement that commissioners should make their return under oath was dropped in 1563. From 1566 individuals assessed themselves for tax purposes, and the Book of Rates… became stereotyped and hopelessly outdated,” and when, in 1663, the Restoration government attempted to revive the tax, it found it to be more trouble than it was worth (Beckett, op. cit.).

With the attempt to reconstruct the fiscal ancien regime unworkable, the government had no choice but to work with the tools that the Commonwealth had left it: the Monthly Assessment. This was a tax assessed at the county level, which was supposedly a flat rate tax on all wealth: “lands, tenements, hereditaments, annuities, rents, parks, warrens, goods, chattels, merchandizes, offices, toll profits, and all other Estates both real and personal… Despite such terminology contemporaries referred to the Monthly Assessments as land taxes” (Beckett). The difference between the assessment and the subsidy was thus, first of all, that the central government abandoned the attempt to manage or enforce household-level assessment itself, and instead devolved this responsibility upon local elites in the counties. Doing so obliterated the distinction that had existed in the subsidy between urban and rural sectors of the economy, taxed at different rates, and it seems that, in practice if not in theory, the burden of the Assessment fell mainly on landed wealth. This shifting of the tax burden to land was a legacy of the ascendancy of commercial elites during the Commonwealth; now, the question was how it was to be reconciled with the restoration of the King.

The point, for Petty, of intervening into this debate was to present an argument for why Parliament should shift taxes away from land onto “labour” (by which he actually meant capital in the sense of urban commercial interests), and, in addition, when land *was* taxed, should shift the tax burden away from marginal lands and on to real estate in the core. In order to make this argument, he needed to introduce the theory of capitalized value into the debate: to introduce the idea that the correct object of taxation was not revenue streams, whether in kind or in money, but rather the capitalized value of those revenue streams discounted into the present. To begin making this argument, Petty first had to consider two kinds of assets — a landed interest and a commercial interest — each of which throws off a revenue stream of heterogeneous type: land throws of corn, while commerce throw off money. In order to compare these things, it becomes necessary to ask: what is it that you really want, when you invest your capital into overseas commerce, investing money as money in order to gain more money? What happens when you bring your money home to England, and how much is it worth?

The problem is that neither the nominal nor the intrinsic value of money itself seem to be a sufficient measuring stick for commensurating Value across time, since the metal-value of the unit of account and the exchange-value of the metal itself are both known to vary. The power theory of Value, Petty suggests, along with a bit of political arithmetic, can answer this question, by simply measuring the total money supply per capita and dividing it by the price of wages: “if all the money in the Nation were equally divided amongst all the people both then and now, that that time wherein each Devisee had wherewith to hire most labourers, was the richer” (ch.5, par.12). As phrased, of course, this scenario is incoherent, because it abstracts away from the class difference between the sellers and purchasers of labor: if everyone has the same amount of money, which of them are to be the servants? Here, Petty attempts to explain the value of money as a positional good, and, in order to measure it quantitatively, does so by means of a scenario that assumes positionality away by distributing an equal endowment of money. Leaving this fallacy of composition aside, we can nevertheless grasp the point of what Petty is saying: that the returns on foreign investment or export-sector profits are, when valued in terms of their ability to command domestic labor, relative in the sense that everyone who receives such revenues is competing with one another for the same pool of labor available for hire in the non-agricultural sector.

This leads Petty to the conclusion that the class of national investors can, in aggregate, receive a net surplus of real-terms monetary profits only insofar as there exists, alongside money, an increasing supply of corn available to feed an increasing population of non-agricultural laborers (thus, we can see that Petty actually has a corn-theory of Value, and not a labor-theory at all). Given the additional assumption that the ultimate aim of the investing class is to hire servants in London, this poses a problem: the transport cost of grain. As the population available to be hired as servants in London grows, the logistical network supplying the city with corn must become more spatially expansive: “if the said five Shires did already produce as much Commodity, as was by all endeavour was possible; then what is wanting must be brought from a far, and that which is near, advanced in price accordingly” (Ch. 5, par. 14). To put it in anachronistic language that nevertheless adequately expresses Petty’s point, the marginal farm available to be brought into the City’s logistics network will also have a marginally higher transport cost for bringing its produce to market, with the result that farms with identical “intrinsick” values (corn surplus per acre) might nevertheless have different “extrinsick or acidentall” values (net money rents) depending on their spatial location.

By means of the distinction between intrinsic and extrinsic value of land, Petty introduces the assumption of marginally declining net-revenues for agricultural land. But this alone would not be sufficient for his argument. Thus Petty postulates in addition to this a marginally declining rate of capitalization: land, he explains, sells for a higher “years-purchase” in the core (on account of “special honour, pleasure, priviledge or jurisdiction”) and at a lower “years-purchase” in the periphery, such as in Ireland, on account of factors such as “frequent Rebellions,” legal insecurity, and underpopulation (Ch. 4, par. 22-27).

Put together, Petty’s theoretical framework has two important practical implications for tax policy. The first is that, if the urban commercial interests should try to push the burden of taxation off of themselves and onto the agricultural sector (as they did during the Commonwealth), then they would in reality only be attracting more investment into a zero-sum competition with themselves: no matter how much of a return in money-terms they made for themselves, they would simply be inflating away the real value of these returns by competing for the same pool of available servants. The second implication is that, if taxes on the revenues of the agricultural sector were set as a percentage of rents, then this would effectively shift the burden of taxation away from core lands and onto peripheral lands, discouraging investment into bringing new peripheral lands into the logistical network feeding London. If, on the other hand, taxes were assessed according to capitalized value, then they would be appropriated calibrated to the true worth of each tax payer, and avoid introducing any such “distortions” — distortions that would both provoke dissatisfaction with the regime, on the one hand, and impede the pursuit of what, on Petty’s view, everyone should really want: a larger available pool of non-agricultural labor.

Such a tax regime, Petty suggests, would even throw off what we would now call a positive externality by improving the ability of the London credit markets to accurately assess everyone’s creditworthiness: “Credit every where, but chiefly in London, being become a meer conceit, that a man is responsible or not, without any certain knowledge of his Wealth or true Estate… Whereas I think… the way of knowing his Estate being to be made certain, and the way of making him pay what he owes to the utmost of his ability, being to be expected from the good execution of our Laws… if every mans Estate could be alwayes read in his forehead, our Trade would much be advanced thereby” (Ch 5. par. 17-18). In other words, Petty suggests, the same empirical project of information-gathering that would allow tax assessments to accurately reflect the capitalized value of wealth would also enable that wealth to more effectively collateralize credit: to the benefit of society at large.

To summarize: William Petty has been deeply misunderstood by the literature in the history of economic thought, beginning with a confusion probably stemming from Marx himself that sought to find in Petty’s writing an embryonic form of the labor-Value concept. From this perspective, Petty’s numerical examples are incoherent, and one can only dismiss him as confused. But in reality, Petty does not have any labor-Value concept, in the sense of a concept of the Value of commodities being somehow determined by the amount of labor it took to produce them. Instead, he has a theory of capitalization-rate parity (adjusted for risk), and a labor-commanded theory of the real value of money, which (combined with the assumption that wages are held at metabolic subsistence) amounts to a corn-theory of Value rather than a labor-theory.

4. Commercial Realism

As we have seen, William Petty’s economic thought was basically oriented around the problem space of a domestic balance of economic power in the context of a factional dispute between landed and commercial classes over the distribution of the tax burden. His intervention into this dispute revolved around two fundamental concepts: capitalized value, on the one hand, and a Hobbesian “power theory of value” according to which the “real” value of money could be given by a comparison to the price of domestic labor. The upshot of this argument was directed at the commercial classes and sought to convince them that their efforts to shift the tax burden away from themselves and onto (marginal) landholders like Petty were in fact self-defeating, since the effect was to discourage precisely those investments into an increased supply of food that would make it possible for their overseas commercial profits to translate into increased real wealth at home.

Petty’s primary question is thus a political one: how should wealth be assessed and measured for the purposes of administering taxation? But in order to answer this question, he has to introduce another question, for the purposes of supplying his premise: what is the “real” value of money? Petty’s problem space is thus given to him by his own interests as an investor in “marginal” Irish land and by an anxiety about the “real” value of money. For this reason, Petty can indeed by read as the foundational thinker for economic thought, but for different reasons than those given by Marx. Economics, as a problem space for thought, becomes possible when it begins to be able to be taken for granted that money itself is not and cannot be the goal of economic activity. Money is worthless “in-itself,” because its value is purely positional; the power of the money held by any one person is relative to the power of the money held by others. Thus, money becomes a mere sign whose referent is in need of theoretical explanation: once this referent is given, we can look through money at what it really represents, which will enable us to defuse conflicts that threaten to become zero-sum games within the political body itself and redirect those energies towards the pursuit of some absolute good (“what we all want”).

Unfortunately, Petty’s “power theory of value” involves a fallacy of composition: how much labor could each man command with his money, if each man had an equal share of the total domestic monetary supply? Since the answer to this question, as posed, is obviously “zero,” Petty’s solution to the problem involves an implicit separation of the population into subjects and objects of monetary wealth, without any grounding for the distinction. In Petty’s theory, the laboring population itself provides the real basis of monetary value, and can be assessed as though it were a form of capitalized wealth: in other words, there is nothing in Petty’s theory to distinguish the English working class from slaves. Indeed, the analogy that he wants to draw in order to establish the possibility of a parity between land and labor implies exactly this: that the laboring population just is the “wealth” of the commercial classes in a way that is strictly analogous to the way that the land is the wealth of the landed classes. Furthermore, Petty’s theory involves the assumption that there exists land at the margin available for investment — an assumption that sits uneasily with his pronouncements against the advisability of foreign military adventures.

For these reasons, Petty’s attempts to formulate a concept of non-positional economic value are haunted by two remainders of positionality, both of which are seized on by Richard Cantillon in his critical rejoinder to and elaboration of Petty’s theoretical framework. The first remainder is Petty’s assumption that a country might pursue a form of “absolute” economic value by focusing its efforts on enlarging the available supply of non-agricultural labor: an assumption that begs the question of who hires the servants and who does the serving. Against this, Cantillon observes that free labor cannot be capitalized. He points out, against Petty, that the corn-wage must be determined not only by the metabolic upkeep of the worker himself, but also by the metabolic costs of replacing the labor force: the worker must make enough to feed his family and replace himself. In a slave system, Cantillon points out, the slave-owner can capitalize the value of the laboring population, because he can sell off excess labor force as a capital good — an option not available to an employer of free laborers: "it will always be more profitable for the owner to maintain his slaves than to maintain free peasants, because when he has raised too many slaves for his requirements, he can sell the surplus, as he does his cattle, and obtain for them a price proportionate to what he has spent in rearing them” (I.xi, p 61). In saying this, Cantillon eliminates the assumption that Petty wanted to smuggle in when he assumed that the real value of money could be given by comparison to the wage: an assumption that elides the difference between free workers and slaves and ignores the fact that free workers are themselves the owners of the capitalized value of their labor. Recognizing this fact makes the wage-rate itself a positional rather than an absolute value, at which point it can no longer serve as the reference rate by means of which other positional values can be re-described in absolute terms.

Having rejected this Pettian assumption, Cantillon proposes his own resolution of the matter by rejecting another: the assumption that there exists marginal land at the frontier available for investment. Cantillon was perhaps especially predisposed to insist on this point against Petty as a result of the fact that he was himself descended from a family of landholders in Ireland who had been dispossessed by the New Model Army — some of whose lands may very well have ended up in the hands of Petty himself. Thus, for Cantillon, territorial expansion itself could only be a zero-sum game between competing national states. This restriction allows Cantillon to theorize something that Petty had mostly ignored: the balance of economic power between, rather than within, national political units. His point, basically, is to theorize international exchange of goods as effectively equivalent to a swap of land between two countries: if France exports wine from Champagne and imports lace from Belgium, then we can imagine that this situation is equivalent to France trading the land on which the grapes are grown for the land used to grow the flax (plus the land needed to feed the laborers in each case) (I.xv, 89-90). According to Cantillon, this is the principle on which the relative advantage or disadvantage of international commerce should be judged: if a country gives up the products of a large amount of land in order to buy the products of a smaller amount of land, then it will, in general, be on the losing side of the trade.

Cantillon’s concern is understandable given his French audience in a context of anxiety about losing out relative to more commercially and industrially developed nations in the Low Countries (a concern shared by the English thinkers), and it contains the kernel of what we might now call “dependency” or “world-systems” theory: that there exists some kind of asymmetry of exchange relations between countries that export primary products and those that import them, with the former generally losing out to the latter, even — and this is crucial — in the condition that the bilateral trade balance is zero, such that the entire business can be carried out via bills of exchange rather than specie flow. In the example Cantillon hypothesizes — that France is exporting agricultural goods in exchange for Belgian luxuries — it is as though the fields used to produce the wine were really in Belgium, while the fields used to produce the luxuries were really in France. Cantillon’s argument is that, since the land being used for export goods in France is much larger, it’s as though France had ceded lands to Belgium. Cantillon thus reframes a debate about trade as a debate about territory, and thereby explains the seeming paradox that played such a role in early modern economic thought: how could it be that a small mercantile city could prove more powerful on the world stage than a large territorial monarchy? Cantillon answers this by arguing that, while the city only seems small, in reality much of the territory of the monarchy lay within the commercial city’s economic sphere of influence even if not under its nominal political control. In doing so, he frames commerce as an extension of conquest by other means.

5. Not Only the Par, but Also the Spread

When Petty attempted to establish a par between land (an asset allowing an investment of corn to produce a surplus of corn) and labor (an asset allowing an investment in money to produce a surplus of money), he could do so only by assuming that the real value of money could be given by the price of corn and the corn-price of labor (a corn-and-thus-labor-commanded concept of real Value). Making this assumption required him to assume that everyone who mattered was short labor in the sense of wanting to buy more of it: that everyone, in other words, was a member of the class that owned assets and hired servants. This assumption effectively excised the English working population from the social body and made them discursively indistinguishable from slaves, whose capitalized labor was directly encoded as an asset.

Cantillon, by contrast, in recognizing the freedom of the laborer, had to admit that there existed within the social body those who were long the price of labor in the sense of having it and wanting to sell it, and who might therefore drive up the metabolic price of labor (or the “real standard of living”) in a country whenever they were in a position of power vis-a-vis other social classes that enabled them to do so. In a free society, the asset that was labor could be assumed to be owned by the person whose labor it was, with the consequence that land and only land could serve the purpose of a reference asset in terms of which other assets (including the “virtual” asset composed of a commercial firm as a going concern) could be priced. This meant that the value of labor and incomes accruing to labor would have to be reduced to, or re-described in terms of, land.

It was from this starting point that Cantillon introduced into economics a concept that was not yet present in Petty, and which was the true basis of the so-called “labor theory of Value”: a theory of Value as an embodied substance that was the “congealed” result of the production process across the entire vertical production hierarchy from raw materials to finished goods. Introducing this theory was Cantillon’s way of making good on his promise to correct Petty’s shortcomings; Petty, according to Cantillon, although he “considers this par between land and labor as the most important consideration in political arithmetic,” nevertheless failed to ground his science on the basis of “natural laws because he has attached himself, not to causes and principles, but only to effects, as Mr. Locke, Mr. Davenant, and all other English authors who have written on this subject, have done after him” (I.xi, 64-65).

What Cantillon meant by this was that Petty had simply assumed that the rate of capitalization should be the same between the agricultural and commercial sectors in aggregate: that the average rate of capitalization for urban commercial wealth should be identical to the rate of capitalization of the average farm, which was neither over-capitalized as a result of proximity to the core nor under-capitalized as a result of its marginal insecurity. Cantillon, by contrast, believed himself to have produced a theory that could explain why the rate of capitalization in the two sectors might vary, both within a country over time and between countries across space, as an aspect of a cyclical phenomenon that could and should become the object of manipulation by state policy. Cantillon thus attempted to do something that had not been a concern of Petty: describe the economic system in dynamical terms, as possessed of “laws of motion” that might be understood and consciously altered by state policy.

How did the introduction of an embodied-Value concept enable Cantillon to do this? It allowed him to side-step the problem that, within a closed economy and assuming a population of free labor, the relative value of land and labor could not be anything other than an arbitrarily given result of a positional struggle between social factions. Instead, he could now describe the relative value of land and labor within a given country as a function of that country’s position within a hierarchy of international trade. Doing so allowed him to banish any lingering positional values into the foreign sector: sure, Cantillon admitted, there is something about the framing of the economic problem space that makes it impossible to banish positional values entirely from the analysis, but this merely implies that it should be the object of economic policy to make sure that positional conflicts take place between different national economies rather than being allowed to “leak” into the interior of the domestic social body. What really matters about the relative values of land and labor, he insists, is not the relationship between *our* land and *our* labor, but between *our* labor and *their* land. And since *our* labor can really be described in terms of the products of the land that constitute the costs of that labor, ultimately it all boils down to a spread between the differing values of land in different countries. And the goal is to sell the products of our land dearly and buy the products of theirs for cheap.

Cantillon is able to describe things in this way because he now has two different concepts of Value operating at once, and is therefore now able to describe one thing as having two different real prices according to the different measures. One is a Value-commanded theory: the value of an exported commodity is given by the amount of *their* land we can incorporate into *our* “virtual” territory by exporting it. The other is a Value-embodied theory: the value of an exported commodity is given by the amount of *our* land whose metabolic substance it embodies. Since both of these different values are denominated in the same units, they can be directly compared to one another: if a commodity embodying one standard-European-acre of value is traded for a commodity embodying two standard-European-acres of value, then the country exporting the first commodity is the winner; even, and this is the really crucial point, if the money-prices of the two commodities are the same and thus the balance of trade in monetary terms sums to zero. In this way, Cantillon reduces the question of a par between land and labor within a country to the question of a spread between the value of land in different countries.

6. The Rise (and Rise) and Fall

Cantillon’s theory thus provides a clear formulation of the goal of economic policy in a such a way that it could be achieved even in the absence of a positive trade balance or current account surplus, and while avoiding the implication of any purely positional or zero-sum struggle within the social body: the point was to incorporate, through commercial exchange, more “virtual” territory into the sphere of your economic influence than you allowed to be incorporated into that of rival powers. The goal had to be formulated in this way in order to side-step the puzzling fate of the Spanish Empire, whose fabulous American treasure had catapulted it to a position of European dominance only to seemingly abandon it to “decline” and defeat at the hands of some tiny, upstart provinces. Thus, to thinkers in the 16th and 17th centuries, it was increasingly clear that, although a scarcity of money within a state was certainly a bad thing, an “abundance” of money was not necessarily a good thing either. Rather, additional conditions would have to be supplied that explained the difference between what might otherwise be two indistinguishable states of affairs: that in which there was more money, which was a good thing, and that in which there was more money but it wasn’t.

Despite the differences between Petty and Cantillon, therefore, what unites their paradigm is the shared problem of how to explain what money “really is” in such a way as to dispel the illusion that the accumulation of money *as such* is a rational end of public policy. In other words, they both sought to explain why it was not a surplus of money itself that ought to be accumulated, but rather a surplus of that which makes it possible for there to be more money in “real” terms. Petty, who conceived of the foreign sector purely as an imaginary Peru where monetary investments produced monetary revenues, or as an all-too-real Ireland where additional land was available “for free”, had merely assumed that the domestic economy might be indifferent to absolute increases in the money supply: everyone could have more money without anyone thereby being better off. Cantillon went further by assuming that an absolute increase in the money supply might actually be bad for a country, as illustrated by the case of Spain and figured by the trope of “luxury”: “Merchants are the first to make their fortunes, then the lawyers may get part of it, the prince and tax collectors get a share at the expense of all the others, and distribute their graces as they please. When money becomes too plentiful in the state, luxury will follow and the state will fall into poverty… This is roughly the cycle that may be experienced by a large state which has both capital and industrious inhabitants. A talented public administrator is always able to begin the cycle over again” (II.viii).

Cantillon’s problem is to explain how a country can ascend the global value hierarchy — by “virtually” swapping less of its land for more of others’ land — without thereby making its products “uncompetitive” on global markets and thus initiating the falling half of the cycle into luxury and poverty. In making this argument, Cantillon wishes to avoid making the claim that high prices for land or high wages are, themselves, the cause of decline: indeed, having a lot of money in the state, and therefore having high prices, is seen as desirable, since if French land and labor is expensive then it will trade at a favorable ratio for the (virtual) land and labor being imported from abroad. The whole point is to sell expensive French stuff for cheap foreign stuff! In order to avoid this, Cantillon formulates a theory of what we now call the “business cycle” as being produced by the dynamics of an investor life cycle.

In order to illustrate the cycle, he first considers the “Spanish” case in which a country creates more money by simply digging it out of the earth. Cantillon argues that, in this case, the increased money supply will produce distributional conflict within the country, as the “entrepreneurs, the smelters, refiners, and all the other workers” will have more money and consequently seek to improve their living standards. In doing so, they will bid up the price of “meat, wine, or beer… better clothes… finer linens… and other desirable goods.” Those who “suffer from these high prices” will be “first of all, the property owners, during the term of their leases, then their domestic servants.” The rising prices of non-subsistence goods, he suggests, will prompt the property owners to retrench by downsizing their households and perhaps even emigrating from the country. As the introduction of new money continues there will ensure an open ended distributional struggle as landlords raise their rents upon the expiration of the leases, at which point they will re-hire their servants, which will force “artisans and manufacturers” to raise their prices in an attempt to keep up with the rising cost of living. All of this will lead the country to ruin as its value-added exports decline in competitiveness on the export market.

He then moves on to consider a slightly different scenario: one in which the increase of money in the state derives from a positive net trade balance: “the annual increase of money… will gradually increase the consumption… and raise the price of land and labor. But the industrious people who are eager to acquire property will not at first increase their expenditures. They will wait until they have accumulated a large sum from which they can draw a secure interest income… Once a large number… have acquired considerable fortunes from this money… they will not fail to increase their consumption and raise the price of everything.” This process “will not fail to increase consumption, raise the price of everything…. Unless additional products are drawn from abroad” (II.vi). Basically, Cantillon imagines that it is the goal of the entrepreneurs to cease being entrepreneurs and become rentiers instead, by plowing their profits from foreign trade into a portfolio of landed (or financial) investments. There is thus a “virtuous” and a “vicious” phase of the life cycle of the entrepreneur, such that, in the first phase, their net profits are potentially non-inflationary, while, in the second phase, their profits-become-rents can continue to be non-inflationary only insofar as the trade surplus was accompanied by a net increase in the state’s “virtual” territory or sphere of economic influence.

There are a number of consequences of this model. One is that a state cannot become rich, even by running a trade surplus, if this trade surplus is derived from the export of primary sector products. It is not the size of the trade surplus denominated in money that matters in the long run, but its size denominated in land (which may be positive or negative even when the monetary balance of trade is zero). Another consequence is that the state ought to pursue, as a policy objective, the prolongation of the “virtuous” half of the cycle and the attenuation of the “vicious” half. Cantillon’s recommendation — and here he departs decisively from the problem space of William Petty — is that the state ought to engage in an interventionist fiscal policy, whose goal is not simply to fund the “publick charge,” but rather to manage and stabilize what would otherwise be an autonomous (and inter-generational) economic process of the accumulation of wealth and the collapse into decadence: “When a state expands by trade, and the abundance of money raises the price of land and labor, the prince or the legislator ought to withdraw money from circulation, keep it for emergencies, and try to slow down its circulation by every means, except compulsion and bad faith, to prevent its goods from becoming too expensive and avoid the drawbacks of luxury… However it is not easy to perceive the opportune time for this, or to know when money has become more abundant than it ought to be… Therefore, princes and heads of republics do not concern themselves much with this sort of knowledge and strive only to make use of the abundance of their state revenues… leaving monuments of their power and wealth is perhaps the best they can do because according to the natural course of humanity, the state must collapse on its own, they only accelerate its fall a little. Nevertheless, it seems that they should try to make their power last during the time of their own administration” (II.viii).

Cantillon turns Petty on his head: rather than seeking to understand the structure of the economy in order to maximize potentially taxable revenues for the state, Cantillon seeks to understand the structure of the economy in order to make use of the fiscal system as a “lever” for economic policy. In Petty, taxation was the object of the economy: one analyzed the economy in order to understand the conditions of possibility for taxation. In order to do so he postulated the existence of an ideal tax function under which taxation could be set at any arbitrarily desired level without affecting the domestic balance of economic power. For Cantillon it is the other way around: the economy has become the object of taxation, in the sense that the point of analyzing the economy is to understand how it responds to changes in the taxation function, so that taxation can be used in order to manipulate the economy in the service of a rational geopolitical-commercial policy program that could resist succumbing to the “money illusion” in preference for keeping its eye on what actually matters: strategic control of the metabolic basis of all wealth. Such a theory is necessary because, unlike Petty, Cantillon has a concept of “the economy” as existing in a state of endogenous disequilibrium: an aperiodic cycle (whose timing is “not easy to perceive”) that would, left to its own devices, merely condemn a state to a perpetual oscillation between an illusion of wealth inevitably followed by the realization of poverty.

7. The Discovery of Growth

The problem space of economic thought shifted again in the later 18th century with the “discovery” of the idea of what we now call “growth”: a positive sum dynamic according to which, by means of the accumulation of capital, everyone could get richer without having to take something away from somebody else (as Petty had, more or less literally, taken away the lands of Cantillon). It will not surprise anyone to hear that they generally framed the conditions of possibility of this positive-sum consumption trajectory as lying in the accumulation of productivity-enhancing industrial capital. The notion that the average prevailing consumption standards had been rising and might be expected to continue to rise was perhaps introduced into the conceptual matrix of economics by Hume, who posed the “curious question of the American inflation” — namely, why the price level did not seem to have changed nearly as much as his calculations of the volume of imported precious metals from the Americas seemed to suggest that they should have: “By the most exact computations, that have been formed all over EUROPE, after making allowance for the alteration in the numerary value or the denomination, it is found, that the prices of all things have only risen three, or at most, four times, since the discovery of the WEST INDIES. But will any one assert, that there is not much more than four times the coin in EUROPE?” He goes on to suggest that the European countries “bring home about six millions a year, of which not above a third part goes to the EAST INDIES. This sum alone, in ten years, would probably double the ancient stock of money in EUROPE. And no other satisfactory reason can be given, why all prices have not risen to a much more exorbitant height, except that which is derived from a change of customs and manners” (“Of Money”).

Hume begins by inverting the empirical puzzle faced by Petty and Cantillon. These earlier thinkers had begun with the problem that what appeared like a “national income” in monetary terms might be merely nominal rather than real: that what appeared to be an increase in wealth, analyzed in terms of money, might disappear when properly analyzed in terms of some other fundamental denominator. Hume begins with the opposite problem: that an astonishing increase in aggregate monetary profits might be even realer than we have a right to expect, in the sense that everyone has somehow been able to accumulate more money without that increase being erased by inflation. The only explanation (Hume suggests, without making any real argument for the proposition) is that this situation could only be possible if it were the product of a “change of customs and manners,” but which he meant simply what we would now call a generally rising standard of consumption.

Hume, using a basket of concepts that are mostly familiar from Petty and Cantillon (plus his own postulation of a “causal time lag” allowing fiscal-monetary policy to be effective in the short run while remaining neutral in the long run) is concerned to argue on the basis of this analysis that the policy of the monetary authority should be focused not on the absolute quantity of money in the country, but rather on its rate of change or first derivative: the rate of growth of the monetary supply that would optimally promote a concomitant growth in the “real” magnitude of the consumption basket denominating the value of money. Hume is thus a transition point in the paradigm shift that separates Smith and Ricardo from Petty and Cantillon: from the analysis of the interface between wealth and taxation not in terms of absolute magnitudes, but rather in terms of rates of growth.

This shift of paradigm raised a problem: rates of growth… of what? This question intensified the earlier problem of the “natural par” because it was no longer a problem about how to measure a ratio between one thing and another — a ratio between the value of different classes of wealth — but a problem about how to measure something in relation to itself. But what would it mean to measure the rate of change of a thing, in relation to itself, if the very fact of its change should imply an alteration of its efficacy as a measure?

At its heart — and this is what we’ve learned from our review of Petty and Cantillon — the metaphysical question about the nature of “capital” is really a question about whether “wealth” is an absolute or a positional good. In other words, is “wealth” something substantial, a Thing that one consumes and enjoys, or is it rather something relative: something derives its value from the fact that one person has more of it than another? Ultimately, it is difficult to come down on one side or another about the question: it does not seem possible to reduce “wealth” entirely to one or the other. It seems that “wealth” is a site of indecision about the difference between absolute and positional value: thinkers like Petty and Cantillon inaugurated the discourse of economics by trying to draw the line between them, to say that one thing (money) was merely positional, in order to say, by contrast, that something else (land, or labor) was actually real. But even these “real” measures have a troubling tendency to resolve themselves into positional ones: what sustains the appetite of the London commercial classes to hire more and more servants, if not to compete with one another in doing so? And what sustains the desire of a country to dominate more and more “virtual” territory, if not the pursuit of an advantageous geopolitical position vis-a-vis its rivals?

What, in the end, is wealth actually for? This is a question that, within the Western tradition, goes back at least to Plato’s Republic, but in the 18th century it was supplied with a new answer: the purpose of the accumulation of wealth, even in private hands, was to serve the ends of society in general by increasing everyone’s standard of living and thereby liberating humanity from the metabolic constraints previously imposed by nature. This new answer was made possible because of a growing focus on investments into “productivity enhancing capital” that would make it possible for wealth to increase even if the absolute magnitude of available labor and land were held constant: a scenario that was (mostly) beyond the problem space explored by Petty and Cantillon. It was this conceptual innovation that made it possible to conceive of “economics” as a sphere of inquiry able to be investigated in a way that was completely disarticulated from “politics,” whether foreign or domestic: a positive-sum game of unleashing humanity’s “productive powers,” rather than a zero-sum game of jockeying for relative position within a country or between countries.

In the trajectory of thought moving away from Petty, through Cantillon, and towards Smith, we can thus observe a certain thematic movement that might even be described as “dialectical”: first, there is the unmasking of a zero-sum struggle for relative position beneath the appearance of a positive value, and then there is the resolution of the struggle by the externalization of a new, non-rivalrous absolute object. Petty begins by unmasking a positive surplus of money, which might otherwise have been thought of as an absolute good, as merely a relative good: a derivative on an absolute supply of domestic labor. This allows him to argue that the goal of policy should be to encourage the incorporation of land at the margins of a country’s logistics network. Cantillon’s move, after this, is to reject the assumption that there exists “new” land at the margin in favor of the assumption that land gained by one country must be lost by another. This “re-relativizes” Petty by resolving an “absolute” surplus of land into a relative surplus between competing economic powers, each of whom is striving to dominate the others’ territory by exploiting a spread in the embodied-Value terms-of-trade between one country and another.

In turn, the later 18th and 19th century thinkers “re-absolutized” Cantillon by relaxing the assumption of a relatively fixed rates of productivity and thus postulating “capital” as a third social class truly distinct from both land and labor. As I argued above, when Petty talked about “labor,” what he really meant was “capital” (as is evident from the analysis of his examples, in which what we would would now call “labor” is simply assumed away), but all he really meant by this was a sum of money invested into producing revenues of money, via some interaction with a rather nebulously defined foreign sector. Cantillon’s retort to Petty was that there were no free goods in the foreign sector available for the taking, but only a real-political competition by means of either direct conquest or indirect economic domination. The 18th century English economic thinkers, by contrast, wished to avoid the implication that the growth of wealth could only come at the expense of a foreign rival, but also wished to avoid the implication that workers were really just slaves; and they avoided both by postulating capital as a third term in the economic matrix, a kind of holy ghost of the factors-of-production trinity possessed with the remarkable ability to generate more of itself, out of itself, without this surplus coming at a cost to anyone else. Capital, unlike land and labor, was imagined as being a classification of wealth whose growth might be unconstrained by any relation to the other two, as the growth of labor had previously been understood to be constrained by the supply of land, and the supply of land in turn constrained by the finitude of the earth.

This conceptual distinction transformed a two-class theory into a three-class theory. No longer was the economic household of the country divided into town and country, between “labor” and “land,” but into wages, rents, and profits and their respective social classes: workers, landlords, and capitalists. Thus, the discovery of growth and the invention of capital in economic thought is not simply the introduction of a new term into a deficient schema, but rather a reorganization of the entire conceptual matrix: a reorganization that allowed these thinkers to explain how investment could be characterized as a non-zero-sum interaction productive of real returns measured in terms of some absolute magnitude of Value. But while the positing of the conceptual category of capital answered the question of “what” it was that might experience open-ended absolute growth, it did not solve the problem of the units that growth was to be measured in. These units, it was felt, could not be measured by simply comparing capital to itself: doing so would pose difficult questions about the difference between capital invested and money lent at interest that would simply lead economics back to Petty’s original question about the conditions of possibility of real, aggregate monetary profits. This meant that the units in which capital was measured would have to be somehow derived from either land or labor. While the French thinkers tried to solve this problem by reducing Value to land, the English reduced Value to labor, instead — and it is their tradition that “won out.”

In the second part of this essay, I will turn to the history of what became of the Value-concept after the introduction of the idea of “economic growth” into the paradigm — a complication that introduces a number of arcane difficulties into the discussion. It is my hope that I may be able to complete the second half of the essay sometime in early 2024; in the meantime, I welcome comment and discussion of what I’ve managed to understand so far.

REFERENCES:

Aspromourgos, Tony. On the Origins of Classical Economics: Distribution and Value from William Petty to Adam Smith. Vol. 22, 1998.

Beckett, J. V. “Land Tax or Excise: The Levying of Taxation in Seventeenth- and Eighteenth-Century England.” The English Historical Review C, no. CCCXCV (1985): 285–308.

Cantillon, Richard. An Essay on Economic Theory: An English Translation of Richard Cantillon’s Essai Sur La Nature Du Commerce En Général. Translated by Chantal Saucier. Auburn, Ala.: Mises Institute, 2010.

McCormick, Ted. William Petty and the Ambitions of Political Arithmetic. Oxford: Oxford University Press, 2009.

Peach, Terry. “Adam Smith and the Labor Theory of (Real) Value: A Reconsideration.” History of Political Economy 41, no. 2 (June 1, 2009): 383–406.

Petty, William. Economic Writings of William Petty. Vol. 2. Cambridge: Cambridge University Press, 1899.

———. Economic Writings of William Petty. Vol. 1. Cambridge: Cambridge University Press, 1899.

This is part two of an essay considering the recent work of legal scholar Sanjukta Paul. Read the first part here. In this second part, I consider Paul’s claims about medieval guilds and medieval market regulations more generally, as well as her idea of a “moral economy.”

5. Just Prices, Wise Men

“Once upon a time,” goes the just-so story about guilds familiar from Smith and mainstream economics, “there were guilds, which were organizations basically devoted to suppressing competition and fixing prices, which was Bad, and then we got rid of the guilds and replaced them with firms and this promoted competition and that was Good.” Following the trail of her critique of Bork, Paul ends up positing an alternative just-so story in its stead: “Once upon a time there were guilds, which were organizations basically devoted to the horizontal allocation of coordination rights, and that was Good, but then we replaced them with the firm, which was Bad because it actually reduced competition by integrating many small producers into a few large firms, and, moreover, because it created an arbitrary framework within which legal regulation allocates coordination rights to firms and no-one else.” Thus, the idea of “the guild” is the guiding star of Paul’s work in that it holds out the promise of being able to recover, from within the resources of the legal tradition itself, something she refers to as “moral economy regulation.”

Paul’s first major claim about guilds relates to the “marketing offenses” in restraint of trade we considered in part 1: “Traditional market regulation,” she argues, was “steeped in the concept of ‘just price.’ Late medieval prices were traditionally administered in the context of the social institutions of markets and fairs, and in the context of craft guilds and municipal regulation, which were inherently seen as embedded in ethical relations between people.” The consequence of this was that “moral economy regulation” sought to “confine exchange to these socially managed contexts” and that “economic coordination would be evaluated in terms of whether it was a departure from these socially administered prices” (“Recovering,” 186). Paul here is arguing that prices in medieval markets were, unlike prices in modern markets, “embedded in ethical relations between people,” and that it was for this reason that market regulation sought to contain transactions within the time-space “container” of the authorized market. I have already claimed, in part 1, that Paul is wrong to think that medieval markets were characterized by stable, “customary” prices, and that the common law discourse about the “restraint of trade” had anything directly to do with a reference to such a price. We now need to consider these claims a little more carefully and try to get a firmer grasp on what exactly it meant for there to “be a price” in a medieval English market.

For economics in the tradition of Smith, there is not really a meaningful question to ask about “where” the market is, because the market is simply everywhere. In this tradition, “the market” becomes little more than the immanent substance of the social body. In part 1, we saw how Smith developed a notion of the ideal market as a situation in which no single participant was even aware of the specific existence of any other participant: there would only be a sort of direct, “I-Thou” relationship between the market participant and “the market” as a mystical whole. This is, of course, purely a fantasy, and a serious analysis of markets would have to begin by asking what it means for “a market” to exist in time and space. The first thing we have to understand about a medieval market is that it was not an immanent social substance but rather an event in time and space. Everything else depends on this one crucial axiom.

Elsewhere, I have described the question of the existence of a market in terms of the existence of a dealer market, by which I meant a place in time and space at which dealers congregate to quote “the inside spread,” thereby “making the market.” In the case of a medieval English “market,” however, we are dealing with something a bit different: indeed, the English “market” in some ways was constituted precisely by the (more-or-less successful) attempt to negate or exteriorize the dealer market, to cast the dealers out of the market or prevent them from entering in the first place. Thus, what I am going to say here represents something of a revision of the view I presented in chapter 1 of The Difference That Money Makes (although ultimately this revision is only a clarification of terminology). It’s not that what I said there was wrong: if what we care about is the pricing of money, or the pricing of assets as collateral, and thus the liquidity of “a market” in those monies or those assets, then what we mean by “a market” is the dealer market. But when we talk about “markets” in medieval England, referring to the event in time and space that contemporaries referred to by that word, we are using the same word to refer to another thing. The medieval English “market” was not a dealer market, but something else.

In relation to the dealer market, the English “market” was, in a way, incomplete. The dealer market is “complete” in the sense that, given that it exists, it will accommodate the demand to transact in either direction: one can access the market in X and receive a quoted price for either buying or selling X. That is what we mean when we talk about a stock market or a market in money (and it what I meant by “a market” in my previous work). The medieval English “market,” by contrast, represented only one half of this spread. It was a place where people offered to sell to those who demanded to buy, but not the other way around. One could not — at least in theory — go to an English market and offer to buy from those who demanded to sell. There was, in other words, no actor within an English market standing ready to buy on demand at a quoted price. There were, however, actors standing ready to sell on demand at a quoted price: these were, for the most part, merchants acting as intermediaries between town and country, who arrived at the market in order to sell farm products to their immediate consumers. The central question of English market regulation, then, was how and by whom this quoted ask should be determined.

This price was most emphatically not a price that could be quoted freely by sellers however they wished. It was, rather, a publicly known price that was enforced on the market by the market authorities. At any given moment, that is, everyone in the market knew what the selling price of a good was to be, and it was illegal to sell at a higher price than that. It is perhaps on these grounds that Paul suggests, in various places, that prices in the medieval market were both “customary” and “socially administered.” These claims, however, are a misinterpretation of what was actually happening. First of all, nothing about these prices was “customary”. Just because the asking price in the market was quoted publicly by the market authority does not mean that this price did not change: it did, often even over the course of a single market day. Second of all, it would be an overreach to conclude that this meant that prices were “socially administered” in the sense of being administered by “society” in general, because important actors capable of exercising pricing power existed outside of the market, or might be capable of exercising pricing power prior to entering the market, and thus it cannot be taken for granted whether the authority in charge of any given market was “taking” or “making” a price in any given moment. Understanding the relations of pricing power that governed price formation in medieval markets will require a more granular (and less romantic) understanding.

Paul, in other words, is ultimately too close to Smith’s notion of a market as an immanent social substance: she begins with the (true) observation that asking prices in a given medieval market are posted by that market’s authorities and then tries to proceed to the conclusion that this means that markets are administered by, and thus subsumed into, a social totality. Ultimately, however, Paul is confused about medieval markets because, in drawing on a fantasy of the medieval economy as the inspiration of her project to reform the modern bureaucratic state, she forgets that the absence of precisely such a “rational state” is in many ways what made the medieval economy what it was. In medieval England, we are not dealing with a situation in which there exists a “unified” national market over which territorially defined bureaucratic units exercise relatively unambiguous jurisdiction. Rather, we are dealing with a situation in which there exist a large number of different markets constituted under a hodgepodge of noble, royal, ecclesiastical, or municipal rights and privileges. Thus, the medieval “market” is something that is a very specific part of society rather than being, as we now imagine it, something that is coterminous with society as such. The medieval market, in other words, is subject to social forces that are outside itself, and thus cannot be understood as having been socially subsumed under the regulation of market authorities.

Moreover, no one source of right or privilege granted anybody exclusive right to hold a market in a region. While holders of the right to make a market could sometimes bring suit against those whose opened new markets that were too close to one that had already been established, the fact that they had to sue demonstrates that the offending new market had in fact already acquired the right or privilege of opening. There was clearly competitive pressure, as early as the 12th century, to open up markets as sources of revenue for the founding market authority, whether an Earl or a Bishop or a municipal corporation. As Masschaele puts it:

In the thirteenth and fourteenth centuries, well over a thousand new markets were licensed… Some never made it past the licensing stage, while others did not attract enough business to warrant their maintenance and eventually withered away. But… some also proved to be wildly successful. Why some failed while others flourished is difficult to know. Founders of markets were prone to speculative optimism, setting up new ventures in the fervent-but ultimately unwarranted-hope that their site might somehow strike the fancy of toll-paying traders. Some of these ventures failed to overcome legal challenges launched by the holders of other markets; some were founded too late to acquire a footing in established networks of transportation and trade; some were simply unable to compete with the attractions of rival markets in the same area. (“Public Space,” 385)

Masschaele analogizes the business of markets in medieval England to the business of restaurants today: many were opened, most failed, and a few survived and thrived. Many of those that failed did so simply because nobody showed up to do business there, and those that thrived (and thriving, in this sense, meant being successful as a revenue stream for the market authority) on the basis of charging relatively small fees over a large volume of transactions. This has a simple implication for Paul’s argument, which is that no sellers were ever forced to attend any particular market. Rather, they had to be attracted to the market, and those markets that failed to attract sellers inevitably failed themselves. This meant that, however much it might have liked to, the market authority could not simply set prices at whatever low ceiling it liked. It was, rather, subject to price-formation forces that exceeded its jurisdiction. And this jurisdiction was often not very big: in many cases, not even beyond the literal walls of the town.

The existence of strong seasonality in farm product prices, moreover, meant that the market authority could not simply post a price and forget about it (much less chalk it up to “custom”). Rather, this price had to be determined anew at the beginning of each market day. Thus, in order to understand the market, we will need to try to get a grasp on how market authorities determined the prices they posted and the power relations that structured this price-setting activity. R.H. Britnell presents an authoritative and clear account of how prices were set in medieval markets, from which I will draw heavily in what follows. Basically, “the market” was a buyer’s club of consumers, and the market authority was acting as a representative of this club for the perhaps dual purposes of collecting toll revenues as well as the opportunity to exercise social authority in a local milieu of which they were a member of the elite. Thus, the goal of the market authority was generally to maintain in their market the lowest possible asking price for goods that would nonetheless continue to attract sellers. It is likely — although probably not testable — to assume that the skill of the market authorities in consistently setting the correct maximum ask that would alienate neither sellers nor buyers was an important determinant in the success and failure of individual markets.

How, then, were these prices set? Medievals had a vague notion, inherited from Roman law, that in the case of disputes about the valuation of goods and assets that the price should be determined as the “just price” assessed by a “wise man.” The market authority and his agents, here, are thus operating in the capacity of such a “wise man.” In what, though, consists his wisdom? There is a long-running debate in the literature about whether the “just price” is identical with, or something different from, what we now call the “market price.” Medieval theologians did develop a sort of cost-plus theory of “just price” that is the predecessor of classical political economy’s theory of value: they sought to produce a theory that would explain, from first principles, what the merchant ought to charge for their goods on the basis of what they cost to produce plus a “just” level of profit. Theologians, however, did not run the markets. In practice, as Britnell suggests, the market authorities determined their prices in a much simpler way: they simply inquired of the merchants what price they were willing to sell for, and posted the lowest ask as the official price. Thus, the question of whether the “just price” was or was not (or should or should not be) equal to the “market price” is ill-posed, because it is simply true by definition. The “just” or “common” price had to be quoted by the market authority in order to bring the market itself into existence, and thus for there to be a “market price” at all. Thus, there is not any real question of whether the just price was, normatively, equal to the market price, because the market price was already, performatively, whatever the market authority had determined to be the just price.

In soliciting asking prices from merchants, the lowest of which would become the price at which the market would open, market authorities tried to keep them as much in the dark as possible about local conditions of supply and demand. They sought to prevent merchants from gaining any information that might inform them about when it might be possible to flex their pricing power by raising asks. This was one of the reasons that “forestalling” was an affront to the market authority’s power: the forestaller might be a local who was tempted to “break ranks” with the buyer’s club by meeting the merchant ahead of the market and informing them about about local conditions that might raise the price in return for a share of the profit.

Once the initial asking price that made the market had been set, however, it might continue to change even over the course of the market day. But it could not be changed simply because the sellers wished to change it. Once sellers had brought their goods into the market, they did not have the right to withdraw them in order to wait for a better price, or even in response to a reduction in the posted price. Nor, if they thought the current price too low, were they permitted to buy up the goods in order to sell them again later once the price had risen (such an activity is the direct meaning of “regrating”). The official price did, however, sometimes change over the course of the day, just in case the market authority decided to change it. They seem to have done so in basically two circumstances. The first was in the case that a new merchant (who is, remember, kept ignorant of current market conditions) should arrive at the market willing to sell their goods for a lower price than that currently obtaining. In this case, the market authority might simply declare a lower price. All of the merchants already in the market would be on the hook for this price reduction, and did not — as examples given by Britnell illustrate — have the option to withdraw their goods. In the opposite case, if the supply of goods being brought into the market should dry up over the course of the day with demand left unfulfilled, the market authority might be forced to raise the maximum ask in the hopes of enticing new supply. Once merchants had brought their goods into the market, they gave up the option not to sell them at the official price. But they could nevertheless exercise pricing power outside the market, by deciding whether to bring their goods to one market or another.

Thus, while it is true that buyers and sellers inside a given market did not compete with one another but rather transacted at an officially administered price, not all of the relevant price-setting dynamics were enclosed within this time-space container. Markets also competed *with each other* for the business of buyers and sellers. The “just price” was thus indeed both a market price, by definition, and a competitive price, in fact, but this was a kind of competition that took place between markets-plural rather than inside the market-singular, and a market price that was simply constituted (rather than retroactively condemned or justified) by the “just price” determined by a “wise man.” It is therefore misleading to suggest, as Paul does, that the medieval notion of a “just price” was somehow opposed to or in contradiction with the existence of a floating market price, or that this price was understood to be “customary” in the sense of being a known, unchanging quantity.

The authorities of any given market were not, then, as Paul suggests, concerned with the health or well-being of the “ethically embedded medieval society” as a generality. They were, rather, concerned to make a profit for themselves by representing the interests of a buyer’s club of relatively sedentary consumers against those of the relatively mobile merchants who acted as the middlemen between these consumers and primary agricultural production. They did, certainly, have a “moral” vision of what a just market should be like, which was a market in which all of the available supply had brought into the market where it could become publicly known information that would contribute to the finding of a “just” price at which the market could be successfully cleared in the sense of satisfying all of the available demand. But this is not any more or less “moral” than the neoclassical vision of a world in which all markets are perfectly transparent and “competitive”. They are simply moral visions from different points of view.

Here, however, we have been speaking primarily about markets of urban consumers buying agricultural products. These markets serving highly inelastic demand for the basic necessities of survival were more highly regulated (at least when it came to bargaining and prices) than the selling of durable goods, which is generally the kind of good that is more relevant to what Paul means when she talks about “price fixing in the context of the guild system” (by which she really means specifically craft guilds rather than the various other kinds of guilds, be they mercantile guilds or social guilds with no direct link to any particular economic function). Durable goods of this sort have much more elastic demand and are thus not as susceptible to “price gouging” as are primary agricultural commodities and subsistence goods: medieval people were very concerned about the prices of wheat and herrings, and rather less worried about the price of saddles and horseshoes and spoons. In the next section, then, we will move on from Paul’s claims about market regulation to those concerning guilds as a structure for the organization of artisanal labor.

6. Return of the Guilds

It is now necessary to say a few words about Paul’s citational practice and use of sources. There exists, in the recent historical literature, a debate known to historians as the “return of the guilds,” whose primary protagonists are Sheilagh Ogilvie and Stephen Epstein. This debate centers largely around the question of whether or not craft guilds encouraged or inhibited something called “innovation” and therefore “progress.” The debate is split between those we might call rehabilitationists, like Epstein, who want to rescue the craft guilds from the assessment that they inhibited innovation and progress by emphasizing the way that their practices and structures encouraged the circulation of technical knowledges. Opposed to them are the anti-rehabilitationists, mainly Ogilvie, who wish to defend a more-or-less Smithian view of guilds as enemies of progress and the free market. The very framing of this debate, of course, is itself anachronistic, because medieval people did not really have the idea that “progress” and “innovation” were things they should care about. Their concerns lay elsewhere. Nevertheless, the renewed attention to guilds generated by the heat of this debate has produced a rich body of literature that offers us today a much clearer and more precise picture of these organizations than that available to authors in the early 20th century.

Paul, misleadingly, wants to claim the authority of the “rehabilitationist” literature — or what she refers to as the “best informed recent scholarship” — in support of her assertions. The actual claims she makes about guilds, however, are not supported by this literature. In reality, her view of guilds is an older one, deriving from late 19th and early 20th century German writers such as Max Weber and Werner Sombart, who saw guilds as part of a medieval ethical social totality that had been catastrophically ruptured by modernity and capitalism. Paul’s main source for receiving this tradition, and the claim that it is supported by the “rehabilitationist” view ala Epstein, seems to be a review essay by the economist Gary Richardson, whose primary goal is to argue that the meaning of “monopoly” changed between the 19th and 20th centuries and that guilds were monopolies in the former sense but not the latter — that is, guilds did not, contrary to popular belief, constitute monopolies in the sense of having a legal right to be sole sellers in a given market. There is an element of truth in this claim, which is that guilds did not always and everywhere have a legal right to be sole sellers in a given market: that is to say, having the right of being sole sellers was not a *defining* characteristic of guilds. But they sometimes did: for example, the Pepperers of London in the 12th century had the right to be the sole sellers in the local retail trade in spices; foreign merchants being restricted to dealing solely in wholesale quantities (Nightingale, op. cit.). But regardless of the details of this particular point, the overall picture of guilds painted by Richardson in the course of making this argument is tendentious and unreliable (and, at times, willfully dishonest), and is therefore an extremely unstable foundation for proceeding to an overall historical assessment of guild organizations.

Richardson’s work, in general, falls prey to the basic historiographical sin of rushing immediately to universal claims from particular facts and events. That is, Richardson finds one example of something happening and then triumphantly concludes that this was what always happened, without paying much attention to whether what emerges from this procedure is a coherent or plausible picture of the medieval economy. In one particularly egregious example, he even flatly contradicts himself from one page to another. First, he claims that “Guilds were inclusive, not exclusive. Royal charters required them to admit all applicants. Barriers to trade and power over product markets did not appear in their bag of tricks” (“Tale,” 229). Then a few pages later, we read that “Guilds were voluntary cooperatives. No one was forced to join, and no one had to be admitted. Guilds… requir[ed] applicants to serve apprenticeships, pay entry fees, and demonstrate the skills necessary for the profession” (“Tale,” 236). In another essay, we find that guild charters “required everyone to join the organization. They did not prohibit anyone from entering the craft… Guilds could not deem some men competent, and therefore able to work, and others incompetent, and therefore ineligible for employment” (“Guilds, laws,” 15). It is impossible for all of these statements to be true, or at least to all be true as universal claims about guilds in general. But Richardson, it seems, cannot make up his mind about which he prefers, so he simply asserts them all at once and hopes nobody will notice.

The problem here seems to be generated by the fact that Richardson wants to reconcile two claims about guilds that are actually in tension: he wants to claim, both at once, that guilds were “voluntary” and also that they were “inclusive.” But of course, if an organization lacks the power to exclude anyone, then there can be nothing voluntary about the way it includes them. Thus we find that royal charters forced guilds to admit everyone, and also that nobody had to be admitted; or that guilds both required applicants to demonstrate skills and also had no such power to do so. It is difficult to assess each specific claim that Richardson makes, because he often does not give any evidence for them (no evidence whatsoever, for example, is given for the assertion that “royal charters forced guilds to admit everyone”; this is simply asserted as a fact following the block quotation of three 12th century proclamations that say something else). What is likely, however, is that somewhere, sometime, all of these things did actually happen: somewhere, probably, there was a king who ordered a guild to accept some applicants it wanted to deny, and somewhere else, there was probably a guild that denied some applicants without any such challenge. Somewhere, there was probably a guild that tried to disqualify certain practitioners of a craft on the basis that they lacked the required skills, and failed, and elsewhere there were guilds that tried to do so and succeeded. All of Richardson’s assertions, in other words, wherever he ultimately got them from, are probably true existentials that have been recklessly transformed into false universals.

Richardson here — like any good economist — is giving incoherent answers to a poorly posed question. There’s no point in asking, as a general rule, what guilds did or what powers they had or didn’t have: the only historically serious answer that could be given to such a question is “it depends.” Even worse would be to begin by asking, as Paul and Richardson both do, whether guilds were good or bad: nothing can come of this but mythology. Rather, we should begin with an ontological question: not whether guilds are good or bad, or even what they did, but simply what guilds *are*. We should then proceed from there to asking what problems or tensions might arise as a consequence of the fact that guilds are what they are, at which point we might begin to have a secure foothold for analyzing specific moments of historical conflict over what guilds could or should do.

Let’s begin with an example of such a conflict supplied by Richardson. “Did the law permit guilds to erect barriers to entry?” he asks. “No, the law prohibited the erection of impermeable barriers and permitted townsmen to practice any profession they chose… A well-known example appears in London’s Plea Roll of 1355 [sic]” (“Guilds, laws,” 14). At this point he turns to a citation to a book by Robert Unwin written in 1904. Here is Richardson’s version of Unwin:

the weavers [of London] complained to the Mayor and the Aldermen that the burellers were exercising the trade of weaving in their houses without being qualified by membership of the craft. The burellers boldly claimed the right as freemen of the city to carry on any trade or mystery... The weavers attempt to establish their sole right to their craft was so little countenanced by the city authorities, that they did not venture to appear on the day appointed; and the judgement was given to the effect that it should be henceforth lawful for all freemen to set up looms in their hostels and elsewhere, and to weave cloth and sell it at will... (Unwin, 1904, p. 30).

This quotation, according to Richardson, plainly demonstrates that guilds were not guilty of the charge of “erecting barriers to entry”: in other words, they didn’t engage in the “anti-competitive” behavior of “artificially” restricting who could or couldn’t engage in a certain craft. It is supposed to demonstrate this by the fact that, in 1355, the weavers tried to prevent the burellers from weaving and failed. At this point, however, Richardson’s work transitions from being merely bad to raising the suspicion of active scholarly dishonesty.

Where is this passage in Unwin? There is one item by Unwin in Richardson’s bibliography: “Unwin, G., 1904. The Guilds and Companies of London.” But Unwin’s “The Guilds and Companies” was published in 1908, and this passage does not appear on page 30. Richardson is in fact citing another text that does not appear in his bibliography: another book by Unwin, actually from 1904, titled “Industrial Organization in the Sixteenth and Seventeenth Centuries.” A reader who has not given up by this point will find something very interesting on page 30 of that text, which is the clause eliminated by Richardson’s ellipsis: “…any trade or mystery; but added that the weaving was actually done by members of the weavers’ craft in their employment” (Unwin, 30). This addition significantly complicates the picture, as well as the conclusion that Richardson wishes to draw from it. It is clear from the full text that the burellers are staking their position via alternative pleading, or joint arguments with incompatible premises. In response to being accused by the weavers of weaving without being members of the guild, the burellers respond: “as freemen of the city, we have the right to engage in whatever crafts we like; also, these are apprentices of the weaver’s guild we’re hiring anyways.”

It is thus clear that the “right of the freemen” to practice whatever craft they liked was a principle that was in play, but not entirely certain. There was also an alternative, competing principle, which was that those who practiced a craft must belong to the appropriate guild. The burellers did not wish to stake their entire argument on one principle or the other. In the moment, their interests were best served by “boldly claiming” the right of freemen in the city, but they also offered a fallback argument that ceded the principle that weavers should belong to the weavers guild but nonetheless supported the burellers’ cause, which was that those doing the weaving in the burellers’ houses were nonetheless apprentices of the weavers. In the very next of paragraph of Unwin, moreover, we learn that, three decades later in 1364 (the dispute Richardson is referencing actually occurred in 1335, not 1355), the drapers (who were, it seems, a rebranding of the “burellers”) acquired the “sole right of making cloth,” at the expense of the “dyers, weavers and fullers” (Unwin 1904, 30). Thus, the drapers won a right in 1364 that their predecessors the burellers had seemingly rejected on principle three decades earlier (and which Richardson presents as paradigmatic for determining what guilds did or did not do in general, on the basis of an obscured citation to this very page). Perhaps this is a scholarly error that can be chalked up to hasty notes or telephone games… but it cannot but be observed that the error serves Richardson very conveniently.

At any rate, all of this merely goes to demonstrate what we should have begun by assuming: that the medieval past was hardly an epoch of ethically embedded moral principles and “relations between people”, but rather a world much more like our own, in which people are generally happy to claim whatever self-contradictory bullshit they like as long as it serves their purposes at the moment. Thus, again, there is less a question of some absolute general answer to the question of what guilds do, than there is a question of what guilds are, and what problems and conflicts arise as a result of the fact that they are what they are.

7. The Freedom of the Town

So, what are guilds? Let’s begin here, and then return to the burellers and weavers of 14th century London to see what light we can shed on that episode by beginning in a more secure place. To understand what guilds are, we should begin with two pieces of data: first, the word “guild,” and, second, the idea of “freedom”, specifically the “freedom of the town.”

The word “guild” derives from “geld,” meaning gold, but with the additional meaning of a tax: specifically, the geld was a tax on land (organized into “hides,” a variable unit of area theoretically equal to the amount of land necessary to feed a single family). This was one of the most “advanced” fiscal systems of the period in Europe if by that word we mean “centralized”: pretty much everyone was liable for the geld, and it was paid directly to the crown, and as such collecting it was an immense administrative undertaking. To facilitate the collection of this tax, therefore, English population centers created central structures known as geld halls. These buildings were, in essence, the kernel of what would develop into the municipal governments of cities and towns (Nightingale, op. cit.). And even after the geld as such fell into disuse after 1161, when direct taxation of land in England was replaced by the tax on movable property that was to become the hallmark of the English fiscal structure, the geld/guild halls and the organizations associated with them remained a source of direct crown income. The town endowed with a guild hall was “free” in the sense that its residents enjoyed a set of privileges and liberties that were not possessed by the peasants in the countryside. But this freedom had a price, which had to be paid to the king; often, specifically in gold, rather than in the king’s own silver coinage (a topic for another time). Thus, what a guild really was, at the kernel of its being, was an association of municipal taxpayers — a constituency composed of subjects who were, unlike the great barons and bishops, individually insignificant, but who might strive to make their interests known through the mediation of a corporate entity. That is what the word means and it is the best place to begin understanding the social and economic significance of these organizations. And what they got in return for their taxes was “the freedom of the town.”

It was not, however, the town that was “free” so much as it was the townsmen themselves who were free “of” it. This “freedom” might, like most things in the medieval world, be composed of a grab bag of various liberties and privileges, but most fundamentally what it meant was the right to own land (and, by extension, to set up shop or engage in commerce) within the municipal walls. Medieval towns and cities were not “open” in the sense of allowing anyone who happened to have money to purchase land within their boundaries. This was, rather, a privilege belonging to those who were free of the town, and it was jealously guarded — not surprisingly, since it was a liberty that had to be purchased from the king in the form of a royal charter. Thus, originally, guilds were simply associations of those who paid the geld and were thus free of the town, and there was not necessarily any connection betweens guilds and some particular form of trade or economic activity. Guilds could be formed of any subset of townsmen who felt that they had a shared set of identities or interests that they wished to be represented in the municipal government and, by extension, to the crown (although they could not, as Richardson asserts without evidence, be formed purely voluntarily or without royal permission; our first attestation of the existence of the Pepperers is precisely a reference to their being fined by the king for incorporating without a license).

Ultimately, then, this was the fundamental basis of the social power of guilds: they controlled access to the rights and liberties appertaining to the freedom of the town. This fact has a great deal of bearing on the internal organization of the guilds and the divisions of rank between “apprentices”, “journeymen”, and “masters” — to which topic we will return shortly. Before we move on, however, it will be necessary to apply this “ontological” analysis of the guild — that the guild is fundamentally an association of those who pay the geld in return for the freedom of the town — to the 14th century dispute between the London weavers and burellers. Once we realize that the guilds were not “fundamentally” organizations created in order to manage industrial or mercantile activities, but came to assume these roles as a derivative consequence of the fact that they were organizations representing the interests of municipal taxpayers, the puzzle about what the “rules” of what guilds could or could not do or what principles governed their activities mostly vanishes. The burellers in 1335 could plead according to two alternative and incompatible principles — that that those engaged in weaving either must or need not be members of the weavers guild — because nobody at the time was actually sure about which of these alternatives was or should be the case. These conflicts were new and contemporaries were still in the process of struggling to work them out.

The first thing to understand in relation to this dispute is that, within the subset of guilds that were directly related to some sort of obvious economic interest, there was a broad division between mercantile and industrial groups. The aforementioned Pepperers, for example, was obviously not an association of craftsmen, since they dealt in a commodity that ultimately came from very far away. Moreover, this division between producers and merchants could and did exist within a single industry: the division between the weavers and burellers was precisely such a division of this type. The 14th century disputes between the various guilds within the cloth industry reveal that the making of cloth was generally understood as being divided into four distinct activities: weaving, fulling, dying, and “making cloth.” Spinning — an activity largely carried out by peasant women in their cottages — lay outside the guild structure entirely and does not seem to have entered into these disputes. The final activity of “making cloth” seems to refer to a variety of finishing processes (napping, shearing, printing, embossing, etc) that, upon conclusion, would result in cloth in its final, salable form. The burellers/drapers were those in charge of this final step in the process and thus differed from the weavers, fullers, in dyers in that they were producers of a final rather than an intermediate good and thus also in charge of marketing the product to consumers. Thus, they straddled the line between industrial and mercantile capital, and — crucially — all of the cash receipts that flowed into the cloth industry would pass through their hands first before flowing to the intermediate branches of the industry. This gave them power over the other guilds, and what emerges from the broad strokes of the history of these disputes is the growing domination of the burellers/drapers over their suppliers lower down on the value added hierarchy.

The story, as it appears to us in the records of the City of London, took nearly 60 years to play out. The first glimmer of it appears in the year 1300, when the fullers complained to the Warden and Sheriffs of London “that whereas it had always been the custom for cloths which had been delivered by fullers and dyers to be fulled, to be fulled by the feet of men of the craft or their servants in their houses within the City, certain men lately using the craft… had sent such cloth to the mills at Stratford to be fulled.” To this, the accused men confessed their fault, and “the said Warden and Sheriffs summoned certain dyers, tailors, burellers, weavers, and fullers, to make provision for better regulating the said craft (officium) of fullers” (Calendar of the Letter Books of the City of London, C.xxxvii). Thus, in 1300, a set of regulations were made in response to the complaint of the fullers that cloths were being taken out of the city to be fulled at Stratford, thus cutting them out of the production hierarchy. These regulations, which can be found in the Liber Custumarum, basically specify two things: 1) cloths were not to be taken out of the city to be fulled, and would be seized at the gates if attempted, 2) masters were not to entice away the journeymen of other masters, or — interestingly — to employ any servant that was in debt to another master (LC p. 129). About ten years later, we see the burellers being sworn in “to examine cloths manufactured contrary to the ordinance made between the Burellers and the Weavers of London” (Calendar, D.cxxiib).

Then, in 1335, tensions between the guilds seem to be heating up. First, we see the burellers petition for and receive a writ of certiorari affirming “the right of Burellers of Candelwykestrete to exercise their craft in the City without becoming members of the Weavers' Guild” (Calendar, E.ccxliii). A little later, both parties are hauled into court and the weavers “plead their charter… that no one in the City or in Suthewerk should meddle with the Weavers' craft unless a member of the Guild, under penalty prescribed, and as the said Burellers acknowledged that their servants meddled with the craft they were acting contrary to the charter.” What happens after this is somewhat curious. First, it seems that the burellers are in a bit of a hurry, because they “produced another writ addressed to the Mayor and Sheriffs, bidding them to continue their inquiry into the dispute that justice might be the sooner done.” Subsequently, the court summoned “the parties for a certain day, on which day the Burellers came, but the Weavers made default” (Calendar, E.ccxlvii).

Many aspects of this story are obscure. Why were the burellers so anxious about the timely resolution of the problem? Presumably they were under some real pressure in a venue other than that of the London court itself. Why, in the event, did the weavers not even appear to plead their case? Perhaps they were intimidated from appearing, or perhaps something had occurred in the meantime to make them feel it a lost cause. The answer to the second question may be unrecoverable, but the answer to the first is probably that the burellers were subject to some kind of action in the court of of the weaver’s guild itself. Again, we must remember that the world of medieval English law was hardly one of unambiguous jurisdiction, and — perhaps surprisingly for those who imagine themselves as “recovering” some sort of pure or original common law — the weaver’s guild itself had a court of its own: “The grant of a gild gave them a private jurisdiction, a soke, a collective lordship over their trade… and if any one of their guild is impleaded elsewhere than in the guild, viz., in a plea of debt, contract, agreement, or small transgression, they ought to claim him from the Court and have him before the Court of their Gild” (Unwin 1904, 44). Presumably, then, the dispute between burellers and weavers was not only a dispute about the rights and prerogatives of guilds, but a dispute about the jurisdiction of competing courts, one of which was the essentially private court of the weavers guild itself.

Thus, we can see quite clearly that, over the course of the 14th century, the group of merchants most directly responsible for marketing cloth — the burellers or drapers — engaged in a struggle for power with those who were most directly concerned with making it: the weavers. This struggle was not structured by any kind of “moral principles” or “ethical relations between people,” but rather by a conflict of material interests in the context of a considerable amount of uncertainty about rights, privileges, and precedents. The drapers at one point denounced a privilege — that of restricting others from a certain line of business — that they later turned around and claimed for themselves. Not only were medieval people not clear about what exactly guilds did or could do, but they were not even totally clear about which courts had jurisdiction to decide the matter. It would thus be a significant mistake to read some kind of coherent, “moral economy framework” backwards onto this history.

8. (Im)moral economies

Now, then, let’s take stock of the major claims that Paul makes about guilds in support of her assertion that there exists, within the “common law tradition,” a “moral economy framework” to be recovered by contemporary policy makers. The first of these claims was that prices in medieval markets were embedded within the framework of a “just price,” and that the “marketing offenses” — forestalling, regrating, engrossing — were defined in relation to their deviance from such a just price. As we saw above, this claim is quite misleading, because the reality was the other way around: the just price itself was defined simply in terms of a market price (i.e. the price quoted by the “wise men” who made the market) that was assumed to obtain in the absence of the external pricing pressure that might be exercised through these illicit sorts of off-market transactions.

Paul’s second major claim is this: “Generally speaking the organization of material production in [the guild] context was looser, more horizontal, and less formalized: there were far fewer distinctions between workers and owners, and crucially, many or most workers (journeymen and apprentices) could usually look forward to becoming owners, such that much (though of course not all) hierarchy was defined by the life-cycle,” (“On Firms,” 10). Here, in other words, she is claiming that labor organization in the guild system was less exploitative because the vast majority of the workers were simply future masters-in-training. This claim has not yet been addressed and we’ll turn to it in a minute.

The third claim: “Many or even most producers would have sold directly to the market rather than through an intermediary collective unit corresponding to the firm, further diminishing the economic significance of an enterprise exemption” (“On Firms,” 10). As we’ve already seen, this claim is false, because it ignores the fact that many guilds were concerned with the production of intermediate rather than final goods, and were therefore selling their products up the value-added hierarchy to other guilds, rather than to the final consumers — often at a price determined by some kind of collective bargaining agreement between the guilds. As in the case of the weavers and burellers, this provided a framework through which guilds most directly concerned with marketing could dominate other guilds lower down the value-added hierarchy. The fantasy of an independent guild master who is both horizontally independent and vertically integrated — a true sole proprietor — is ahistorical.

Fourth claim: “It is uncontroversial that the hierarchical organization of production, in the “putting-out system,” actually somewhat preceded the technological advances associated with factories, which are broadly understood to justify the hierarchical organization of the firm on technical efficiency and integration grounds… The technological change that led to the industrial revolution started and was well underway under the older, supposedly inefficient guild system. The fact that further technological change took place after both coordination rights and flow of incomes at the production level had been consolidated obviously does not show that this legal organization was required for further technological change.” (“On Firms,” 13). This claim has two parts. The first is indeed fairly uncontroversial, and is the one claim Paul makes about guilds that is actually supported by the “rehabilitationist” literature: Epstein and others in this school argue convincingly that guild institutions — especially that of “tramping” or the itineracy of journeyman laborers — were catalysts for technological development and the diffusion of technical skills. The second half of the claim, concerning the consequences of the rise of the firm and the coordination of “flows of income,” deserves more examination, which we will turn to in a moment.

Out of Paul’s four basic claims, then, two have already been addressed: the idea that medieval markets were structured by “customary prices” and that, in the guild system, independent producers sold directly to the market thus avoiding domination by commercial middlemen. Neither of these claims is true, or supported by recent scholarship. Two remain to be examined: first, that the hierarchy of labor organization in the guild system was “defined by the life cycle,” and, second, that there is no obvious connection between the “legal organization” of the firm and technological change.

The first claim is little more than a romantic fantasy, and derives not from recent scholarship but from Werner Sombart (op. cit., 120). The idea that the guild system — and medieval society in general — were harmonious totalities devoid of social conflict was popular among what we might call “reactionary anticapitalists” in the early 20th century, especially in the Germanophone tradition. Modern scholarship, however, paints a very different picture. For one thing, most apprentices seem to have simply ran away (Wallis, op. cit.). For another thing, there does not seem to have been any strictly linear progression through the three ranks of “journeyman, apprentice, master.” That is to say, one did not enter a guild as an apprentice, progress to being a journeyman, and eventually become a master. Journeymen may have been apprentices, or not; the term “journeyman” simply means “day-worker” and referred simply to wage laborers hired by the guild master: “So far as we can judge, it was not necessary for a journeyman to be apprenticed, though in the fifteenth century the rule against employing any but apprenticed men was growing stricter” (Dunlop, 196).

It was neither a rule of the guilds nor a sociological fact about the guild system that either apprentices or journeymen would be necessarily expect to one day be masters. To be a master meant that one had been granted the freedom of the town, by the townsmen. In becoming a master, one acquired social and political power within the town as an owner of property within its walls, and also acquired liberties — including exemption from some forms of taxation — that were quite valuable and jealously guarded by those who already possessed them. Most important, as a freeman of the town, one would necessarily enter into the local credit economy: one would constantly owe, or be owed by, other townsmen. Thus, the town, and by extension the guilds, were intensely concerned to police entry to the freedom and restrict it to those who had proven themselves to have “good credit,” a category that was, for medieval people, not only economic but intensely moral. It is therefore an absurdity to discuss “moral economy” without an eye towards the intense policing of moral character that was a key feature of the social reproduction of medieval credit networks.

To become a master and thereby gain the freedom of the town in a way other than inheritance, one had to earn it — partly by proving one’s competence to work at a certain craft, but also by proving one’s creditworthiness and moral character. In order to complete the progression between apprenticeship and master-status, therefore, one had not only to complete the training but also be in possession of capital: the money funding required not only to set up shop for oneself, but also to meet the demands of the guild itself, such as being required to host a banquet for the assembled guild masters. It was presumably for the purpose of trying to earn these moneys that an former apprentice might “go tramping” as a journeyman on the itinerant labor market (and presumably the motivation for the apprentices of the weavers guild who were, in the early 14th century, moonlighting in the houses of the burellers).

This necessity of proving one’s credit by raising enough capital to go into business as a master was also accompanied, in the apprentice system, by an intense scrutiny of sexual activity, drinking habits, religious scrupulosity, and the like: since the ideological framework of the guild system was that of the patriarchal household as an independent unit of production, apprentices were legally considered to be under the parental discipline of their employer, the master. Once we understand this, it is not at all surprising that the apprentices might prefer to simply run away: they were, in effect, laboring for lower wages than other people doing the same work (the journeymen), in return for the hope of one day — perhaps quite some time away — of surviving the moral scrutiny of the masters and raising enough money to gain the freedom. Apprentices who began to realize that they were laboring for their master in return for the mere hope of something that might never materialize might very understandably decide to abscond in search of greener pastures. (If you think this sounds a bit like graduate school, you’re right; we’ll return to this in a bit).

In sum, it is just not the case that the hierarchy between the different “ranks” in the guild system was “defined by the life cycle.” Rather, masters benefited from hiring from a pool of labor only a fraction of whom might ever occupy their own position: a revolving door of apprentices who might serve some of their indenture before running away, and a pool of journeymen who may or may not have ever been apprenticed and who might remain (and who might perhaps even be content to remain) journeymen. The boundaries between the masters and those they hired were established by the moral economy of their credit system: a barrier that, as we must imagine, many of the apprentices and journeymen found it forbidding or even impossible to hurdle.

Perhaps more importantly, however, it would be a mistake to assume that the masters were equal amongst themselves. While the ideology of the guilds emphasized as its ideal the small workshop organized under the auspices of the pater familias, in reality there existed growing divisions within the ranks of the guild masters themselves between the big and small masters. Essentially, the fortunes of the masters seem to have diverged such that many of the small masters were acting as de facto subcontractors working on credit provided by the big masters. Lis and Soly argue that masters working in export trades could be, as early as the 13th century, divided into three distinct social groups: affluent masters, small masters (who “lacked sufficient capital and credit to market their finished goods themselves”), and proletarianized masters “who might own their own workshop but worked exclusively on commission” (Lis and Soly, 82).

This observation brings us to Paul’s fourth and final claim, regarding the relationship between legal organization of production and technological change. Here, she is indeed at least partly supported by scholarship by and after Epstein, which is fairly centrally interested in rebutting the received notion that guilds somehow “stifled” technological innovation by emphasizing the way that guilds supported the reproduction of high-status, high-skill professions and stimulated the diffusion of technical knowledges. There is, however — and contra Paul — an obvious relationship between the rise of the firm and continuing technological chance, which is that advancing technology tended to come along with larger and larger requirements for the financing of capital assets. The question is less about what makes technological innovation itself possible than about what allows for investment in what technology makes possible. At a certain point, the requirements of financing the fixed capital necessary to enter a line of business might well exceed that which could ever reasonably be acquired by a single individual over the course of their “life cycle.” At that point, the only way to enter into the business would be to work on borrowed machines… and in such a situation the era of the guild would, necessarily, be well and truly over.

“Guild” is derived from “geld” — the physical cash in metallic specie that was levied by Aethelred II and other Saxon kings upon the towns, and in relation to which the towns began to develop their own distinctive forms of governance. The “firm,” by contrast, derives from the “firma” — the signature. The firm, in essence, is nothing but a signature that can be written by more than one person, thereby enabling its “factors” at their “factories” to conjure into being a legally fictitious person capable of owning property and bearing obligations. It is — although this will have to be a topic for another time — a form of organization that grew out of the international houses of merchant bankers rather than the organs of municipal governance. Whether guilds or firms are better at leading to technological innovation, therefore is somewhat beside the point. What matters is that technological innovation leads to firms, by heightening the importance of raising large amounts of capital funding beyond the limits of what could even plausibly be underwritten on the scale of the ideal patriarchal household. The divisions between the big masters and the small ones had always existed; at some point, the conflict within the guilds intensified beyond some breaking point under the pressure of technological change, they snapped.

Finally, I must note that Paul’s reference to E.P. Thompson in employing the language of a “moral economy” is worthy of some scrutiny, and is part of a larger trend within neochartalist adjacent literature. I had intended to address it here, but will leave it to another place for lack of space. To anticipate: when Thompson talked about a “moral economy of the English crowd,” he was talking about riots, and not the benevolence of enlightened lawyers and policy makers. He was discussing, in a word, illegalism. Writers today who appropriate the phrase to refer to their desired normative legislative programs fundamentally miss Thompson’s point: what they are discussing is “political economy,” not a moral one. In their pious claims to moral superiority over other schools of political economy, these writers gloss over the fairly deep problem that a “moral” economy can also be an evil one: the lynch mob is an expression of moral economy, as is the racial/ethnic discrimination of the country club. This is a problem that will have to be explored at another time.

In conclusion, then, I want to offer a final protest about a claim Paul makes not so much about guilds as about ourselves. “The professions today,” she writes, “in a way represent the limited survival of guild-like economic organization, which once obtained throughout manufacture as well. It is… worth considering whether the relatively privileged strata of society, who retain more power to choose or at least influence the economic organization of their work, also tend to choose relatively horizontal organization for themselves, their peers, and those they view as their descendants or successors in social terms” (“On Firms,” 30). The suggestion that the “professions” — by which she means, in large part, academia and the legal profession — should be celebrated on the grounds of their similarity to “the guild system” is, in some ways, the key to unlocking Paul’s ideological investments into the topic.

There is, however, a somewhat more cynical interpretation of this similarity than the one she puts forth. Guilds were, in the first instance, the gatekeepers of the freedom of the town. What they enjoyed was a distinction of status and privilege, and their organizations functioned, centrally, to reproduce that status and privilege. Now, status and privilege are relative, rather than absolute, goods: one has high status because others are low status, and one has privilege because it is not a universal right. What the guilds were protecting and reproducing was a positional good: the capacity for freedoms that others in society did not possess. If everyone had them, they would be worthless. It is much the same with “the professions” today. There is, in fact, perhaps no better analogy to the basic social structure of the guilds to be found in our contemporary society than that of academia: the professors are the masters, who are now enjoying the benefits of their heavy investments of financial, social, and human capital at the top of the hierarchy (although, among the professors themselves, there is still a hierarchy, between those who have the ideas and those who merely cite them, those whose students become professors and those whose students do not). The adjuncts are the journeymen, who may have run away from their apprenticeships with MA or ABD, or who may have finished them but found themselves locked out of the networks of social credit that lead to the professoriate. And then there are the grad students, who work for even less than the journeymen in exchange for the vague promise that they will be the lucky ones.

So, do those who are privileged create guild-like organizations because, being privileged, they have the power to do what they want? Or are they, perhaps, privileged because of the fact that they still have guilds — that they have somehow heroically resisted the rise of the firm and retained their autonomy? Paul seems to suggest one or the other, or a combination of both. But there is a more serious explanation available: guild-like organizations are prevalent in sectors in which labor has a high status and in which, therefore, the boundaries between those with high status and those without it must be intensely policed. It is, of course, of intensely overriding importance — if one wishes to enter “the professions” — that one attend a Good School. And there can only be Good Schools if other schools are Bad. Status is a positional good, a zero sum relation between humans. We would, therefore, do well to pause a moment and consider this before entertaining breathless praise of the past.

What is the lesson of all of this? One is that nobody is checking any of the historiographical citations in anything that the lawyers or economists write, or expects for them to be checked (but we knew that already). It might be protested that it doesn’t matter: that history is something only cared about by cranky nerds, and that it is the legal and economic controversies that really matter. But this raises the question: why make these historical claims at all, and thereby expose oneself to unforced errors, if they don’t really matter and nobody cares about them?

Paul’s work is, like MMT, motivated by an admirable desire to challenge the current state of our political-economic life by means of an intervention into the foundational concepts of the ruling ideology. The problem is that these foundational concepts come with foundational myths, and there is no real way to challenge the concepts without somehow engaging with the myths that come with them. Thus, the challenge to the concept is invariably couched rhetorically in an attack on the myth: the myth of barter or the myth of the guild. Inevitably, however, they end up immediately positing a counter-myth: a story which they insist is the real history supported by the real historians, but which is in reality only slightly better supported than its rival, if at all. They tend, in fact, to ignore recent scholarship altogether and reach back ultimately to early 20th century German writers, who told a different — but no less ahistorical — story than their counterparts in the Anglophone world. That’s an interesting pattern; it’s worth thinking about; and that, I think, is conclusion enough for now.

WORKS CITED

Britnell, R.H. “Price-Setting in English Borough Markets, 1349-1500.” Canadian Journal of History 31, no. 1 (1996): 1–15. https://doi.org/10.3138/cjh.31.1.1.

Davis, James. Medieval Market Morality: Life, Law and Ethics in the English Marketplace, 1200-1500. Cambridge ; New York: Cambridge University Press, 2012.

Dunlop, O. Jocelyn. “Some Aspects of Early English Apprenticeship.” Transactions of the Royal Historical Society 5 (December 1911): 193–208. https://doi.org/10.2307/3678366.

Epstein, S. R. “Craft Guilds in the Pre-Modern Economy: A Discussion.” The Economic History Review 61, no. 1 (February 2008): 155–74. https://doi.org/10.1111/j.1468-0289.2007.00411.x.

Epstein, Stephan R, and Maarten Roy Prak. Guilds, Innovation, and the European Economy, 1400-1800. Cambridge; New York: Cambridge University Press, 2008. https://doi.org/10.1017/CBO9780511496738.

Lis, Catharina and Hugh Soly, “Subcontracting in Guild-based Export Trades, Thirteenth–Eighteenth Centuries,” in Epstein, Stephan R, and Maarten Roy Prak. Guilds, Innovation, and the European Economy, 1400-1800. Cambridge; New York: Cambridge University Press, 2008. https://doi.org/10.1017/CBO9780511496738.

Masschaele, James. “Market Rights in Thirteenth-Century England.” The English Historical Review CVII, no. CCCCXXII (1992): 78–89. https://doi.org/10.1093/ehr/CVII.CCCCXXII.78.

———. “The Public Space of the Marketplace in Medieval England.” Speculum 77, no. 2 (April 2002): 383–421. https://doi.org/10.2307/3301326.

Nightingale, Pamela. “The Crown, the City, and the Twelfth-Century Guild.” In Medieval Mercantile Community: The Grocers` Company and the Politics and Trade of London, 1000-1485, 19, n.d.

Ogilvie, Sheilagh. “Rehabilitating the Guilds: A Reply.” The Economic History Review 61, no. 1 (February 2008): 175–82. https://doi.org/10.1111/j.1468-0289.2007.00417.x.

Paul, Sanjukta. “On Firms.” University of Chicago Law Review, 2023.

———. “Recovering the Moral Economy Foundations of the Sherman Act.” The Yale Law Journal, 2021, 175–255.

Richardson, Gary. “A Tale of Two Theories: Monopolies and Craft Guilds in Medieval England and Modern Imagination.” Journal of the History of Economic Thought 23, no. 2 (2001): 217–42. https://doi.org/10.1080/10427710120049237.

———. “Guilds, Laws, and Markets for Manufactured Merchandise in Late-Medieval England.” Explorations in Economic History 41, no. 1 (January 2004): 1–25. https://doi.org/10.1016/S0014-4983(03)00045-7.

Sombart, Werner. Der Moderne Kapitalismus. Leipzig: Verlag von Duncker & Humblot, 1902. https://archive.org/details/dermodernekapit01sombgoog/page/120/mode/2up.

Thompson, E. P. “The Moral of Economy of the English Crowd in the Eighteenth Century.” Past and Present 50, no. 1 (1971): 76–136. https://doi.org/10.1093/past/50.1.76.

Wallis, Patrick. “Apprenticeship and Training in Premodern England.” The Journal of Economic History 68, no. 3 (September 2008): 832–61. https://doi.org/10.1017/S002205070800065X.

Unwin, George. Industrial Organization in the Sixteenth and Seventeenth Centuries. Routledge, 2018.

1. Is “the Firm” on Firm Ground?

My topic for today is a review of some recent work by the legal scholar Sanjukta Paul on the history of American anti-trust legislation and the concept of “the firm.” Paul’s work is, I think, quite important, because it seeks to open up a second front in the offensive launched by Modern Monetary Theory against mainstream economics. Whereas the MMT writers — with whom Paul is closely associated — sought to demonstrate that economics took the existence of money itself for granted, to its theoretical detriment and the foreclosure of political possibilities, Paul seeks to do the same for the firm: the basic unit in terms of which economics attempts to theorize the organization of productive economic activity. As Paul convincingly argues, the fact that there are “firms” at all cannot be taken for granted but must rather be understood as a historically specific construction of a legal regime of economic governance.

While Paul’s work does not engage directly with questions about money, it has a lot in common with MMT at the level of its political goals and structure of argumentation. The essence of both of these positions is that, contra mainstream economics, there is no such thing as a “free market economy” prior to its constitution by some kind of public regulative authority (be it executive, legislative, or judicial), and that therefore the entire idea of a market economy “free of intervention” by regulation is conceptually incoherent. Once we realize that markets are regulated into existence, in the first place, this seems to expand the scope of possibility for regulating them differently and in the service of a political economic project which is now free to be benevolent or “moral” in a way that was previously understood to be off the table — for reasons that are now revealed to have been grounded in dubious ontological assertions about how the market economy would be if only it weren’t being interfered with.

Like MMT then, Paul is mainly concerned to mount a policy intervention into the present: specifically, in her case, by refuting the dominant interpretation of the power granted to American courts by the Sherman Act of 1890. Also like MMT, however, Paul’s intervention cannot restrict itself to being purely forward-looking, but seeks to ground itself by demonstrating that the orthodox view has gotten something importantly wrong about the past. In a 2021 essay in the Yale Law Journal — “Recovering the Moral Economy Foundations of the Sherman Act” — Paul attacks the orthodox interpretation of the act’s legislative history forwarded by Robert Bork. I will summarize this argument in a moment. Paul’s investigation of the history of US anti-trust legislation, however, leads her to a confrontation with a much more fundamental conceptual issue about the idea of the firm, which she explores in detail in a recently circulated draft essay, “On Firms.”

In this second essay, Paul seeks to more fully explore the theoretical problems raised by the argument of the first: to show that the idea of “the firm” upon which economics constructs an ontology of productive economic organization is neither necessary nor natural, and that in presenting it as such economic orthodoxy constructs a historical myth about the origins of capitalism or the market society that can be demonstrated to be false. In this second essay, therefore, Paul wants to fry an even bigger fish: Adam Smith himself, who bequeathed to mainstream economic thought a tendency “to view guilds and workshops as hubs of anti-competitive price-fixing” which therefore impeded technological progress (13). Thus, the myth that the organizational model of the firm “succeeded because it offered technical efficiency benefits, which ultimately “grew the pie” for everyone,” in contrast to the supposedly hidebound and over-regulated guilds, plays the same role in the theory of the firm that the “myth of barter” played in the orthodox theory of money (12). By attacking this myth, Paul hopes to show not only that judges are wrong about the Sherman Act but that economists are wrong about, or are at least making ungrounded assumptions about, the basic ontological units in terms of which they construct their theory of the economy. Since this economic discourse is, in turn, taken up by judges when they consider cases about the legality of economic policy, even these more fundamental and abstract questions have significant implications for the way things actually work, here and now: “The criteria antitrust law uses to permit or prohibit coordination under its firm exemption… have the effect of constituting the units that will then engage in competition. This seemingly small additional logical step cloaks a multitude of unconsidered possibilities” (5).

Here, however, Paul runs up against a problem that her work also shares in common with MMT: in seeking to attack one of the basic myths of economic orthodoxy by revealing it as unhistorical, she ends up positing historical claims of her own that don’t stand up to scrutiny. If the firm is revealed to be a contingent regulatory construction, then it might not be the case that there are firms. And if there weren’t firms, then what would there be? There would, of course, be guilds. Since the orthodox theory of the firm defines itself negatively against what it is not — what’s good about the firm is that it is not a guild — any attempt to reevaluate the firm cannot really avoid making, even if only in passing, some kind of positive claims about its determinate negation. If we want to show that it’s not the case that firms are good because guilds are bad, then we might be tempted to try to turn the claim on its head by claiming that guilds are actually good. And it is here, as I will show, that Paul finds herself on unfirm ground, and ends up in the same place as MMT by simply replacing one myth with another whose implications she prefers.

First, however, before turning to the assertions that Paul makes about guilds, I want to rehearse the steps of the argument that got her there, since they are interesting and important in their own right. And it’s not my goal to argue that, because Paul is wrong about guilds, she is therefore wrong about everything else. Quite the contrary: I think that what’s interesting about her argument can be even more fully appreciated by rejecting the way that she constructs the medieval guild as a foil for the modern firm and thereby carrying the line of inquiry further than Paul herself is willing to take it. In the past, I have argued that the fantasy of a “fully political” medieval money has served as an obstacle for the exploration of what was actually interesting about MMT. Here, I will argue that the fantasy of the “medieval guild” plays a similar role for Paul. But first we should stop to appreciate what’s so interesting about what she’s actually right about.

2. The Question of Values

Let’s begin by considering Paul’s argument in “Recovering the Moral Economy Foundations of the Sherman Act.” Her primary target here is Robert Bork, who forwarded a reading in 1966 of the Sherman Act that is now dominant (as part of what recent scholarship has identified as the “Chicago School” movement that introduced neoclassical economic models into jurisprudence). Bork’s argument is that the court’s use of the antitrust legislation has been muddled by an ambiguity about the “question of values” that underpins the legislation; a muddlement that he proposes to solve by reducing the question of values-plural to the single value of “what we would today call consumer welfare.” Such an interpretation would function to clarify “a statute as vaguely phrased as the Sherman Act” as specifically prohibiting “combinations” that could be found to impede “consumer welfare,” by which he meant “maximization of wealth or consumer want satisfaction” (Bork, 7).

How, chez Bork, is consumer welfare to be maximized? Here, jurists are lucky in that they can now (in 1966, as opposed to the legislature in 1890) speak “with the precision of a modern economist” (Bork, 10). They can, in other words, draw on the science of economics in order to clarify what lawmakers prior to the development of that science really meant even if they could not say it precisely. And what they really meant was that the purpose of anti-trust legislation was purely and simply the promotion of “consumer welfare,” which meant, first and foremost, lower prices of consumer goods in virtue of the “efficiency” that could be delivered only by a market approaching “full and free competition.” This is simply what we all know as “Econ 101:” maximizing competition will lead to the maximization of efficiency will lead to the maximization of consumer welfare… and so forth.

Bork’s crucial move — which is Paul’s point of attack — is to gloss the common-law notion of “restraint of trade” actually invoked by the bill as identical to the modern economic idea of the “prevention of competition”: “He repeatedly used common law terminology, "restraint of trade," as interchangeable with his bill's reference to prevention of full and free competition and advancement of costs to consumers” (Paul, 46). This move is absolutely crucial because it effectively means that neoclassical economic theory can now be understood as elaborating upon what was already implicit in common law: in order to understand what common law really meant by the prohibition of the restraint of trade, we can turn to what neoclassical theory now describes as the prohibition of the prevention of competition, and in effect make new common law on that basis.

The stakes of this move in large part lie in the question of what the Sherman Act says about the organization of labor: does the restriction of labor organization fall under the purview of the common-law against the restraint of trade, now understood to be identical to a prohibition on the prevention of competition? Since Paul’s intervention rests in large part on an attack on this paragraph in Bork, I’ll quote it at length:

That Congress did not wish courts to apply criteria expressing values other than consumer welfare is also strongly suggested by its preferred method of dealing with situations in which consumer welfare was not to be controlling. The primary examples were farm and labor organizations. Most of the congressmen who spoke to this issue favored the complete exemption of such organizations from the coverage of the statute. Senator Edmunds, who appears to have played the primary role in drafting the bill which became the Sherman Act, wished to include such groups within the law's sweep. The Act as passed was silent on the issue. It may be uncertain, therefore, whether Congress had an intention on this issue and, if it did, what that intention was. But it is clear that those who did not wish farm and labor organizations judged by consumer-welfare criteria adopted the technique of exempting them from the bill altogether. No one suggested that the matter be handled by letting the courts balance the values that these congressmen thought were in play. This raises a fairly strong inference that no values other than consumer welfare were to be considered in those cases which were intended to come within the statute's coverage. (Bork, 12-13)

Bork, in other words, is arguing that labor organizations should also be understood under the Sherman Act as constituting combinations in restraint of trade (because of the fact that they undermine competition in labor markets), and that this is the legislative intent of the act because of the fact that those who wished to exempt labor organizations from it sought to do so explicitly, while the final bill does not do so.

Paul’s line of attack against this argument has two prongs. The first is to dispute Bork’s claim that those who sought to explicitly exempt labor organizations from the bill ultimately failed to have their intention codified in the law. Instead, as she shows, it was precisely those Senators who had been most concerned with the labor exemption who actually drafted the bill in its final form. The second and more crucial prong is to dispute Bork’s equation of the common-law “restraint of trade” with the neoclassical “prevention of competition.” Together, these prongs add up to the argument that the Sherman Act does not specifically exempt labor precisely because those who originally wanted to exempt labor ended up drafting the final version of the bill, and they did not include any specific exemption for labor because they understood labor organization to already fall outside the common-law against the restraint of trade. In other words, the faction of Senators who had been pushing for the labor exemption ended up winning, and the result of their victory was that they drafted a new version of the bill for which they understood the exemption to be unnecessary. And the exemption was unnecessary precisely because the common-law “restraint of trade” says nothing, and does not imply anything, about the organization of labor.

Paul is correct on both of these counts. Her reconstruction of the legislative history of the bill is painstaking and demonstrates quite convincingly that the legislative intent of the bill was precisely to respond to the demands of organized labor against the trusts, and could thus hardly be interpreted as intending to disempower or forbid the organization of labor. As Paul puts it: “In their deliberations, legislators were primarily occupied with the worry that courts would either eviscerate or pervert the statutory purpose. Their choice of the common-law language was immediately motivated by those worries. Simply moving to federalize an existing body of law, as signified by the use of the phrase “restraint of trade,” was projected as a less audacious move, and thus a less extravagant use of the federal Commerce Clause power, than crafting a new edict altogether. And the use of the phrase ‘restraint of trade’ in the final bill also replaced language in the earlier bill about raising consumer prices, likely seen by legislators as the primary threat to coordination among small players, which they sought to preserve” (206).

The real question, then, is what is meant by the “restraint of trade” in common-law, and the extent to which what common-law meant by the “restraint of trade” is relevant to modern anti-trust law. Paul argues — again, convincingly — that the “Law and Economics” or Chicago School (here voiced by Richard Posner) is ambivalent on this point, with the result that their position is circular: “The claim is that the actual common law of restraint of trade, invoked by the statutory language, cannot be relevant to interpreting the Sherman Act, precisely because the actual common law was not about “promoting competition” in Chicago School terms. In other words, Posner’s claim takes the substantive commitments of the Chicago School as a fixed point and on that basis, declares that the actual common law of restraint of trade is irrelevant to interpreting the statute because it is not consistent with that fixed point” (234).

Posner and Bork together, in other words, are basically saying that the common-law prohibition on “restraint of trade” really means “promoting competition,” and also that what the common-law actually says about restraining trade is irrelevant because it isn’t about promoting competition. Against this view, Paul insists that what common-law means by restraint of trade really matters, not only because it doesn’t imply anything against the organization of labor (or, more generally, the “allocation of coordination rights” to “small time players”) but also because it holds out the possibility of a fundamental paradigm shift towards an embrace or revival of “traditional market regulation, or the old moral economy. Antitrust law has its ultimate origins in the doctrines of forestalling, regrating, and engrossing. The beginnings of these doctrines seem to extend more or less as far back as the common law itself.” (185).

Here, then, we have encountered a more fundamental conceptual problem, and one that brings us into touch with the deep history of English laws about markets, with the ideological victory of the classical political economists in the late 18th century, and thus with what is imagined to be the constitutive difference between modernity and its past. One of the basic features of the myth advanced by the classical political economists about their difference from their own past was the idea that economic modernity was in large part constituted by the historical supersession of an economic order based on “guilds” that “restrained competition” by an alternative economic order characterized by “free competition” and “the firm.” This is the view, of course, most famously associated with Adam Smith, whom we will consider in a moment.

As Paul argues, however, the firm in itself is, at the level of its concept, nothing but an exemption to the principle of competition: the idea of competition implies units which are to compete, and if they are to be units, then there must not exist competition inside themselves. The neoclassical idea of “competition” therefore is really making the implicit normative assertion that there should be competition everywhere… except within the firm itself. Since the firm, historically, is an entity that emerged by combining into a single entity what had previously been organized into discrete units — a single factory full of workers rather than a collection of small workshops headed by guilded masters — this allows Paul to completely invert the polarity of classical economy’s foundation myth about the supersession of the guild by the firm. It’s not at all the case, she argues, that guilds suppressed competition, and firms freed it. Rather, the opposite is true. In reality, she suggests, guilds were institutions through which the medieval “moral economy” ensured and regulated the existence of “fair competition” between large numbers of basically independent guild masters. If true, the result would clearly be that when these guild masters were replaced by a single firm managing a large factory, this would represent the suppression rather than the promotion of “competition”, since the point or even the definition of a firm is that it does not compete within itself. The historiography on guilds, as we will glimpse in Part 2 of this essay, is quite complex, and generalizing about these institutions is somewhat treacherous. But one thing is for certain: a firm-owned factory is a much bigger thing than a guilded workshop, employing a lot more people and producing a lot more goods. And if the firm just is an entity within which there is no competition, then this means that the rise of firms reduced competition rather than enhancing it.

The exploration of this problem is the topic of the follow-up essay to “Foundations of the Sherman Act”: “On Firms.” In this essay, Paul works through some of the problems raised by the earlier piece, which led her to propose an alternative framework for thinking about “the point” of anti-trust law. Rather than understand it as “promoting competition,” which relies upon an idea from (neo)classical economics that may well be incoherent, she argues that we should frame anti-trust in the more positive light of “allocating coordination rights.” The current regime does just that: it allocates coordination rights to firms, and to no-one else. But once we recognize that this entire doctrine is based upon a spurious interpretation of the common-law restraint of trade and of the Sherman Act itself, new possibilities are opened up for aiming anti-trust in a different direction, towards the dispersal of coordination rights among more “small players”, the promotion of “democratic” processes of price-coordination, and “the active construction of market rules, similar to the old town council — which actively balanced and mediated the claims of bakers, millers, journeymen and apprentices, and consumers in governing the market for bread” (“Foundations,” 249-50).

In moving, between the first and second essay, from an attack on the jurisprudential reception of the Sherman Act to an attack on classical economy’s myth about the rise of the firm, Paul is led to engage somewhat more closely with, and make somewhat stronger claims about, the medieval institution of the guild itself. It is these claims that I really want to discuss, and we’ll get to them in part 2. First, however, we need to consider the idea of the common-law “restraint of trade” and the activities of forestalling, regrating, and engrossing a little more carefully, as well as the basic source of the “myth of guilds” in the famous passage from Adam Smith about a “conspiracy against the public.”

3. Restraint of Trade

What are forestalling, regrating, and engrossing? Paul defines them like this: “Narrowly, forestalling can be defined as an attempt to sell above the customary price, or otherwise to conduct transactions outside marketing hours and rules; regrating can refer simply to specific methods of selling at a profit; and engrossing to buying up crops in the field or prior to coming to market” (“Foundations”, 185). She draws these specific definitions from Letwin (1954), but they are a bit mixed up and are somewhat contradicted by another, slightly older source offered on the subject: the more reliable Herbruck (1929). It is worth getting a little pedantic about what these words mean, because understanding their precise sense will shed significant light on how medieval English people — and thus the common-law tradition — thought about the idea of “trade” and what it meant to interfere with or “restrain” it. In their basic outlines, Paul’s claims are correct: the medieval idea of the “restraint of trade” had no bearing whatsoever on the organization of labor (or, as we will see, on the activities of guilds), and cannot really be construed as doing so. There are, however, some important aspects of this idea that drop out of Paul’s discussion, since she is mostly content to make the point that medieval economy is “moral” or “ethically embedded” and leave it at that.

What is perhaps confusing about the unholy trio of “forestalling, regrating, and engrossing” is that they seem to have been used somewhat interchangeably by medieval people themselves. The reason for this is probably that anybody who was engaged in one of the activities was quite likely to be engaged in one or both of the others, and so there was not really a point to distinguishing them sharply. But they do have distinct meanings, and the words themselves tell us what they are. “Forestalling” is a Saxon word whose basic meaning is to “defy or prevent,” but whose specific economic meaning is directly translated by the Latinate “preemption.” To forestall goods means to “stall” someone who is coming to market intending to sell their goods (pre + emptio) and buy them “before” they get there. “Regrate” is a Latinate word meaning “to step back.” The regrator, in other words, is engaged in the activity of what we would now call “flipping”: the regrator buys a commodity in the market only to “step back” into that same market and sell it again later. Finally, “engrossment” most literally means “to accumulate in large quantities.” Engrossment refers to the act of holding goods off the market by warehousing them and refusing to sell, usually after having purchased them directly from farmers in the field. Thus, “buying up goods before they come to market” is forestalling, while “buying up goods in the field” is engrossing, and these are, at least in some sense, understood as distinct offenses.

It is important to note that none of these activities have meanings that involve or require any idea of “selling above the customary price.” Forestalling means buying up goods before they reach the market, regrating means flipping goods within a market, and engrossing means holding goods off the market. All of these things were understood as, in some way, “restraining” trade and thus producing an “unjust” price, and there would be no incentive to engage in these activities unless they did in fact generate an — inherently suspicious — profit for the one engaging in them. But the idea of a “customary price” is not necessary to define what they are, and indeed in the most important of the relevant markets — the grain market — it is not quite clear what this “customary price” would be. If we are to begin trying to understand medieval common-law doctrines on the restraint of trade on their own terms, we must begin with the basic fact that the most important price in the medieval economy was the price of grain, and this price exhibited strong seasonal fluctuations. Inevitably, grain would be cheapest in the season immediately following the harvest, and most expensive right before it. Medieval people did not expect grain to be sold at a constant price throughout the year, and they expected the severity of the price appreciation over the course of the year to vary with the quality of the harvest, so it is not really clear how the benchmark of a “customary price” could be adequately employed to judge whether something was or was not “forestalling.” Things were much simpler than that. Forestalling was simply the act of buying up goods before they reached the market. This was understood as leading to an injustice of prices, but as an expected consequence rather than a matter of definition (in the same way that, in the neoclassical discourse examined above, “consumer welfare” was an expected consequence of “competition,” but not inherent in its definition).

Though these terms have somewhat distinct meanings, it seems likely that medieval people often considered them as a big lump of generally similar activities: “forestalling, regrating, and engrossing” as a single catch-all category of offense. When we consider what they all have in common, then, we can better appreciate what medieval people understood by the idea of the “restraint of trade.” Medieval people, crucially, did not conceive of a “market” in the same way as the classical political economists, as something that was naturally formed by the spontaneous brownian motion of exchange. Rather, a “market” was really an event, happening at a specific time and place, and which had to be held until the auspices of some sort of right or privilege to do so. Not just anyone, in other words, could “make a market.” They had to be specifically endowed with that power. This fact is at least partially consonant with the idea of the market as something “regulated into existence.” But to declare that a market exists, at a certain time and place, in which trade is to occur, is at one and the same time to open up the possibility that transactions might occur illicitly outside it.

Thus, what each of the unholy trio has in common is that they are precisely the sorts of illicit transactions that seem to threaten the identity of the market with itself at a single point in time and space (thereby disrespecting the right or privilege under which the market was held). Intercepting goods before they reach the market, holding goods off the market, taking goods out of the market and then back into it again — all of these actions are those that threatened the normative conception of what a proper market should be, which was an event at which everybody brought all the goods that were to be transacted and made these transactions all at once. Thus, medieval people did have a concept of an ideal, counterfactual market in terms of which they judged certain activities to be improper. It’s just that this ideal market had little to do with “competition,” but rather with the self-identity of the market as occurring at a single point in time and space (this concept of an ideal market survives, perhaps, in the figure of the Walrasian “auctioneer”).

We’ll return to this idea of a “just price”, and the uses to which Paul puts its, in part 2 of this essay. Before we move on, however, I want to conclude this section by noting one potentially explosive consequence of Paul’s interpretation of the Sherman Act, given our more precise understanding of what is meant by the common-law “restraint of trade”. Recall that her argument runs as follows: There was, originally, a draft of the Sherman Act that focused on the language of “competition.” This raised concerns among some senators that this language might be construed by courts as limiting the organization of labor, which they did not wish to do. Therefore, they proposed a series of amendments making exceptions for, among other things, organizations of laborers and farmers. The large number of amendments, however, raised concerns about the bill’s viability, after which it was moved to another committee and redrafted, this time with language around the “restraint of trade” rather than “competition.” Because the same senators who had proposed amendments exempting labor organization supported this second version of the bill even though it lacked explicit exemptions, Paul argues, it should be understood that they believed the language of “restraint of trade” to already place labor organization beyond its scope.

If we accept this argument as correct — and I suggested above that we should — then the Sherman Act, properly understood, also outlaws futures contracts (and probably a great many other modern financial instruments and activities). The purchase of a futures contract is, plainly, an act of forestalling in the sense of “the making of a contract for the purchase or control of anything coming towards a market to be sold therein before that thing shall be in the market ready” (Herbruck, 377). Moreover, the language of “restraint of trade” seems to have been understood by at least one senator as having precisely this implication: “When the Sherman bill was under debate in the Senate, Sen. Ingalls of Kansas proposed an amendment which would have taxed out of existence the business of dealing in futures contracts. Grain futures were specifically enumerated in the amendment… The Sherman bill was subsequently redrafted by the Senate Judiciary Committee, which used substantially the same broad and sweeping language which Sections I and 2 of that Act contain today. Sen. Ingalls and proponents of the Ingalls amendment supported the bill” (Law Review Editors, 1948). Since this is precisely the same grounds on which Paul argues that the Sherman Act should not be understood as prohibiting labor organizations, it does not seem possible for her to advance one claim without advancing the other. The Sherman Act prohibits “contracts… in restraint of trade,” and if by “restraint of trade” we are to understand what the common law meant by that, and what the senators of 1890 understood by that, then it is clear that the Sherman Act prohibits futures contracts. Perhaps this is a consequence to be embraced!

4. Conspiracies, Guilds, and the Public

The more fundamental point raised by Paul’s excavation of the legislative history of the Sherman Act is that the United States in 1890 did not yet fully believe in “economics.” There were, instead, two rival discourses circulating, both of which could be mobilized by policy makers against the large industrial combinations, but which were constructed around different fundamental ideas and thus had significantly different implications. One was the new language of economics centered around the idea of the virtues of competition. The other was an older common-law discourse about the restraint of trade. As we have already seen, the assertion of a simple identity between “prohibiting the restraint of trade” and “promoting competition” is key to the interpretation of the Sherman Act forwarded by Bork and the Chicago School. But despite the fact that both of these discourses could agree about the desirability of breaking up combinations, they disagreed about much else — and, as Paul has shown, the fact that legislators in 1890 understood them as disagreeing about much else is indispensable for understanding the legislative history of the bill.

For one thing, the discourse of economics — which was, famously, born around the same time as the entity called “the United States” — was centrally concerned to abolish common-law prohibitions on the restraint of trade, or what Adam Smith called “the absurd laws against engrossers, regrators, and forestallers, and the privileges of fairs and markets” driven by a “popular fear of engrossing and forestalling [which] may be compared to the popular terrors and suspicions of witchcraft” (522; 702). Somewhat counter-intuitively, Smith was actually arguing in favor of the “restraint of trade”: his view was essentially that by prohibiting speculation on the future market price of grain through engrossing, regrating, and forestalling, common-law market regulation had the effect of making grain markets more volatile. If merchants, he argued, were allowed to buy up grain when it was cheap in order to sell it into the market when it was dear (i.e. regrating), their profit from the operation would be simply a fee for their service of thereby stabilizing prices across the annual cycle. Any defense of the socially desirable effects of financial contracts such as futures, therefore, would be a continuation of this intellectual lineage which sought to argue that the “restraint of trade” was actually a good thing.

At the 1890 congress, both of these discourses were potentially available to mobilize for attacking industrial combination. It is clear that the discourse of economics, even if not yet hegemonic, was enjoying considerable circulation, since originally the senators involved in drafting the anti-trust act tried to frame the legislation in terms of the principle of competition. This, however, raised a puzzling ontological problem: if there is to be competition, there must be competition between some entities. What are the entities? And how are the entities which are to compete to be constituted legally except by means of an exception or “carveout” that sanctions the internal non-competition constituting the unity of the unit? (SOCRATES: “Do you think that a city, an army, a band of robbers or thieves, or any other group with a common unjust purpose would be able to achieve it if its members were unjust to each other?”; Rep. I.351c). It was this ontological confusion — and worries over its implications for the power of farmers and laborers — that led the senators to eventually retreat onto the firmer and more familiar ground of the “restraint of trade.” This older discourse did not raise the same ontological problems as did the idea of “competition,” because it could afford to be ontologically agnostic about the entities concerned: the restraint of trade needed only to consider relations between things and their owners, rather than a relation obtaining between (real or fictive) persons.

Thus, it is at this point that the theoretical stakes of Paul’s intervention are raised from a challenge to the dominant interpretation of the Sherman Act to an attack on one of the fundamental concepts of economics itself: the firm, which serves as the constitutive exception to political economy’s doctrine of competition. As was the case with MMT, the project of attacking a fundamental economic concept makes it necessary to engage with the historical myth that grounded that concept: just as the MMT writers had to claim to be overturning the “myth of barter” with the “real history” of money, in order to ground the claim that they really cared about, Paul must also claim to intervene into the origin myth of the firm (that it arose by superseding the “anti-competitive” guilds) in order to ground the claim that she really cares about: that the foundational concept of anti-trust should be re-framed away from “promoting competition” and towards the more rigorous notion of “allocating coordination rights” (which is superior precisely because it transcends the distinction between the rule and its exception that led to the ontological puzzle about how the units which are to compete get constituted in the first place). And again, in a striking parallel to the chartalist writers who grounded their assertions about the political potential of money by constructing a myth of a “fully political” medieval money, Paul grounds her assertions about the desirability of “coordination rights” by constructing a myth about a medieval economy — organized in terms of guilds — which was already “fully coordinated” in the service of what she calls a “traditional moral economy.”

Before we examine this claim further, it will be useful to remind ourselves briefly about the conventional or mainstream view that she wants to reject. The received wisdom about guilds “since Adam Smith has tended to view guilds and workshops as hubs of anti-competitive price-fixing” (“On Firms,” 9). We tend to imagine, in other words, that guilds were equivalent to what we now call “cartels”: organizations that monopolize the market in some commodity in order to fix the price above what would otherwise obtain in a “competitive equilibrium.” We imagine, furthermore, that this activity was the primary concern and activity of guilds — their basic reason for being — and that they were supported in this activity by the legal administration.

Interestingly, however, this is not really quite what Adam Smith himself says. He does not describe “price fixing” as the defining and above-board activity of guilds, but rather as an inevitable consequence of the mere fact that one tradesperson is aware of the specific existence of another: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meeting… But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary” (183). Adam’s Smith’s objection, in other words, applies just as much to any sort of industry association — or even to the Yellow Pages — as it does to guilds per se. Nor does Smith think that it would be possible to prevent such “conspiracies.” He merely argues that public regulation should avoid enabling or requiring them (by, for example, permitting trade associations to operate “widows and orphans” funds!).

Smith’s real complaint about guilds in this passage is not that they “fix prices,” but rather that they restrain supply in labor markets through the apprentice system (thereby “raising prices,” but only as a putative indirect consequence). His commentary here must be understood in the context of contemporary political struggles over the Elizabethan Statute of Artificers, dating from the parliament of 1562. This late 18th-century debate was essentially a dispute between labor and capital, in which the labor faction desired to reactivate and enforce the provisions of the old statute — especially that requiring a seven year’s apprenticeship by anyone practicing certain trades — while their opponents in the faction of capital sought to ward this off by officially repealing it (see Derry, op. cit.). It is probably this conflict from which our received notion of “the guild system” derives: in the late 18th and early 19th century, organized labor in England was attempting to mobilize spottily-enforced mid-16th century statutes on labor market regulation, couched in terms of “guilds” and “apprentices,” against the interests of capital, which sought to establish what we would now call a “flexible” labor market (i.e. a labor market in which workers are atomized and powerless). In this context, the attempt by the labor faction to enforce the Statute of Artificer’s clauses on apprenticeships was essentially an attempt to protect their collective bargaining power and prevent the hiring of scabs. It is not hard to see why the mercantile ideology voiced by Smith should resent this.

The original political context of the 1562 statute, however, seems to be somewhat different: not so much a dispute between labor and capital as between the interests of the central government and rural elites and those of the urban industrial economy. The central government seems to have been primarily concerned to limit the ability of the rural poor to migrate towards the labor markets of the towns, thereby putting pressure on labor markets in the agricultural sector. To this end, the government sought to restrict their ability to gain residency in the towns through the apprenticeship system, not only by lengthening the required term to seven years, but also by imposing property requirements on the parents of prospective apprentices, who had to hold land in freehold above a certain monetary valuation in order for their children to be eligible. The industrial interests in the towns, by contrast, were opposed to these measures — since the urban economy benefited from the influx of rural labor — and were able to win some concessions along these lines in the final version of the statute (Woodward, op. cit.). Thus, here, it was not the “guilds” who were pushing to restrict entry to industrial labor markets. Rather, the municipal governments dominated by the guilds were opposing these measures, which were being forwarded by a central government more aligned with agrarian elites and concerned about the disruptive “pull” of urban labor markets.

The moral of this story is that it would be a mistake to assume that “guilds” — and the stakes of being for or against “the guild system” — were the same in every historical conjuncture, or that all participants in the guild system necessarily had the same interests. As we can see in the example of the Statute of Artificers, a piece of legal regulation might be created in one context by one set of actors for one purpose, and then mobilized later in another context by a different set of actors for another purpose (much like the Sherman Act!). Restrictions on access to the apprenticeship system might either be demanded by “the guilds” or resisted by them, depending on the context. More to the point, both those who created the restrictions on apprenticeship in the 16th century and those who sought to abolish them in the 19th century had the same goal: disciplining labor. The main difference between them was the sector in which labor was perceived as being most in need of discipline: the Statute of Artificers was created in order to discipline the rural workers, and eventually repealed in order to discipline the urban. The statute meant rather different things in the 16th and 19th centuries, and thus its repeal cannot be understood simply as a negation of its passing. The situation had shifted.

In Part 2 of this essay, then, we will need to review some of the recent historical literature on guilds in order to see if we can move past caricatures both hostile and sympathetic towards a more adequate understanding of these organizations. We will begin by taking a closer look at what Paul has to say about them, now that we have a firm grasp on the stakes of the debate that brought her — ineluctably — to the point of planting a flag on the treacherous ground of medieval history. What I hope to have established is that criticism of Paul’s claims about guilds on historical grounds is more than an exercise in nitpicking. These claims are, in fact, at the heart of the issue, because of the fact that Paul is attacking a fundamental concept — the concept of the firm — and this concept is inextricable from the historical myth that grounds it. The concept cannot be attacked without attacking the myth, and the myth cannot be attacked without saying something about the “real history” that the myth gets wrong. Thus, I argue, Paul should be held accountable for her positive claims about guilds for precisely the same reasons that the neochartalists proper should be held accountable for their positive claims about the history of money. These claims are not just decoration. They really matter.

BIBLIOGRAPHY:

Bork, Robert H. “Legislative Intent and the Policy of the Sherman Act.” The Journal of Law and Economics 9 (1966): 7–48.

Derry, T.K. “The Repeal of the Apprenticeship Clauses of the Statute of Apprentices.” The Economic History Review 3, no. 1 (1931): 67–87.

Herbruck, Wendell. “Forestalling, Regrating and Engrossing.” Michigan Law Review 27, no. 4 (1929): 365.

Law Review Editors. “Validity of Commodity Exchange Regulations under the Sherman Act.” The University of Chicago Law Review 16, no. 1 (1948): 144. https://doi.org/10.2307/1597829.

Masschaele, James. “Market Rights in Thirteenth-Century England.” The English Historical Review CVII, no. CCCCXXII (1992): 78–89. https://doi.org/10.1093/ehr/CVII.CCCCXXII.78.

Paul, Sanjukta. “Recovering the Moral Economy Foundations of the Sherman Act.” The Yale Law Journal, 2021, 175–255.

Paul, Sanjukta. “On Firms.” University of Chicago Law Review, 2023 (Forthcoming).

Woodward, Donald. “The Background to the Statute of Artificers: The Genesis of Labour Policy, 1558-63.” The Economic History Review, 1980, 32–44.

1. The Standing of History

So far on “Trial of the Pyx,” I’ve focused mainly on examining the historical claims about money made by Modern Monetary Theory, which has been my research project for the last half-decade. Some of the material originally posted here ended up in my finished dissertation, The Difference that Money Makes, which you can read here. With the completion of this project, I take my point to have largely been made: those who are open to letting history challenge our gee-whiz stories will see that there are serious, even fatal problems with the basic claims about the nature and origins of money forwarded by the neochartalists, while those who are committed to the theory for reasons of politics or sunk social capital will be uninterested in even trying to defend their claims against my criticisms (nor do they need to, since they are seeking power rather than the truth, and are thus not really engaged in a scholarly project at all). There is, therefore, not a lot more to say on that particular front (I do, however, welcome engagement and criticism of that text, which will at some point be reissued in a revised form correcting various typos and minor errors).

There is, however, a lot more to say about the history of money, for its own sake, and I’ll be continuing that work and posting some snippets of it here as I go along. The sequel to my dissertation, which I am imagining might be titled An Imperial Par, will further consider the history and political stakes of bi- and tri-metallic coinage systems, beginning with the origins of coinage in Lydia and the reform of the famous King Croesus/Kroisos and then tracing this history through the rise and fall of the Roman Empire. The Romans laid the basic foundations for not only Western European moneys but Islamic ones as well, and their influence can therefore be found in monetary systems throughout a large chunk of the world all the way up until the decimalization reforms of the later 20th century.

In tracing this history, I’ll be considering a question that is a bit orthogonal to the one asked in my dissertation. In that text, I tried to understand monetary sovereignty as a power concerned with the creation of differences: with the opening up of monetary spreads between intrinsic and nominal values, establishing a difference between the interior of a territorial monetary space and its outside. In An Imperial Par, I’ll be examining instead the notion of an imperial monetary power as concerned with inter-territorial identities rather than intra-territorial differences. In other words, I’ll be forwarding the claim that one of the fundamental characteristics of imperial power, considered as a monetary phenomenon, is the attempt to construct and defend unit of account parity across territorial space. At the center of this story is the Roman solidus, a coin whose name once meant the same thing everywhere, and from which we derive the word “soldier.”

I anticipate, however, that bringing this project to completion may take me at least another ten years, and that it may end up being a rather monstrously long book. In the meantime, then, I have begun to envision a second project, one which is less concerned with monetary history and more concerned with the critique of economics. I first became interested in money because of the fact that the economists were having an argument about it — which they were clearly ill-equipped to resolve, since none of the contending parties were adequately familiar with, or showed any interest in becoming familiar with, the relevant historical literature. When economists (or their close associates, the lawyers) argue with one another, they cannot avoid making some sort of gesture towards history, but these historical claims are usually little more than cheap citational props, which nobody ever really expects to be challenged in themselves. Only very rarely — if ever — has an economist turned to the historical archive with the intention of allowing themselves to be surprised by what they find. History is little more than a mine of random facts to be harnessed in the service of theories generated elsewhere.

Thus, the basic response of the lawyers and economists to my criticisms of their claims about history is simply: “Who cares… and who are you?” To care too much about history — to put the historical horse before the theoretical cart — is to break the rules of their discursive game, and so they are completely justified, within the rules of this game, in dismissing me as a mere annoyance. Indeed, attempting to argue on the terrain of history is, for them, more than a little rude, since it takes their game “out of bounds.” What I want to do, then, is to take this game itself as an object of inquiry. I want to begin by asking why it is that we can observe a phenomenon in the discourse of the economists according to which they find it necessary always to ground the stories that they want to tell in claims about history, but when pressed on these claims also find it necessary to insist that they don’t really care about them one way or another. Why make claims that you don’t really care about? Why not simply avoid the annoying criticisms of historians by ceasing to make claims about history, at all?

2. Unmasking Economics

The economists claim a prerogative for themselves that they deny to others: they claim the right to intervene into any other scholarly discourse at all, to correct their mistakes or explain to them “what economics says” about things, but they deny to all others the right to do the same in return. The economics literature is indeed notorious for being almost entirely self-referential in the sense of only very rarely citing anything other than itself, and in undertaking to “study” things without referencing any of the literature that already exists on them. It is human beings and history that must be explained in terms of economics, rather than the other way around — and any attempt to reverse the operation is seen as fundamentally unserious. It is not so much that the historian, in seeking to critique the economists on their claims about history, is wrong, as that they lack the standing to even forward an objection in the first place. “Sit down; you have not been recognized.”

Structurally, then — and this is the claim that I want to begin exploring here and in future posts — the discourse of economics operates like a theology. Just as theology claimed the right to judge history, without being judged by history in return, so do the economists today: one cannot critique the economists’ theories about money from the standpoint of monetary history any more than one could critique the Incarnation by doing archaeology in Jerusalem. Indeed, I want to forward the even stronger claim that economics *is* a theology, and that the difference between economics and theology is a difference that is extremely important to those who believe in economics, but which is, to those who are not necessarily committed to that belief, a little more dubious or hard to perceive. In the same way, it is very important to the confessing monotheist that they are not a pagan, while to the secularist the difference between monotheists and pagans is not so important, since neither of them know the truth, which is secularism.

Secularism, then, is not the opposite of theology, but just another theology and a replacement for theology. The secular view of things is not simply a “null hypothesis,” but has a positive content of its own. And this content is what we call “economics.” I am not speaking in metaphors. Economics is a theology — it is *the* theology of the secular age — because it supplies the narrative coordinates that make it possible to posit the basic norms in terms of which society can pass judgment about its own legitimacy. It does so by positing, just as theology did, a theodicy, an eschatology, and a soteriology. Together, these little stories add up to a big story which 1) explains the world in terms of a fundamental creative principle, 2) posits the Good as the telos or goal of that principle, 3) justifies that principle against the empirical persistence of Evil, 4) narrativizes the suffering produced by that Evil by valuing it against the End of history, and 5) shows us what we have to do in order to ensure that this suffering will realize its value rather than go to waste.

I’ll try to unpack all of this going forward, a little in this post and a little more as I go along, and eventually I’ll try to explain it fully in a book. First, though, I want to respond to an immediate objection, which is that thinking about all of this stuff is quite obviously *not* what economists spend their time doing. Indeed, the modal economist probably does not even recognize any of what I just said as being made up of real words. What they actually spend their days doing is keeping track of, and trying to regulate, the way that goods are first produced by firms and then consumed by households.

To this objection, I respond that these sorts of things are not what the modal parish priest spent his time thinking about, either. What he actually spent his days doing was also keeping track of, and trying to regulate, households. This, after all, is what “economics” means. The study of economics is the study of the distributive law (nomos) of the household (oikos). And giving the nomos to the oikos is what both the bureaucratic hierarchies of the church and the modern profession of economics are mostly concerned with, on the level of their day-to-day activities. Against this, the actual content of the theology is simply a backdrop that, taken as a given, makes all the rest of this activity make sense, and supplies the basic parameters within which the ones who are doing it must think. And it is certainly not the kind of thing that people at the lower levels of this hierarchy — let alone those outside it — are encouraged to debate or dispute in any meaningful sense. “Sit down; you have not been recognized.”

3. Opening the Box of Basic Concepts

The point here is that it is because economics is a theology that economists talk about history in the way that they do. The theology that economics is depends on a story about what modernity is, because modernity and only modernity is what economists are interested in: it is only in relation to modernity that they can posit the world’s fundamental creative principle, which they must then justify, and in terms of which they can offer us salvation. What is this creative principle? It is, of course, “the market.” And what is modernity? It is, most fundamentally, a world that is no-longer-medieval.

Everything in the discourse of economics depends upon being able to say: “Once we were medieval, and this was a world in which nothing really happened, and it was ruled over by theology. Then, somehow and somewhere, things began to happen: the beginning of the relevant past. After that, we became modern, and the world overthrew theology and began to be ruled by its rightful sovereign: economics. And it is under this sovereign, and under this sovereign only, that we can go about pursuing the work of salvation, which will bring us into a relation with an end, within which we can realize the goal of human history. This end, of course, is the pursuit of [something called] ‘growth,’ and it is therefore in terms of this mission to pursue ‘growth’ that everything else about society and the world must be and can be justified.”

Thus, the economists cannot help making claims about the medieval, because it is essential to their self-understanding: only with the negation of the medieval can they begin to tell the story about what actually matters, about the “real” story of human history, which is the story of how humanity — European humanity — overcame the “static” world of its past and entered into the “dynamic” world of modernity, which it then exported by hook or by crook to everyone else in a divinely ordained mission to achieve the realization of humanity’s purpose. Don’t laugh: this is what they really believe!

There, are, therefore, a fairly small set of basic concepts that form the fundamental coordinates of the narrative that the theology called economics wants to construct. “Growth” and “the market” are perhaps the most fundamental. The market is the basic creative principle, and growth is the good that it promises and in terms of which suffering must be justified. But there are a few other angels and near-divinities arrayed in our celestial hierarchy: “money,” “value,” “utility,” “preferences,” “the consumer,” “the household,” “the state,” “the firm,” “labor,” “capital,” “progress,” “innovation,” “democracy,” “freedom,” “competition,” “the middle class,” and so on. Peer too closely at any of these concepts and one can encounter an endless bounty of what a certain philosopher once called “theological niceties.”

The question, then, is what happens if we allow ourselves to take the theological nature of economic discourse seriously, and to try to understand it for what it really is. At the end of the day, this is what was interesting about MMT: they threatened to expose, for everybody to see, that the economists did not even really know what “money” was. They thereby threatened to unmask economics for what it really was: a theology. Here, the intellectual crudeness of their theory was actually a virtue: when, for example, Warren Mosler imagined himself as the Primordial Daddy from whom all obligation originates, it was little more than an intro-seminar exercise to see the way that his discourse parodies — without a hint of irony — the basic patriarchal schema of classic monotheism or what Deleuze and Guattari might call the “Oedipal triangle.”

The goals of the proponents of the MMT theory, however, are not to start a religious war, but merely to win a struggle for supremacy within the church while leaving it intact. Since their orientation is fundamentally entryist — they want to enter the professions of the lawyers and the economists, and enter the Democratic party — they are afraid of allowing the theological controversy that their intervention threatens to unleash from getting too far out of hand in such a way that might make that project difficult. This is the reason that their patterns of thought are fundamentally conservative in relation to the discourses that already circulate within the institutions they seek to enter. “Say whatever you want, as long as it doesn’t scare the boomers!”

The problem with MMT, then, is not so much that it is wrong-er than the discourse it seeks to replace. It isn’t. Rather, the problem is that it wants to open up the box of basic concepts just far enough to let a tiny little provocation out, and then snap it shut again before the rest of what’s inside can do much harm. And this, ultimately, is why they can’t take too close of a look at history: if we approach history with the intention of allowing it to surprise us, it turns out that the basic story of “economics” might not make so much sense, at all, at the level of its basic theological foundations. If we look too closely at what happened in the world before things, according to economics, “began to be relevant,” we may end up making such a mess out of its basic angelology that that possibility of doing economics, at all, begins to come into question. It’s precisely this that I would like to achieve. And, I think, it explains why the economists so often block me when I try to talk to them about the fourteenth century.

In future posts, I’ll be making some initial stabs at expanding my exploration of this set of problems beyond the history of money as such, by exploring some issues in the historiography of the medieval guild system and the idea of a “moral economy.” Until then: keep calm, and study the coins!

There exists a widespread confusion regarding the financial instrument known as a “bill of exchange.” Simply put, many authors are so confused about these instruments that they describe them going the wrong way around. Even authors that describe the basic direction of the transaction correctly sometimes err in their designations of the various roles in the transaction (drawers and drawees, payers and payees, etc). This state of affairs is so puzzling to the would-be student of financial history that they are liable to throw up their hands and abandon the attempt to understand bills at all.

The purpose of this essay is two-fold: first, to dispel the confusion, and second, to offer an hypothesis about how this confusion arose. The origins of the confusion are perhaps even more interesting than the confusion itself, since they seem to lie in the specific conditions of the Atlantic slave-trade.

To those accustomed to modern financial instruments and means of payment, what is prima facie confusing about bills of exchange is how it is possible to “pay with” a bill. One imagines that it would be possible somehow to “pay with” a bill of exchange in the same way that one might “pay with” a coin or a banknote, in the sense that the one who is to pay somehow tenders or remits the physical object mediating payment to the one who is to be paid.

This is the confusion that seems to underlie, for example, the diagram of a transaction in bills given on page 6 of Larry Neal’s The Rise of Financial Capitalism, which is a particularly egregious example of the confusion about bills and likely the proximal cause of much of the confusion in the literature, given that Neal is regarded as an authority on the topic in the economics department.1 Neal seems to have taken the collection of terms of art associated with the exchange by bills and tortured them into an arrangement that would make it possible for the transaction to work how he imagined it should: as enabling the remittance of a payment object from the debtor to the creditor in a commercial transaction. Neal thereby transforms the bill of exchange into a kind of banknote issued by corresponding deposit bankers.

Unfortunately, this is totally incorrect. Fortunately, it gives us a simple starting place to begin clearing up the confusion: A bill of exchange is not a note. It’s a bill. And notes are notes and bills are bills.2

The surest way to avoid error in trying to understand the exchange by bills is to keep in mind that the bill is a “bill” in exactly the same way that we use the word today: it is a letter sent by the creditor to the debtor regarding the final settlement of a transaction in goods that has already been performed. In other words, the difference between notes and bills is that notes are written by debtors, while bills are written by creditors. Last week I called the plumber to come unclog my pipes, and today in my mailbox I have received a bill, informing me of the fact that I have already received the performance of a service for which I must now pay. The bill of exchange is a bill in precisely this sense, with the added feature that it, in itself, constitutes a mechanism through which the creditor sending the bill can get paid.

In the case of my plumber, I will pay them, subsequent to receipt of the bill, through the deposit banking system, by informing my bank that I would like some of my deposits to be signed over to the account of the plumber, at which point the plumber will consider themself paid. But the exchange by bills emerged in a context in which this banking infrastructure did not exist (for the simple reason that it was not legal), with the important implication that the whole point of a bill of exchange is that it enables the remittance of funds without the participation of deposit bankers. There was, to be sure, a species of banker involved in the market in bills — the exchange banker — but their business was entirely different. The exchange banker, as we will glimpse a little later, was really a kind of dealer.

2. The Medieval Bill of Exchange

In order to understand how this might be possible, we should begin by considering the simplest or “original” case: the exchange by bills in a context of bilateral trade between two countries and in which usury is legally prohibited. What is usury? Technically, usury is the pricing of usance, which refers to the period of time between the acceptance of the bill (we will define this term shortly) and its maturity or the date at which it falls due. More abstractly, we can understand the prohibition of usury as a prohibition on the pricing of one money in terms of itself, by quoting a price for money X (pounds sterling) now in terms of money X (pounds sterling) later.

We should not pass by this definition of usury without noting that the most commonly given definition — that usury is the prohibition of interest — is entirely misleading, as is the description of all profits from any financial transaction as a form of “disguised interest.” That is because the charging of interest (or interesse) was quite distinct from the pricing of usance, and it was legal under usury laws. This charge referred to a penalty that was assessed for failure to pay a bill that had fallen due, and thus was understood under canon law as pricing risk rather than time and was therefore a licit transaction. The pricing of usance is the pricing of the time between acceptance and maturity, while the pricing of interest is a charge assessed for nonperformance after maturity, with the result that pricing usance constituted a guaranteed profit for the lender while pricing interest did not.3 Thus, what we call “interest” they called “charging for usance,” and what they called “interest” we call a “late fee,” and neither of these categories are jointly or singly exhaustive of all the potential forms of profit that might be harvested from financial transactions. These distinctions are important because, without them, we cannot adequately appreciate the way that usury laws were a form of financial regulation, rather than an outright prohibition of finance as such.

At this point, then, we should define what is meant by “acceptance” and outline the basic structure of a licit transaction in bills from the perspective of the participating commercial merchants. Let us begin by trying to get a handle on the terms of art that are such a stumbling block for modern students of the topic. The terms are in fact much less arcane than they seem at first, as we will be able to see if we begin by trying to acquire an intuitive sense of what the words mean before trying to arrange them into a diagram. Let us begin by considering two actions — “drawing” and “paying” — each of which imply an active and a passive agent: the drawer and the drawee, and the payer and the payee. Simply, the “drawing” of a bill initiates the life cycle of a bill of exchange, while the “paying” of the bill closes it out, and everything else happens in between.

A licit transaction in bills (there are also illicit transactions that we will consider later) must always begin with the completed performance of a transaction in goods. So let us imagine a situation in which there are two merchants: Albert is a merchant in London engaged in the export of wool, and Bernard is a merchant in Antwerp who is importing the wool. Bernard is in receipt of a shipment of wool from Albert which has not yet been paid for, with the result that Bernard owes Albert money. To put it in a way that is more useful for our purposes (i.e. to put it the “right way around”), we might say that Albert holds balances abroad, with Bernard, as a result of a prior non-financial transaction. This fact gives Albert the opportunity to “draw on” these foreign balances by “drawing” a bill “on” Bernard in Antwerp, which means that Albert is the “drawer” and Bernard is the “drawee.” Understanding this allows us to clear up one source of confusion: “drawing” refers not to the “drawing up” of the bill as a piece of writing, but rather to “drawing on” foreign balances in the way that one “draws on” a resource (this usage survives in modern banking when we speak of a check that is “drawn on” a deposit account).

In order to do this, it is likely (though not strictly necessary) that Albert will engage the services of an exchange banker. He will go to Lombard Street, which is called that because that’s the place where you can find the Italians who are engaged in the business of exchange banking. Albert’s goal is to transform his “absent money” (funds that he holds with Bernard in Antwerp) into “present money” (English coins in his pocket in London) and the Italian firms can help him do this in virtue of the fact that they have a network of branch offices in all of the major exchange centers. At Lombard Street, Albert will find bidders for the purchase of his bill drawn on Bernard: the exchange bankers will compete with one another to offer to pay Albert cash in exchange for his bill, by which he “takes” money now in exchange for instructing Bernard to “pay” the balance owed him to the Antwerp correspondent of the London exchange banker. Thus, Bernard, the “drawee,” is also the “payer,” and the “payee” is the Antwerp partner of the London exchange banker who purchases the bill (or “delivers” money), after which he will “remit” the bill by ship to the Antwerp partner, who will then present the bill to Bernard, the drawee and payer, who must then either “protest” or “accept” the bill.

If the bill is “protested,” it becomes a matter of litigation between the various parties (and possibly leading to a souring of the business relationship between Albert and Bernard). Thus, the bills of exchange are not anonymous instruments, and gathering the information required to assess the creditworthiness of Albert and Bernard would be essential to the business of the exchange bankers. But if the bill is “accepted” by Bernard upon presentation, then this means that he has both accepted his liability to Albert (has acknowledged that Albert does in fact hold balances with him) and has confirmed his intention to pay the bill upon maturity, at the conclusion of the period of usance. The bill of exchange, in other words, is not a demand instrument: upon being presented with the bill, Bernard has additional time to raise the funds to pay the bill (perhaps one or two months), and this period of time, the “usance,” is the period of time for which charging a price would constitute “usury.”

Let us now consider the difference between the points in time before the drawing of the bill and after its payment. At t=1, Albert goes to the office at Lombard Street and sells his bill to the banker there, who sends it to Antwerp. Later, at t=2, the banker in Antwerp presents the bill for acceptance to Bernard. Still later, at t=3, the bill matures and Bernard pays it. At the conclusion of this sequence, what has changed about the world and the balance sheets of the various participants? As far as Albert and Bernard are concerned, the story is over. Albert got some cash from the banker in London, and Bernard paid some cash to the banker in Antwerp, which, from their perspective, has the same result as if Bernard had paid Albert directly, which is what they wanted to do.

For the exchange bankers, however, things are not quite over yet, because the banking house as a whole is now short cash in London and has an unfunded long position in cash in Antwerp. Eventually, then, they would need to either ship cash from Antwerp to London (thus undermining the whole purpose of the exchange by bills of obviating shipments of coin or bullion), or they will need to engage in a “rechange” or matching transaction going the other way. They would, in other words, need to find a pair of merchants that mirrored Albert and Bernard: an exporter in Antwerp, Christoffel, who held balances with an importer in London, Digby. Thus, the Antwerp banker could purchase Christoffel’s bill drawn on Digby, thereby moving the unfunded cash position off their books, and remit the bill to the London banker, who would then present it for acceptance to Digby and, after it had been paid, cover the short cash position left over from making the original purchase of the bill drawn by Albert.

At the end of this combination of exchange and rechange, the books of the exchange bankers would be netted out and they would be left with a profit, due to the fact that there existed a spread between the price of Antwerp money quoted in London and the price of London money quoted in Antwerp. This means that, in the language of the Treynor model of the dealer market, the exchange bankers were quoting an “inside spread” for the international money market, thus acting as “dealers” who were able to “pick up the spread” due to the fact that they were transacting with commercial merchants who, as “time investors,” were forced to “cross the spread” and thereby pay a “liquidity premium” to the dealer market for the privilege of doing so.4 This “inside spread” at the exchange was, moreover, “inside” in relation to the “outside spread” being formed by the interaction between the mints in the two countries, each purchasing bullion for coin at the mint window and thereby setting a nominal premium on domestic money. This topic — especially that of the policy stance of the mint — is complex and cannot be treated fully here, although we will return to the issue of the exchange spread when we come to the use of bills of exchange in the Atlantic system a little later. (The reader who wants to understand more fully what this paragraph says should consult Boyer-Xambeau et al. Private Money and Public Currency, the lectures of Perry Mehrling on the “Economics of Money and Banking,” as well as my dissertation, The Difference that Money Makes).

Here, however, we do not need to fully understand the mysteries of the market in bills of exchange as seen from the perspective of the exchange bankers. We simply need to understand how it appeared from the perspective of their clients, the commercial merchants, who used the system to remit funds to one another without having to take the risk and expense of shipping coin and bullion. The crucial point here, and the basic thing that so many authors seem to be confused about, is that it is the creditor who initiates the transaction by writing a letter to the debtor, rather than the other way around. The commercial merchant who is the one getting paid is the one who initiates the entire transaction, and the merchant who is the one paying merely receives the letter and then either accepts it and pays it or subjects it to a protest.

In each half of the exchange and rechange, the commercial merchants making use of the system experienced only one half of the exchange spread, which they saw as the “exchange rate” between the two monies. This rate would determine the amount of London money that Albert would be able to realize in exchange for his foreign balances in Antwerp, or the amount of Antwerp money that Christoffer would be able to realize in exchange for his foreign balances in London. But the profit of the exchange bankers depended upon the fact that the exchange rate between two cities was not the same in each of the cities, and thus there really existed an exchange spread, rather than a simple rate: a spread that was visible only from their perspective at the “height” of the system.

It is for this reason — the fact that the exchange bankers are playing the role of dealers in foreign exchange — that any diagram of a transaction in medieval bills of exchange involving only four parties is inherently incomplete. There must be six agents involved (although it is sometimes possible for one party to play two roles), due to the fact that, from the perspective of the exchange bankers, the transaction was completed (and the profit could be priced) only upon completion of the rechange. The exchange, in itself, is like the sound of one hand clapping, and cannot really be said to exist independently of the rechange that completes it.

There are, however, situations in which the “ideal” form of a licit transaction in the exchange by bills might collapse, and in which the full six-agent diagram might collapse into a four-agent diagram. These are situations in which the profit for making the market is coming from “somewhere else” (that is, from somewhere other than the inside spread), with the result that it might be possible to “price” the exchange purely as a one-way transaction rather than as a change-and-rechange. One of these situations is that in which usury is legal, as we will consider in just a moment. Another is when the profits for making the market are being supplied by the fiscal activities of a state and new supplies of outside money, as seems to have been the case with the Genoese-Habsburg alliance and the “American treasure” of the sixteenth century (I discussed this topic in The Difference that Money Makes and will avoid it here). The third situation, which will we consider in the final section of this essay, is one in which the market in exchange is being funded by the activities of investment bankers, as seems to have been the case in the Atlantic slave-trade.

To sum up this section, then, we can say the following. A bill of exchange is always, without exception, as I have described it here: a letter drawn by a creditor on a debtor, commanding payment in cash to a third party of the balances owed. Anything that does not meet that definition is not a bill of exchange, but something else. This is sufficient to clear up the confusion pervading the literature about the polarity of the exchange transaction, and the logic behind the names of the various agential roles. It does not, however, explain how this confusion arose, because there are reasons for it other than simply the negligence of scholars (although this certainly plays a part). These reasons have to do, first, with the additional features gained by bills of exchange in a legal context permitting usury, and second, with the structural role they played within the “triangular trade” of the Atlantic system. These considerations are what differentiate modern bills of exchange from their medieval predecessors.

3. The Difference that Usury Makes

In order to appreciate the differences between medieval and modern bills of exchange, we need to return to the topic of usury. Recall that usury is the pricing of the time between acceptance and maturity. The fact that this was prohibited under canon law meant that the exchange bankers could licitly and profitably engage in business only in transactions across two different monies. A non-usurious bill of exchange is, necessarily, a contract that prices one money (a national unit of account) against another money (a different national unit of account), and in two different places. Thus, all licit medieval bills of exchange are “foreign” bills, as opposed to “inland” or “dry” bills.

In order to see why the prohibition on usury had this effect, it is easiest to begin by considering the case in which usury is not illegal. Simply put, if it is not illegal to price the period of time between acceptance and maturity of a bill, then it might become attractive to discount accepted bills. Once the drawee (and payer) of the bill has been presented with the bill and has accepted it, they acknowledge liability for the funds falling due at the expiration of the usance period. The question is what the payee of the bill chooses to do in the intervening time.

If usury is illegal, there is not much they can do except wait. But if it’s legal, they have another option: the possibility of finding somebody else who is willing to discount the bill, or purchase it for less than its face value at maturity. This activity is usurious precisely because it prices the time between acceptance and maturity. There is no reason for the discounter to purchase a bill at its face value, since they would thereby be trading “down the hierarchy of money” for free, by exchanging cash for a mere promise of cash. But if the discounter could legally purchase the bill for below its face value at maturity (thereby pricing one money in terms of itself) then they would benefit from harvesting a yield in between t=2 and t=3.

Once usury is legalized, then discounting becomes an option, transforming accepted bills of exchange into the equivalent of notes that could then circulate as a monetary instrument among those who trusted in the creditworthiness of the acceptor. If Digsby has accepted this bill drawn on him, which means he has promised to pay it in 30 days, and you and I both know and trust Digsby, then we can begin to treat the accepted bill as a form of near-money, discounted by the distance to maturity and the level of trust in Digsby. Alternatively, the bill might be discounted and accepted by a bank specializing in such business, which purchases Digsby’s bill from the payee at a discount, accepts it (thereby making itself liable for its performance), and then resells it at a profit (i.e. for a lower discount). In this way, the payee would be able to more rapidly close out their position by liquidating the bill drawn on Digsby without waiting for maturity, by selling the bill for less than it would be worth (from Digsby directly) if they were willing to wait. This makes it possible, in a way, to “pay with” a bill of exchange: if you are the payee of a bill (meaning that you hold that bill as an asset) then you might be able to find somebody who will accept the transfer of that asset as a means of payment. But you can never “pay with” your own bill of exchange. You can only “pay with” somebody else’s bill, which you hold on your books as an account receivable.

Discounting is in effect a loan for usury at short term against the bill as collateral. The discounter pays money to the payee in exchange for the bill, which, having been accepted, holds the drawee legally liable for funds in excess of the amount paid at the discounting. This transaction enables the payee to clear their balance sheet and the discounter to harvest a yield. But it also means that the banking system, within the domestic monetary space, has been permitted to “break” the unit of account by opening up a spread within the unit of account across time and, therefore, also across space. This means that the value of the domestic unit of account (e.g. pound sterling) can be different in different places — specifically, between the city-bank and the country-bank — and that it therefore becomes possible to have a market in “inland” bills that can be used to finance domestic production as well as international commerce.

The “inland” bill is what happens when what was once called “dry” exchange gives up its pretense, because it is no longer necessary to disguise the fact that the transaction is usurious. Dry exchange is a transaction that makes a pretense of abiding by the rules of canonically licit exchange: the exchange of one money in one place for another money in another place. Thus, the borrower, Edward, sells a bill to the banker, who remits it to a partner abroad. By prearrangement, however, that partner simply draws a new bill on Edward for a later date and for a greater amount, which Edward has agreed in advance to recognize. Thus, the net effect of these transactions is simply a short term loan, in which Edward receives cash from the banker in exchange for a greater amount of cash at a later date. Thus, the profit due to the banker is not an an arbitrage on the exchange rate spread, as it was in the licit transaction, but simply a usurious charge on the term of the loan.

It is worth noting as this point that Larry Neal gives a correct diagram of a dry exchange transaction on page 8, immediately following his incorrect diagram of a “normal” exchange, but would like us to believe that this constitutes something that he refers to as an “innovation” in the history of finance — becoming suddenly possible after “the Portuguese Jews and various Protestants” were “expelled from Antwerp in 1585” (7). This, however, is a bit like saying that the United States in 1999 “innovated” the idea of combining commercial banks and investment banks, when what really happened is simply that it repealed a law that had previously been prohibiting it. Medieval bankers, in other words, were perfectly aware that it was possible to construct a short term loan through the combination of two opposing exchange transactions: it was prohibited, they did it anyway, and they were punished for doing it. Thus, the legalization of usury and the development of a market in inland bills is not an “innovation” story but rather what we could more precisely call a story about “re-regulation.”

How does the legalization of usury enable the establishment of a market in inland bills? The answer is that without legal usury it would be impossible for the exchange bankers to harvest a profit from making the market, and thus no reason for them to do so. As we saw (however briefly) in the previous section, the profit of the medieval exchange banker from a licit transaction derived ultimately from the existence of an exchange rate spread, whose ultimate source was the seigniorage charged by the mints and thus the premium that they conferred upon their domestic money. But suppose that there is a merchant in Lancashire who wishes to draw a bill upon balances owed to them in London. In order for the exchange banker to be interested in this business, they would have to be able to purchase the London balances, in Lancashire, for ready cash of an amount smaller than the face value of those balances, in London. But this would mean that one money — the pound sterling — was being priced in terms of itself, in two different places both subject to the same monetary jurisdiction! Thus the value of a “pound sterling” would be different in Lancashire than it was in London, in the same way that a florin in Flanders was different than a real in Spain. And this state of affairs might seem to be an affront to the sovereignty of the English crown, and its power (or commitment) to enforce the identity between words and things by ensuring that the term “pound sterling” referred to the same thing everywhere in its domain. It was precisely this that the medieval prohibition on usury and dry exchange prevented: the breaking of the par of the domestic unit of account by allowing it to float against itself across time and space as a result of being priced by a private money market.

However ontologically scandalous it might seem, the process of re-regulation in Protestant Europe in the sixteenth and seventeenth centuries legalizing usury up to a maximum rate had an important consequence, which is that it allowed for more flexible financing of the industrial value-added hierarchy within a country in the absence of the vertical integration of this hierarchy within a single firm. It became possible, in other words, for the spinner to finance the purchase of raw wool through a bill drawn on the proceeds of the sale of thread, for the weaver to finance the purchase of the thread by a bill drawn on the proceeds of the sale of cloth, and so on. Thus, the fact that banks could make a profit by discounting bills meant that they could facilitate the more rapid movement of funds flowing in an opposite direction to the flows of raw to intermediate to final goods. This meant that the bankers making the market in bills by standing ready to purchase them at a discount were ultimately deriving the profit of their operation not from an arbitrage on exchange spreads produced by seigniorage charges, as had their medieval forebears, but by taking a cut of the ultimate profits of industrial capital. This was, in a way, still the harvesting of an exchange spread, but it was an exchange spread that had been allowed to become internal to the domestic unit of account itself.

4. Unholy Triangle

The possibility, opened up by the legalization of usury, of allowing accepted bills of exchange to circulate as near money at a discount in between acceptance and maturity is one possible source of the modern confusion about the polarity of the instrument. The acceptance (whether that of the drawee or of a discounting bank) of the bill transformed it from a bill of the drawer into a note of the drawee/acceptor that could then be negotiated and serially endorsed within the local community of merchants, transforming all of the endorsers into jointly liable guarantors of the note’s payment. But it is crucial to remember that this “note” began life as its opposite, a bill: as a mechanism through which a creditor elsewhere could sell their absent balances for cash. For every accepted bill in circulation, somebody elsewhere — the drawer — had already been paid cash for it. It is that fact that made the instrument a “bill of exchange” rather than an instrument of another type.

There is, however, an additional reason for the confusion about the nature of these instruments, which is the role they played in the “triangular trade” of the Atlantic chattel slavery. Due to the structurally asymmetric nature of this trade, bills of exchange went only one direction — from the West Indies to England — and thus it began to look as though they were being used to “pay for” the import of enslaved Africans in the same way as a check or banknote might. This, however, is an illusion caused by not properly “following the money” and the microstructure of the entire chain of transactions.

Kenneth Morgan, in an otherwise useful essay (“Remittance Procedures in the Eighteenth-Century British Slave Trade”), gets the mechanism of transaction by bills nearly right, but makes one small error of terminology that obscures an important feature of this money market.5 Morgan describes the process like this: “A hypothetical example pertinent to the slave trade will illustrate the flow of such bills. A West Indian factor (the drawer) would purchase a bill from a local merchant or planter and transmit the paper note to a British slave merchant (the payee), or to someone to whom the payee had endorsed the bill. That person would submit the bill to a British merchant, bill broker, or bank (the payer and drawee) for acceptance” (724).

A reader who has been paying attention so far will now be in a position to spot Morgan’s error.

I’ll give you a moment to think about it.

Don’t just take my word for it.

Hopefully, you’ve noticed that it cannot possibly be correct that the West Indian factor (which is to say, the local “dealership” for slaves) was the “drawer” of the bill. Otherwise it would be unclear why the factor needed to purchase the bill from a “local merchant or planter” in the first place. The drawer of a bill is one who has balances abroad on which they are able to draw. Clearly, here, it is not the factor who holds balances in England on which the bill is drawn, but the planters, which is why the factor needs to purchase the bill from them in order to pay the captain of the slaving ship.

Now then, let us reconstruct the logic of this trade so that we can understand exactly what is going on, which will then illuminate certain phenomena that may be of some theoretical interest beyond the more narrow technical problem of how to avoid making mistakes about bills.

The best place to begin is to consider the business relationship between three distinct parties, all of whom are present in the West Indies: the captain of the slaving ship, the factor, and the planters. Ultimately, the slaves are being sold by the captain to the planters, but the factor is standing in between them as a middleman. There is a role for this middleman due to the fact that the captain of the ship would like to unload his cargo and begin the next leg of the trade, back to England, as soon as possible. The captain is a wholesaler of people, while the factor is their retailer. Thus, the question is how the factor can fund the purchase of the slaves at wholesale so that the captain can be on his way. In the West Indies, payment in coin was practically impossible, since there simply wasn’t enough specie to go around. Another option might be payment in goods, which the captain would then take to England to sell.6 But the best option would be bills of exchange drawn on London, which the captain would then be able to take there and have exchanged for cash, at which point his “triangular trade” would be closed out and ready to begin anew.

In order for this to be possible, there would have to be someone in the West Indies holding balances in England upon which the bills could be drawn. This person was not the factor, but the planter, for the simple reason that these balances were the proceeds from sales of the planter’s products that had been previously sold in England. The planter’s business was to import slaves and export molasses. Moreover, despite the fact that the people being enslaved came from Africa, they had to be paid for in England, since the African vertex of the triangle was simply a spot market at which rum, guns, and cowries were being exchanged for people. Thus, part of the asymmetry of this system lay in the fact that, while the flow of goods was triangular, the flow of funding was purely bilateral — between England and the West Indies and not involving Africa at all.

Thus, the factor stood in between the planter and the slaver not only as a middleman in goods, but as a middleman in credit as well. In order to pay the captain, the factor would try to find local planters who held balances in England as the proceeds for their exported primary goods that they would like to sell for cash in the local money. Thus, the planter would “draw” a bill on England, and the bill would then be purchased by the factor for local cash and tendered to the captain in payment for the delivery of slaves. Importantly, because the planter was likely to be unknown the captain, who would then be unable to assess the creditworthiness of the claim on English balances represented by the bill, the factor would offer their credit (and that of their firm) as security. This is likely the source of the confused statement that the factor himself was the “drawer” of the bill. The “drawer” was the planter, but the bill would be “drawn up” on the factor’s letterhead, by which means the factor and his firm would underwrite the credit of an otherwise obscure colonial planter.

If the bills were protested by the drawee upon arriving in England, then the captain might be able to receive payment from the England office of the factor’s firm, who would not wish to see their reputation damaged by the fact that their colonial factor had passed a bad bill (which is to say a bill drawn by a colonial planter on balances in England that did not actually exist). At this point, the bill would begin to look like a simple check issued by the factor promising payment from the funds of their own firm. But a colonial factor who persisted in passing bad bills would likely not be a factor for much longer. Thus, it is easy to see why credit assessment of the local planters was a central aspect of the job.

Understanding the details of these transactions is important because it allows us to grasp the stakes of the colonial market in exchange: “In 1783 a partnership of Kingston factors complained to John & Thomas Hodgson of Liverpool that bills could not be procured under a premium of 2.5 percent, and sometimes 5 percent had to be paid. Thus, whereas £100 sterling in Jamaica was usually equal to £140 in local currency, the partners now paid £142 10 shillings, or £145, for the same sterling value” (Morgan, 726). The important point here is that the factors needed to purchase the bills used to pay the slaving captains from the planters in a competitive market, and what the planters were ultimately selling were the proceeds of their planting. All the money was in England, and it stayed in England: what was ultimately happening was that the purchase of the slaves had to be paid for, in England, by the sale, in England, of the primary goods that the slaves produced.

Thus, what the trans-Atlantic market in bills of exchange was ultimately financing was a capital market. Previously, when we considered the role of discounted “inland” bills in financing the flow of intermediate goods through the value-added hierarchy, we were considering simply the financing of “circulating capital,” or the goods required as inputs in the day-to-day production process, against the output of finished goods. Here, however, we are considering the financing of “fixed capital” — enslaved people as capital goods — against their output of raw materials. As capital assets, enslaved people have a “price-earnings” or P/E ratio, representing the amount of time that it would take for the initial investment in the slave asset to pay off. The greater the amount of investment capital flooding into the slave trade, and the more speculative the market in slaves became, the more the P/E ratio in slave assets might rise. As the ratio grew, there might exist a growing imbalance between the price of slaves on the dock in the West Indies and the amount of balances from the proceeds of slave-produced goods in England held by the planters available to finance their purchase. This state of affairs would result in precisely the situation complained about by the Kingston factors: a seller’s market in bills in the West Indies, requiring the factors to pay a premium to acquire these instruments in order to pay for the receipt of slaves at wholesale.

Thus, a proper understanding of the technicalities of the exchange by bills can illuminate a more theoretically important question: the capitalization and financialization of enslaved human beings as assets in the modern Atlantic system. Further exploration of this topic is beyond the scope of this essay, though I trust that the reader will immediately grasp its importance. Suffice to say, for now, that to the extent that “capitalism” is a meaningful term, it surely has something to do with the financing of investments in capital goods against the output of final goods, and thus with the valuation of capital assets in the present in terms of the future production that they make possible. Since enslaved human beings are the most mobile form of capital asset, it was in the Atlantic slave trade that medieval forms of financial instrument originally developed to finance international commerce began to come into relation with the financing of investments into capital assets. For this reason, those who insist on trying to locate an “origin of capitalism” would do worse than to find it in the West Indies.

There’s a hot new book about money, recently out on Princeton University Press: Stefan Eich’s The Currency of Politics. As an entry into current debates about money, Eich’s book sits on one side of a subterranean fault line within the revival of chartalism — a fault line that has been identified by Colón and Mann of Strange Matters as a tension between the intellectual lineages of Georg Knapp and Alfred Mitchell Innes. This tension is manifested in the current divide between two distinct groups of scholars: the card-carrying MMTers, on the one hand, who emphasize the tradition of Knapp, and researchers affiliated with the “Law and Political Economy” or LPE project on the other, who are aligned more with Innes. We can characterize the difference between these intellectual lineages as hinging on whether they emphasize “law” or “the state” as the basis of money. (Since the question of the relationship between law and the state just is the problem of sovereignty, we can therefore observe that the problem of sovereignty is manifested sociologically in the division between two different groups of scholars within the revival of chartalism itself.)

I’ve characterized this tension between Innes and Knapp as a “subterranean” one because neither of these groups has any particularly strong desire to pick a fight with the other, despite some differences of emphasis in the way they approach the theory of money. Both of them share a basic orientation towards soft money politics against austerity, and an interest in forwarding policies like a jobs guarantee (a policy explicitly endorsed by Eich in the 2019 article version of his chapter on Aristotle, though not in the book). But nevertheless a difference remains. Anecdotally, I would characterize this difference as constituted by a reliance of MMT scholars on the work of the LPE scholars — in particular, on the work of Christine Desan, who sits at the apex of the LPE scene — and a certain kind of coyness on the part of the LPE scholars towards MMT.

MMT relies on the work of LPE to supplement the somewhat narrow gee-whiz economism of their branded literature, and Desan’s Making Money (along with some of her other work in various edited volumes) is usually cited by MMT advocates as the final (and conversation stopping) authority on the history of money. In return, however, the LPE scholars generally decline either to identify as MMTers or to criticize them too directly — one gets the impression that the former group sees itself as a bit too sophisticated to go around spamming #LearnMMT hashtags, while at the same time regarding the MMT movement as basically aligned with their values and goals (even if less tuned-in to the high-minded appeals to subtleties, complexities, and nuances appropriate to the LPE’s more rarefied Ivy League spaces).

Eich’s book is firmly on the LPE-and-Innes side of this scholarly divide. It’s been blurbed by Desan herself — “Deeply in dialogue with the past, Stefan Eich compels us forward to conceptualize money as a medium for democratic agency—or its loss. A tour de force” — and been the subject of a somewhat fawning review by Eich’s sometime-collaborator Adam Tooze, perhaps the most influential tastemaker in heterodox economics: “You might suspect that a book that stretches from Aristotle to the New International Economic Order is overreaching,” Tooze gushes. “But Eich has the skillset to pull this off - the benefits of a German humanistic education! Like Keynes, and unlike most of the rest of us in the early 21st century, Eich can read Aristotle in the original Greek and comment authoritatively on the texts.”

Endorsements like these will guarantee Eich’s book a wide and positive reception. It will, however, likely be received a bit more coolly among the partisans of MMT, due to the fact that Eich characterizes their theory as a “just-so” story — albeit a “slightly more plausible one” — early on in the Introduction. According to Eich, the textbook Econ story and the MMT story “have more in common than they care to admit. Both are implicitly driven by certain ideological commitments, and both are meant to promote a particular understanding of money. Both also make sweeping historical claims. Indeed, in (rightly) seeking to displace the myth of barter, chartalism risks swapping one transhistorical assumption for another… Where politics is entirely absent in the barter account, it appears as an undifferentiated mass of tax power in the chartalist account. Where the state is missing in the economics textbook, in chartalism it is presupposed as fully formed…” (5).

Since the MMTers are somewhat famously thin-skinned and allergic to any criticism of their doctrine, one suspects that even this gentle rebuke will ruffle some feathers (I’ve said similar things to them myself, and they didn’t like it at all). For the partisans of that theory, Eich’s characterization of money as “an ambivalent political project suspended between trust and violence” may be a bridge too far, since it suggests that the state’s monetary power may be both less total and less beneficent than they would like to admit. Will Eich’s book contribute to a thawing of the tacit detente between the two slightly different versions of chartalism forwarded by MMT and LPE? Only time can tell. But what of the book itself? If Eich finds their theory not to be wholly adequate, what does he propose instead?

2. Keynes, Psychopompos

The first thing to note is that the book’s subtitle — The Political Theory of Money from Aristotle to Keynes — somewhat oversells its true historical scope. After an opening chapter on Aristotle, to which we will return in a moment, the book skips over two millennia to the late 17th century: to Locke and the Glorious Revolution, with an analysis of the debates surrounding the founding of the Bank of England and the “Great Recoinage” of the English money. This is followed by a chapter on the German idealists (mainly Fichte, with a bit of Kant), a chapter on Marx, a chapter on Keynes, and a final concluding chapter on the crisis of the 1970s surveying a number of thinkers: Hayek, Bell, Habermas, Rawls, and others. Thus, three quarters of the book’s length cover only the final 10 percent of its stated historical scope, and a more accurate subtitle might have been The Political Theory of Money from Locke to Nixon, with Aristotle in the Background.

As I will argue later on, this historical lopsidedness really matters, and is symptomatic of some important difficulties involved in the Desanian project — carried forward by Eich — of recovering a lost political dimension of money that they take to have been obscured in modernity after Locke. But first, however, we should recognize that there is a certain logic to the fact that Eich has ignored nearly two thousand years of the subtitle’s stated scope, which is that — despite the fact that the book moves forward chronologically over the course of its six chapters — the real temporal logic of The Currency of Politics is actually retrospective. Having critiqued both the textbook and MMT as telling “just-so” stories, Eich is quite clear that his task is not to tell an “origin story” of his own. Instead, as he states at the outset, his task is to follow the gaze of Keynes backwards in time (during the period that he described as his “Babylonian madness”) in order to explore the way that “monetary crises tended to open up historical wormholes. Over and over again I witnessed philosophers, historians, and economists returning to previous monetary disruptions in the hope of stabilizing their own present and taking stock of the conceptual resources at their disposal. The traces these time travelers left behind can often be found by following their footnotes… Tracing these sedimented layers, I have conducted a kind of geological stratigraphy of the political theory of money. This book is structured as a study of six historical layers of monetary crisis and their imprint on the history of political thought.” (xiii-xiv).

Here, at least, I think that Eich is on firm methodological ground. In my own research into the political history of money, I have observed much the same phenomenon — that, wherever one looks in moments of monetary disruption, one finds contemporary thinkers casting their gaze backwards into the past, even into deep antiquity, in an attempt to understand their problems and furnish these problems with solutions. The ground of history always seems to be falling out from under us, when we think about the problem of money, sending us careening into a Loony Tunes wormhole that dumps us out in ancient Athens, in Mesopotamia, or beyond. Thus, thinkers like Keynes or Locke might be “haunted” by the Greeks even without being directly connected to them in any straightforward linear fashion, and so Eich didn’t make this strange temporal logic up — it’s right there in the sources. So that, in itself, is not the problem.

Once we read the argument of The Currency of Politics in the correct order — backwards — it starts to make a lot more sense. The argument begins with Chapter 6 in the 1970s, when the neoclassical orthodoxy about money — today under fire from the chartalists — first put itself on the throne by dethroning the Keynesians, who found themselves hoisted on the petard of “stagflation.” The outcome was “a new politics of disinflationism” that “oversaw the institutionalization of novel modes of economic discipline based on a dedemocratization of money. We can detect the force of this most recent politics of monetary depoliticization in the constrained monetary imagination of contemporary political theory. The neglect of the politics of money by political philosophers after Bretton Woods is no historical coincidence; it reflects the violent repression of the specter of inflation” (180). Eich’s starting point, in other words, is basically that money was depoliticized (which, for him, means de-democratized) by the Volcker shock, and that this depoliticization is manifested in political theory itself, which worked to render the politics of money as an ‘increasingly irrelevant sideshow’” (181). Once we recognize this depoliticization at work in our own inherited concepts, the task becomes to mount an exploration of the ways that money has been both politicized and depoliticized over the course of its history.

Thus, in the next chapter — Chapter 5 — we need to investigate what it was that the neoliberals overthrew, when they overthrew something called “Keynesianism.” It turns out, of course, that “Keynesianism” was something rather different than Keynes: “Keynes was no ‘Keynesian.’ Instead of postwar Keynesianism’s narrow reliance on fiscal fine-tuning along national lines embedded in the Bretton Woods system, Keynes himself had had in mind… a much more radical conception of money and monetary management…” (175). The replacement of the “real Keynes” with a “fake Keynes” was, on Eich’s telling, the result of the geopolitical victory of the US delegation to Bretton Woods over the delegation of its debtor country, Britain, resulting in two fundamental flaws in the new system: first, the reliance on the dollar as an international reserve currency, rather than a clearing union based on SDRs, and a reversion to “the old asymmetric convention of imposing the entire burden of adjustment on debtor countries,” rather than “distributing the burdens of adjustment equally to debtor and creditor countries” (176). The official “Keynesian” order overthrown by neoliberalism already fell short of Keynes’ real vision, as a result of the defeat of the British delegation at Bretton Woods… and thus it falls to Eich to recover Keynes’ vision of monetary politics for what it really was.

Keynes thus emerges as the hero of Eich’s narrative, as the one who might have — if things had gone just a bit differently — emerged as the one who brought us the true political theory of money. What would this theory have been? In order to understand it, Eich suggests, we need to follow his footnotes, down the wormhole through the sediments of history. Eventually, this Keynesian historical gaze will lead us back to ancient Greece, but along the way it will have to encounter some more proximal objects: Marx, in Chapter Four, Fichte, in Chapter Three, and Locke, in Chapter Two. Together, these three thinkers present “three possible responses to the central problem of international politics posed by modern money” (142) between which Eich’s Keynes — in true Aristotelian fashion — seeks to find a happy mean or middle way. This basic schema unlocks the organizational logic of Eich’s book: we ourselves are gazing backwards, past Nixon, and even past “Keynesianism,” towards Keynes himself, whom we also find gazing backwards — past Marx, past Fichte, and past Locke — towards Aristotle; whom Keynes is recovering, repeating, and working through. Keynes thus rediscovers the truth of Aristotle in precisely the same way that we, with Eich’s guidance, are to rediscover the truth of Keynes, or are to rediscover Aristotle by rediscovering Keynes… this is the real meaning of The Currency of Politics. And it makes the subtitle make a lot more sense: the meaning of From Aristotle to Keynes is a conceptual one, denoting a certain Keynesian repetition of Aristotle, rather than a chronological one, describing a span of historical time that Eich intends to investigate.

What are these three alternatives? Chapters Four (on Marx) and Three (on Fichte) set up an antithesis between two extremes, painting a picture — respectively — of the futility and the power of monetary governance. Fichte, the theorist of the self-positing-I, is obviously a chartalist, emphasizing “a new need for the rational state to control its own currency so that it could secure a set of economic rights” (101). Marx, by contrast, is presented as having developed a view — partly out of a growing frustration with heterodox monetary theorizations of his own day — emphasizing “that laws to reform the monetary system would prove to be unworkable as long as the pervasive rule of capital had not been fully grasped and, indeed, overcome” (135). These chapters I found to be competently executed and often illuminating: the Marx chapter, in particular, would have saved me some time, had I been able to read it ten years ago.

It is with the third member of this triptych — Locke, in Chapter Two — that some problems begin to emerge. We’ll address those problems in a moment. But first, what does Eich say? In large part, he follows Desan in attributing to Locke a foundational gesture of “depoliticization” that ushered in the modernity of money by forwarding a “radical and novel” argument that “led to a wholesale reversal of standard government policy” by insisting “on the unalterability of metal money even in the face of changing silver prices” (73). What Eich adds to the narrative already familiar from Desan is a more detailed reading of Locke’s monetary politics in relation to his theories of language and political order — a reading that places Locke as the middle term of the sequence Aristotle-Locke-Smith. Eich’s point, basically, is to revise readings of Locke that saw him as “naturalizing” money in the sense of seeing the metal content of coins as embodying, as Adam Smith would later on, some kind of natural value prior to any human convention or political association.

Locke, Eich argues, can be more fruitfully read as occupying a moment of transition between two different theories: an Aristotelian theory, according to which money is “conventional,” and a Smithian theory that “naturalizes” it. In between, there is Locke, whose view is characterized by “an insistence on the limits of the politics of money that was itself politically motivated even where it sought to hide its own politics… Locke began by emphasizing the conventional origins of money. But instead of building on this nominalist foundation an account of currency as a malleable political institution, he derived from it a radically novel argument. In attempting to stabilize money’s nominalist instability he sought to tie it to an arbitrary but then unalterable quantity of metal. Once set by fiat, Locke insisted, no future government should meddle with the monetary standard.” (72-3). Money was for Locke, as it was for Aristotle, “conventional,” but this conventionality was rooted in pre-political consent of all mankind to the originary social contract, thus placing it wholly beyond the interventionary “fiat” of sovereign or executive power. Thus the decision to establish a monetary measure could be arbitrary in a way that the decision to alter it could never be, since it took place in that vanishing moment of temporality that divided the state of nature from the state of political order. Altering the standard of the money — at all, in any way, and for any reason — would thus be tantamount to the rejection of that originary contract, and therefore a rejection of political order as such. Thus, Locke’s theory could serve as the intellectual underlaboring of the “Great Recoinage” of 1696, which “intervened in the name of nonintervention” in order to restore the metallic standard of the English money to the rate established by Elizabeth in 1560-1.

The argument about Locke, and the precise nature of this monetary-historical watershed at the turn of the English 17th century, requires more careful consideration, to which I will turn in the next section. But first, we need to remember that we are viewing all of this from the perspective of Keynes, who is seeking to “navigate between” three “competing visions of monetary justice” — represented by the figures of Locke, Fichte, and Marx — in order to “reconcile their respective attractions while dispensing with their downsides” (142). We can characterize these three visions as follows. For Locke, monetary politics is about depoliticizing money in the service of legitimacy. For Fichte, it’s about empowering the state’s control of money in the service of rationalization. And for Marx, it’s about diagnosing money as a symptom of the inner movement of capital. Keynes, in his turn, according to Eich, was seeking a theory of monetary politics that would constitute a Aristotelian mean between these three extremes — embracing the virtues of each without falling prey to their vices. The true political theory of money offered by Keynes, then, would be one that sought, at all once: legitimacy, rationalization, and the analysis of capital… each in their right proportion or measure.

Here, then, Eich actually breaks in certain respects with the narrative forwarded by Desan, in which Locke plays the role of a simple villain. For Eich, and for Eich’s Keynes, there is something a bit more ambiguous about him, which is that there is actually something to be said in favor of the depoliticization of money. This is illustrated by what is, perhaps, one of the most centrally important events of the book, though one mentioned only in passing: “the general election that followed little more than one month after suspension in the fall of 1931,” which “was fought exclusively over the currency issue and won by the Conservatives on the basis of a promise to restore gold. Labour, which had refused to commit to restoration, lost 215 of its 267 seats. Democratic politics could produce surprising results in the realm of money” (158). The election of 1931 illustrates, for Eich and for Keynes, a certain paradox about democracy and the politics of money — which is that democratic politics does not necessarily produce democratic money! Thus, the condition of possibility of democratic money may be a certain insulating of money from democratic politics, which could place it beyond the reach of popular elections into the hands of a more enlightened sort of technocratic management… into the hands, that is, of John Maynard Keynes and his intellectual heirs.

Eich is not unaware of this problem. On my reading, it is in fact what the book is really about, although he does not foreground this problem as such. Perhaps, in a way, it is a problem that “dare not speak its name”… or at least not too loudly. I will return to this problem again in the concluding section of this review. But first, we will need to consider some historical and conceptual issues that plague the first and second chapters of the book: an exploration of which will better illuminate what Eich says — and what he doesn’t quite say — about the problem of democracy and democratic money.

3. Down The Memory Hole

The problem with Eich’s narrative about the “radical and novel” intervention of John Locke into English monetary politics — and this is a problem that he shares with and inherits from Desan — is that it just isn’t quite true, and that making it requires presenting a dehistoricized caricature of everything that happened before this supposed watershed moment of the “depoliticization” of money. It requires, that is, putting almost everything that happened in the vast majority of the subtitle’s historical scope — the entire history of money after Aristotle, and before Locke — down the memory hole. This history then gets imagined purely as the negation of what Desan and Eich believe (mistakenly) to be a specifically modern kind of problem, a problem to which we can then search for a solution by attempting to “recover” something from the past — a past which we will, however, have to refrain from examining too closely, lest we discover that it contains just as many problems (and many of the same problems) as it does solutions.

In closing, I will reflect in a more general way on the problems this tendentious historical framing poses for the project to “recover and articulate money’s lost political promise” (11). As I will suggest, it just won’t do to assume at the outset that money has made any “promise” at all, to anyone, lost or otherwise. First, however, I will need to make some criticisms of a more technical nature about Eich’s presentation of the history of English money before Locke and about his reading of Aristotle and Aristotle’s historical context. The problems with the story here — at the end of Eich’s argument and at the beginning of the book — are likely to go unnoticed by the book’s intended audience of economists, political theorists, and modern historians, but they are in fact quite serious and threaten to undermine the basic thesis in some important ways. So I’ll examine Locke in this section, Aristotle in the next, and then, in the final section, close with some more general reflections about the stakes of telling stories about the history of money.

So bear with me for a moment. It’s wormhole time.

Let’s begin with Locke, Lowndes, and the recoinage of 1696. In the summer of that year, Eich argues, “Locke’s radical proposal won out against plans for a devaluation… The government instituted a wholesale recoinage at the Elizabethan old rate, just as Locke had demanded. It was an exercise of enormous scale, the first full recoinage since 1299” (49). The claim about it being the “first full recoinage since 1299” is a bit puzzling, since there had in fact been two other significant recoinages of the English money in the intervening period: one under Henry VII around 1586 and another under Elizabeth in 1560-1. Thus, interpretation of the claim hinges on what Eich means by “full.” In the article version of his chapter on Locke, the word “wholesale” appears in place of “full” — suggesting, along with his reference to “enormous scale,” that Eich means “full” in the sense of “replacing all the previously existing coin.”

If that were in fact the case — that the 1299 and 1696 recoinages had been more effective in fully replacing the coinage than the two intervening ones — I would be glad to know it. Maybe it is! But Eich gives no citation for the claim. I was, however, eventually able to track down the ultimate source for the comparison to 1299: it appears in Glyn Davies’ History of Money, a standard reference on the topic (though one that is not cited anywhere by Eich). Davies writes that “In January 1696 an ‘Act for Remedying the ill State of the Coin’ was passed, and for the first time since 1299 the weight standards were fully restored” (247). What Davies writes is less ambiguous: the meaning is that in 1299 and 1696, the weight standard was restored fully to the standard of the previous recoinage (in 1271 and 1560), while in 1560 and 1486, by contrast, the money was “recoined” to a higher weight above its currently circulating standard, though not all the way back to the “ancient” standard of the previous recoinage. Thus, the intervening recoinages differed from those of 1299 and 1696 in that they in some way “ratified” a decline in the unit of account in metal terms by lowering the standard (thus officially “admitting” that sterling was now worth less in silver terms), but without going so far as to simply redefine the standard as equal to the average value of the currently circulating coin.

This difference, though it might seem arcane, is a big problem for Eich’s reading of the dispute between Locke and Lowndes, for two reasons. The first is that Eich clearly wants to present Locke’s position as prefiguring “the eventual struggle in 1925 over whether Britain should return to gold and if so, whether it should do so at the old rate” (149), a struggle in which Keynes opposed the return to the “old rate” and which he eventually lost. The problem with this restoration of the standard was the deflationary shock it implied: “Whether one was for or against gold, Keynes argued, a commitment to the old rate implied that the government would somehow have to bring down all money wages and all money values” (ibid.). One does not, however, have to return all the way to the “ancient” rate in order for a recoinage to be a deflationary shock (nor is a simple comparison of the new rate with the old rate enough information to measure just how deflationary of a shock it might be, given the existence of secular changes in the values of the monetary metals among other factors). The recoinages of Henry VII and Elizabeth, in other words, had also been deflationary shocks in just the same way as the recoinage of 1696, and attempting to asses the relative deflationary impact of these events is beyond the scope of anything Eich has undertaken to argue. Regardless, the difference is one of degree rather than kind.

Thus, Locke’s view — that it would be advisable to undertake a deflationary restoration of the coinage to its old standard — was not nearly so new or so radical as either Desan or Eich want to suggest. While it is true that this was something that had not happened in such an “ideal” way for a long time in English history, it must be kept in mind that this — the span of time between Edward I and the Glorious Revolution — was a period of significant monetary “whiplash” at the scale of the world-system. A growing European scarcity of silver that was already beginning to be felt in the early 14th century before being temporarily “solved” by the Black Death turned into the “bullion famine” of the 15th century, which was then followed by an influx of American treasure in the 16th, which began to peter out again in the 17th. These large secular changes (and changes in rates of changes) in the relative values of monetary metals (relative both to one another, and to other goods) were the result of catastrophic reorganizations of global-scale networks of money and trade, driven by the abrupt closing of some routes (the end of the Pax Mongolica) and the opening of others (the crossing of the Atlantic). Thus, the simple fact that it wasn’t done doesn’t necessarily indicate that it wasn’t what lots of people thought ought to have been done, if it had been at all possible. And something like it — in the way that is relevant to Eich’s argument — had in fact been done, under Henry VII and Elizabeth.

It may well be that, given the particular context of the state of the monetary system in 1696, Locke’s prescription to fully restore the ancient standard was fairly radical in its social or distributional implications. But it wasn’t really radical in principle. Thus, we have a second problem for Eich’s narrative of the dispute: that it was actually Lowndes, rather than Locke, who was making the more theoretically radical proposal, and not simply, as Eich would have it, mouthing some kind of widely accepted Medieval and Aristotelian good sense being perversely rejected by Locke:

Up to the seventeenth century there had been nothing sacred about the metallic value of the unit; instead, successive devaluations through nominal adjustments had saved Europe from a perpetual fall of prices as the silver discoveries in the New World slowed down. As the legal historian of money Christine Desan has illustrated, the monetary nominalism undergirding such adjustments was a hallmark of English medieval and early modern monetary thought and practice. In Lowndes’s words, it was “a Policy constantly Practised in the mints of England . . . to Raise the Value of the Coin in its Extrinsick Denomination from time to time, as Exigence or Occasion required.” Raising the nominal value to bring the new price in line with the market price of silver, Lowndes promised, would immediately eliminate the disastrous gap between the price of silver and coins’ nominal value and put an end to the profitability of clipping. (55, emphasis mine)

Lowndes (though he might have been, from our perspective, proposing sound policy) was engaging in a highly tendentious reading of the history for his own polemical purposes — a reading that is unfortunately taken at face value by Desan and subsequently by Eich. In doing so, they present a caricatured view of “more than a millennium of monetary wisdom” (73, n. 164) that renders it “already Keynesian” in the sense of being characterized by a general acceptance, free of any notable conflict or contestation, of technocratic intervention into the unit of account “from time to time, as Exigence or Occasion required” by people like Lowndes — which is to say, by men of unexceptional social background employed in a technical capacity at the mint. By, in a word, “clerks.” Nothing could be further from the truth.

Eich is aware of the problem here, but buries it in an endnote: “While Lowndes was right that raising the coin had been a widespread policy for hundreds of years across all of Europe, the English standard (as well as, interestingly, the Dutch one) had not been raised for decades, though at least in the English case largely because of political weakness and instability” (55, n. 51). In addition to Desan, he refers to Braudel — but Braudel doesn’t make any of these specific claims in the cited passage. So I’m not quite sure where Eich got the idea that the supposed failure of the English to cry down their unit of account (by crying up the reference coin) for the last “decades” was due to “political weakness and instability.” Regardless of where it came from, this claim doesn’t make any sense — because the specific monetary intervention being proposed by Lowndes was in fact (and contrary to his own assertions) radically novel, at least in England. The English hadn’t just not done it in recent “decades” — they hadn’t done it ever.

In order to appreciate this, we need to understand exactly what Lowndes was proposing and how it differed from other downward alterations of the unit of account since the original sterling standard of Henry II was broken after 1299 (those under Edward III, Henry IV, Edward IV, and Henry VIII). Thus, I beg the reader to note that I do not mean here that the English unit of account was never reformed downwards — as it was — in addition to being reformed upwards — as it also was. But the debate between Locke and Lowndes was disingenuous on both sides, because Lowndes was in fact citing a historical record of one kind of reform as a precedent for another kind of reform: “Before I proceed to give my Opinion upon this Subject, it seems necessary for me to assert and prove an Hypothesis, which is this, namely, That making the Pieces less, or ordaining the respective Pieces (of the present Weight) to be Currant at a higher Rate, may equally raise the Value of the Silver in our Coins. The former of these finds many Precedents in the Indentures above recited, but the latter seems more suitable to our present Circumstances, as will afterwards be shewed…” (emphasis mine). Lowndes, in other words, cites a list of precedents in which the weight of the English coins was adjusted: “making the Pieces less.” But this, in fact, is not the policy that he is proposing, and he says so explicitly. Instead, he proposes that coins of the present weight should be “ordained… to be Currant at a higher Rate.” In other words, it should be proclaimed that one and the same coin should now be valued at a higher rate in terms of the unit of account than it had before: specifically, in this case, that the silver Crown should be raised from 5s to 6s.3d, or “enhanced” by 25%.

The first of these reforms is a “reduction” of the weight standard of the coinage: in other words, a lightening of the target weight for coin production at the mint. The other is an “enhancement” of the coin: a proclamation that changes its legal value in terms of the unit of account. Both are distinct from a “debasement,” with which they are often (incorrectly) conflated: a debasement refers to an alteration of the standard of fineness — which, as we saw, is the meaning of “sterling” (which now referred to the slightly lower fineness of 37/40 rather than Henry II’s 15/16). For our purposes, we can ignore debasements, since neither Locke nor Lowndes supported one — they are both agreed that debasement is, in some way, a bad idea without any legitimate precedent. Lowndes, however, anchors his proposal for an enhancement of the silver coin by arguing from the precedent of reductions, with the result that he feels it necessary to prove the “Hypothesis” of their equivalence.

There is an important way in which these reforms are indeed equivalent — and this is Lowndes’ argument — which is that they both reduce the value of the unit of account in silver terms, and in the same way. If Abbot owes Bartleby a debt of one pound sterling, and the standard is changed in the meantime (either through reduction, enhancement, or debasement), then the silver value of Abbot’s liability will fall — along with the silver value of Bartleby’s asset. And it’s certainly the case that Locke opposed this simply because it was therefore bad for domestic creditors: mostly importantly landlords, who would see the silver value of their sterling-denominated revenues fall. All of this is obvious enough, and in itself it’s sufficient to explain why Locke — and his audience in Parliament — were invested enough in defending the silver value of sterling to refuse the proposed enhancement.

But just because we can correctly diagnose Locke and his supporters as reasoning backwards from their personal interest as members of the creditor class does not mean that Lowndes can be taken as an impartial representative of the monetary wisdom of the middle ages. And there are at least two important dissimilarities between the enhancement Lowndes proposes and the reductions he cites as precedent.

The fundamental difference between enhancement and reduction is that enhancement redefines the unit of account, while reduction alters the coins to which that definition refers. These operations are not strictly identical. After a reduction, the statement “the unit of account is equivalent to a given number of coins” remains true as stated — it is simply the coin to which the statement refers that has changed. But after an enhancement, the statement is no longer true; it has to change, to reflect the altered number of coins that go into the unit of account. So an enhancement forces statements in language about money to change and becomes different statements in order to remain true statements, in a way that a reduction does not. This abstract observation has two very concrete consequences.

The first is that reduction of coins is subject to a technical lower bound that enhancement of coins is not, because numbers can get arbitrarily bigger while coins cannot get arbitrarily smaller. Even the ancient and just penny of Henry II had weighed only 1.46g, and the pennies of Charles II only about a third that much. If the penny got much smaller, it would for all practical purposes cease to be a coin at all, but merely a notional fraction of some larger multiple. Thus, if there was to be a coin in sterling silver called a “penny” at all, this implied some sort of vaguely defined lower bound on how low the silver value of the unit of account composed of 240 pence could fall. By contrast, if the coin were enhanced, by redefining the coin that had once been a “penny” as being now worth 1 and a half pence, the “penny” itself would become a purely abstract accounting unit, with the result that it would be just as easy for it to be worth a thousand pence as to be worth one. Thus, a system that is constrained to instantiate the unit of account into a fixed number of actual coins, and to alter the unit of account by altering the coins, is limited by a technical lower bound in a way that a system that instead alters the unit of account by changing the number of instantiated coins is not. Thus, the difference between these two operations presents a much larger policy space to the discretion of the monetary authority.

The second and more interesting consequence is that enhancement takes effect at the speed of a proclamation, while reduction takes effect at the speed of the movement of coin. Both operations raise the value of currently existing coin in terms of the unit of account: the reduction by offering a bid at the mint for the silver in the old coins, to be reminted into new, and the enhancement by simply crying up the existing coins to the new value. But there was an important difference in that the profit due to the holder of existing coin would, under the reduction, be realized at the mint window in London, while under the enhancement it would be simply be realized directly, as if by magic, into their pocket (since it was language, rather than the things themselves, that had been changed). This difference has distributional consequences, due to the fact that actors with large balance sheets and efficient communications would be able to “pick up the spread” between the mint window in London and local money markets where the old coin was still circulating. This was possible because a person of small means might find themselves forced to sell off their old, heavier coins for something less than the official premium being offered at the mint, to someone who actually had the means and the patience to send the coins to London for reminting. In other words: those who had the most to lose from a reduction of the minting standard (landed and moneyed interests), were at least partially hedged against this reduction by their ability to “front run” the mint by buying up old, heavy coin in the country. With an enhancement, this would be impossible.

The examples that Lowndes gives, in his survey of his research into the minting indentures of the 14th, 15th, and 16th centuries, are all examples of reductions, rather than enhancements, of the silver English coinage. And these reductions of the penny were not simply made as neutral, technocratic “adjustments” as “Exigence or Occasion required.” Rather, they were all made in the context of political violence and conflicts over dynastic succession: as a rule, when the English penny is unstable, so is the dynasty, and thus the political order as a whole (readers interested in a more detailed account of this should consult my dissertation — The Difference That Money Makes). Now, it was true that the English had occasionally enhanced their gold coinage, introduced to England by Edward III in the 1350s. But it was not in terms of gold that England reckoned its unit of account, even if English gold coins might be assigned a value in terms of that unit: a pound sterling was a name that referred to 240 sterling pennies, an actual coin; and by the time that Locke and Lowndes were arguing over what the mint should do, this statement — that a pound sterling referred to 240 coins called pennies — had been true for well over five and a half centuries.

What Lowndes was proposing, then, was to take an operation that England had previously confined to its gold coinage and apply it — for the first time — to the silver coinage as well, thereby changing the object of the definition of “pound sterling” from a concrete thing (a coin called a penny) into a pure abstraction (a notional fraction of a real coin). The difference between gold and silver coins here is important because these different moneys, though their values are reckoned in terms of the same unit of account, flow through circuits of exchange at very different levels of the social hierarchy. Silver was the money of everyday life, and the money that governed — and through which was reproduced — the basic relationships of social inequality at the heart of English society. Gold money, by contrast, was the money of wholesalers, merchants, and foreigners. Thus, the contractual relations in which the pound sterling was more likely to be paid with gold coinage were those that were also more likely to obtain between persons who were more or less social equals. They were, in other words, people who were just as likely to be one another’s creditor as to be their debtor, and could thus more easily form a consensus amongst themselves as to the proper value of money (as did the merchants of the great exchange fairs when they set the deposito, which is a wormhole for another time).

But contractual relations paid in silver coin were more likely, by contrast, to be relations between unequals — by which I mean simply that the landlord is always the creditor of the tenant, and almost never the other way around. Thus, the constitutional “rules of the game” that governed the way that the monetary authority was expected to be able to intervene into the value of money were different for gold and silver, because of the divergent distributional outcomes of the various kinds of monetary operation. It was these rules that Lowndes wanted to change, in order to give the English monetary administration increased operational leeway to interfere with basic relationships of social inequality in the interests of commerce and trade — a conflict that pitted “new men” like Lowndes against established elites like Locke. This was, more than anything else, simply a repetition of an ancient dance as old as money itself, and another tilt at an argument that the English themselves had been having in one form or another for many centuries.

Ironically, what unites Locke and Lowndes was the fact that they were both forced to respond to a situation in which the penny — a silver coin about yea-big in terms of which the English monetary system was defined — was becoming, ineluctably, a ghost-money. There was no way to preserve it, and no matter who had won the debate, it would have ceased to exist as an actual coin of that name. The difference between them was, mainly, a social difference, reflecting a divergence between “elite” and “middling” viewpoints on the world. This divergence of perspective led them to different conclusions about the desirability of allowing the central monetary authority access to an increased policy space in terms of the options that would be available to it to change both the sense and reference of the words people used about money. Lowndes, in order to preserve the reference, proposed to sacrifice the sense: the mint would still produce the exact same coin that was once called a “penny,” but it would no longer be called that. The sense of “penny” would change from indicating a coin to indicating a notional fraction. Locke, by contrast, in his commitment to preserve the sense, doomed the English monetary system to give up the reference: the word “penny” would still refer to a silver coin of the standard set by Elizabeth, worth 1/240ths of a pound sterling, and so the sense of the word would be preserved. But because this was a coin that could not exist, it would not exist: there would be no actual coins in existence (or at least not in circulation, as money) to which such an expression referred. All sense, no reference.

Why was the penny becoming a ghost money? Answering this question will involve even more technical detail, chiefly surrounding the the question of how to understand the operation of the exchange by bills, the consequences of the legal regulation of interest, and the relationship of England to international markets in money and goods. However, since this discussion has been long enough already (and since I don’t yet claim to understand it all myself), I will leave it as a wormhole for the reader.

It is enough here to say that a central plank on which Eich’s story in Chapter Two rests — that the debate between Lowndes and Locke was a debate between the voice of tradition and good sense, Lowndes, and the voice of a radical new modernity, Locke — is demonstrably false. Locke’s pigheaded insistence that a penny must be a penny must be a penny would not have been out of place in England in the 14th century, whereas Lowndes’ proposal to simply cry up the penny would have been perfectly scandalous (if such practices were common on the Continent, then this — to the English mind — would have simply confirmed the depravity of Continental rulers and the undesirability of importing such tyrannical constitutions across the Channel). What is most radical about Locke’s view in these texts is in fact his belief in the salutary effects of a higher legal rate of interest — a discussion of which would quickly lead us into the aforementioned wormhole about credit and the operation of the exchange. Eich notes in passing that “Locke was primarily concerned with critiquing demands for lowering the legal rate of interest from 6 to 4 percent,” but then says nothing more about the matter. But if there is anything Locke says that is truly modern, it is this consideration of the rate of interest as an important policy variable for the administration of money.

It is clear that there is a lot more research that needs to be done in order to properly understand these debates and events in the context of the “operational realities” of their contemporary monetary systems. The outcome of this research will be to seriously challenge the basic outlines of the story told by Desan and accepted mostly uncritically by Eich in Chapter Two. At stake is the entire project of “recovering” some kind of “political possibility” from a past that we imagine as having not yet developed the kinds of problems that we want to solve. But when we turn to the history of money without assuming, at the outset, that it will contain the solutions we are looking for, what we might find is that it contains a lot of the exact same problems we have, though perhaps arranged in slightly different ways. I’ll say more about this in closing. But first, we need to consider the conclusion of Eich’s argument, in the first chapter on Aristotle… which has some significant problems of its own.

4. The Idea of Athens; the Shadow of Macedon

Finally, here at the beginning of Eich’s book, we have found our way to the real object of our search: Aristotle, The Philosopher. We’ve been searching for him along with Keynes (the real Keynes, whom we found trapped Merlin-like in the cave of what actually happened at Bretton Woods), who peers through the looking glass of endless footnote wormholes; past Marx, past Fichte, past Locke, seeking the middle way between all three of these figures back towards the “birth of politics” (24). Politics, it seems, was born sometime around the 6th century B.C., in Greece, alongside the “emergence of coined money in the Mediterranean world… While money had existed for millennia, the first coins in the Eastern Mediterranean coincided with the emergence of the Greek polis. The proliferation of coinage went hand in hand with a new conception of the political community and it gave money a new political dimension closely tied to the notion of self-governance” (12).

There’s a certain temptation to make fun of a passage like this — which intones a very pious and now old-fashioned (read: Eurocentric) view of “the Greeks” — and it’s part of the reason I wrote this review backwards: Eich’s book is strongest at the end, with Keynes and the 19th century German material with which he is clearly quite comfortable, and weakest at the beginning, where he flounders, in Chapter Two through an uncritical reliance on Desan, and in Chapter One with an origin myth of exactly the sort that he promised he wouldn’t give us. His origin myth is a myth, not of the origin of money, but of the political theory of money, which emerges out of the constellation of three concepts — coinage, the polis, and self-governance — and is voiced by Aristotle in the two classic texts in which we can find his discussions of money: Politics and Nicomachean Ethics.

Eich’s reading of Aristotle (not wholly novel) presents him as the ur-chartalist based primarily on The Philosopher’s observation that the word for currency — nomisma — derives from “the conventional law of the polis (nomos). Both,” Eich tells us, “derive from nomizein, to acknowledge or to sanction something by established belief or custom” (27). Unfortunately, this is not right: nomizein is in fact derivative of nomos, not the other way around. Nomizein simply means “to nomos-ify” something. The root sense of nomos is in fact derived from the verb nemein, meaning to “deal out” or “distribute,” especially in the sense of dividing up pasturage. So the the word nomos (and this is pretty deeply important to the whole problem) is best translated as “distributional law,” is associated with the social organization of pastoralists, and is etymologically linked to vengeance or Nemesis, the goddess who punishes the hubris of the tyrannos who oversteps the limit.

I’ll come back to Eich’s reading of Aristotle in a moment. First, however, it’s necessary to say something about the historical framing in which Eich places this thinker. The chapter begins with an ekphrasis on the Athenian tetradrachm, or “owl,” which is “perhaps the most familiar of all ancient coins” (22). Eich then briefly surveys some of the literature on ancient coinage, in which he mostly comes down on the side of Moses Finley and those scholars who emphasize about coinage that it plays “a wide range of symbolic functions beyond any narrow economic logic,” though conceding that coinage “had of course an important economic dimension since coined money saved ponderous weighing and removed uncertainty” (24). Eich’s discussion here is somewhat perfunctory, so although he comes down on what is, on my view, the wrong side of this debate, we don’t need to litigate the issue here.

What does need to be litigated is this: after presenting the ekphrasis of the owl tetradrachm, and briefly surveying the “substantivist” school of the scholarship on ancient coinage, Eich then dives into his main theme: “The political centrality of currency in the ancient world was most fully reflected in Aristotle’s account of reciprocal justice in the Nicomachean Ethics. ‘A polis,’ he asserted there, ‘is maintained by doing things in return according to proportion.’ Similarly, in the Politics he wrote, “Reciprocal equality preserves city-states” (25). All of this might give the unwary reader a somewhat misleading idea of Aristotle as seeing the world primarily from an Athenian perspective, and as seeing “money” primarily under the sign of the Athenian owl.

But Aristotle, although he “went to grad school” in Athens, wasn’t from there: he was from Stagira, a city on the southern end of the Strymonian gulf. In the late 6th century, around the time of the Athenian tyrant Peisistratos (who probably introduced the first Athenian coins), the region around the river Strymon seems to have been under Athenian control: the metal in the earliest Athenian coins, the Wappenmunzen, seem to have been originally been acquired in mines up the Strymon valley. Later in the fifth century, Stagira was a member of the Delian league, and thus an Athenian “ally” — but sided with Sparta in the Peloponnesian War. Stagira is then supposed to have been sacked by Philip of Macedon in 348, when Aristotle was in his late thirties and still studying at the Academy. About a year after this event, Aristotle seems to have left Athens, and a few years later he is in the employ of the Macedonian court, tutoring Philip’s son and heir, Alexander. It was in this period, at his own school rather than the Athenian academy, surrounded by his own students, and tutoring a boy who would turn out to be a world historical monetary reformer in his own right, that Aristotle was producing his mature work. And it probably wasn’t Athenian owls that he had tucked into his gums, but “Phillips”: the silver tetradrachms and gold staters of the king of Macedon. And Philip didn’t put owls on his coins. He put his face on them.

“Self-governed” — i.e. autonomos — Greek cities of the 5th century didn’t put the faces of rulers on their coins. They also didn’t mint gold. The Great King in the East minted gold coins — his “darics” or “archers.” But for Greeks, especially for Greeks during the height of the “democratic polis,” gold was a reserve asset, rather than a currency. They had plenty of gold (were, indeed, a bit obsessed with gold) but held it in plate and objects d’art (which, tellingly, tended to weigh round-numbers according to Persian measures) rather than coins. This changed — another wormhole — around the end of the 5th century and the defeat of Athens by an alliance between Sparta (supported by the Persians) and various rebellious “allies” like Stagira. There was, around this time, a crisis of the silver coinages of the Aegean basin (visible in the numismatic record, and commented upon by Aristophanes) during which they were lightened and debased, accompanied by a new prominence of gold coinage: especially Macedonian gold coinage. Thus, by the time of Aristotle, the heydey of the “Owl” — the silver money of the democratic power of Athens — was over. Owls were still being minted, though of a reduced standard. But the money that Aristotle would have been most directly concerned with was likely to be the “Phillips”: a coin that made it very clear to all who used it that, whatever they were, they certainly weren’t autonomos.

There is, however, not a single mention of Philip, Macedon, or Alexander anywhere in the book. The equivalent would be as though Eich had written his chapter on Keynes without a single mention of World War II. As a result, Aristotle is exploded out of his historical context, given a misleadingly strong association with Athens and thus with democracy, and dis-associated from the monetary-political project whose main protagonists he was directly advising: the rise of the Macedonian kingdom to the status of overlord over the n0-longer-self-governing Greek cities and a gold-minting imperial power to rival — and topple — the Great King of Persia himself.

Thus, despite the fact that The Currency of Politics is billed as examining “six crucial episodes of monetary crisis” in order to recover “foundational ideas at the intersection of monetary rule and democratic politics,” there is, strictly speaking, no crisis in the first chapter at all. There is simply Aristotle as the dehistoricized mouthpiece of timeless wisdom, theorizing for us the “emergence” of the relation between coinage and democratic polis that we are then going to “recover” in order to solve a set of problems specific to our own modernity. But there really was, at the time of Aristotle, a perfectly good monetary crisis that could have been discussed, and in relation to which Aristotle could have been situated — precisely the collapse of the reign of the “Owl” as the dominant international money of the western Aegean, the transition to an epoch dominated by the circulation of gold, and the rise of Macedon. Eich ignores all of this because it cuts against the basic thrust of his argument: that there is any particular connection between Aristotle’s theory of money… and “self-government” or something called “democracy.”

Aristotle, simply put, is not a “democratic” thinker. He — like pretty much everyone in the aristocratic literature we’ve inherited as the Greek canon — thought that democracy was basically a bad idea and a flawed constitution. Eich knows this: “Indeed, the polis with the most extensively attested and widely circulating coinage in the Greek world was democratic Athens, an inherently flawed regime from Aristotle’s perspective” (37). Nevertheless, however, Eich takes Aristotle as being the figure who gives us the resources to “politicize” money, and in doing so counter the “depoliticization” that is, as such, also a “de-democratization”: “much of what passes as the depoliticization of money is a sleight of hand that would be more accurately described as the de-democratization of money. Unsurprisingly, this antidemocratic politics is rarely spelled out openly. After all, doing so would likely be counterproductive in the realm of democratic politics” (19). So Eich is turning to a critic of democracy, in order to recover the political dimension of money, with which we oppose, in our own time, the process of de-democratization. And he knows this. So how does he propose to square this circle?

Eich’s reading of Aristotle hinges on reconciling what we might take to be two slightly different views on money expressed in Politics and Nicomachean Ethics. In Politics, his discussion centers on a “critique of wealth accumulation” in which he condemns the notion of “money breeding money” — the basis of later condemnations of usury. In Nicomachean Ethics, however, he gives “an account of monetary reciprocity as a tool of justice” (26). But these views, Eich argues, can be reconciled:

Put to ill use, money can become a serious threat to any political community. Employed as a tool of reciprocity, however, currency serves political justice. The point is not that the institution of money cannot lead to distortions—it obviously can and does. But it also allows us to recognize those injustices and, possibly, amend them. Currency contains within itself the necessary condition for its own improvement. Reemphasizing money’s role in furthering equality and reciprocity instead of undermining them is a significant challenge for our own time. (27)

The key to the use that Eich wants to make of Aristotle is the notion that money, in a non-ideal regime, is both the cause of “distortions” and “injustices” but also the means through which they can be recognized and fixed. Thus, for this reason, the fact that democracy is for Aristotle a “non-ideal regime” becomes a feature rather than a bug:

Aristotle was, however, also concerned with constitutions that had flaws but might nonetheless be second-best given certain limitations… He described reciprocity as the bond of cities, enabling commensurability and sustaining polities when used correctly. Given their inflamed desires and defective institutions, it was likely that certain flawed regimes would extensively use currency for unjust purposes. This produces a paradox. In the best regime, in which currency would function best because it was aligned with use and justice, citizens will likely rely least on it—though even in the best political community, currency will be required. In flawed regimes, by contrast, in which currency was most removed from use, citizens will likely rely on currency all the more but in unjust ways. Currency seems needed least when it functions best and used most when it functions worst. (39)

Aristotle’s non-democratic “ideal regime,” in other words, would be the regime in which money really lived up to its billing in neoclassical theory: as comprising a neutral medium through which exchange takes place, without itself mattering in the sense of “making a difference.” In this ideal regime, money would work so perfectly that it nearly vanished. In a non-ideal regime, however, currency would be used extensively for unjust purposes — but for just precisely this reason, would allow these unjustice to become visible to political theory, which could then theorize how to fix them. And “fixing them” just means “furthering equality and reciprocity instead of undermining them.”

Equality and reciprocity. That sounds pretty nice! Who could object to that? But what Aristotle means by this is not what you might think. Again, Eich knows this:

Indeed, Aristotle’s oscillating references to equality and difference… have often frustrated commentators. Yet, if we understand equality (to ison) here not as arithmetic equality but as proportional or fair equality, a first share of the puzzle disappears. Once we conceive of political justice as aiming to achieve or preserve a status of fair equality, it becomes clear why Aristotle repeatedly describes justice as a form of analogy and a kind of mean… Aristotle evidently conceived of political justice as a state of balance” (35).

What is the difference between “arithmetic equality” and “proportional equality”? Eich is a little bit slippery about this. But Aristotle himself is perfectly clear. Simply put, arithmetic equality is what we would call “equality”… and proportional equality is what we would call “inequality.” More to the point, it’s what we would call “class.” This is just what Aristotle says: “For it is not from two doctors that a community comes about but from a doctor and a farmer and, in general, from people who are different and not equal. And these must be equalized. That is why everything that is exchanged must be in some way commensurable” (NE 1133a). Proportional equality, in other words, is the way in which unequals can be “equalized” — in the sense of being priced against one another by comparison to some equal thing — while nevertheless preserving their relation of inequality to one another. And this is what money is for. Thus, “furthering equality and reciprocity instead of undermining them” really just means “maintaining the class hierarchy rather than undermining it.”

Thus, Eich’s attempt to rescue a hidden “political potential of money” from Aristotle, a potential that might serve the cause of something he calls “democracy,” hinges on constructing a false dilemma: “Emphasizing nomisma’s possible role in serving reciprocal justice must then not lead us to overlook the persistence of power, the inevitability of losers, and the hidden violence of money” (40). But the persistence of power and social hierarchies is just what Aristotle means by “reciprocal justice”! Reciprocal justice is when everyone in society knows their place, and stays there. And that is what he — in much the same way as liberal thinkers two millennia later — feared about democracy.

This matters, because it reveals what exactly Eich means through repeated appeals to the “ambivalence” of the kind of democracy that he is after, and the way that he understands Keynes as taking up and recovering Aristotle’s political theory of money: “As Keynes recognized two millennia later, behind Athenian democracy there loomed another political innovation: currency issued by the polis” (43). As a matter of historical fact, however, this statement is quite misleading — it gives the impression that it was the democratic polis that somehow introduced the institution of coinage. But in fact, the introduction of coinage per se has little to do either with the Greek polis or with democracy. Rather, it was first invented in the monarchy of Lydia, a territorial Anatolian power, in the context of the breakup of the Neo-Assyrian empire and the ensuing self-assertion of more regional powers (one of these powers, Persia, would eventually go on to found a new empire and become the most important minting power of the 5th century, in relation to whom Athens was essentially a rebellious peripheral province, after having given “Earth and Water” to Darius in 507). And coinage, when it was introduced to the Athenians and other western Greeks, was not associated in any particular way with “democracy.” Rather, it was associated with another sort of regime, that came to be known as tyranny.

The Athenian democracy did not introduce coinage to Athens. Nor was it introduced at the time of Solon, as was previously assumed by many scholars (Solon’s “drachmas” are units of weight, and not coins). Coinage, rather, was almost certainly introduced to Athens by the tyrant Peisistratos. And the coinages of Peisistratos and his sons differed in important respects from the famous “Owl” tetradrachms that Eich wishes us to associate with Aristotle. Whereas the “Owls” are of consistent weight and purity, and stamped with a type that remained unchanged for the entire period of Athenian hegemony, the earlier Wappenmunzen were of variable weight and purity and display a large number of different types. It is likely, in other words, that these earlier coins were a more heavily “fiduciary” currency, which the tyrant forced everyone to accept at face value no matter their actual silver content, and that they were periodically demonetized and reminted in order to provide revenues to the ruler. Tyrannical shenanigans with the money — in which they asserted the sovereign power to arbitrarily redefine the unit of account — abound in the literature. Indeed, it is an act that is very nearly synonymous with “tyranny.”

The democracy, by contrast, had a money of exactly the sort that Eich sees as being fundamentally anti-democratic: a unit of account, denominated in silver, that never changed for the entire duration of the democracy’s power. The democracy very specifically did not alter its unit of account, from time to time and as exigency and occasion demanded. And it did so (as I have argued elsewhere) precisely to prove — against critics in the mold of Aristotle — that it was not a tyranny.

The democracy, in other words, was ambivalent about itself, and it was anxious about this ambivalence. And, as Bonnie Honig has argued, it worked through this anxiety about itself through the genre of tragic drama, whose basic theme was about the reformation of the tyrant: the tyrant, Kreon, who thinks that he alone holds the power to define the nomos, must be chastised by the aristocratic critique, voiced by Antigone, and learn from it, in order to learn the lesson that it is better for him to rule in accordance with the “established laws.” And one of the most important of these “established laws” was, of course, the definition of the unit of account — what was meant as the object of a contract, when contracts talked about “drachmas.” To alter this would be to take a step down the slippery slope towards tyranny — and the accusation that the democracy was basically tantamount to, or inherently on the road towards, tyranny already was, of course, the accusation of thinkers like Plato and Aristotle.

Thus, the accusation that “democratic money is bad money” (19) was something that the democracy itself was incredibly anxious about. And so it responded to this anxiety by insisting on maintaining sound money. And that is why the Athenian tetradrachm enjoyed such wide circulation: in contrast to the numerous regional “bad monies” of variable weight and purity that circulated only locally, the “Owl” was a reputable coin with a fixed content of silver. Everyone knew that, when they had “Owls,” they had good, sound money. Thus, both medieval England and classical Athens — the two regimes towards which Eich turns in search of “political money” — were in fact some of history’s most notable sound money regimes. They were regimes that emphasized, like Locke, the overriding importance of good credit and a stable unit of account. Even the democracy was fundamentally ambivalent about itself, and feared the specter of “democratic excess.” One of the the ways that Athens managed this anxiety was through strict laws about who counted as a “citizen,” and the policing of these boundaries through the prohibition of intermarriage and the sequestration of citizen women. And another was through the maintenance of the period’s most famously sound money, which nobody could accuse of being “tyrannical.”

Eich, for all his appeals to democracy and the attempt to roll back what he sees as the “de-democratization” of money, shares this fundamental ambivalence. And so did Keynes, which is why, ultimately, the analogy between Keynes and Aristotle actually works: both of these thinkers disdained democracy, at the same time as they acknowledged some of its possible virtues, because democracy threatened to undermine the basic relations of inequality between elites and non-elites that made political order what it was. As Eich writes:

Keynes’s call for the constitutionalization of currency takes us to the limits of a liberal politics of depoliticization that seeks to neutralize economic relations yet hopes to do so in the service of social justice and with possible political safety valves built in. Like the enshrining of certain framing principles in constitutional law, depoliticization meant in this context the freezing of certain foundational political compromises… there was nothing per se wrong with monetary depoliticization, particularly if such depoliticization allowed for the superior management of money. Indeed, if the principles thus enshrined were just and left enough room for discretion, monetary depoliticization would occur in a way that reflected the reciprocally shared burden of the founding compromise. His critique of the interwar gold standard was not born from a desire to democratize monetary policy or a rejection of economic depoliticization. Instead, it derived from a critique of the gold standard as a fundamentally flawed attempt at neutralization by naturalization that was both unfair in violating basic principles of social justice and profoundly counterproductive in sowing instability by insisting on stability. (174, emphasis mine)

The problem with the gold standard, in other words, was not that it produced social inequality. The problem was that it produced too much social inequality, and it produced social inequality of an unstable sort — social inequality, allowed to grow out of proportion and without constraint, would eventually annihilate itself. Thus, the goal would be to “depoliticize” money in such a way as to put it under the “superior management” of those, like Keynes, who recognized that the successful preservation of “reciprocal justice” — that is, the continuing inequality of social classes in the right proportion — would require containing, in some way, the destabilizing effects of having “too much” rather than the “right amount” of inequality. This is, indeed, a good Aristotelian politics… but it’s certainly not a democratic politics, in any meaningful sense. Or if it is a democratic politics, it’s the politics of the actually existing Athenian democracy, characterized by — among other things — intensely xenophobic and misogynistic social legislation and a deep, even foundational commitment to sound money.

Against Eich’s embrace of the “wisdom” of the Keynesian-Aristotelian search for the “proper mean” that would enable social inequality to be successfully reproduced without succumbing to its own internal contradictions, I would suggest that it is precisely the supposed wisdom of “freezing certain foundational political compromises” that needs to be called into question. Eich is not really quite explicit about what exactly this means (perhaps it cannot be voiced out loud, and still remain in the arena of democratic politics). But the nature of the compromise is quite clear: the compromise is that the basic relations of social inequality (or, euphemistically, “proportional equality”) are not to be threatened. These inequalities are not only relations between rich and poor, or between white and black, but also between those who are qualified to be “experts” on economics and those who are not. In an age in which the commitment to these “foundational political compromises” threatens to undermine even the very conditions of human life on earth, this sort of “wisdom” begins to seem very unwise.

To be fair to Eich, he is not unaware of the problem that I am outlining here. Indeed, it is central to what he argues: “Keynes never quite reconciled these two aspects of his thought: on the one hand, his call for exercising deliberate control over monetary and fiscal aggregates in order to submit economic life to general welfare, social justice, and democracy; on the other hand, his related insistence on the need for technocratic governance, with its somewhat antidemocratic suspicions and epistemic demands. To stress this tension between democratic politics and economic governance also helps to deepen our understanding of Keynes’s ambivalent relation to monetary depoliticization” (174-5). But his suggestion seems to be that this “ambivalence” or tension is accidental, rather than constitutive; that it might have been resolved in the end if things had gone differently at Bretton Woods, with the result that we would have inherited the “real Keynes” rather than “Keynesianism.” But what Eich does not see is that his analysis of the ambivalence inherent in Keynes’ thought already predicts the outcome that he describes as “falling short of Keynes’ true vision”: an international monetary order dominated by the money of the imperial victor (the US dollar), and privileging the interests of creditors over debtors. It was precisely these features of the system that enshrined the “foundational political compromise” that guaranteed the maintenance of “proportional equality” — meaning inequality — between what might then have been called the First, Second, and Third Worlds.

The problem that Eich is unwilling to confront head on is the problem that, once we admit that money is a “political convention,” and that “anything we can actually do, we can afford,” the question becomes who the “we” is that does the doing, and what kind of “proportionate reciprocity” this “we” is willing to bear in relation to other “we”s. If money is ultimately a social convention, and a social convention that governs the reproduction of social inequality… then why should there be any social inequality at all? Why should there not be a truly radical democracy in which “proportional equality collapses into arithmetic equality” — or in which, less euphemistically, inequality is simply eliminated as such? This, of course, was the possibility that even the democracy itself feared, and which it was at pains to prove that it wasn’t doing, with the result that, in some way or another, the “conventionality” of money had to be repressed — by tying the unit of account to an arbitrarily chosen standard that could not later be changed.

My feeling is that Eich can’t really decide, for himself, which horn of the dilemma he wants to fall on. He seems to want to accept the pious common sense that “real” democracy would be good, if only we could actually figure out what it was and figure out how to have it. He doesn’t want to mount an argument, against Keynes and against Aristotle, as to why social inequality is actually inherently undesirable, with the consequence that the “foundational political compromises” that ground this inequality should be simply torn up in a tyrannical act of re-foundation of the entire social order. But at the same time he sympathizes with these two heroes of his narrative, the Cantabrigian and the Stagirite, whose political thought is — as Eich himself reveals — fundamentally motivated by the fear of democracy: by the belief that the democracy doesn’t even know what is actually good for it, and thus needs to be guided by experts, and by anxiety about the potential for radical social levelling that the very notion of “democracy” seems to threaten and imply. In short, Eich’s true political sympathies seem to lie with a tradition of thinkers who would have openly admitted to opposing something called “democracy,” which they might have thought of as the “tyranny of the mob.” But he feels it necessary to claim that what he is doing is a “democratic” politics — which leads him to a kind of cognitive dissonance that he recognizes in his subjects, but fails to see in himself.

5. The Uses of History

Let me conclude with a brief meditation on the stakes of turning to monetary history in order to illuminate political controversies over money in our own day. Contemporary scholars who want, in some way, to “politicize” money by reviving some version of the chartalist theory — whether the Modern Monetary Theorists, in the vein of Knapp, or the Law and Political Economy scholars, in the vein of Innes — find themselves falling into a historiographical trap. They begin by attacking (rightly) the mythological story found in the Econ textbook — the myth of barter, according to which money arises spontaneously and naturally out of exchange. But having done this, they inevitably begin spinning a mythology of their own.

The nature of the trap is this: these thinkers find themselves needing to assert that, today, money is a political problem because it is not properly understood as being political. We think that money is natural and neutral, when really it isn’t, and that’s why it’s a political problem. The way to try to solve this problem is to realize what money is: thus, once we correctly realize that money is political, then it will cease being a political problem! They then need to tell a story about how it came to be that everyone somehow forgot about the political nature of money.

Because the main interest of these scholars tends to be in modern events, modern history, and modern problems, they can turn to something that feels, to us, like it happened a long time ago, in order to explain when the problems all began: the English late 17th century, with the founding of the Bank and the writings of John Locke. Thus, according to Desan — who is the one writer universally embraced as an authority by every persuasion of chartalist — it was only with Locke that money became depoliticized, and, before that, everyone already know what the chartalists wish us to discover — that money is a political convention, and that there is, therefore, “nothing sacred” about the unit of account. The unit of account, in the middle ages, was already-Keynesian in the sense of being nothing more than the object of technocratic management according to exigence and occasion.

But this story just isn’t true, and it relies on the fact that the audience doesn’t know anything about this history other than what they read in Desan. When we take the history of money seriously, in its own right, what we will find is that they had problems too — and that these problems were a lot like our problems. Neither the European middle ages, nor classical Greek antiquity, were periods that took place “before the Fall” of money into depoliticization and modernity. As I have argued here and elsewhere, however, this tensions between the “politicization” and “depoliticization” of money is not something that happened in history, but is rather inherent in the phenomenon of money itself: it is what is money is, rather than something that simply happened to money.

If we want to move past this dead end in the important project of telling a new historical story about money, I suggest, we need to begin by taking more seriously the dimension of money that is deemphasized by Eich and almost entirely ignored, and even defined out of existence, by Desan — the problem of foreign exchange. It is not the case, as Eich suggests in the Introduction, that there existed “two parallel monetary systems across Europe for much of the Middle Ages—a nominalist one for local and domestic transactions, a commodity-denominated one for transactions with foreigners” that “became entwined” only in the later 17th century (14). As I have shown elsewhere, elaborating on the work of Boyer-Xambeau, Deleplace,and Gillard, sovereign coinage and the exchange by bills are fundamentally related phenomena, and the policy stance of the mint (the way that it defines a relationship between metal and the domestic unit of account by quoting a price for coin) cannot be properly understood without understanding its relationship to international credit markets and the flow of specie at the scale of the world-system. Domestic money and foreign money have always been entwined, ever since the beginning, and understanding this is necessary for understanding both the phenomenon of money and its political stakes. This is something that is (tendentiously and deliberately) ignored by Desan and those scholars, like Eich, who take her as an authority — much to the detriment of their analysis. So trying to understand this deeply ancient relationship — between domestic money and foreign exchange — is the project that should be carried forward now by those of us who want to understand how the problems work, before assuming that we know where and when we are going to find the solutions.

That is enough for now. I have been rather harsh in this review. But this is a serious book with serious problems. I can only hope that Eich will take this review in the spirit that it is intended — not as a threat to his expertise as a credentialed political theorist, but as an agonistic contribution to democratic debate and contestation over the nomos of our political order.

Last time, we traced the aftermath of the collapse of the late Roman monetary system in what was, essentially, the Anglo-Frisian zone, or the zone of commercial and cultural exchange centered on the southern part of the North Sea. There, we saw that the gold triens vanished into a unit of account known as the gold scilling, composed theoretically of 20 barley grains of gold, which was instantiated as a coin by 20 silver sceattas — each of which, therefore, represented the value in silver of a notional grain of gold. Now, our story will take us southwards, to the former Roman Gaul and its successor polities ruled by the Merovingian and Carolingian dynasties. Here, the pale gold debased triens seems to have transitioned somewhat seamlessly into the denier or “new denarius,” the silver coin that would be the center of the medieval coinage for hundreds of years to follow (and is the reason that English pence are written with the abbreviation d.). The earliest types of this coin are indistinguishable from the triens except in their metal: they have the same type, and seem to have first been minted at the same weight of 20 barley grains or 1.3g. 

This standard, however, did not last long: the silver triens or proto-deniers demonstrate a collapse of weight standards, slowly at first, and then accelerating sharply in the midst of the Umayyad invasion of the 730s. As Spufford observes, the modal weights of the extant coins are clustered around divisions of the Roman pound. Remember that the “Frankish” or late triens was minted, as the third part of the solidus, on a standard of 21 to the Roman ounce. The light deniers of this period are readily intelligible as having been minted at 22, 23, 24, to the ounce, and so on, with the lightest specimens falling at about a round gram, or about 1/27th part of the Roman ounce. One important thing to note here is that this lightening of the denier in terms of divisions of the ounce of 420 barley grains into numbers of deniers higher than 21 took the individual denier off the barley standard: while batches of coins would have been calibrated to round number weight measurements, individual coins could not have been with the result that there would have been not only a decrease in the mean weight of the coins, but also an increase in their variance.

It seems that, after the victory of Charles Martel at Tours in 732, there was an effort to restore the standard to its former rating, possibly initiated by his son Pepin the Short as Mayor of the Palace and then continued after his coronation as the first Carolingian king. We know that in 754/5, Pepin proclaimed that his deniers would henceforth be minted at a standard of 22 sous to the pound (264 deniers) rather than 24 sous (288 deniers). If the pound in question can be identified with the Roman pound of about 327g, then this would imply that Pepin was seeking to raise his coins to an official standard of about 1.24g. However, as Spufford notes, it is “by no means certain” that Pepin’s pound was the Roman pound, and “surviving pieces suggest that a standard weight of 1.3 grams was aimed at” (40, n.2). This would make sense, because it would imply that Pepin was seeking to restore his coins to the old standard of the silver triens at 20 barley grains, which by that time would have been seen as the old and proper standard. We can thus take as a fixed point of reference that, upon the accession of Pepin as king, he set the standard of his coinage at a rate of 22 sous of 12 deniers of 20 barley grains each, to the pound. This means that the pound in question was a newer and slightly higher one of 5280 barley grains (a little over 342g). It is easy, therefore, to see what happened: at some point, a new pound was constructed that was equivalent to an old Roman pound (5040 barley grains) plus one sous of 12 silver triens or deniers (240 barley grains). What we see here is probably the very first origin of the “King’s Shilling.” Why was this pound altered, and when, and why by this amount?

The answer is to be found in the transition between the gold era and the silver one, and the concomitant transition between two regimes of seignorage: one in which seignorage was charged in terms of quality, to one in which seignorage was charged in terms of weight. The old pale gold triens had been of the former type: one would have brought a pound of metal to the mint, and received back a pound of coins without any loss in weight (or conceivably with some increase), but the mint would have taken its cut by keeping some of the gold and replacing it with silver. In the new regime, however, in which gold had vanished entirely, this was no longer possible in the same way. Either the pure silver coins themselves would also have to be debased (a path which does not seem to have been taken here, but would become a common feature of the later medieval period) or seignorage would have to be extracted in a different way, in terms of weight rather than in terms of quality. As we saw in the “King’s Shilling” however, the mint ceases to function if its operation represents an absolute loss to the party supplying the metal: if they are to lose something intrinsic in the weight of their coins, they must receive something back in nominal terms. In the case of pale gold triens, this surplus of nominal value would have been located in fact that the coin was, legally and theoretically, more pure than it was in reality. Obviously, then, if seignorage was to be extracted from the production of highly fine silver coins, then this could only happen if the coins were, legally and theoretically, heavier than they were in reality. (The system of scillings and sceats we examined last time represents a third, alternative path: in that system, the legal valuation of silver in gold terms would have been higher than the market value of silver, such that silver was legally overvalued. The details of this will, for the moment, be left as an exercise to the reader.) With this in mind, we will be able to readily see exactly what happened, and how the medieval European unit of account (1 pound = 20 shillings = 240 pence) evolved out of the late antique standard of 21 triens to the Roman ounce, as a result of the terminal crisis of the gold era.

Put yourself in the shoes of a Merovingian mint master, living through the final gasps of the gold era and thus the collapse of revenues from the mint. You have been minting the Frankish triens at 20 barley grains, which is supposed to be of gold but is now made entirely from silver. You have therefore hit the technical lower bound on your ability to swap nominal for intrinsic value by means of the debasement of quality. What to do? The answer they found lies in the convenient fact that, at 21 to the ounce, there are 252 silver triens to a Roman pound, or the weight of 21 sous. Thus, it would be possible to continue minting the same coins at the same standard, but to declare that 20 sous or 240 of these deniers, rather than 252, should be legally equivalent in value to a weight-pound of silver. Thus, the actual weight of the denier would be 20 barley grains, as was the old triens, but its theoretical weight would now be 21 barley grains, since it was legally equivalent to 1/240th of a pound of 5040 barley grains. Thus, by swapping around the factors of 20 and 21 they inherited in their standard, they could produce a system in which the silver coin could be nominally overvalued in terms of a unit of account in the same, rather than a different, metal. The “extra” twelve deniers that constituted a surplus-sous on top of the monetary pound could therefore be taken as seignorage. 

At some point, whether at the same time or later, this nominal pound of a pound-plus-a-sous must have been recognized as the new intrinsic pound of 5280 barley grains, in terms of which Pepin’s commitment to mint coins of 1.3g at 22 sous to the pound becomes intelligible. Spufford notes that, of this 22 sous, 1 sous was to go to the moneyer, although he is not sure if this figure is inclusive of payments to the king (whether, that is, it represents seignorage and brassage, or simply brassage). I suspect that this number is inclusive of seignorage, that the king and the moneyer split the 12 deniers, and that the supplier of the bullion therefore received back 252 of them, thus deriving a nominal sous of profit from their delivery to the mint of an intrinsic pound of silver. (If Miskimin is correct, however, that the rate of seignorage on Carolingian coins was 10 percent, then it is possible — if, to my mind, less likely — that net brassage and seignorage was 2 sous, and the exchange at the mint window occurred at parity. ) If later history is any guide, the most likely arrangement between king and moneyer was for the moneyer to pay the king up front for his share of the profits (in other words, the moneyer purchased a farm on the mint) and thus took, on his own book, a speculative position in the volume of minting activity. This, however, must be a topic for another time, and for another period in which the relevant documentation becomes more available to historians. 

This standard of a pound of 5280 barley grains and a denier (a restored silver triens) at 22 sous the pound was bequeathed by Pepin to his son Charlemagne. In the early part of this reign, we see the English king Offa raising his penny from a standard of about 1.24g (representing either 23 sous to the pound, or 22 to the old one) to match that of his neighbors across the channel, which had recently been raised from a value below his penny (~1.19g) to one above it. Offa was surely rather put out, then, when Charlemagne raised his coins abruptly shortly thereafter. It is to this reform that we must now turn. This is a very complicated issue, and my solution to it is tentative, but I hope to show that this solution is plausible because it makes the numbers work out in a very convenient way. Charlemagne, over the course of what Miskimin has argued was in fact a two stage reform, was able to bring his monetary standard into alignment with the Islamic one, an important objective given that the military activity of the early 8th century had thrown large numbers of Umayyad coins into European circulation (thereby, as it happens, introducing to Europe the Persian technology of milled rims that characterized the new denarius). A consideration of this issue will finally allow us to see (as promised!) the importance of these Umayyad coins for the foundation of the later English monetary system. 

Charlemagne accomplished this feat by changing the size of the barley grain, such that this new and probably imaginary “barley grain” would be able to interpret both the Roman pound and the Islamic dinar in whole number terms, and therefore allow Frankish silver to trade against Muslim gold at a convenient ratio. Impressively, this change in the size of the grain had the additional benefit of eliminating the pesky factor of 7 that had been introduced into the system when the Roman pound was originally interpreted in terms of barley grains in the early days of the light solidus (the VIIs, we might call them, after the numerals stamped into them to distinguish them from the earlier 6ths). We will see what Charlemagne did in a moment, but first we need to consider the structure of the Islamic system that he was confronted with. We will not dig deep into the history of this system (in no small part simply because I am not yet competent to present it, although I hope to become so later) but we must get a rough sense of it in order to appreciate Charlemagne’s achievement (and, in so doing, further dispel the myth of the stakeholder by showing that this reform was motivated by intense concern with intrinsic values and international moneys, rather than the mobilization of domestic goods and services by the “stakeholder”). 

The Islamic system differs from those we have been considering so far because it was based, first of all, on a wheat grain rather than a barley or a carob, and because it descended from the Roman ounce along a different path. At some point in time (and about this, I have no idea — let me know if you do!) the Roman ounce seems to have been lowered to 15/16 of its old value, and the dinar is thus the descendent of the solidus in that it is the sixth of this new, lighter ounce. Therefore, the Islamic dinar and the Frankish solidus or VIIs are in fact, siblings: both of them descended from a lightening of the solidus, but by different means: one by a lightening of the ounce itself, and the other by an alteration of its internal divisions. The result of this diverging history of the Roman ounce and its fractions is that the dinar (at 4.25g) sits rather uneasily about halfway between the new (3.89g) and the old (4.54g) solidus derived from the original, heavy roman ounce, without being easily expressible in itself (at ~65.6 barley grains) or as a fraction of the heavy ounce (equal by weight to about 6.4 dinars). 

Charlemagne’s solution was to reinterpret the old Roman pound according to a new, slightly lighter, barley grain, which may either have been purely notional, or a convenient product of a difference in climate between the 8th century and the late Roman period which actually reduced the real barley grain in size. (At this point, I need to give a shout out to my friend Kieran Latty, with whom I have engaged in a lengthy correspondence on the topic of historical weights and measures. It is his view, after a review of the paleobotanical evidence, that it is often difficult or impossible to reconcile nominal grains or other plant-units with the actually existing plants. It seems, rather, that once a system of weights is created, the grain is derived from the mina or the pound, rather than the other way around, leading to a tendency for the nominal grain to become detached from any relation it may have once had to a real one, including as a result of dislocations due to reforms of the larger unit itself.)

At any rate, Charlemagne redefined the barley grain such that 64 of the new grains should be equal in weight to 63 of the old ones (this is Miskimin’s light grain of ~0.0637g, although my model currently implies it at closer to .0638g). This tiny adjustment of the basic unit of weight accomplished two major goals at a stroke: first, it made the dinar intelligible at a weight of 66 2/3 grains, such that three of them would weigh 200 grains on the nose. Second, it eliminated the inconvenient factor of 7 by redefining 63 (3^2*7) as 64 (2^6). The result was a new interpretation of the Roman pound as weighing 5120 rather than 5040, or as 2^10*5 rather than 2^4*3^2*5*7. This new unit, the Roman pound divided into 5120 grains, we will call the “mark,” which was divided by 8ths into heavy ounces of 640 grains, or about 40.8g. There was then only one remaining problem, which was that Charlemagne had eliminated factors of 3 from the mark entirely, and thus could not easily take advantage of the identity of 3 dinars with 200 grains. This explains the other half of his change: the replacement of this “mark” of 8 ounces with a heavy mark of 9 ounces, i.e. 5760 grains. On this standard, a theoretical denier at 20 sous to the pound would be 24 grains, or about 1.53g, while the coined denier at 22 sous to the pound would weight about 1.39g, almost 2 grains higher than the value of the late denier of Pepin to which Offa had recently raised his penny. If we can assume that 6 dinar were supposed to be equal in value to a heavy mark, this would imply a bimetallic ratio of 72/5 or 14.4:1, with the result that the denier would trade against the dinar at exactly forty to one: 400/6 grains gold * 72 silver / 5 gold = 40 * 24 grains silver. At a stroke, Charlemagne had not only made it possible for his silver to trade against Islamic gold, but had also rationalized his own internal measurements. 

That there was a second reform after this one, therefore, was almost certainly a result of the fact that this system, as convenient as it was, had rated gold too highly and thus valued his own silver at too low of a value (edit 1/16/21: I believe this may have been mistaken. I will present a revised theory in my next letter). Whether this was already true at the time of the reform, or whether it became so later, is a topic for future research. Regardless, the next and final phase of the reform increased the heavy mark and the denier by a factor of 4/3, with two results: the bimetallic ratio was lowered to 64/5 or 12.8:1, with the result of making the exchange between deniers and dinars slightly more complicated, at a ratio of 80:3. That the denier-dinar became slightly less rational at the expense of the lower bimetallic ratio indicates that this latter result was the motivation for the change: in his second reform, Charlemagne raised the notional value of his silver in terms of the gold dinar, thus increasing the degree of their overvaluation. The result was the pound of Charlemagne: 7680 grains or ~489.9g, with its twelfth (the ounce of 640 grains), its twentieth (the sous or shilling of 384 grains), a theoretical denier at 12 to the sous, 20 to the ounce, and 240 to the pound (32 grains or ~2.04g, the weight of the “best coins”), and a coined denier at 22 sous to the pound (~19.1 grains or ~1.86g, closer to the center of the empirical distribution). 

As we can see, this series of reforms, which was surely the outcome of no small puzzlement and administrative effort on the part of those carrying it out, was intensely motivated not only to rationalize the internal consistency of the domestic monetary system, but also to harmonize it with the given facts of world money and make monetary exchanges in the realm of international commerce more readily calculable. Next time, we will turn to England, and observe the way that the evolution of the monetary system in that country responded not only to the Islamic world, but to Charlemagne’s response to the Islamic world as well. Let me conclude by saying that if any reader can make it this far and find the myth of the stakeholder remotely plausible, I will be truly astounded. It is clear from the evidence that monetary reformers were overwhelmingly motivated by foreign, as well as domestic, relationships and policy goals, and this is a fact that is fundamentally incompatible with the stakeholder story as it is presented in the work of Desan and others.

Stay tuned, intrepid numismatists. -CD

REFERENCES:

Miskimin, Harry A. “Two Reforms of Charlemagne? Weights and Measures in the Middle Ages.” Economic History Review 20, no. 1 (April 1967): 35–52.

Spufford, Peter. Money and Its Use in Medieval Europe. Cambridge: Cambridge University Press, 1988.

Here, therefore, I will focus on criticizing an aspect of her story with more immediately obvious implications: the myth of the stakeholder. The basic move of the chartalist school’s revision of the historical narrative about money is to replace the well-known (and, recently, much criticized) myth of barter — according to which money develops as a result of a spontaneous social consensus that using it would make things easier — with a different myth, according to which money was invented when a “stakeholder” at the “hub of the community… identified a unit and began to use it as a kind of receipt to represent resources given to the group” (23). Of course, chartalist writers do not represent this story as a myth: they represent it as the history of what really happened. Nevertheless, a myth is what it is. Desan’s work represents the most sophisticated attempt by a chartalist writer to dress up this myth in historical garb, but, as we will see, this project requires selectively ignoring important aspects of the history that cannot be reconciled with the narrative being advanced.

Usually, chartalists locate the historical invention of money in bronze age Mesopotamia. Here, however, given that the volume in which her chapter appears is limited in scope to the post-Roman west, Desan finds a more appropriate originary moment in early medieval England, which was more thoroughly demonetized than its Continental neighbors in the wake of the collapse of the Western Empire’s fiscal system. This “grave rupture in monetary activity” that followed the withdrawal of the legions after 410 A.D. thus makes it possible to imagine early medieval Anglo Saxon society as a tabula rasa in which money could be invented again, in the same way and for the same reasons as it was the first time. This story, which constitutes the “stakeholder myth,” is simple, and I will presume that my readers are more or less familiar with it: the “community as a whole” has a need to “collect goods and services from many hands and deploy them to a variety of uses.” One way to do this, of course, is just to collect the required goods and services directly in kind. According to Desan, however, there is an inherent inefficiency in this type of administration:

charters from the English seventh and eighth centuries list the produce collected by Anglo-Saxon sovereigns—vats of honey, ‘ambers’ of ale, cows, loaves of bread, geese, and chickens. But romantic as in-kind collections may sound, the supplies must not always have fit the function. Conversely, collecting support in-kind created difficulties for stakeholders… Finding themselves unable to time their demands to match scheduled contributions, one such stakeholder could instead take an amount of goods or services early, giving in return a token that the recipient could provide later at a time of reckoning as proof that the service had been rendered… The intervention, taken by an actor to whom many people were obligated, would create a standard of value across many goods. (23)

We have here a number of somewhat puzzling claims. First, it is difficult to see what is meant by the failure of available supplies to “fit the function,” or how this problem would be solved by the invention of money. If the king is in urgent need of a horse and the barley to feed it, here and now, but there are no horses available, it is not easy to see how the issuance of a receipt for a horse would solve the problem. Second, on the other side of the fiscal circuit, it is unclear why contributions should be “scheduled” in the first place, such that the stakeholder should find it difficult to “time their demands to match.” Even if we imagine, perhaps, that the “scheduled contribution” is a share of the harvest, and the stakeholder requires some grain prior to the harvest, this is not a problem that requires the introduction of a negotiable money instrument: the stakeholder could simply keep a book in which they recorded the early receipt of grain as a credit. If the chartalist is inclined to respond by saying that this requires trust that the stakeholder will keep the book honestly and honor the credit when the harvest comes, and that this problem is solved by the issuance of the coin as a receipt held by the creditor, I will remind them that their view also requires an assumption of trust in the stakeholder’s promise to accept this receipt later at its full value. If we cannot trust the stakeholder to keep the books, why would we trust them to honor their IOUs? Desan seems to imply that the issuance of negotiable receipts, rather than simply keeping a book, is motivated by the desire to coordinate obligations over geography: “the peripatetic habit of the early Anglo-Saxon rulers,” she writes, “may have been driven in part by the need to move to gather support in-kind.” This suggestion that monetization allows rulers to become sedentary, however, is difficult to reconcile with the fact that the practice of paying court visits to the nobility, and thus imposing upon them the upkeep of the court, was one that continued on through the Tudor period and beyond, well after the thorough monetization of English society. We could also point to the example, in another period, of the Seleucid kings, who ruled over a highly monetized society but were nevertheless permanently on the move.

At any rate, we can dispense with trying to make sense of this myth of the stakeholder, since it just isn’t true: it fails to explain, as we will see in a moment, some of the key facts of the history of early medieval Anglo Saxon money. Moreover, we can notice that this myth of the stakeholder is actually identical to the myth of barter it claims to dispel: both stories claim that money is invented as a device for overcoming a problem of double coincidence (the double coincidence of wants, or the double coincidence of supplies and obligations) and thus lowers transaction costs (either in commerce or in the fiscal administration). According to the myth of barter, the difficulty of finding someone who has what I want and wants what I have makes transactions costly, and money lowers this cost; according to the myth of the stakeholder, the difficulty of finding someone who both has what I want and owes it to me makes administration costly, and money lowers this cost. Thus, we have here not history as opposed to myth, but simply two competing versions of what is, at heart, the same myth. The myth of the stakeholder is the myth of barter, transposed into a different key: a verticalist conception of the monetary relation, rather than a horizontalist one. But hum the tune and you’ll find that they are the same.

So what, then, of history? As Desan writes, “coins provide testimony to their own creation” (26). It is, in fact, the coins and the coins alone that testify to their creation. The earliest known type of coin, from a series emitted in ancient Lydia, bears the inscription, “I am the badge of Phanes.” We do not know who Phanes is, what he was thinking when he issued his coin, what his intention was, or what it meant to be his badge. But we do know how much the coins weigh (a little over 14 grams), and we can — both through modern and ancient methods — determine the purity of their metal (an alloy of silver and gold, ranging from about 20% to 70% gold). Chartalists, of course, tend to be uninterested in the study of the material composition of the coins, since their view is that the coin is just a token issued by the stakeholder, and making this token from precious metal is simply an anachronism, an unnecessary inconvenience, or bizarrely — as we saw last time — an anti-counterfeiting measure. But this is an a priori assumption, rather than a result of historical study. It is clear from the coins themselves that the people who made and used them cared a lot about their weights (they went to a lot of effort to make them consistent, which implies that they cared) and purities (they went to a lot of effort to diguise the true purity of the coins, which also implies that they cared). It is therefore only through the study of the coins themselves that we can put our speculations about the history of money on a firm foundation and restrain our inevitable tendency to try to force the facts into our preferred procrustean bed. It is therefore telling that, in fantasizing about the stakeholder’s invention of money in early medieval England, Desan has nothing to say about the coins themselves, other than that they existed. Here is the entirety of her discussion of actually existing coins:

They began to circulate in Britain in the early seventh century, appearing first as gold scillingas and expanding when the English began minting silver sceattas in the 670s. While gold coin often imitated Roman imperial precedents, silver sceattas boasted beautiful and varied designs, including animal forms, diademed busts, and figures like a long-haired or helmeted man with a hawk. For some scholars, the variety suggests that money emerged as a private industry. For others, however, the plethora of types reflects the political geography of Britain at the time — small ‘closely governed’ kingdoms and maritime towns or ‘wics’, each of which could well have produced its own coin. According to that reading, many of the symbols that grace sceattas—the bust, heraldic animals, the helmeted figure—are imprimaturs of the community’s stakeholder. (26)

While her monograph, Making Money, has a slightly longer discussion of these coins, she is there, as here, completely silent on the issue of their weights, and gestures towards the issue of their purity only to make the point that it doesn’t matter: “communities” debase the coins because they need more money, and this is fine because it’s just a token anyway. If interest in this blog continues, I will turn to that text in more detail — there’s a lot of material there; a lot of counterfeit claims in need of Pyxing. But for now, let us open our ears to the testimony of the thrymsas and sceattas themselves and see what they have to tell us. The story that they will unfold for us is a bewildering tangle, involving two different ounces, three different plants, and several hundred years of path dependency, without a tabula rasa in sight. The Anglo Saxon kings didn’t invent anything: as is clear from the evidence of the coins, their goal was to (re-)integrate England into the international monetary system, which had never gone away, and which lacked any single center. What follows is my best attempt to reconstruct this story, though I cannot promise that I have gotten all the details exactly right: I welcome criticisms by other students of the coins, if they have evidence that contradicts my assertions. 

As Desan correctly notes, the gold thrymsas are often Romanizing in style. That is because the thrymsa is a Roman coin, or at least a descendent of one: the “thrymsa” is is the “triens” or “tremissis,” or the third part of the solidus: a large gold coin, introduced by Domitian and reformed by Constantine, which served as the center of the late Roman monetary system that was bequeathed to the middle ages. While the solidi themselves had largely fallen out of circulation, the triens remained, and in the history of this coin we can observe the transition between the late Roman gold period and the early medieval silver period: the triens was gradually debased with silver until it had effectively lost its gold content entirely and therefore ceased to exist as such. In passing, we can note that this oscillation between gold periods and silver periods is one of the most striking facts about monetary history, and one which is — to the best of my knowledge — completely ignored by the chartalists. (In forthcoming work, I will attempt to present a theory of the causes and implications of this historical oscillation, but we cannot get into it here.) At any rate, we should begin by noting that the triens or the “gold shilling” was once in fact, and was later in theory, one third of a solidus. What was the solidus?

The solidus established by the reform of Constantine in 310 A.D. was a highly pure gold coin (no gold coins are completely pure, since some base metal was added to improve the durability of the gold) minted at a standard of one sixth of the Roman ounce, or 72 to the pound. In modern measurements, the Roman ounce is about 27.3 grams… but modern measurements are completely useless for understanding the ancient units of weight in terms of which coins were produced. In order to understand the coins on their own terms, we must express their weights in terms of native units. In reconstructing these systems, the rule of thumb is to remember that everything must be in whole numbers and perfect fractions: ancient people could not measure in terms of fractions of their smallest units, and they designed their systems of counting to be easily divisible by the smallest prime factors: 2s, 3s, 5s, and, somewhat rarely, 7s. Since counting in base 10 does not permit easy division into thirds, people in the past would have found this “modern and rational” system of counting to be highly cumbersome and impractical. The valuation of the (much later) English gold noble at 6s.8d, for example, seems on first impression to a mind used to counting in decimals to be rather arbitrary, but in fact it represents exactly one third of a pound of 20 shillings of 12 pence each. 

So, whole numbers and perfect fractions… but of what? Ancient measures of weight were based on plants, often grains like wheat or barley: by sampling a fairly large number of grains (ritually specified as taken “from the middle of the ear”) it is possible to create standardized weights with statistical errors that might be measurable by modern equipment and thus meaningful to us, but which were not to them. In the Roman case, however, the unit was the siliqua or the carob, amounting to about .19g in modern units. The Roman ounce was defined, in their terms, as 144 (2^4*3^2) siliquae (or 24 scruples, a unit of 6 siliquae). Its sixth, the solidus of Constantine, was thus 24 siliquae, and its 18th part, the triens, was 8 siliquae. 

I specify that this was the solidus of Constantine because the “triens” of late antiquity was, in fact, minted on a different standard, one which is not intelligible in terms of the Roman units. The Constantinian triens of 8 siliquae weighed about 1.52g, but the later “Frankish” triens weigh in at a rather lighter 1.3g, which implies a solidus standard of about 20.6 siliquae. By weight, this is one seventh of a Roman ounce — but the Roman ounce of 144 siliquae cannot be divided into 7ths. Clearly, therefore, when the solidus was lightened, it was also moved on to a different standard, one in which division by 7ths was possible. This standard was the barley grain, the ancestor of the “grain Troy,” weighing about .065g. If the Roman ounce is interpreted on this standard, it measures 420 (2^2*3*5*7) grains, and can therefore be divided into a solidus of 60 grains and a triens of 20. This coin, the Frankish triens or thrymsa, was one of the standards that early Anglo Saxon kings inherited from the past, but it was one that was deteriorating: as the dawn of the silver age advanced, the triens ceased to exist as a coin, and became a unit of account: the gold shilling. That is to say that gold remained the unit of account despite having ceased to exist as a currency: when you owe money, you owe it in terms of a gold coin weighing 21 barley grains, but no such coins exist. The actual payment, therefore, must take place in silver coins that are somehow reckoned in terms of an imaginary gold one. 

This coin was the sceat, or what is now more commonly called an “early penny,” since the term contemporaries actually used to describe it was “paenning.” The sceats are described in the literature as occurring in three phases: a primary sequence, a transitional sequence, and a secondary sequence. It seems (although the argument for this in the literature is somewhat circular, as far as I can tell) that the heavier sceats of the primary sequence are clustered around 18 barley grains, but fall thereafter to weights that seem to cluster around 12 or 14 grains. Since we know from contemporary documentation that the sceat was a coin valued at 20 to the shilling, which we above identified with the Frankish triens of 20 grains, it is easy to see that the weight of the sceat expressed in barley grains directly implies a bimetallic ratio: at a weight of 18 grains, the bimetallic ratio will be 18:1, since 20 sceats of 18 grains silver constitute a shilling of 20 grains gold. The falling weight of the sceat thus represents a falling value of gold against silver, as implied by the correspondence between the coin and the unit of account, which are in different metals. It is almost certainly the case, then, that the decline of the standard of the coinage is a response to changing market values of the two metals, but we must refrain from going down that rabbit hole at the moment.

Since this letter is already lengthy, I will break off the narrative here. In Part 2, coming soon, we will examine the origin of the more familiar units of English money — the pound sterling and the penny — in similar terms. What we will find is that these units are, ultimately, derived from an attempt to reconcile the Roman standard discussed here with an Islamic one, and thus to create a system that would be readily translatable into not only one but two existing international monetary standards. The narrative described by Desan’s work, therefore, is plausible only on the condition that we ignore the importance and centrality of the Islamic world and its monetary system to northern European late antiquity. What I have said so far, however, is already enough to cast doubt upon, if not completely dispel, the myth of the stakeholder. It is not the case, as Desan claims, that Anglo Saxon rulers established a unit of account by circulating tokens in which prices could be reckoned, that the “receipt” issued by the stakeholder became a “unit creating a shared standard of value.” This didn’t happen, because the unit of account already existed: the Anglo Saxon kings inherited it from the Roman past. Far from creating a unit of account by issuing coins, their problem was to find a way to instantiate an existing unit of account (defined in terms of a metal that had fallen out of circulation and a plant that didn’t grow there) into a coin of a different metal and in units of a different plant, without thereby rendering the fractional basis of the system unworkable. 

Stay tuned for next time, and the exciting and rarely told story of the origins of the English monetary standard in the dinar of Caliph al-Khattab. -CD

REFERENCES:

Hines, John. “Units of Account in Gold and Silver in Seventh-Century England:  Scillingas,  Sceattas and  Pæningas.” The Antiquaries Journal, no. 90 (2010): 153–73.

As per the methodology of this blog, I will refrain from getting too deep into the conceptual issues under contention, and restrain myself to the evaluation of individual facts and citations. It must be noted at the outset, however, that this “1000+ page book” (actually, it weighs in a bit below 800) seems to support Grey’s position slightly less than he thinks: the first introduction, by Fox, Velde, and Ernst states unambiguously (and one only has to read 14 pages to get there) that “the monetary practice in England throughout most of the period covered by this book stands against the adoption of the full implications of chartalist theory.” They state, furthermore, that “following the practice in the classical Roman law, the medieval sovereign’s prerogative over money only controlled the minting, valuation, and import and export of coins. The term ius cunendi (‘right of coinage’) defined the legal boundaries of the right, and effectively exempted the creation of dematerialized substitutes for coin from the sovereign’s exclusive control” (14). It appears, then, that it is Grey who is confused on the finer points of the legal history of money and could benefit from a careful study of this text, rather than me. It also appears as though the two introductory chapters of the book present rather different views that sit in tension with one another, rather than either one constituting an “overarching framework.” But let us leave this aside. What of the second introduction, by Desan?

In this letter, I will focus on a statement made by Desan on the operation of the free minting system. The point I will be explicating here is a technical one, but my critics can hardly turn around and accuse me of pedantry: if the technical details about open market operations at the Fed are worth getting right, then so are the technical details of the medieval mint. Either get it right or leave it to those who will! Desan writes:

Making tokens out of a material that was scarce, durable, and difficult to work — thus long-lasting and hard to counterfeit — made great sense under the circumstances. The English, like most Europeans more generally, turned to silver. Under a system called ‘free-minting’, they opened mints that sold inhabitants coin on demand: buyers brought in a pound of bullion, for example, and got it back in coined form less a small charge for the work. Thus the mint might produce 242 pennies from a pound of silver, keep a fee of 12 pence for the moneyers and the king, and return 230 pennies to the buyer. (27) 

Desan’s citation for this claim is to Bimetallism by Angela Redish, which I could not find online. I ordered it; it’s in the mail. But we do not need to wait for the arrival of this text to see what is wrong with Desan’s statement: either Redish has made a very silly error, or Desan has misunderstood and misrepresented what she says. The mint price of silver bullion was never and could never have been, as Desan suggests here, 230 pence, for reasons which we will see in a moment. 

But first I want to address briefly the comment, made in passing, implying that usage of silver in the monetary object can be understood as an anti-counterfeiting measure. This claim, which is often advanced by chartalists as an attempt to explain why what they view as essentially “just a token” should have been made of such a scarce material, should be quite puzzling to anyone familiar with historical examples such as the two most famous outbreaks of counterfeiting in English monetary history: the episode of the “pollards and crockards” in the late 13th century and that of the “war of the nobles” in the late 14th, during which England was — despite the island kingdom’s best efforts to impose capital controls on the flow of the money across the border — flooded with imitations of English money produced in continental mints, especially in Flanders. In both cases, the English money was targeted for large-scale counterfeiting by rival mints precisely because of its high purity or intrinsic value. Because English coins were well known for having a very high metal content relative to equivalent coins produced by its neighbor, they tended to be held in high esteem in international money markets, and thus presented an especially tempting target to the counterfeiter, who could melt down legal English coins, alloy the metal with copper and tin, and remint them at a profit. Since this process would be much more difficult and less profitable to the counterfeiter in the case of less widely well regarded coins, the usage of silver in the money was an enticement, rather than a discouragement, to counterfeiters. 

In the case of the “war of the nobles,” there was an additional consideration: during this period, the English crown, which was (for reasons too complicated to discuss here) quite desperate for revenue, passed a series of legislations requiring foreign merchants to pay for exports of wool from the Calais Staple in heavy English gold nobles. Merchants seeking to export wool would thus have to arrive at the mint with bullion and have it exchanged for English nobles — a process in which the crown would take a cut. The requirement for payment at the Staple in English money was, therefore, an implicit export duty on the kingdom’s most important commodity. Philip, duke of Flanders, responded to this by issuing light weight counterfeit English nobles at his own mints, which the merchants of his duchy could use at the Staple and thus avoid the duty, to their and the duke’s mutual advantage. Here, again, the heaviness and purity of the coin is the motivation for the counterfeiting: the resource that the English government wanted to mobilize was, precisely, gold itself, and this was the reason they sought to have it paid in heavy money to their own standard. If the English nobles had lacked a high gold content in the first place, then Philip would have not had the motivation to engage in his programme of large-scale forgery. Either way, it is clear that the suggestion by Desan and other chartalists that the use of precious metal in coins is an anti-counterfeiting measure is a nonsensical one that fails to explain even the most famous episodes of the phenomenon. 

Now: let us turn to the issue of the mint price and the King’s Shilling, or the 12 pence taken by the King from every pound of silver bullion brought to his mint. Desan, remember, suggests that “the mint might produce 242 pennies from a pound of silver, keep a fee of 12 pence for the moneyers and the king, and return 230 pennies to the buyer.” She claims, in other words, that (during some unspecified period) the English penny was minted at a standard of 242 to the pound, that the combined total of brassage (minting costs) and seignorage (the king’s cut) was 12 pence, and that the mint price (money received by the merchant for the pound of bullion) was 230 pence. No mention is made of the fineness of the metal, so she is assuming, implicitly, that the coins are made of pure silver (or, at least, silver of equal fineness to that of the bullion supplied for it) at 1/242th of a pound. Such a situation at the mint is not only counterfactual, but also impossible, and it seems to indicate a lack of deep understanding of the free minting system on the part of the author.

To see why, it will be easiest to begin by giving a more rigorous description of the English mint during the later period of the long-cross penny, around the second quarter of the 14th century — the period during which the penny was in fact minted at a weight standard of about 242 pence to the pound. I specify that we are here discussing the later long-cross penny, because this coin was originally minted at the “correct” standard of 240 pence to the pound (“correct” in that, on this standard, each penny weighed a pennyweight) and was only lowered to slightly inferior standards varying from 242 to 245 pence to the pound later on (for reasons I will hint at in a moment, though not discuss fully). At any rate: what actually happened when a merchant brought bullion to an English mint during the later period of the long-cross penny? Did they receive, in exchange, 230 pence of silver of the same fineness as the bullion they had brought, which they valued because of, as Desan suggests, their “cash services”? No — and any medieval merchant with a lick of sense would have scoffed at this proposition and told the King where to shove it.

Desan is right that the numbers “242” and “12” have something to do with it, but is confused on all other points. What actually happened is this. A merchant would bring a Tower pound of “pure” silver (modern chemistry would not consider it pure, but they did) to the mint, a unit of weight equivalent to 7,680 Tower grains (a wheat unit). This pound was divisible into 20 shillings of 12 pennyweights (dwt.) each, or 240 dwt. in total. Upon receiving and melting the bullion, the mint master would remove 18 pennyweights of silver from the pound, and replace it with base metal, leaving the metal at the sterling standard of 37/40 or 92.5%. 12 pennyweights of this extracted silver (pennyweights, not pence, as Desan suggests) were due to the King as the “King’s Shilling,” and the remaining 6 were left to the mint master as brassage. Out of the resulting pound weight of sterling silver, 242 pence would be minted (pence, therefore, which weighed just slightly less than a pennyweight), all of which were received by the merchant: the figure of 242 pence sterling to the pound, therefore, is already the mint price net of brassage and seignorage, which are taken out by the mint master and the King in the form of reduced quality rather than reduced count.

If the mint price were indeed 230 pence, as Desan suggests, the merchants would not bring their silver to the mint, because the coins they received would be worth nominally less than the bullion they supplied. In this case the production of money under the free minting system would indeed be, as the chartalists like to imagine, an asymmetrical relation in which the merchant sacrificed both intrinsic (pennyweights) and nominal (pence) value of their money in return for “cash services.” In reality, however, mint masters did not face a buyer’s market: they had to compete with other mints, including those in other legal jurisdictions, to attract bullion to their window, and so they needed to offer merchants an enticement, which they did by raising the mint price. In other words: the transaction that “made money” under the free minting system can be better characterized as a swap of nominal for intrinsic value. The merchant trades some of the intrinsic value of their bullion to the mint, in exchange for monetary instruments which are actually worth more in nominal terms. The merchant, in bringing their bullion to the mint, has lost intrinsic value of 18 pennyweights of silver, but has actually gained a nominal profit of 2 pence.

That merchants, during the early period of the long-cross penny, should have bought pence at par, or traded an intrinsic pound of silver for a nominal pound of 240 pence, shows that coinage does indeed have a value that can be described as the value of “cash services.” Otherwise there would have been no reason for them to trade in their silver for coins, other than in anticipation of immediate need to pay taxes or duties in nominal money. But the taking of a nominal rather than an intrinsic loss at the mint by the party supplying the bullion was not a normal part of the operation of the free minting system. This did sometimes occur, but only during specific episodes known as recoinages, as part of either the revisionist or the restorationist minting cycles, the latter of which applies to the history of the long-cross penny. That, however, is a topic for another letter. 

Let me close by saying that, if Modern Monetary Theorists wish to make the mastery of arcane technical details the basis of authority for the historical narrative they assert about money, then that is a gauntlet I am more than happy to take up. And if they wish to wave in the direction of intimidatingly long books as evidence that disagreement with their position must be a product of ignorance, then perhaps they should read them more carefully.

Stay tuned for more. -CD

REFERENCES:

Fox, David, and Wolfgang Ernst, eds. Money in the Western Legal Tradition: Middle Ages to Bretton Woods. First edition. New York, NY: Oxford Univ Press, 2016.

In the first part of this letter, I evaluated Scott Ferguson’s citation to (pseudo-)Aquinas in his book Declarations of Dependence: Money, Aesthetics, and the Politics of Care. Despite Ferguson’s attempts to rediscover Thomist metaphysics as an underlaboring for chartalism, which would rescue us from the “topological rupture” of Scotus and Ockham that “denounced the necessary mediatory role played by the papal father and the Universal Church” (125) thus plunging us into a fallen world of modernity and austerity, we found that the actual theory of money attributed by the Scholastics to Aquinas in De Regimine Principium has few points of agreement with the one forwarded by the neochartalists. No matter: perhaps Ferguson would retort that his interest is in theology and metaphysics, rather than theories of money as such, and that even if actually-existing Thomism embraced a metallist theory of money, the Thomism-to-come is a chartalist one. Since an engagement along those lines would take me beyond the scope of this publication, I will instead turn to his usage of Ernst Kantorowicz’ “well-known book” The King’s Two Bodies in which “the peculiar metaphysics of the late medieval fiscal instrument have been most thoroughly explored” (119). Sadly, it seems that well-known books are not always well-read. While Ferguson claims to have metaphysical insight that “modern thought’s subsequent reduction of ontology prevented Kantorowicz from perceiving,” his reading depends upon simply failing to notice — or deliberately ignoring — what Kantorowicz actually says about money and the fisc in the cited chapter. 

On Ferguson’s reading, which primarily cites the chapter on Bracton (143-92), the late-medieval jurists treated by Kantorowicz “offer a model for turning Thomas’s metaphysics of mediation toward a fresh vision of the public purse” that will “lay bare the metaphysics of haecceity that came to constrain and repress money’s boundless public center” (119-21). Key to Ferguson’s attempted recuperation of late-medieval political theology for the cause of chartalism is the notion of the “inalienability” of the “sacred fisc:” “Kantorowicz explicates how the late medieval sacralization of the fisc corresponds to a proto-modern political differentiation between a perishable corporeal ruler and the inalienable office of sovereignty: what he terms ‘the king’s two bodies.’ ‘Things pertaining the king’s peace and jurisdiction were ‘things quasi holy, res quasi sacrae, which could no more be alienated than could the res sacrae pertaining to the Church. Those things ‘quasi holy’ were ‘things public’ existing for some common utility of the realm, such as the preservation of justice and peace.’ In these juridical texts, the purse and the property of the living sovereign might be legally subjected to dispossession and estrangement. Yes the sacred fisc adhered to a suprapersonal and incorporeal sovereignty, held to be as untouchable and inalienable as the body of Christ” (120). 

Ferguson, in other words, reads Kantorowicz as though the inalienability and sacredness of the fisc, as well as the figure of the sovereign as an abstract persona rather than a living person, were on the side of chartalism and the boundlessness of public spending. Unfortunately, his argument falls on the pons asinorum of what is meant by “inalienability.” Simply put, where Ferguson reads the inalienability of the fisc as referring to the inalienability of the sovereign power to spend (the state, that is, can never give up or alienate its power to create money as a sovereign liability through what the neochartalists love to call “self-imposed constraints”), what is actually meant is the inalienability of the literal money in the treasury (the hoards of “artificial wealth” that pseudo-Aquinas, as we saw last time, exhorted the ruler to accumulate). The inalienability of the sacred fisc — as becomes clear if we actually read the cited chapter on Bracton — is a constraint on, not a support for, the absolute freedom of the state’s fiscal policy space. 

Let’s begin by putting Bracton — as Ferguson declines to do — in his monetary-historical context. He first appears as a justice in 1245, just two years before the monetary reform of Henry III that replaced the short-cross penny of his uncle Henry II with the new long-cross penny, redesigned in order to prevent the clipping that had plagued its predecessor. It must be noted that this was a hard-money reform. Henry III was restoring the English money to the “sterling standard” established by Henry II in 1154, which was perhaps the great hard money standard of the European middle ages: the silver content of the English penny, quite remarkably, remained almost entirely unchanged for nearly 250 years (with the notable exception of a defensive adjustment by Edward III in the 1340s) until the collapse of the dynasty with the deposition of Richard II in 1399. As Kantorowicz points out, “the development of the abstract notion of the Crown was concomitant with the development of the fisc or ‘royal desmense’ under Henry II,” precisely the originator of the hard money standard to which Bracton’s king was striving to return (187). In the midst of this reform (which provoked no small amount of hostility among the money using public, given that they were forced to pay for it) lawyers like Bracton were seeking to clarify the distinction between public and private, to draw a distinction between “matters affecting the king alone in his relations to individual subjects, and matters affecting all subjects, that is, the whole polity, the community of the realm” (172). It is in this context that Bracton developed the constellation of concepts public=sacred=fiscal=sovereign=inalienable upon which Ferguson attempts to draw. In Bracton’s own words: “A thing quasi-sacred is a thing fiscal, which cannot be given away or be sold or transferred upon another person by the Prince or ruling king; and those things make the Crown what it is, and they regard to common utility such as peace and justice” (173).

Now, why is Ferguson mistaken to see, in the notion of the quasi-sacred fisc as a matter “affecting all subjects, the whole polity, the community,” a political ontology supporting chartalism and fiscal boundlessness? After all, the neochartalists consistently have recourse to a notion of an originary, organic political community, insisting that money is something public and universal rather than private and particular. Indeed, Ferguson praises Christine Desan (whose work I will evaluate in future letters) for the “political ontology subtending her conception of the money relation” that rejects “a power struggle between distinct groups” in favor of an assumption that “money comes into being within a political community that has long been associated” (77). Class struggle and social antagonism are rejected in favor of organicism. Whatever we may think of the merits or demerits of such a politics, making this case requires a complete distortion of Kantorowicz’s argument. 

As Kantorowicz makes clear, the late-medieval jurists valorized by Ferguson as proto-chartalists and soft-money theorists were in fact attempting to drive a distinction between public and private into the heart of the idea of the “fisc as the sacculus regis, ‘the king’s purse into which money was received’”(178) in order to constrain, rather than empower, the king’s arbitrary authority over spending and monetary policy. “Would the fisc then be the property of the Prince or was he merely the administrator and vicar of the fisc, assuming the privileges which derived from it, but responsible for its undiminished preservation for the benefit of his successors? And how did the fisc compare with the other appurtenances which the Prince was entitled to alienate, of which he could freely dispose?” (179). The notion that the fisc was both sacred and inalienable, then, is in fact a discourse of what we would now call “financial responsibility,” or the obligation of the king to steward the contents of the treasury, as a trustee rather than as a private proprietor, and to leave it undiminished for his successor. It was for this purpose that “Bracton distinguished between the rex regnans and the Crown” (186), creating a “parallelism of God and the fisc” that led to a “split, as yet hardly visible, between the ‘reigning king’ and the financial ‘holy district’ within the realm” (190). And in whose interests was this rhetorical cleavage mobilized? Kantorowicz leaves no room for doubt: “while the English kings reigning in the thirteenth century tried to ignore even the existence of a cleavage between themselves and the things public, the various baronial opposition groups were ready to widen that split and to pit the res publicae against the rex regnans… Within the orbit of public affairs, and especially public finances, the barons could venture to control the king, to bind him to a council of their own choice, and thus to demonstrate that things of public concern no longer touched the king alone, but ‘touched all,’ the king as well as the whole community of the realm” (190). The sacredness of the fisc, in other words, led to a situation in which “the fisc finally became a goal in itself” (189) — a formulation which is resolutely and definitively opposed to the principles of functional finance.

As this discussion makes clear, Ferguson’s attempt to recuperate the notion of a sacred fisc for the ideological underpinnings of neochartalism completely misses the mark, with the result that he champions a hard-money creditors’ ideology without realizing that this is what it is. A more serious reading of the sources should make it clear that what the neochartalists need is a theory of the fisc, not as sacred or holy, but as completely and utterly profane. Whether or not they choose to take up that task is up to them. 

In my next letters, I will turn to more directly historical and less philosophical concerns, as I fact-check the claims made in an early essay of Stephanie Kelton which is foundational for the MMT school: “A Chartalist Critique of John Locke's Theory of Property, Accumulation, and Money: or, is it Moral to Trade Your Nuts for Gold?” Stay tuned. - CD

REFERENCES:

Ferguson, Scott. Declarations of Dependence: Money, Aesthetics, and the Politics of Care. Lincoln: University of Nebraska Press, 2018.

Kantorowicz, Ernst. The King’s Two Bodies: A Study in Medieval Political Theology. Princeton: Princeton University Press, 2016.

The basic thrust of Ferguson’s book is to draw on Thomism and the high medieval papacy as a model for the political philosophy of MMT. This is, already, strange enough in itself: why should an economic theory stressing the absolute independence of domestic monetary policy turn to a supranational creditors organization, whose very raison d’être is the control and restraint of sovereign rulers, as its political model? The only way that I can make sense of this move is to conclude that Ferguson sees the US empire, and its dollar, as the rightful heir of the Universal Church. Is this a new theory of the translatio imperii? A postmodern apology for the Donation of Constantine? Whatever the case may be, and whatever the merits of this view, I will restrain further commentary to my stated scope: the evaluation of citations.

First, we must consider Ferguson’s appeal to Thomas Aquinas. “Of all the scholastic theologians,” writes Ferguson, Aquinas “went furthest to comprehend the expansive unity of social existence during the High Middle Ages,” thus producing what Ferguson, citing Kantorowicz, identifies as the “fiscal theology” of the late medieval period. Then, according to Ferguson’s lapsarian intellectual history, Thomism “came under attack” by “Franciscan theologians” and “Italian humanists” who, by “subordinating mediation to haecceicity… banished money’s boundless public center,” resulting in a “valorization of austerity” (114-124). The argument, beneath its rhetorical flourishes, is simple: once upon a time, in the good old days of Scholastic philosophy and the imperial papacy, we lived in an organic social community in which money itself emanated from the boundlessness of God as the ontological center of reality. Then, the Franciscans and the humanists invented modernity, convinced everyone that they were an atomized individual, and now we are so confused about things that we think the government can run out of money. Fine. But what does Thomas Aquinas actually say about monetary sovereignty?

In fact, Thomas Aquinas didn’t say much at all about the power of the ruler over his coinage. Summa Theologica, while it has a lot to say about private monetary relations, primarily related to the condemnation of interest, does not discuss the ruler’s power over the monetary medium itself, whose existence is taken for granted: that text, though it frequently employs the figure of the ruler’s image on a coin as a metaphor, does not address our topic directly (where he does discuss money directly, he makes claims that the MMT theorists are otherwise at pains to refute, such as the notion, deriving from Aristotle, that money was spontaneously invented to facilitate trade.) As it turns out, De Regimine Principium, the text in which Aquinas is reported to make a claim for the ruler’s power over the coin of the realm, is regarded by modern scholarship as pseudepigraphal: it was probably, in fact, written by a man named Ptolemy of Lucca. No matter: what does pseudo-Aquinas have to say about monetary sovereignty?

In the literature, pseudo-Aquinas’s views on the coinage are generally presented with reference to the opening paragraph of Book II, Chapter 13, at which he bases his argument on a reference to Mark 12:17: “Render unto Caesar those things which are Caesar’s.” Since this is often taken, in the monetary history literature, as an expression of a chartalist theory of money, which was then displaced as an orthodoxy by the metallist theory associated with Nicolas de Oresme in the 15th century (see, for example, Spufford 301-8), Ferguson’s presentation of a “fall” into metallist and austerian theories from a previously dominant chartalism follows a standard reading. The actual text of pseudo-Aquinas, however, is very far from advocating either the “boundlessness” of the king’s treasury or his arbitrary power over the precious metal content of his coinage (nor does it consider the usage of pure token money as a possibility). While pseudo-Aquinas admits that the ruler has a monopoly right to endow coinage with its legal stamp, his rhetorical thrust goes in the other direction, cautioning rulers against slighting both their subjects and God himself with their meddling: “Although by right it is licit for a ruler to make demands about how the coinage is stamped, any ruler or king ought to be moderate in changing or in decreasing the weight or the metal. This would work to the people's detriment, since money should be the measure of things, as I said above, but the more the money or the coinage is changed the more the value or the weight changes. In Proverbs it is written that this displeases God: ‘Both differing weights and values are abominable before God’” (II.13.8). Following this assertion, moreover, we receive an anecdote in which the pope is figured as a outspoken advocate of hard money: “Pope Innocent criticized the king of Aragon quite severely for this because he had changed the coinage by diminishing it to the detriment of his people, so since the son had obliged himself by an oath to preserve the said money, Innocent absolved him from the oath and mandated that he restore the money to its former state’” (the wording is confusing: Innocent is freeing the son from his oath to uphold his father’s coinage, which had turned out to be debased, so that the son could restore it to the true, heavier standard). 

Pseudo-Aquinas is also quite insistent that the intrinsic value of money matters a lot: if this is a chartalist theory, it is a highly qualified one. At II.14.2, for example, he points out that “a coin, although it is a measure and an instrument in exchanges, can be something in itself. If it is melted it still will be something, namely gold or silver.” But even more crucially, he devotes an entire chapter (prior to treating the topic of coinage directly) to the king’s need to hoard stores of precious metal. At II.7.1 he writes: “A king also needs artificial riches, such as gold, silver, other metals, and the coins minted from them, to defend his government. If we suppose that by nature association is needed to constitute a rule or polity, and, consequently, a king or other lord to govern the multitude, we must also accept any consequences about the treasury that derive inevitably from this supposition, such as that a king cannot exercise his government adequately and favorably without gold, silver, and the coins minted from them.” Pseudo-Aquinas is clear that what he means by this is that the king must accumulate a literal store of physical metal: “a treasury containing artificial riches,” II.8.5. It is difficult to see why pseudo-Aquinas should emphasize the need to accumulate money reserves, if he believed in Ferguson’s notion of the boundless public fiscal center. There is, moreover, no room in his theory for a truly chartalist conception of money as essentially a sovereign liability: “Borrowing for the expenses of the king or kingdom is foul and greatly detracts from the subjects' reverence for what is regal. Moreover, when a king is subjected to a loan, the lords restrain him, with the result that his subjects or others may make undue exactions against the kingdom and weaken its state” (II.8.8). While this may accord with the neochartalists antipathy towards public creditors (although not with their assertions that such creditors — “bond vigilantes” — are actually impotent), it does not leave much room for their theory of money as such. On the balance, then, while Pseudo-Aquinas might offer some useful turns of phrase for a cherry-picking neochartalist, his overall view is ultimately grounded in a substantialist notion of money as a quantity of physical metal.

In part 2 of this letter, I will move on to investigate the implications of this for Ferguson’s reading of Kantorowicz. Stay tuned. -CD

REFERENCES:

Aquinas, Thomas. “Summa Theologica.” Http://Www.Ccel.Org/Ccel/Aquinas/Summa.Html.

Ferguson, Scott. Declarations of Dependence: Money, Aesthetics, and the Politics of Care. Lincoln: University of Nebraska Press, 2018.

Kantorowicz, Ernst. The King’s Two Bodies: A Study in Medieval Political Theology. Princeton: Princeton University Press, 2016.

Ptolemy of Lucca, and Thomas Aquinas. On The Government of Rulers: De Regimine Principum. Translated by James M. Blythe. The Middle Ages Series. Philadelphia: PENN, University of Pennsylvania Press, 1997.

Spufford, Peter. Money and Its Use in Medieval Europe. Cambridge: Cambridge University Press, 1988.

It must be admitted that the assay is a destructive process: it destroys its object in the act of measuring. It might similarly be wondered whether my intention is to destroy MMT, and defend the ruling orthodoxy against its challenge. Nothing could be further from the case. I write here in the conviction that there is something about MMT that really matters, even if much of what it claims about history is wrong. My goal is not to strangle in its cradle this new discourse about money, but rather to strengthen it by challenging it to make sense of the historical record. If this challenge forces it to become something rather different than what it is now, this can only be for the better. Since MMT stakes its claim to power on the dispelling of “textbook myths” about the nature and origins of money, it is only reasonable that it should be held to account when it goes about the business of myth-making itself.

My goal here is not to forward my own theory about money and monetary politics. That task is beyond the scope of this newsletter, and will be developed in a forthcoming full-length book. Nor do I intend, here, to intervene into the terrain of contemporary politics. In “Trial of the Pyx,” I will restrain myself to following footnotes and chasing citations, one at a time, in order to ensure that the monetary history circulating in our discourses is of a true and just standard.

Watch this space for more. - CD

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