Michael Hudson: Debt, Land and Money, From Polanyi to the New Economic Archaeology

Yves here. Micheal Hudson pinged me yesterday:

Since I’ve just written about how David Graeber and I met by discussing Polanyi, I just an hour ago received a copy of Manchester University Press’s volume edited by Radhika Desai nd Kari Polanyi Levitt, entitled Karl Polanyi and Twenty-First-Century Capitalism.

My essay is the first, on Debt, land and money: from Polanyi to the new economic archaeology (pp. 61-77).

It might be appropriate to post it at this time.

Since I’m big on synchronicity, get a cup of coffee. This is a meaty read.

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is “and forgive them their debts”: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year

Inspiration for The Great Transformationin the Postwar Monetary Breakdown

Karl Polanyi’s formative years in the aftermath of World War I were a period of monetary turmoil. The United States became a creditor nation for the first time, and demanded payment of the war debts that Keynes warned were unpayable without wrecking Europe’s financial systems. (Hudson, Super Imperialism, 1972, summarizes this era.) France and Britain subjected Germany to unsustainably high reparations debts, while imposing austerity on their own economies by adhering to the gold standard. Jacques Rueff in France and Bertil Ohlin in the United States argued that Germany could pay any level of reparations in gold – and the Allies could pay their foreign-currency arms debts – by imposing unemployment high enough to make wages low enough to make its products cheap enough to run a trade surplus large enough to pay its debt service.

Most countries followed the ‘hard-money’ idea that money was (or could be made to act as a proxy for) a commodity by making it convertible into gold. Advocated most notoriously by the Austrians Ludwig von Mises and Friedrich von Hayek, the result was monetary deflation. It was a replay of what had occurred after 1815 when the banker David Ricardo insisted that returning to the gold standard would restore balance in the face of any given foreign debt payment or military subsidy. He claimed that any such payments deficit would automatically be recycled in the form of the recipient country’s demand for imports from the ‘capital-paying’ economy.[1]No such balance resulted.

When the gold standard was re-imposed after World War I, economies were starved of money in order to reduce prices and wages in a futile attempt to pay their debts. Rueff, Ohlin and Hayek claimed that imposing this deflation and poverty on debtor economies would (and should) represent a stable equilibrium.

Everything – including money, land and labor – was viewed as a commodity whose price would be set fairly by supply and demand, subject to ‘demand’ being eroded by debt service paid to creditors without limit. Money creation was to be kept out of the hands of government, because as Margaret Thatcher paraphrased Hayek’s ideology: ‘There is no such thing as society.’ There is (and should be) only a market – one that inevitably is dominated by financial fortunes, banks and property owners.

Polanyi blamed the postwar breakdown and Great Depression on the imposition of free market ideology. Writing that ‘The 1920s saw the prestige of economic liberalism at its height,’ he forecast that, ‘Undoubtedly, our age will be seen as the end of the self-regulating market,’ (Polanyi, 1944: 148). He expected the chaos resulting from implementing this manic ideology to demonstrate the fallacy of claims that markets are self-regulating and can be ‘disembedded’ from their social regulatory context without causing economic destruction, unemployment and poverty.

To demonstrate the need for public regulation, Polanyi undertook a review of what modes of organizing money, credit and land use had sustained prosperity and which ones failed. Rejecting what he took to be Marx’s sequence of modes of production, he emphasized modes of exchange.[2]He accused Marx’s set of ‘historically untenable stages’ as flowing ‘from the conviction that the character of the economy was set by the status of labor,’(Polanyi, 19567: 256) from ancient slavery and usury, to serfdom under feudalism and wage labor under capitalism. Focusing on the transition from feudalism to industrial capitalism, driving labor off the land to become wage labor working for employers, Marx’s aim was not to review the history of land tenure. Polanyi urged that ‘the integration of the soil into the economy should be regarded as hardly less vital.’ ‘Under feudalism and the gild system,’ Polanyi wrote, ‘land and labor formed part of the social organization itself (money had yet hardly developed into a major element of industry).’ Land was allocated as the basis of maintaining ‘the military, judicial, administrative, and political system; its status and function were determined by legal and customary rules.’ (Polanyi, 1944: 69) The proper task of government is to socialize rules for what its rent was to be used for – taxes, or payments to rentiers?

In Volumes II and III of Capital, Marx traced land rent and usury as survivals from feudal times, ‘faux fraisof production’ that he expected industrial capitalism to do away with by freeing economies from landlords extracting ground rent, and from usurious banking. Instead, these rentierinterests have regained control of economies, opposing public regulation by waving the flag of free-market individualism. Idealizing monetary gains without concern for how this affects the public good, bankers and other rentiersdefine ‘natural’ or ‘pure’ economies as meaning no regulation of prices or markets with social welfare in mind. The economy is seen as a market free-for-all, not as a social system regulating property, credit and debt to prioritize social stability and rising living standards.

By depicting public regulatory power as ‘unnatural’, free-market policy assumes that relinquishing the rules of property ownership, credit and debt to private wealth is natural and desirable. The reality is that there never has been a ‘natural’ market existing without social regulations. What passes for a free market amounts to little more than a jockeying for position, with the advantage lying with the wealthiest individuals. Their interest lies in minimizing public oversight and taxation of their rent-seeking, credit and foreclosure, and other business activities.

Polanyi set out to demonstrate the folly of subjecting labor, land and monetary policy to unregulated ‘free markets.’ What really is at issue is what kindof markets economies will have, and who will be their major beneficiaries – or victims. TheGreat Transformationcredited feudalism and England’s early industrial capitalism with its still-operating Poor Laws for preserving broad social objectives and regulations instead of throwing labor and land to the wolves (the wealthy) by treating them as commodities. Even in the earliest days of the development of capitalism, mercantilist nations ‘were all equally averse to the idea of commercializing labor and land – the precondition of market economy. … Mercantilism, with all its tendency towards commercialization, never attacked the safeguards which protected these two basic elements of production – labor and land – from becoming objects of commerce’ (ibid: 70).

From antiquity down through feudal Europe, land formed the universal tax base. In contrast to normal commodities that have a cost of production, land is provided freely by nature. ‘Land, labor and money are obviously not commodities,’ he explained. Labor is life, and ‘land is only another name for nature,’ not having been produced by labor and hence not having a cost of production (classical value), and its rent is a legal property claim. But markets give it a price so as to transfer ownership rights, enabling landlords to extract rental income without work (ibid, 72). Although land’s site value is created mainly by public infrastructure investment, landholders fight to keep the land’s rent for themselves. That prevents governments from keeping land rent should in the public domain as the tax base. And in antiquity, foreclosing creditors and large investors displaced smallholders, depriving governments of taxes as well as corvée labor and a free citizen-army.[3]

When Polanyi called money a fictitious commodity, he was rejecting the idea of making it scarce by limiting its supply to that of gold, mimicking commodities as if money were part of a barter system. It also gave creditors overwhelming power over the rest of the economy, especially over its labor and land by pushing wage levels and crop prices below basic break-even needs when governments were deprived of the ability to create credit to employ labor. He criticized Ricardo for having ‘indoctrinated nineteenth-century England with the conviction that the term ‘money’ meant a medium of exchange,’ with bank notes readily convertible into gold (ibid: 196). That policy led to deflation, given gold’s limited supply. Falling prices and wages penalized debtors when countries returned to gold convertibility after wartime inflations. That occurred in Britain after 1815, and in the United States after the 1870s when it sought to roll back prices so that the price of gold – and hence, wages and commodity prices – would be driven back down to their pre-Civil War level. The result was prolonged economic depression, causing land and other property to be transferred from debtors to creditors.

Polanyi’s preferred alternative was to make money serve social aims by making it a public creation of law. Such token money has no inherent cost of production, ‘but comes into being through the mechanism of banking or state finance,’ and thus is not a commodity with an ultimate labor cost of production: ‘actual money, finally, is merely a token of purchasing power which, as a rule, is not produced at all but comes into being through the mechanism of banking or state finance’ (Ibid: 72).

Polanyi’s Austrian adversaries argued that public money creation, social spending programs, regulations and subsidies distorted the supposedly efficient ‘natural’ economy of price-setting markets. In practice this meant low wages and a transfer of land to the wealthy. Unregulated market forces and gain seeking led the social system to be run for the purely financial aim of ‘maximum money gains,’ subjecting land, labor and money to pro-creditor bias instead of favoring the population’s indebted majority. It was to prevent this economic polarization and austerity, Polanyi claimed, that ‘Regulation and markets … grew up together.’ Trade and incomes were regulated for most of history, thanks to the fact that, ‘As a rule, the economic system was absorbed in the social system.’ (ibid: 68)

But by the mid-1920s money-seeking drives were destabilizing agriculture and industry. France imposed austerity by adhering to the gold standard, and Britain’s similar policy led to a nationwide General Strike in 1926. The moral, Polanyi said, was that:

To allow the market mechanism to be the sole director of the fate of human beings and their natural environment, indeed, even of the amount and use of purchasing power, would result in the demolition of society. … the market administration of purchasing power would periodically liquidate business enterprise, for shortages and surfeits of money would prove as disastrous to business as floods and droughts in primitive society. (Ibid: 73)

Polanyi’s Interdisciplinary Project at Colombia

The Great Transformation’s publication in 1944 led to Polanyi’s appointment at Colombia University (1947-53), where he organized a group of anthropologists and ancient historians to review how non-market societies shaped their labor, land and monetary relations. This provided an empirical alternative to the assumption that price-setting ‘free’ markets had always existed without government ‘interference.’

The group’s first research into alternatives to the free market version of history wasTrade and Markets in the Early Empires(1957) was an outgrowth of the early 20th-century debate between the so-called primitivists and modernists. The modernist reading of history insists that self-seeking individuals innovated money and enterprise spontaneously, without chieftains, palaces or temples playing a role. Against this idea, Karl Bücher (1847-1930) countered that ancient economies were not organized along modern individualistic lines. He ‘objected to both classical and neoclassical economics on the grounds that these theories had a narrow-time-bound concept of economy, a concept which they assumed was applicable to all historical periods’ (Polanyi, 1962: 164).

Like Bücher, Polanyi rejected reconstructions that read as if a free-market economist got into a time machine and went back to the Neolithic to organize credit and markets along modern lines. If any archaic economy had followed that idealized textbook model, his follower Johannes Renger (1972) observed, debtors would have fled, or defected to rivals promising to cancel their debts. Mutual aid and its associated constraints on profiteering were preconditions for survival. Chiefs were expected to be openhanded, protecting the weak and needy.

Elaborating on the ideas developed in the Great Transformation, Polanyi drew on anthropology and ancient history to show that monetary ‘obligations do not here commonly spring from transactions’ to exchange goods in markets. They had more to do with the payment of taxes, debts and other obligations: ‘The equating of such staples as barley, oil and wool in which taxes or rent have to be paid or alternative rations or wages may be claimed is vital’ (Polanyi, 1957: 264f).

Polanyi characterized market exchange as one of three distinct exchange systems: reciprocity (gift exchange), redistribution and ‘market’ exchange. ‘Reciprocity behavior between individuals integrates the economy only if symmetrically organized structures, such as a symmetrical system of kinship groups, are given.’[4]Such symmetries can be disturbed by ‘the rise of the market to a ruling force in the economy,’ above all as ‘land and food were mobilized through exchange, and labor was turned into a commodity free to be purchased in the market’ (ibid: 225). He did not see this as having developed already c. 1800 BC in the Old Babylonian period, or that debt was the major lever enabling wealthy individuals to obtain land from smallholders. Creditors often got themselves adopted as ‘sons’ of the indebted landholder, so that they could inherit the land in due course under existing rules to keep land in the hands of hereditary families.

Polanyi summarized his hope that society would cure itself from having disembedded markets from their social context by restoring ‘shapes reminiscent of the economic organization of earlier times.’[5]Society needed to re-embed market structures for goods and services by administering key prices and incomes in a new redistributive economy. Such redistribution ‘presupposes the presence of an allocative center in the community,’ a palace or temple in earlier times, democratic government offices in today’s world.[6]

Polanyi’s influence on Assyriology

Two of Polanyi’s followers, Leo Oppenheim and Johannes Renger, described Sumer and Babylonia as redistributive temple and palatial economies.[7]Renger’s 1984 article on the palatial context for trade and enterprise showed the role of these large institutions in allocating and pricing resources. To undertake forward planning for their own operations and for transactions with the economy at large, palaces and temples needed to value payment of grain rents and fees in a consolidated overall balance sheet along with trade, herding and other activities. Their solution to this problem was to create what we know today as money.

Polanyi characterization of redistribution as an economy-wide mode of exchange – as if Mesopotamia could not be both redistributive anda market economy – implied that Mesopotamia did not also have a thriving profit-seeking trade in a sector where prices varied, especially among cities. This lay him open to criticism, most notably by Morris Silver, who cited examples of private profit-seeking trade such as that of the Assyrians in Cappadocia, as well as evidence that prices often exceeded those prescribed in royal proclamations. (Silver, 1983; Silver 1995)

Renger has described how many of the palace needs of the neo-Sumerian Third Dynasty of Ur III (late third millennium BC) ‘were handled by entrepreneurs for the [royal] household for which they acted (‘Palastgeschäft’)’ (Renger, 1994: 197). Merchants conducted entrepreneurial trade on their own account, often on consignment from the palace but also selling at a markup to the rest of the economy. They also lent on their own account, and collected taxes and fees for the palace.The intermixing between the redistributive palatial economy and the less formal parts of the economy where prices were more flexible makes it often difficult to distinguish between ‘public’ and ‘private,’ and thus between redistributive and ‘market’ exchange, lending and interest, and rents or other obligations (Yoffee, 2003: 6).

Entrepreneurial trade for the market and credit in Mesopotamia co-existed with palace redistribution with administered pricing andgift exchange, each in its own sphere. And Mesopotamia was not alone as a ‘mixed economy’. Almost every society for the past five thousand years has been multi-layered, featuring all three of Polanyi’s modes of exchange simultaneously. Even today, gift exchange among family and friends and administered prices for public goods and services co-exist with market exchange.

However, monetary gain-seeking usually was ‘embedded’ in an overall social context. Royal Clean Slate proclamations of ‘justice and equity’ annulled the backlog of grain taxes and other agrarian debts, liberated bondservants and restored land forfeited by smallholders. (I provide a history of such acts in ‘… and forgive them their debts’: Lending, Forfeiture and Redemption, From Bronze Age Finance to the Jubilee Year[ISLET 2018]). This preserved a free citizenry to serve in the army and provide corvée labor instead of falling into permanent debt bondage to non-official creditors.

The past few decades of Assyriological research have shown that Mesopotamia was neither primitive nor modern as such. As Dominique Charpin has summarized, Polanyi’s idea of Hammurabi’s Babylonia as a non-market economy was formulated theoretically without the benefit of the documentation that is now available. Many of the texts published in recent years show very clearly that fluctuating prices characterised the market. It is all too easy to use these terms anachronistically and to allow misunderstandings to arise. (Charpin, 2003: 196)

Such misunderstanding had far-reaching consequences half a century ago. One of Polanyi’s most influential followers, Moses Finley, excluded the ancient Near East from the narrative of Western civilization. Driven out of teaching in America during the McCarthy Red Scare of the 1950s for having been a Communist, Finley insisted that Western civilization developed out of primitive communities whose chieftainship practices evolved directly into the classical Greek and Roman city-states. In his view:

The Near Eastern economies were dominated by large palace- or temple-complexes, who owned the greater part of the arable, virtually monopolized anything that can be called “industrial production” as well as foreign trade (which includes inter-city trade, not merely trade with foreign parts), and organized the economic, military, political and religious life of the society through a single complicated, bureaucratic, record-keeping operation for which the word “rationing”, taken very broadly, is as good a one-word description as I can think of. …The exclusion of the Near East is therefore not arbitrary … (Finley, 1985: 28)

This exclusion of Near Eastern economieson the wrong-headed ground that they had no entrepreneurial mentality missed their ‘mixed’ character.Its dualistic attitude epitomizes the tendency of some of Polanyi’s followers to think of societies as being either ‘social’ or ‘free market,’ as if commercial enterprise and interest-bearing debt were incompatible with public regulations and administered pricing. Finley treated it as a primitivist blind alley, like Karl Wittfogel’s interpretation of ‘Oriental despotism’ imagining that irrigated economies had a totalitarian Stalinist-type of authoritarianism. In reality, palaces were sponsors of enterprise and a resilient mixed economy that later provided classical Greece and Rome with their basic techniques of commercial enterprise and interest-bearing debt.

Commenting on how Finlay’s dualistic view has been controverted by the mass of documentation from merchants and investors, Steven Garfinkle notes:

The use of the term “primitive,” therefore, becomes particularly objectionable when applied to the Mesopotamian economy … To Finley, the ancient Near East was not just primitive, it was strange and, therefore, not part of “our” history. By placing the ancient Near East outside of the western experience, Finley was able to justify its exclusion from ancient history; but only if we understand the term “ancient history” to apply exclusively to the carefully screened origins of the “West.” (Garfinkle, 2012: 6f)

Assyriologists have shown the role of monetary gain-seeking entrepreneurs emerging above all in conjunction with the palatial economy, managing royal enterprises and trading with other cities and regions. Indeed, how else could trade and privatization have taken place? (Garfinkle, 2004a; 2004b)[8]

The New Economic Archaeology as an Outgrowth of Polanyi’s Approach

The New Economic Archaeology is in many ways an outgrowth of Polanyi’s Columbia University group, emphasizing that markets almost always have been regulated to avoid chronic imbalance and insolvency. This school goes beyond Polanyi in emphasizing the role of debt, and also the role of enterprise that emerged out of a symbiosis between Mesopotamia’s palatial economy and individual merchants. The International Scholars Conference on Ancient Near Eastern Economies (ISCANEE) has sought to fill the gap in the history of civilization by a surveying Bronze Age palace and temple enterprise, land tenure, debt and the early development of money, as well as the primordial distinction between commercial credit and agrarian usury.

Our group began in 1994 when I worked with Karl Lamberg-Karlovsky at Harvard’s anthropology department – the Peabody Museum – to organize a series of colloquia to which we invited leading Assyriologists, Egyptologists and archaeologists to find the origins of civilization’s commercial and monetary practices and how eary society managed to prevent personal debt from destabilizing and polarizing economies, as became the case in Greece and Rome. Our group has produced five colloquium volumes on land tenure and urbanization, money and interest, the organization of labor, commerce and enterprise. Together, they show how the basic techniques of commercial enterprise were innovated in the Bronze Age Near Eastern mixed economies.

The first conference was held in November 1994 at New York University, on Privatization in the Ancient Near East and Classical World(published by Harvard’s Peabody Museum, 1996). It focused on the relationship between the large institutions and the rest of the economy in an era when land was held by clan units and mercantile activities were dominated by the palace, while temples acted as what today would be called public utilities, supplying handicraft exports to merchants engaging in the import and export trade.

That colloquium was followed by a combination of two meetings, hosted first by NYU in 1996 and the next year by Russia’s Oriental Institute in Saint Petersburg onUrbanization and Land Ownership in the Ancient Near East(Peabody Museum, 1999). Its contributors pointed to the role of usury in undermining clan-based land tenure. Debt historically has been a lever to concentrate land in the hands of foreclosing creditors.

These two volumes laid the groundwork for what we intended to be the capstone in our series, dealing with the logic that led Bronze Age rulers to annul rural usury debts and arrears so as to preserve economic stability. The third colloquium was held in 1998 at Columbia University: Debt and Economic Renewal in the Ancient Near East(CDL Press, 2002). In contrast to the then-widespread modernist belief dismissing Clean Slates as a utopian ideal of the past, our group documented legal records showing that these royal amnesties were indeed enforced in practice.

The reason was clear enough: Societies would have succumbed to bondage and monopolization of the land millennia ago they had viewed ‘free markets’ to mean the sanctity of personal debts being paid. Rome was the first major society notto cancel agrarian and personal debts. For its oligarchy, the ‘sanctity of property’ meant a license to foreclose on the self-support land and other property of debtors.

Our group was recognized as extending the work of Polanyi’s generation, and the colloquium included a visit to the archive of his papers at Columbia. We received such positive responses that we held a fourth colloquium in 2000 at the British Museum on the origins of money, Creating Economic Order: Record-Keeping, Standardization and the Development of Accounting in the Ancient Near East(CDL Press, 2004). The next colloquium was held in Germany in 2005: Labor in the Ancient World(ISLET, 2015). Together, these five volumes have drawn a new picture of the Neolithic and Bronze Age Near East that extends the fundamental insights of Karl Polanyi.

The Role of Temples and Palaces in the Origins of Money

Money originated in the accounting practices developed by Mesopotamia’s large institutions in the 3rdmillennium BC to denominate transactions between them and the rest of the economy, headed by payment of taxes, fees and for goods and services. Silver served to denominate the debts run up by merchants for consignments to trade for raw materials and luxury goods (with the palace usually being the major customer), while land rent, fees for services and advances to cultivators during the crop year were measured in grain. Most exchange occurred on credit, to be settled at the end of the crop season on the threshing floor, or at the end of a stipulated trade-venturing period. Acceptance of silver and grain by the palace made them acceptable as general means of payment for the economy at large.

Polanyi emphasized money’s legal creation by government. Aristotle long ago noted that the Greek term for coinage, nomisma, is based on the root nomos (the root of our term numismatics), meaning law. What gave monetized commodities currency above all was being accepted as payment of taxes or fees for palace and temple goods and services.[9]Modern governments can pay for social spending and provide the economy with money to grow as long as they levy taxes to create a use value for this money.

Taxes, debt service and public creation of money are ignored by those who follow the Austrian economist, Carl Menger and the fable of money he drew up in 1871. He depicted money as emerging among individuals bartering commodities and preferring small portable objects as their vehicle for exchange and eventually also for saving and wealth accumulation (Menger, 1871/1892). Subsequent Austrians denounced Trade and Empiresas a threat to this individualistic and outright anti-government line of theorizing. Fritz Heichelheim called the academic effort ‘amateurish’ and ‘a most regrettable book,’ and said that it should not have been published. ‘Systematic economic theoreticians will either have to reject or to remodel the ideas about economic history which are expressed in this book,’ (Heichelheim, 1960: 108).

Heichelheim earlier created a ‘private enterprise’ fable that had no role for archaic temples and palaces. He theorized that interest originated when Neolithic creditors ‘advanced’ animals and seed crops in exchange for a share in the surplus. His ‘modernist’ assumption that early interest rates reflect productivity, profit rates and risk is not even valid today, yet is applied back in time as if it explains the origin of interest (Heichelheim, 1958: 54f).[10]

The individualistic creation myth of money and interest depicts cultivators and craftsmen bartering their products with each other, and asking for interest for loans of cattle and grain to produce a surplus, out of which the debtor pays interest to creditors. More affluent creditors are said to have preferred pieces of metal for compact and non-perishable means of saving. Left out of account is where this metal is supposed to have come from. Throughout all antiquity it was refined in the temples, which guaranteed its degree of purity, while the palace sponsored the trade to obtain silver and gold. Imported silver was the most prestigious item, with royal donations to temples establishing their social and ceremonial status.[11]The palace made it the main medium for trade and mercantile contracts, and for management of palatial-sector enterprises.

Private individuals bartering cannot be a realistic explanation. A long thread of denunciation of merchants and creditors using false weights and measures runs from Babylonian ‘wisdom literature’ through the Bible – a light weight for lending or selling, and a heavy weight for debtors repaying and for buying. This literary record makes it clear that even commodity money could never be left to private individuals, because doing so would have opened the gates for creditors and tradesmen to act crookedly. Effective public authority always has been necessary to rein in fraud and guarantee fair dealing in market exchange. That is why fraudsters seek to dismantle government’s regulatory ability whenever possible, using the hypocritical slogan of free markets.

Who else but temples and palaces could have provided honest standards? Monetary exchange could not have been workable without their oversight of standardized weights and measures, attesting to the purity of the monetary metals, and sanctions against fraud. That is why silver was minted in temples from Mesopotamia through Rome. Our word for ‘money’ comes from Rome’s Temple of Juno Moneta – the ‘warner,’ whose honking geese warned Rome of the threat of invasion. (The word ‘moneta’ originally referred to an omen.)

It is not possible to explain the origins and early development of money without recognizing the catalytic role of the temples and palaces in the 3rdmillennium BC. In addition to denominating debts owed to the palatial economy, money provided a basis for palace and temple cost accounting and resource allocation. Employment and production in these large institutions were on a scale far beyond that of interpersonal barter. As part of the redistributive economy, Sumerian temples provisioned labor employed in their workshops to weave textiles and make other handicrafts, which the palace exported for silver and other raw materials.

Temples created and regulated weights and measures for silver shekels and minas, and ku‘bushels’ of grain in their sexagesimal (60-based) calendrical allocation system based on standardized 30-day months for ease of distributing salaries. Silver (minted at a specified purity) and grain were designated as the major means of paying taxes, fees and other debts at harvest time. The value of a silver shekel was set as equal to a gur‘quart’ of grain for payment of fees and taxes to the palace or other rural creditors. (To be sure, grain was traded among cities at prices that might rise steeply in times of crop failure, such as occurred at the end of the neo-Sumerian Ur III empire.)

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As Lamberg-Karlovsky (2009) points out, ‘In the patrimonial state there is little functional division between private and official spheres. Official offices originate in the ruler’s household.’ In this relationship, profit is not the aim, but stable continuity. Ease of account-keeping and stable price relations were a logic for notletting prices vary. And silver is the prime luxury, exempt from supply-and-demand or cost-profit calculations.

In addition, reciprocity and redistribution are organized along just lines as rational as a market economy, but the logic is different. It is based on establishing a system of regularity and order, not flexible price-making markets.

Third Millennium Mesopotamia’s imports did not affect prices either by varying supply and demand or by being substantially more or less expensive. Market prices either were administered or, once set, continued by inertia with little response to shifts in supply and demand except for seasonal variations in crop prices or responses to crop failure. Moreover, rather than relying on trade for everyday essentials as advocated by today’s trade enthusiasts, the main imports to Mesopotamia (where prices, weights and measures and hence monetary equivalency is first documented) included producers’ goods such as ores, tin, or copper, or luxuries such as gold, silver and luxurious gemstones. The main exports were prestige textiles woven in the temple and palace workshops (mainly with dependent war widows and their children), as well as functional items such as knives and chisels. ‘Trade in luxuries (a significant percentage of Mesopotamia’s long-distance trade – as evidenced by their archaeological recovery) involved a very small part of the population’.

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These findings are consistent with the findings of Polanyi’s early collaborator Leo Oppenheim, who described Mesopotamia’s economy as based neither on price-setting ‘free’ markets nor as primitive, but as a mixed economy with administered prices within the large institutions for their own account-keeping and to denominate payments owed to them.[12]

The Dominant Role of Debt

In view of the problems that debt has caused through the ages, the analysis of how societies have regulated credit and debt should be at the very center of our understanding of money. And in view of the fact that the paradigmatic Mesopotamian debts were owed to the palaces, temples and collectors in their bureaucracy – for fees and taxes, tribute from conquered peoples, and by merchants acting on consignments or orders from the palace – the analysis of early money, debt and fiscal policy must logically go together.

Mainstream economists treat credit (and implicitly, arrears as well as loans) as always being productive and helpful, not as extractive and socially destabilizing. They depict government intervention to annul debts as leading to economic crisis, not as saving populations fromimpoverishment and disorder. This doctrinaire approach ignores the fact that, in practice, the ‘security of debt’ meant making ancient debtors falling into arrears liable to lose their land and personal liberty. This meant insecurityof theirproperty rights. That is the real crisis.

Much as Ricardo argued that all foreign debts could be paid by automatic reciprocal demand, modern business cycle theorists describe equilibrium as occurring as a result of wage and price flexibility. To deem widespread foreclosure on debtors’ property a viable policy requires an assumption that economies self-adjust in a stable, fair and efficient way. The reality is that deregulating debt and land tenure relationships imposes debt-ridden austerity.

Depicting credit and the financial business plan as having only positive economic effects produces a travesty of history. Viewing debt and its interest charges simply as a bargain between individuals fails to recognize how the economy-wide debt burden tends to grow beyond the ability to be paid. It casts a blind eye toward how financial oligarchies act in the absence of public checks. Money-greed is applauded as if securing creditor claims is the most rational way to organize an economy. The implication is that there is no need for government action from ‘outside’ the market, e.g., by Clean Slates to reverse the effects of the rural usury that eroded traditional land tenure in the Old Babylonian period (2000-1600 BC).

Throughout history debt has been the major lever privatizing land and reducing populations to bondage. Mesopotamia managed to delay this polarizing dynamic by subordinating creditor rights to the aim of dynastic survival. But classical Greece and Rome lacked the tradition of royal Clean Slates. That was the great turning point. Livy, Plutarch and Diodorus described how debt disenfranchised the Roman population, yet a modern survey citing a seemingly comprehensive list of 210 causes on which posterity has blamed Rome’s decline and fall at one time or another does not even include debt. (Demandt, 1984)

Western Civilization as a Disembedding of Economics from its Social Context

Records disappear in the Aegean after 1200 BC. By the time they reappear six centuries later, Greek and Italian chieftains and warlords had adopted the practice of interest-bearing debt brought by Syrian and ‘Phoenician’ traders around the 8thcentury BC. Crucially, however, they adopted it selectively, without the Clean Slates that liberated debtors from bondage and restored land rights that had been lost to foreclosing creditors.[13]Greek and Roman oligarchies privatized credit and freed themselves from royal overrides.

‘Free market’ advocates pick up the thread of Western civilization ‘in the middle,’ only aftercredit, debt and property relations became disembedded and decontextualized from the checks and balances that sustained the Near Eastern takeoff. It is as if the Bronze Age agrarian debt cancellations were a blind alley (or even ‘Oriental despotism’). Their exclusion fosters the idea that from classical Greece and Rome to today’s wave of pro-creditor austerity and deregulation, the ‘sanctity of debt’ and foreclosure are a primordial result of Darwinian natural selection and survival of the fittest (namely, the richest), not as leading to social dissolution.

The inherent conflict between rulers seeking to keep their citizens free of debt bondage on the one hand, and creditors seeking their own gains at the palace’s expense, has been a thread running down the history of civilization. The distinctive feature of Western economies is privatization of credit, land natural and public infrastructure. That is the real detour from earlier millennia. Archaic societies treated land required for subsistence as a basic right for their citizenry. Instead of commodifying labor and land ownership to make debt bondage and foreclosure irreversible, Mesopotamian rulers proclaimed Clean Slates so as to avoid the financial polarization between creditors and debtors that later brought on a Dark Age. Today the debt dynamic is imposing austerity on today’s Western world, transferring property to creditors who have gained enough control over government to block protection of debtors.

Polanyi’s optimistic theory of the ‘double movement’ asserts that when society becomes too exploitative and polarized, there is a reaction to re-socialize it. That is done by re-establishing public regulation of money, exchange and land, with a view to long-term growth instead of short-run financial gain seeking. He expected socialism to provide basic services as a human right, on the premise that people should not have to lose their liberty and rights as the price of paying for basic needs:

Socialism is, essentially, the tendency inherent in an industrial civilization to transcend the self-regulating market by consciously subordinating it to a democratic society. It is the solution natural to industrial workers who see no reason why production should not be regulated directly and why markets should be more than a useful but subordinate trait in a free society. From the point of view of the community as a whole, socialism is merely the continuation of that endeavor to make society a distinctively human relationship of persons.

In his view, ‘free market’ policies lead to so much poverty and strain that they create a reaction toward greater social regulation. This is a political version of Newton’s Third Law of Motion: Every action creates an equal and opposite reaction. That was the essence of classical political economy’s 19th-century reforms moving toward socialism: ‘Society protected itself against the perils inherent in a self-regulating market system,’ (Polanyi, 1944: 76). Polanyi expected the devastation wrought by World War II to create political pressure to renew the path along which Western economies seemed to be moving before the Great War.

We can now see that there is no assurance that societies automatically evolve onward and upward. Such determinism focuses on potential – what economies couldachieve if they use all knowledge to best advantage. Warlords, creditors, landlords and monopolists have deprived populations of the fruits of technological potential throughout history. Neither Polanyi nor any other economic futurist of his day focused on the exponential growth of debt as the main dynamic polarizing economies and serving as the lever to force privatization and reverse Progressive Era reforms.

Polanyi’s ‘double movement’ may take the form of a reaction sponsored by the vested interests against reforms as well as for them. Despite the flowering of British and European democratic socialism after World War II, the 1980s saw such a reaction, in the neoliberalism of Thatcherism and Reaganomics ushering in a post-1980 wave of privatizations and deregulation of property markets. Today’s financial lobbyists and their pet academics are advocating government intervention not to stabilize economies but to prevent a social reaction such as Polanyi’s double movement.

All forms of society have managed markets. The key is who manages them, above all in the sphere credit relations and the balance between government authority and private wealth. Freeing monetary gain-seeking from regulation is economically polarizing, as when antiquity’s long collapse into serfdom sidetracked many societies for many centuries. Polanyi’s contribution to social history demonstrates the need to regulate finance, land and labour markets in an overall social context in order to maintain prosperity instead of impoverishment.

Polanyi’s focus on modes of exchange emphasized that land and its tenure should be treated as a social institution, not as a commodity. This was not at odds with Marx’s view. Each of his economic stages had its own mode of land tenure as well as labor’s role in production. Self-support land was the basis for antiquity’s citizens and military (until they lost their land and liberty through usury). Under feudalism, conquerors appropriating the land’s rent as lords of the land. Under industrial capitalism, Marx expected, land and its rent would be socialized (as it would be for Polanyi). Instead, real estate ownership under finance capitalism has been democratized on credit, with most land rent being paid to bankers as mortgage interest.

Modes of money and credit also evolved from antiquity via feudalism to the modern era. Reflecting the Bronze Age origin of general-purpose money in payments to the palace (or in classical antiquity to civic authorities), prices and interest rates for debt and fiscal payments were administered. That was an initial precondition for stability. Before markets for wage labor, usury became the earliest way to obtain dependent labor and the land of smallholders. However, Mesopotamian rulers proclaimed Clean Slates to avert debt bondage and loss of land tenure on more than a temporary basis.

Roman emperors engaged in fiat currency issue, leading to price inflation as a result of their inability to tax the wealthy families – the only ones able to pay in the shrinking imperial economy. Medieval kings likewise ‘cried down’ the coinage in an attempt to pay for their wars. The alternative was a financial innovation’royal debt to bankers and foreign bondholders.

When royal war debts could not be paid, creditors demanded mineral rights, public infrastructure and the creation of royal monopolies (such as the East and West Indies trading companies of the Netherlands, France and England). Finance thus became the main lever to privatize the public domain, much as it pried away land rights in antiquity by making the land ‘marketable’ to the wealthy and subject to foreclosure by predatory creditors – irreversibly.

Interest rates are ‘redistributive,’ set by government. So are prices for bonds and stocks under the post-2008 Quantitative Easing pursued by U.S. and European central banks. Pentagon capitalism is not a market minimizing costs as is depicted in textbook free-market competition. It operates on cost-plus contracts, in which military-industrial companies increase their profits by maximizing costs of production.

Behind today’s ‘free market’ advocacy is the power of financial wealth to appropriate the political, fiscal and central planning role that Polanyi, Marx and other socialists hoped to see expanded in the hands of democratic government. The resulting financialized market in property and debt instruments is the opposite of what reformers hoped to create a century ago. The financial takeover of government policy reflects a business plan of asset stripping and economywide austerity.

This is not what either Marx or Polanyi expected. If it is where Western civilization’s financialized market dynamics are leading, it will be a replay of the collapse of antiquity collapse into feudalism.

__________

[1]I review this line of theorizing in Trade, Development and Foreign Debt(new ed., ISLET 2010).

[2]I contrast Polanyi’s approach with that of Marx in my review of surveys of Polanyi’s work by Ph. Chancier, F. Joannès, P. Rouillard and A. Tenu, eds., Autour de Polanyi: vocabularies, théories et modalities des échanges(Paris 2005), and J. G. Manning and Ian Morris, eds., The Ancient Economy: Evidence and Models(Stanford: 2005), in Archiv für Orientforschung51(2005/2006), pp. 405-11.

[3]My “… and forgive them their debts”(ISLET 2018) discusses this conflict of interest over land tenure from Sumer and Babylonia down through the Byzantine Empire.

[4]Bondage to creditors is found in archaic tribal communities, for instance in cases where lawbreakers could not pay wergild-type reparations their victims. But such personal compensation was managed in a way that maintained social harmony, being kept in line with the means to pay. It often was subject to amnesties.

[5]Trade and Market in the Early Empires, Introductory Note, p. xviii.

[6]Ibid., esp. 250ff.

[7]See most notably Leo Oppenheim, “A Bird’s-Eye View of Mesopotamian Economic History,” inTrade and Market in the Early Empires, pp.  27-37, and Johannes Renger (1979), “Interaction of Temple, Palace, and ‘Private Enterprise’ in the Old Babylonian Economy,” in Eduard Lipinski (ed.), State and Temple Economy in the Ancient Near East (Leuven, 1979): I, pp. 249‑56, and “Patterns of Non‑Institutional Trade and Non‑Commercial Exchange in Ancient Mesopotamia at the Beginning of the Second Millennium BC,” in Alphonse Archi, ed., Circulation of Goods in NonPalatial Context in the Ancient Near East (=Incunabula Graeca 82, Rome, 1984), pp. 31‑115. Renger became a member of the ISCANEE group described below.

[8]The Assyrian trade, see Mogens Trolle Larsen, Ancient Kanesh A Merchant Colony in Bronze Age Anatolia(Cambridge University Press, 2015).

[9]Economists call this the State Theory of Money, the term coined by George F. Knapp in the State Theory of Money[1905, English translation 1924]. Another term is chartalism.I review this discussion in “The Development of Money-of-Account in Sumer’s Temples,” in Michael Hudson and Cornelia Wunsch, ed., Creating Economic Order (2004):303-329, and also in “The Cartalist/Monetarist Debate in Historical Perspective,” in Edward Nell and Stephanie Bell eds., The State, The Market and The Euro(Edward Elgar, 2003): 39-76, and “The Archaeology of Money in Light of Mesopotamian Records,” inL. Randall Wray (ed.), Credit and State Theories of Money: The Contributions of A. Mitchell Innes(Edward Elgar, 2004).

[10]I discuss his anachronistic theory in (Hudson & Van De Mieroop, 2002: 19f).

[11]See for instance (Oppenheim, 1949).

[12]A. Leo Oppenheim, “A Bird’s-eye view of Mesopotamian Economic History,” op. cit., and Ancient Mesopotamia(Chicago, 1964).

[13]I trace this diffusion in (Hudson, 1992)

_______

References

Charpin, Dominique. Hammurabi of Babylon. London and New York.

Finley, Moses. 1985. The Ancient Economy. 2nded., Berkeley.

Demandt,Der Fall Roms: Die Auflösung der römoschen Reichs im Urteil der Nachwelt(Munich 1984).

Garfinkle, Steven J. 2012.Entrepreneurs and Enterprise in Early Mesopotamia: A Study of Three Archives from the Third Dynasty of Ur (2112–2004 BC). Bethesda, Maryland.

Garfinkle, Steven J. 2004a. ‘Shepherds, Merchants, and Credit: Some Observations On Lending Practices in Ur III Mesopotamia’, Journal of the Economic and Social History of the Orient, 47, 1-30.

Garfinkle, Steven J. 2004b. ‘Public versus Private in the Ancient Near East’, in Daniel C. Snell (ed.), A Companion to the Ancient Near East. Blackwell, pp. 384-396.

Heichelheim, Fritz. 1960. ‘Review of Polanyi, Arensberg and Pearson, Trade and Market in the Early Empires’, Journal of the Economic and Social History of the Orient, 3, 108-110.

Heichelheim, Fritz. 1958.An Ancient Economic History, from the Palaeolithic Age to the Migrations of the Germanic, Slavic and Arabic Nations, I. Rev. ed., Leiden.

Hudson, Michael. 1992. ‘Did the Phoenicians Introduce the Idea of Interest to Greece and Italy – And if So, When?’, in Gunter Kopcke (ed.), Greece Between East and West: 10th‑8th Centuries BC. Berlin, pp. 128-143.

Hudson, Michael. 2000. ‘Karl Bücher’s Role in the Evolution of Economic Anthropology’, in Jürgen Backhaus (ed.), Karl Bücher. Theory, History, Anthropology, Non-Market Economies. Marburg: Metropolis Verlag, pp. 301-336.

Lamberg-Karlovsky, C.C. .2009. ‘Structure, Agency and Commerce in the Ancient Near East’,Iranica Antiqua, XLIV, 47-88.

Manning, J. G. and Ian Morris (eds.). 2005. The Ancient Economy: Evidence and Models(Stanford: 2005), in Archiv für Orientforschung 51(2005/2006), pp. 405-11.

Menger, Carl. 1871/1892. ‘On the Origin of Money’, translated in Economic Journal,2, 239-55.

Oppenheim,Leo. 1949. ‘The Golden Garments of the Gods’, Journal of Near Eastern Studies, 8, 172‑93.

Polanyi, Karl. 1944. The Great Transformation: The Political and Economic Origins of Our Time. New York City: Farrar & Rinehart.

Polanyi, Karl. 1957. ‘The Economy as Instituted Process,’ in Karl Polanyi, Conrad M. Arensberg and Harry W. Pearson, (eds.), Trade and Market in the Early Empires. New York.

Polanyi, Karl. 1962. Karl Bücher.International Encyclopedia of the Social Sciences, II 164.

Ph. Chancier, F. Joannès, P. Rouillard and A. Tenu, (eds.). 2005. Autour de Polanyi: vocabularies, théories et modalities des échanges. Paris.

Renger, Johannes. 1972. ‘Flucht als soziales Problem in der altbabylonischen Gesellschaft,” inDietz O. Edzard, (ed.), Gesellschaftsklassen im Alten Zweistromland und in den angrenzenden Gebieten.Munich: Verlag der Bayerischen Akademie der Wissenschaften, pp. 167-182.

Renger, Johannes. 1994. ‘On Economic Structures in Ancient Mesopotamia’, Orientalia,18.

Silver, Morris. 1983. Prophets and Markets: The Political Economy of Ancient Israel.Boston/Hague.

Silver, Morris. 1995. ‘Prophets and Markets Revisited’, in K. D. Irani and Morris Silver (eds.), Social Justice in the Ancient World. Westport, Conn.

Yoffee, Norman. 1977.The Economic Role of the Crown in the Old Babylonian PeriodMalibu.

“Reconstructing the Origins of Interest-Bearing Debt and the Logic of Clean Slates,” in Michael Hudson and Marc Van De MieroopDebt and Economic Renewal in the Ancient Near East(CDL Press, Bethesda, Md., 2002, pp. 19f.)

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66 comments

  1. Amfortas the hippie

    so, parasites rule the world.
    a cosmopolitan toxoplasmosis gondii, that rewrites the behavioural codes/instincts of it’s victims…”mouse running out under the owl”=”debt is sacrosanct”.
    “neoliberalism” being just the latest, most sophisticated, version.
    when i read The New Way of The World (https://www.versobooks.com/books/2272-the-new-way-of-the-world) after it literally fell off a shelf in front of me, I was shocked at the audacity of it all…how a handful of court philosophers had managed to re-make human nature so completely.
    The Counterrevolution of Reagan and Thatcher, with it’s wall to wall Mindf^ck…from ordinary propaganda to grade school curricula to the “natural” way we interact with each other…was a masterful stroke.
    I read that straight through on my dad’s back porch, in 3 days, from 3am to 7 am when everyone else got up.
    I found that i couldn’t talk about it with anybody…it was too large a thing…and we are all so embedded in it’s thought modes and “common sense” that it would take a whiteboard or two and a bound and gagged listener to even begin.
    Polyani made it clearer…and mr Hudson has made even more so, with all that ancient history.
    I still can’t talk about it in the feed store, though….Debt is still regarded as sacrosanct by everybody…especially the indebted.
    Even when the rednecks can get their head around the idea of Money as a human creation…”the holy cracker in the temple of Moloch” no longer makes feed store eyes roll or glaze over, and “Aggregate Belief” as the basis of money’s value is now seen as pretty obvious, at least on an intellectual level…debt is still regarded as a matter of honor.
    also, i hasten to add that all this progress in my feedstore has been totally undone by politics, since 2018 or so…and especially since the pandemic and lockdown.
    political strife is a pressure relief valve for continuing the Game.
    ergo, i see no “cure” that is forthcoming without going all the way to the end….where there’s one big corp(se) that owns everything and everybody.
    “Principiis Obsta; Caveat Ruinam”…but we’re shorn of the wherewithal to even contemplate such nipping in the bud, aside from scattered enclaves like NC.
    Thanks, Michael, for doing what you do.

    Reply
    1. Anonymous

      …debt is still regarded as a matter of honor. amfort

      What’s honorable about a government-privileged usury cartel whose liabilities are largely a sham wrt the non-bank private sector?

      Reply
  2. zagonostra

    So I gather from the article that money is a human creation based on man-made laws. In the Nicomachean Ethics Aristotle defines ethics in contradistinction to the workings of nature. He gives the example of throwing a rock up in the air and pointing out that you can’t change its natural tendency, but with ethics, it will change from culture to culture. It is based on laws and traditional customs. So ethics and money are both based on laws which are not natural phenomena and therefor subject to the direction and exercise of human will. This is not the common man’s view of money, nor is it the way it is most commonly presented. Rather it is suggested that the “market” overall movement is subject to no one’s control, it is the outcome of billions of dollars swishing around trying, unlike nature, to find it’s maximum rate of profit, as opposed to a homeostatic balance the way most living organisms function, leaving aside diseases like cancer.

    So to adopt Polanyi’s view of money is to admit that the failures of the grotesque economic allocation of goods and services is due to a failure of law and ethics and is therefor subject to change. So when politicians say that there is no money to do what society acknowledges needs to be done, such as providing healthcare to everyone, they are lying. If they are lying they should be removed, but to agree that they are lying would involve a whole other area to think about, such as that treated in Plato’s Gorgias on the use of rhetoric and it’s relation to justice.

    This article by Michael Hudson has prompted much thinking and so a thanks for posting, his scholarship is on par with those great authors like Polanyi.

    Polanyi emphasized money’s legal creation by government. Aristotle long ago noted that the Greek term for coinage, nomisma, is based on the root nomos (the root of our term numismatics), meaning law. What gave monetized commodities currency above all was being accepted as payment of taxes or fees for palace and temple goods and services.[9]Modern governments can pay for social spending and provide the economy with money to grow as long as they levy taxes to create a use value for this money.

    Reply
    1. Pym of Nantucket

      I think it is interesting to back-cast ancient economics simply to understand human nature, but electronic and information systems have changed so much, that some comparisons are really just food for thought.

      The reason fixed commodity money supply seems to make sense to the average armchair economist, is because of the fallacy that the economics of nations should emulate personal economics. If an individual is considered to be a criminal for printing money, why should we allow the state to do it? This trope is wheeled out regularly in election campaigns. Honest John the political candidate sits at the kitchen table balancing the cheque book with Archie and Edith coming to the conclusion that austerity is the only “honest” way for the country to live within its means.

      Reply
    2. JTMcPhee

      Gov’t can only create “MMT” money to the extent of extractable “wealth” short of killing the planet. Obviously, with the stock market and real estate prices climbing, and things like the F-35 and the GWOT/Imperial project, we haven’t hit the wall just yet (or maybe we have, and just don’t recognize the fact, see global heating and species collapse like the bees…)

      Reply
      1. Yves Smith Post author

        MMT acknowledges your point but not in your language. Inflation is the constraint for net government spending. Resource scarcity will lead to inflation. It’s tantamount to a limit on or even a reduction in productive capacity.

        Reply
        1. Anonymous

          Inflation is the constraint for net government spending. Yves

          May not bank deposit creation create price inflation too?

          But even if bank deposit creation were to cause price deflation (e.g. by financing automation to eliminate jobs) it’s STILL for the private welfare of the banks and their “borrowers”, not for the general welfare as government spending should at least aim to be.

          Also, as long as it’s produced fairly* and is not excessive why should we be concerned about price inflation?

          *e.g. via an equal Citizen’s Dividend.

          Reply
  3. rob

    every bit of this coverage of old ” market regulating money ” myths.. to palatial systems keeping stability as a main driver of state money power and creation.. and the perennial story of debt is used to concentrate wealth and land into the hands of creditors…
    Seems to be exactly in favor of the current monetary reform movements that seek to replace our money creation as “debt” system the banks enjoy being the epicenter of… with a system that money is created by law, and no debt is created in the making of that money that also is not temporary.
    The monetary reformers who are working to bring to the attention of the population, that money can be made “for free”… and distributed “as actually needed”,,,, for the people and society as a whole , on a permanent basis…seem to be actually in alignment with what the lessons of history have shown.
    The people who feel the current paradigm and the federal reserve act which enshrines the ability of banks to create money for the government of the united states for “interest” and “a debt”, that can never be repaid in full, but will always require “payments” in kind… and and endless array of debt instruments to be “sold” by “the insiders” ad infinitum….. seem to be on “the wrong side of history”.
    for the last 100 years the fed, and the private banking system in the USA have been making money by tricks of accounting , where they create two columns, and make them “equal” out.. thus preserving their ability to make money from nothing… and “earn” more money back, from a society that will always have a shortage of money to pay back.. and will always need more money created to pay the debt of the old money created.
    This system has led to concentration of wealth in the hands of the few, and a perversion of “free markets” by these banking institutions who are granted this unique ability.

    Reply
  4. chuck roast

    During my campus wandering days my most memorable professor was a former Columbia student who taught Economic History. A class with him was all about receiving the Polanyi nail, and he was the hammer. After an hour or so of this I would stagger across the quad trying to reorient myself to planet USA.

    When I became a bit more affluent I would make an annual donation to my olde U scholarship fund which in turn rewarded a deserving student of Economics. After the GFC I rethought this course of action, and in a letter to the department chairman I requested that department initiate an undergraduate course in Economic Anthropology. A polite exchange of letters ensued and the chairman explained that the “market” demanded that the Economics Department graduate students grounded in the more rigorous quantitative methods of the day.

    Well, to hell with the olde U. I decided to double my annual donation to my olde high school with its wealth of infinitely malleable youth. For my efforts I promptly received a thank you letter from a young woman who was accepted for study at Yale and intended to pursue courses in mathematics and economics. Yet another demonstration that no good deed goes unpunished.

    Reply
      1. JTMcPhee

        But we can all rejoice that it is a WOMAN who will be entering the “economy” to presumably prop up the system that is killing the rest of us who are a million miles away from any possible grip on the levers of power.

        What ever happened to the altruism of the ‘60s version of feminism? Got women fighting for the chance to become SEALs and Rangers so they can go to foreign lands, invade them, and kill people in service to the Empire.

        Equal opportunity to commit war crimes and murder, and climb the corporate ladder to looting positions in the C-Suites of the world…Hooray for progress.

        Reply
  5. Schofield

    Listen to the market fundamentalist Libertarians howl when you tell them David Graeber argued in his book “Debt: The First 5,000 Years” governments were highly influential in developing “the market” to get private sector individuals and businesses to to resource the vast armies and navies they were using both for defence and imperialist adventures!

    Reply
  6. Ignacio

    I wonder if archaeological findings of minted coins very much support the hypothesis of administratiive palace/temple origin of money rather than the barter exchange. I mean, it makes more sense the hypothesis of social administrative function for money origin but physical archaeological evidences showing symbols associated with emperors/kings should give overwhelming support for this.

    Reply
    1. JTMcPhee

      Hierarchy is seemingly inevitable, and I’m willing to bet that almost all kings and emperors were just like Ozymandias, Both Trump and Clinton (and Biden, in his secret garden) no doubt want their faces on money…

      Reply
    2. eg

      Perhaps as importantly, Ignacio, is the dearth of archaeological evidence for a barter economy in any civilization ever. This is why Hudson refers to the “barter as progenitor of money” explanation as a fable.

      Reply
  7. John

    What a treat worth sacrificing a little time indoors on this wonderful Labor Day weekend Sat morning. I lament Graeber’s passing, but console myself that NC and Michael Hudson are still doing what they do. Live long and prosper!

    Reply
  8. Paleobotanist

    Thank you Prof Hudson for an excellent read allowing me to avoid work this Saturday morning. I have been meaning to ask you whether you have considered the economic systems of the Pre-Contact “New World”? While Mesoamerica was well known for its vibrant marketplaces using cocoa beans and cloth as money, what about the Incan Empire and Tiwanaku which were huge palace and temple economies respectively which managed totally without markets as far as I know? Hence such economic systems can support the populations of very large polities. I have a slightly ulterior reason in asking you this as I am always interested in literature for my Indigenous history class which does not have enough economics in it in my opinion. I try to upset my students’ preconceived notions as much as possible in this class;^).

    Thank you, I hope for your reply,
    Paleobotanist

    Reply
    1. Fritzi

      If I dare make a brief jump to post conquista southamerica, the Jesuit State was was a pretty big and pretty long lasting “socialist” polity as well, with the Jesuits apparently deliberately taking some cues from the fallen Incan Empire.

      Of course it was authoritarian and hierachical (as was Incan Society), and the “Fathers” no doubt had plenty of colonialist, paternalist, dogmatic and racist mindsets, but everything seems to point towards it having been hugely preferable, especially for the indigenious Population, to the brutal, genocidal, slave holding, far more horribly racist capitalist oligarchic societies that grew out of the Spanish conquest all around it.

      So much that the oligarchs and state authorities as well as parts of the church hierarchy were terrified of it and worked tirelessly for centuries to destroy it.

      Reply
    2. Michael Hudson

      No one has untangled the Inca string knots that denominated taxes and tribute due. the only model we have are Mesopotamia records.
      On Yves’ site, I have my Springer dictionary article on money originating as taxes. (Also on Academia.)
      It was NOT coins, but weighed silver, refined in the temples.

      Reply
      1. paleobotanist

        There is the other archeological evidence and the Incan accounts of their empire written in Spanish after the Conquest. I think something could be done with those nonetheless.

        Reply
  9. diptherio

    Excellent timing, as I am just now diving into The Great Transformation. It’s been on my must-read list for several years now, after getting referenced so much on this site. Those 5 volumes of papers sound pretty intriguing as well (although they’re a touch out of my price range).

    Reply
  10. Sound of the Suburbs

    “Polanyi blamed the post war breakdown and Great Depression on the imposition of free market ideology.”

    The US trusted free markets in the 1920s, but by the 1930s, the free market thinkers at the University of Chicago were in the doghouse.
    The free market thinkers at the University of Chicago were just as keen as anyone else to find out what had gone wrong with their free market theories in the 1920s.
    The Chicago Plan was named after its strongest proponent, Henry Simons, from the University of Chicago.
    He wanted free markets in every other area, but Government created money.
    To get meaningful price signals from the markets they had to take away the bank’s ability to create money.

    Henry Simons was a founder member of the Chicago School of Economics and he had worked out what was wrong with his beliefs in free markets in the 1930s.
    Banks can inflate asset prices with the money they create from bank loans.
    https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
    Henry Simons and Irving Fisher supported the Chicago Plan to take away the bankers ability to create money.
    “Simons envisioned banks that would have a choice of two types of holdings: long-term bonds and cash. Simultaneously, they would hold increased reserves, up to 100%. Simons saw this as beneficial in that its ultimate consequences would be the prevention of “bank-financed inflation of securities and real estate” through the leveraged creation of secondary forms of money.”
    https://www.newworldencyclopedia.org/entry/Henry_Calvert_Simons
    Real estate lending was actually the biggest problem lending category leading to 1929.
    Richard Vague had noticed real estate lending balloon from 5 trillion to 10 trillion from 2001 – 2007 and went back to look at the data before 1929.

    Henry Simons and Irving Fisher supported the Chicago Plan to take away the bankers ability to create money.
    “Stocks have reached what looks like a permanently high plateau.” Irving Fisher 1929.
    This 1920’s neoclassical economist that believed in free markets knew this was a stable equilibrium. He became a laughing stock, but worked out where he had gone wrong.
    Banks can inflate asset prices with the money they create from bank loans, and he knew his belief in free markets was dependent on the Chicago Plan, as he had worked out the cause of his earlier mistake.
    Margin lending had inflated the US stock market to ridiculous levels.

    The IMF re-visited the Chicago plan after 2008.
    https://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf
    I think they must have some idea what the problem was.

    Reply
    1. Sound of the Suburbs

      Neoclassical economics produces ponzi schemes of inflated prices.
      When they collapse it feeds back into the financial system.
      Neoclassical economics still has its 1920’s problems.

      At the end of the 1920s, the US was a ponzi scheme of inflated asset prices.
      The use of neoclassical economics and the belief in free markets, made them think that inflated asset prices represented real wealth accumulation.
      1929 – Wakey, wakey time

      Why did it cause the US financial system to collapse in 1929?
      Bankers get to create money out of nothing, through bank loans, and get to charge interest on it.
      https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
      What could possibly go wrong?
      Bankers do need to ensure the vast majority of that money gets paid back, and this is where they get into serious trouble.
      Banking requires prudent lending.
      If someone can’t repay a loan, they need to repossess that asset and sell it to recoup that money. If they use bank loans to inflate asset prices they get into a world of trouble when those asset prices collapse.
      As the real estate and stock market collapsed the banks became insolvent as their assets didn’t cover their liabilities.
      They could no longer repossess and sell those assets to cover the outstanding loans and they do need to get most of the money they lend out back again to balance their books.
      The banks become insolvent and collapsed, along with the US economy.

      When banks have been lending to inflate asset prices the financial system is in a precarious state and can easily collapse.

      What was the ponzi scheme of inflated asset prices that collapsed in Japan in 1991?
      Japanese real estate.
      They avoided a Great Depression by saving the banks.
      They killed growth for the next 30 years by leaving the debt in place.
      https://www.youtube.com/watch?v=8YTyJzmiHGk
      Debt repayments to banks destroy money, this is the problem.
      https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

      What was the ponzi scheme of inflated asset prices that collapsed in 2008?
      “It’s nearly $14 trillion pyramid of super leveraged toxic assets was built on the back of $1.4 trillion of US sub-prime loans, and dispersed throughout the world” All the Presidents Bankers, Nomi Prins.
      They avoided a Great Depression by saving the banks.
      They left Western economies struggling by leaving the debt in place, just like Japan.
      It’s not as bad as Japan as we didn’t let asset prices crash in the West, but it is this problem has made our economies so sluggish since 2008.

      The central banks have to keep pumping up the markets.
      When asset prices collapse, so does the financial system when bankers have been lending to inflate asset prices.

      Reply
      1. Sound of the Suburbs

        The wealth is there and then it’s gone.
        Real estate.

        1990s – UK, US (S&L), Canada (Toronto), Scandinavia, Japan, Philippines, Thailand
        2000s – Iceland, Dubai, US (2008), Vietnam
        2010s – Ireland, Spain, Greece, India
        Get ready to put Australia, Canada, Norway, Sweden and Hong Kong on the list.

        India has recently discovered how a collapse in real estate prices breaks the banks.
        https://www.wsj.com/articles/indias-ghost-towns-saddle-middle-class-with-debtand-broken-dreams-11579189678
        Now, Indian taxpayers need to recapitalise their banks.

        Real estate lending is a large segment of bank lending and a collapse in asset prices here can cause big problems in the financial system.
        Richard Vague had noticed real estate lending balloon from 5 trillion to 10 trillion from 2001 – 2007 and went back to look at the data before 1929.
        Real estate lending was actually the biggest problem lending category in 1929.

        Reply
    1. Yves Smith Post author

      Sorry but this is Hudson’s text, supposedly in the final for a book. I can’t change it because it is not my work. You would think the publisher would have proofread.

      Reply
      1. Procopius

        There are no proofreaders, any more. They are an unnecessary luxury. People can usually figure out what is meant, and, if they can’t, one sentence out of a whole book does not destroy the meaning, if any, of the whole book. /s

        Reply
  11. mauisurfer

    Restructuring United States Government Debt: Private Rights, Public Values, and the Constitution

    Edmund W. Kitch
    Julia D. Mahoney

    Abstract

    Mainstream policy discussions take as given that the United States will and must pay its debts in full and on time, and that restructuring is legally and politically impossible. In our judgment, this assumption is unwarranted. Far from being unthinkable, under some circumstances restructuring the debt of the United States would merit serious consideration, and these circumstances may well be fast approaching. We diverge from the standard wisdom for two reasons. First, we doubt that payments on treasury obligations will necessarily take precedence over what the electorate sees as more pressing needs, including national security and price stability. In particular, we suspect voters may balk if told that holders of United States debt securities have ironclad priority over Social Security claimants and others with well-settled expectations of government benefits. Second, we think it wrong to equate restructuring with catastrophe. While we do not dismiss out of hand the dangers of not paying creditors in full and on time, we believe that—perhaps counterintuitively—the American constitutional framework could prove an asset rather than
    a liability when it comes to handling severe financial stress. Our conclusion on this point follows from the insight that the very dispersals of power that can fuel gridlock can also serve to enable the United States to offer credible assurances that its new financial structure will be stable going forward.

    link to free article

    1284 Michigan State Law Review 2019

    Reply
    1. rob

      Right now there are calls to have a national congressional commission on monetary reform. As was called for by people like hyman minsky… before his death.
      There is a plan to reform the monetary system ,already on the books. It details methods to retire the public debt of the united states in such a way to end the creation of more national debt, while systematically retiring of old debt as it comes due, so as to not shock the financial system.
      https://www.congress.gov/bill/112-thcongress/house-bill/2990/text

      Before we talk about ideas like choosing to pay the national debt service payments(which are not in-consequential)
      OR social security payments, and other things the government provides for the citizens… we ought to have a national discussion on the validity of creating this debt, in the first place.
      I also quibble about this article in the point of saying that the social security act was “quasi-constitutional”.(which may be true). but not saying the same thing about the federal reserve act… which at best is “qasi-constitutional”, and really does a disservice to the country. In the sense I don’t like “the tone” of the implication that things that are part of the social safety net are “extra” but the thing creating our debt , and bankers profits; is necessary.

      I also want to say my feeling is that the “confidence” issues a new nation had to endure after its founding, about it’s currency and economic stability.. are no longer the same issue..
      For a century now, our central bank has engendered political corruption to really give rise to “confidence issues”.. but as we are able to bear that..just think what could be possible were we to “get our house in order”… and toss the establishment on both sides of the aisle.. and refresh the american experiment… after all… this is a new world… now more than ever.
      and it will be something…. what; .. remains to be seen… .
      It is time to step up…

      Reply
  12. JWP

    Holt S**t. This blew the last 2.5 years of economics courses I’ve taken to kingdom come. It is quite an intellectual journey to unpack years of education and realize it’s built on false assumptions and pretenses. That is why I love the reads on NC! Thank you Prof Hudson and Yves. Post-read ,I immediately sent my most trusted Professor an email about why we are taught what we are and why there is little history before Ricardo and Smith in our classes. I have never heard of Polanyi before this read, and will be sure to give his work a closer read. As my thesis or final project before I graduate I hope to do an analysis of the shortcomings of the discipline in addressing environmental problems and look to provide models or methods for improving our outlook. The commentary here about how land was not treated as a commodity and rather as another piece of nature was a real awakening and could be valuable going forward as today’s governments struggle with preservation efforts. Treating the land as something we all own and none of us own and taxing and preserving accordingly seems like a big step in reversing the upwards flow of power and money. Especially in eliminating the ability of firms and individuals from extracting lucrative rents for doing no work.

    Reply
    1. eg

      Your experience underscores the crime against students that has been committed by orthodox economics since they’ve banished the history of political economy from the corpus in order to indulge themselves in self-referential mathematical nonsense utterly divorced from the roots of the subject and any empirical evidence — since passing familiarity with either would expose their charlatanry.

      I recommend that you get your hands on Blum and Colvin’s “An Economist’s Guide to Economic History”

      https://www.palgrave.com/gp/book/9783319965673#aboutBook

      And Pilkington’s “The Reformation in Economics”

      https://www.palgrave.com/gp/book/9783319407562

      Reply
  13. Susan the other

    It was so damn hot today I had to wait till the house cooled off to digest this post. It was so good. Thank you Yves and Prof. H. This long history of how privateers have managed over the millennia to absurdify the very social structure that nurtured them is going to be the next book written by the neoliberals. For sure it will scapegoat everyone who ever required subsistence as a parasite. Not just a parasite but a parasite on society because they actually believe they have created one. A society that is. I’m thinking about how all the grifters in congress will anguish over things not working. Their economy won’t just be dead; it’ll be dead and gone. I can almost hear it going. But the nicest thing will happen – people and society will survive OK. Friday night I watched Democracy Now and Amy played an old interview with David Graeber from 2011. She asked him why we’re in this terrible financialized mess and he explained something I had not heard. He said, (basically), well the IMF had screwed the rest of the world so bad for 3 decades that they stopped accepting loans on bad terms – the money markets had to look for new suckers and they came back to the USA. Has anyone heard it put that way? It sounds absolutely logical, so naturally I believe it. DG’s last gift.

    Reply
    1. Mel

      Shades of the Firesign Theater’s rousing patriotic song: We’re Bringing the War Back Home.

      … We won’t stop marching till we don’t have to march, we don’t have to march, we don’t have to march no more.

      Reply
  14. Scott1

    I had to read this. I was fuzzy in my mind about what Phd. Hudson really meant by what he wrote about land in “Killing the Host”. It may have been simply too obvious for my mind to accept because it implies that our view of land as a commodity either is changed or humanity is wiped out.

    The current administration is destroying the Environmental Protection Agency. Even if we do succeed in changing the personalities now running our world it has been traditional that changes wrought by even the crookedest of presidential administrations are left in place while what good policies are put in place are trashed as Trump has trashed our institutions by simply making such bad faith appointments that he mocks us.

    The USPO is a huge deed of ours to land all over the US. Privatized that land becomes deeds to be grabbed by the Oligarchs. We are right to fixate on the USPO because it is real estate all over the country we together own the deeds to. It is real territory we have to defend from those selling the Washington Consensus that is privatization everywhere all the time.

    Land as ours to be defended really comes through to me in this reading. I as well am grateful to Yves Smith and Michael Hudson. Thanks. Russell

    Reply
    1. Steve Sewall

      Russell, truly, a succinct comment. I’m sending it on along with PhD Hudson’s piece to a group of futurist college students. Most see the future as a matter of getting to Mars. But your comment, for a few, may spark an interest in the economic and environmental futures of what we walk on. Will let you know if there’s any interest. Quick question: what does USPO stand for? Thanks, and Happy Labor Day.

      Reply
  15. juliania

    Many thanks to Yves and Professor Hudson for this exploration of economic theory since WWI. Even me not being an economist, it makes beautiful sense, and I’d always had a vague sense that some of the impactful collapse of the Great Depression happened because the system was simply tracking off the charts for the financiers.

    ” From the point of view of the community as a whole, socialism is merely the continuation of that endeavor to make society a distinctively human relationship of persons.”

    Beautiful.

    Reply
  16. Kouros

    Dear Dr. Hudson,

    I am a great admirer of your work and your dedication in bringing a balance in this world. I don’t want to take from your precious time, but I have a question that might be of interest to you as a researcher and economist.

    The question stems from my inability to reconcile very well the Clean Slate mechanism of early states to eliminate the effect of debt accumulation with the possible evolution of early sedentary agricultural based societies presented by James C. Scott in his book “Against the Grain A Deep History of Earlier States”. Your City State implies fundamentally a fundamental link between the king and palace administration and/or temple priests and the population, an understanding of the inter-dependency between the classes, as well as the potential class conscience of the farmers maybe due to the collective work done to maintain irrigation systems.

    However, in “Against the Grain”, the society that develops is different and one cannot see from these very harsh beginnings, almost predatory in their effort to “domesticate” semi-nomadic populations, something that leads to the adoption of the Clean Slate policy.

    Do you think that the rain based agriculture in Europe, rather than irrigation based as was in the early states, may have made the difference between not adopting and adopting the Clean Slate approach. Irrigation requires higher level of organization and know-how, whereas rain based agriculture relies on the works of individual families (even if communities help each other). But in Europe, it was easier to replace one farmer at a time as opposed to shackling entire communities that might refuse to maintain the irrigation works.

    Maybe this seems simplistic and maybe somebody has already thought about this issue and had a similar answer, or a different, better one; however, I think it is important to know how we got here, and what are the steps we took and where things diverged and why.

    Reply
    1. Amfortas the hippie

      “….rain based agriculture in Europe, rather than irrigation based…”
      I reckon that bears looking into.
      Through the pain med fog, Joseph Campbell’s Masks of God bubbles up…specifically, in Vol 1, “Primitive Mythology”…about the difference between tropical and lush societies and those where one had a harder time feeding everybody.
      Totally different world views develop depending on whether one can simply wander around and pick dinner, rather than having to get super organised and “fight” mother nature.
      Given, this distinction is far older than the periods we’re discussing, post Neolithic…still, where you start from often has a big influence on where you end up, as far as social organisation, foundational religious belief, etc.

      Reply
      1. skippy

        New athro points at much of what we consider natural in meso-south America to be over grown gardens. In addition a soil conditioner that can’t be either replicated or bettered.

        Reply
    2. Michael Hudson

      I’ve refuted Scott’s book in the last chapter of “… and forgive them their debts.”
      Too long to summarize here. Best if you read it.

      Reply
      1. Kouros

        Thank you very much Professor Hudson. I got the book and it is on my list to read, after Capital and Ideology. Looking forward to see your arguments.

        Reply
  17. Mikel

    Manufactured and engineered scarcity for power is the goal. The establisment tries to make it seem very technical and scientific in order to claim it is rational. But they are always emotional about the the thought of losing power.

    Reply
  18. Sound of the Suburbs

    We let banks create the money supply from private bank loans.
    https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

    We engaged in financial liberalisation and incentivised banks to maximise profit.
    What could possibly go wrong?

    Bankers make the most money when they are driving your economy towards a financial crisis.
    You don’t want to leave them to their own devices.

    On a BBC documentary, comparing 1929 to 2008, it said the last time US bankers made as much money as they did before 2008 was in the 1920s.
    Bankers make the most money when they are driving your economy into a financial crisis.
    https://www.youtube.com/watch?v=vAStZJCKmbU&list=PLmtuEaMvhDZZQLxg24CAiFgZYldtoCR-R&index=6
    At 18 mins.
    The bankers loaded the US economy up with their debt products until they got financial crises in 1929 and 2008.
    As you head towards the financial crisis the economy booms due to the money creation of bank loans.
    The financial crisis appears to come out of a bright blue sky, especially when you use an economics that doesn’t consider debt.

    The economics of globalisation has always had an Achilles’ heel.
    The 1920s roared with debt based consumption and speculation until it all tipped over into the debt deflation of the Great Depression. No one realised the problems that were building up in the economy as they used an economics that doesn’t look at debt, neoclassical economics.
    Not considering private debt is the Achilles’ heel of neoclassical economics.

    Reply
    1. nothing but the truth

      And, what is crucial, is that almost the entire private loans are based on real estate as collateral.

      So banks (and the FIRE) sector, have an incentive to pile on ever growing loans on the society, ie, keep real estate increasing forever.

      Every time there is a real estate pause, the FIRE sector has a heart attack.

      This problem became ever more acute after the end of the gold convertible clause in 1971.

      The magical money theory, and coming hyperinflation and social chaos are a consequence of that decision in 1971.

      Reply
      1. Anonymous

        Yeah, right. A shiny metal would have saved us from social chaos?

        Rather, an ethical money system is necessary to avoid social chaos and needlessly expensive fiat has no role to play in that.

        Reply
  19. Philip

    It’s about time I got my spray can out again.

    ” T.I.N.A. barbarism is always an alternative!”

    Spread the word.

    The rentier elite did not listen in the past and won’t now, they think they are too clever to lose. But it is hard to win when the society that you crow over has been looted to beyond collapse and none of the services or the ordinary decent human behaviour that civilisations depend on no longer exist. They will give mighty wails of whoa and blame all but themselves. Such is written by them in history

    Chaos is coming.

    When the barbarians turn up offer beer, you will get a better deal from them than the rent sucking class will ever give.

    Regards Philip

    Reply
    1. Pym of Nantucket

      But is chaos coming? Or is jack-booted Order coming? This prognostication of system collapse is getting a bit too much like a chorus to be a coincidence.

      Reply
    2. Fritzi

      Chaos is unstable.

      Humans will always strive for order.

      Even if one collapses completely, another one rises.

      The barbarians preferred stable kingdoms as well soon enough, pretty much always and everywhere, preferred to be “civilized” and look down on the next set of barbarians.

      Something like our capitalist consumer “civilisation” probably never will come back, but as long as we are not extinct, some kind of state is almost guaranteed to, and with it some kind of new ruling class.

      There is a pretty much direct line from (actually highly romanized, well organized and christianized) barbarian warlords of late antiquity, to Versailles and the Houses of Bourbon and Habsburg.

      Reply
  20. Wukchumni

    The USA was on a partial gold standard (we had so screwed the pooch with Continental Currency in the 1780’s that each and every gold coin issued from 1795 to 1838 contained a bit more in gold content than the face value) as far as monies went from 1793 to 1861, there was no federal paper money, only private issuance now known as ‘broken bank notes’, and then after the Civil War started is when the deluge of different banknotes came into vogue, none of them backed by all that glitters aside from Gold Certificate Banknotes.

    National Banknotes were the commonest money in the land, whose backing was the confidence in the banking institution where they emanated from, some 13,000+ banks issued National Currency to give you an idea of the depth, Gold Certificate Banknotes were few and far between in comparison. Other Federal Banknotes included Demand Notes, Compound Interest Notes, Refunding Certificates, Legal Tender Notes, U.S. Notes, Treasury Notes & Silver Certificate Notes.

    The reason everybody went off the Au standard after WW1, was all of the players were broke aside from the USA, which held something like 80% of all above ground all that glitters.

    You can’t have a standard when there’s only 1 player, and us getting off of it was as much of a device to stop fiat raids from other countries suddenly free to print as much money as they’d like, more than anything else.

    Here we are almost 90 years later and all the money conjured up since 1933 has led greatly to climate change in that we were collectively allowed to live well beyond our means, as if it was our birthright.

    Nobody wants to go back to a limited gold standard, Wall*Street in particular which loathes the idea of honest money, it’s 180 degrees away from what they’re all about. I suspect it will be forced upon us, and not within the USA, but from abroad, as our Dollar dominance fades.

    Reply
    1. skippy

      Sorry Wuk but things do not exhibit human traits E.g. honesty.

      Gold before its use as a token of exchange was very much a device of conjuring for spiritual iconography, so there is that too.

      Reply
        1. skippy

          Hay … physical tokens of contracts are beset by time and space issues because of uncertainty, yet to see anything inanimate that solves that problem.

          It seems trade supersedes money forms, hence the quality of that contract and its distribution vectors plays a bigger role down the road than whatever symbology is used to facilitate it.

          I would suggest the focus on symbology detracts from the more critical factors.

          Reply
          1. Wukchumni

            The symbology really meant nothing until fairly recently, and truth be said good old #79 only really sparkles in times like these, chock full of uncertainty, but you knew that.

            Reply
            1. skippy

              I know of as many periods where any commodity money goes splat taking peoples and nations with it.

              I also know a fair few that conceive such devices as a A political solution to political problems, bit of circular reasoning IMO, albeit when everything has to be wrapped around a imaginary philosophical axiom you’ll get a lot of that.

              At the end of the day I don’t have a preference, pros and cons to any system E.g. all can be abused. What I will abide by is the natural history and anthropological evidence [constantly up dated] and deal with the reality of it all, rather than accept something on faith.

              Reply
  21. Fresh cream

    “The ultimate, hidden truth of the world is that it‘s something that we make, and could just as easily make differently.”
    David Graeber

    Reply
  22. eg

    This is tremendous, so thanks to Michael for writing it and Yves for posting it.

    This bit struck me: “Silver served to denominate the debts run up by merchants for consignments to trade for raw materials and luxury goods (with the palace usually being the major customer), while land rent, fees for services and advances to cultivators during the crop year were measured in grain.”

    To what extent did this distinction serve as a sort of “proto Glass-Steagall” by separating commercial debts from the debt relations necessary to provision public purpose/ensure subsistence?

    Reply

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