Mises, Smith, and the origins of money

Lord Keynes continues to squabble with the Austrians on the origins of money in two separate posts, one on Adam Smith and the other on Mises's regression theorem.

The combativeness on the blog is unproductive, but I left a few comments anyways.

On Smith:

I don't really disagree with your claims, although I think you have to read the full Wealth of Nations in order to appreciate Adam Smith's theory of money. For instance, you are quoting from book 1 chapter 4, but Smith also has a very interesting (and much more extensive) chapter describing the complex workings of the system of bills of exchange, so he was by no means focused on gold and silver as money (See book 2 chapter 2). In this way he was different from Menger, who never discusses credit. Like Henry Dunning Macleod (who I see someone has already quoted), Smith was comfortable with credit as money.

 The existence of Henry Dunning Macleod, as well as George Berkeley and James Steuart, disconfirms the thesis that classical and neo-classical economists were uniformly metallists. All advocated to various degrees a credit theory of money. Jevons credits Macleod for laying the framework for marginal utility calculus, so he was surely neoclassical.

 The "origins of money" debate is interesting but I don't know how important it is. I think it's perfectly logical to adopt a Mengerian metallist approach and a Macleodean credit approach, modifying each just enough so that they can be amalgamated. Let the anthropologists take care of the chronological order of things.

On Mises:

But there is a severe flaw underlying Mises’s whole intellectual program in producing his Regression Theorem: the truth of the assumption that money only has indirect utility.... The view that money only has utility through its exchange value is also held by neoclassicals... This idea held by Austrians and neoclassicals should be rejected."

 I think you'll find that a number of Austrians already reject this. William Hutt's paper on the Yield from Money Held is a good example.

 http://mises.org/daily/3449

There are plenty of problems with Hoppe's article, but it is a good example of what I am talking about. Hutt was a fellow traveler of the Austrians and his paper is very popular in Austrian circles.

See an earlier post on Menger and the origins of money.

MMT, history of thought, Locke, Berkeley, chartalism, free banking, and cooperative banking

heteconomist.com has a post on MMT's openness and political neutrality. See A Clarification on Political Openness.

Heteconomist: "I prefer to see MMT as an open framework (basically an understanding of the monetary system and national accounting) within which – or out of which – various policy approaches could be developed and pursued."

Reply:

I’m no expert, but I decompose the monetary component of MMT into chartalism and endogenous money. These ideas are so old… you can go back centuries to find the origins of chartalism in Locke and Berkeley (money as a ticket, agreement, or sign). Endogenous money’s roots traces to the banking school of the 19th century. MMT doesn’t own these individual ideas… they are diffused into the general body of economics.

There are no intrinsic reasons why the ideas of Locke, Berkeley, and the banking school need be associated with a particular political slant.

The chartalist version of Locke/Berkeley’s token theory of money surely appeals to big government types on the left and right. This is because it finds in the all-powerful state the basis of the entire monetary system.

But you can have endogeneous money + Stateless Locke/Berkeley token money. The political form of this, on the left at least, would be social credit and the cooperative banking movement. On the right it would be some form of free banking.

So in sum, I wouldn’t idealize MMT as being a neutral super structure on which to drape your policy prescriptions. There is politics at the core of the chartalist rendition of Locke/Berkeley.