Tuesday, January 31, 2012

Fractional Reserve Banking, Option Clauses, and Government

The anti-fractional reserve banking (FRB) Austrians sometimes allege that FRB would not have survived without governmental intervention. By this, they usually mean that governments sometimes allowed suspension of specie during financial crises. While that is true, many times governments have legislated to stop banks from inserting “option clauses” in their demand deposit contracts allowing them suspend specie payments for a temporary period.

The so-called “option clause” (to suspend specie payments temporarily) was used freely in private FR banking contacts in Scotland from 1730–1765, Sweden from 1864–1903 and Canada during the 19th century (Selgin 1996: 247). The banks required no government support or intervention to allow them to suspend specie payment in liquidity crises, to stop runs and bank collapses.

The option and discretion to create an option clause in a bank’s FR contract gave the bank the right, in some circumstances, to suspend payments temporarily until it was able to obtain the liquidity needed for meeting obligations (Barth et al. 2001: 30). When its customers accepted such a contract, this was a perfectly voluntary and successful example of free contact: a “wicked” or “evil” government was not needed to enforce temporary suspensions of specie payment in such a case.

If that “option clause” was in your contract and the bank decided to suspend for a temporary period, this was not fraud, but free contract. Nor was government required for this process to arise and operate in free markets with fractional reserve banking. Nor was government required for the origin and success of fractional reserve banking.


Barth, J. R., Brumbaugh Jr., R. D. and G. Yago (eds.), 2001. Restructuring Regulation and Financial Institutions, Kluwer Academic Publishers, Boston, Mass. and London.

Selgin, George A. 1996. Bank Deregulation and Monetary Order, Routledge, London and New York.

Louis-Philippe Rochon on What Should Central Banks Do?

I have posted a video below of the Post Keynesian Louis-Philippe Rochon, talking on the various views of central bank and monetary policy within Post Keynesianism. Louis-Philippe Rochon has also been co-editor of some recent Post Keynesian studies (see Rochon and Vernengo 2001; Rochon and Rossi 2003).

There is a legitimate argument here about the extent of the effectiveness of monetary policy and its (negative/positive) effects on real output. Rochon distinguishes between two traditions within Post Keynesian economics:
(1) the activist Post Keynesians (Basil Moore [1988], Giuseppe Fontana, Thomas Palley), who, instead of an inflation target, wish to use activist monetary policy to target output, investment or capacity utilization;

(2) the group Rochon calls the “parking it” Post Keynesians, who contend the fiscal policy is the main tool to target output, employment and investment, while monetary policy comes with disturbing side effects on real variables. The relationship between interest rates and output is complex and not linear: the monetary transmission between interest rates and real economic variables is unreliable and complicated. The interest rate should be parked at a given level and fiscal policy should be employed. They are three further subdivisions within the “parking it” Post Keynesians:
(i) the Smithin rule: the real rate of interest should be very low, close to zero (John Smithin);
(ii) the Kansas city rule: the nominal rate of interest should be zero, possibly negative real rates of interest (Wray, Matthew Forstater, Pavlina Tcherneva).
(iii) the Pasinetti rule/Fair Rate rule: the real rate of interest should be equal to the rate of growth of labour productivity (Pasinetti).
These approaches are derived from the Keynes and Kaldor endogenous money tradition; they reject neoclassical, new consensus inflation targeting.


Moore, B. J. 1988. Horizontalists and Verticalists: The Macroeconomics of Credit Money, Cambridge University Press, Cambridge and New York.

Rochon, Louis-Philippe and Matias Vernengo (eds.). 2001. Credit, Interest Rates, and the Open Economy: Essays on Horizontalism, Edward Elgar Pub., Northampton, MA.

Rochon, Louis-Philippe and Sergio Rossi (eds.). 2003. Modern Theories of Money: The Nature and Role of Money in Capitalist Economies, Edward Elgar Pub, Cheltenham.

Hyman Minsky’s Papers Online

Hyman Minsky’s papers are available here in PDF form:
Hyman P. Minsky Archive.
A treasure trove! I was alerted to this via a post at the Nakedkeynesianism blog

Monday, January 30, 2012

Steve Keen on the History of Money

A nice video interview here with Steve Keen, where he discusses money, credit and debt. He also deals with a good many another issues in economics.

In video 1, Keen mentions the work of David Graeber (which I have examined myself), and the widespread existence of reciprocal gift exchange in many human societies, rather than barter spot trades, and how the barter origin of money as a universal theory is a myth.

Sunday, January 29, 2012

Robert Murphy versus Paul Krugman on Government Debt

I see that Robert Murphy was interviewed by Judge Andrew Napolitano, on Paul Krugman’s view of government debt in the video below. While I found it interesting to see Murphy interviewed, I have a low opinion of his notion of government debt.

Some points:
(1) The interviewer’s hysterical reference to the explosion of debt (“50,000 every second” – which I am not sure is correct or not) is misleading: government debt might be rising, but so is GDP, and it is net government debt as a percentage of GDP that is a better measure of its burden.

(2) The notion of present generations “living at the expense of future generations” is utter nonsense. Any future generation cannot send real goods and services back in time, and our wealth today is dependent on the real goods and services produced, owned and consumed today, not in the future. The repayment of future government debt comes from three sources:
(i) Central bank open market operations. This does not even involve taxpayers’ money at all: money used to pay back debt in this way is simply created by central banks.

(ii) The government has the power to roll over much of its debt. As long as people keep purchasing the debt, there’s no problem.

(iii) The government’s repayment might be from current tax revenues. But, with expanding GDP, the government has access to tax receipts which grow over time, which effectively means that the burden of interest servicing and paying back debt falls as the population rises, GDP grows and tax revenues rise. Since the US has a progressive tax system the “individual” burden of government debt repayment differs markedly depending on income anyway.

The future “individual” burden of government debt is simply a redistribution of money at a future time point or period, and, if the money is spent, a redistribution of real goods, services or assets within the society at some future point in time: it cannot be a robbery by present generations of future wealth, because there is no way that future, real goods and services can be magically transported back in time to today.
(3) The only really serious burden associated with government debt is that part of the debt owed to foreigners (as Abba Lerner argued). But even here the US is in a unique position: the US dollar is the world’s reserve currency and US dollars can just as easily be used to buy other nation’s goods and services, rather than just US goods and assets.

(4) Underlying this obsession with government debt is the completely mistaken and fallacious analogy with private debt. In reality, government debt is different from private debt for these reasons:
(i) the government is the monopoly issuer of its own currency; no private individual can print money;

(ii) the government has the power to roll over much of its debt, unlike private individuals;

(iii) the government’s central bank has the power to control interest rates and bond yields, if necessary.

(iv) the government has access to tax receipts which grow over time, which can effectively mean that the cost of interest servicing on government debt falls as the population rises.
(5) If anything, it is the present generation and its incompetent unwillingness to restore strong GDP growth and high employment that robs future generations of a stronger economy and greater wealth, by permanent loss of the higher level of output and real assets we would enjoy if GDP was hitting its potential.
In summary, the tax burden on most individuals from repayment of future US government debt is likely to be small, given that the US has a progressive tax system, and most debt is rolled over. Other debt is bought back by the central bank – which does not even involve taxes at all.

Above all, the burden of taxes for future generations to repay debt or interest on debt would be much reduced if the right macroeconomic policies were restored.

In fact, the truth is that vicious deflationary policies and budget balancing is what will really rob future generations of wealth: it will rob them of the larger economy they would have had in the future from a larger base of GDP and capital stock today.

Above all, destroying present employment, income and leaving millions unemployed will probably prevent potential parents from having children that they might wish to have, because of present poor job prospects, low income, reduced growth and economic stagnation: thus the wages of austerity and budget balancing will prevent some members of future generations from even being born. That is the real crime against future generations.

I have to laugh every time I hear this “robbing future generations” balderdash. The extreme proponents of free market economics would rob potential members of future generations of their very existence.


I highly recommend these classic articles by Abba Lerner on the issue of government debt:
Lerner, A. P. 1943. “Functional Finance and the Federal Debt,” Social Research 10: 38–51.

Lerner, A. P. 1947. “Money as a Creature of the State,” American Economic Review 37.2: 312–317.

Saturday, January 28, 2012

Equilibrium Amongst the Austrians

When Schumpeter published his first major work Das Wesen und der Hauptinhalt der theoretischen Nationalökonomie (Leipzig, 1908), the influence of Walrasian general equilibrium theory was apparent. Schumpeter accepted the existence of general equilibrium states, and the alleged long-term tendency to Walrasian general equilibrium. It should also be noted that Schumpeter’s “circular-flow model” is a kind of general equilibrium, basically in a stationary state.

Yet, of course, Schumpeter was not technically an Austrian: he may have studied under Eugen von Böhm-Bawerk (and obtained a PhD in 1906), but was converted to the rival neoclassical Walrasian school.

In fact, it is notable that the Austrian Hans Mayer (a student of Wieser) attacked Schumpeter’s first major work for making general equilibrium a real state (Shionoya 1997: 157; Mayer 1911).

But other Austrians were soon lost to the Walrasian equilibrium tradition. Hayek before 1936 is also best seen as a neoclassical equilibrium theorist (Gloria-Palermo 1999: 75; McCloughry 1984: viii; cf. Arena 2003: 316). In fact, Hayek’s Austrian business cycle theory (ABCT) was the product of his neoclassical phase, and he himself stated that he originally held that his “theory of the trade cycle ... ought to be organically superimposed upon the existing theory of equilibrium” (Hayek 1975 [1939]: 137). But Hayek’s Austrian trade cycle theory is an equilibrium theory that falls apart once equilibrium is seen to be unsound, and this is why Hayek essentially abandoned his trade cycle work after about 1940.

B. Tieben (2009: 264) has noted the divisions within the Austrian school on the issue of equilibrium. In my view, there are two broad traditions:
(1) Mises and Rothbard held that actual equilibrium states do not exist, but accepted a long term tendency to general equilibrium, even if the state was never attained, and Mises’s Evenly Rotating Economy (ERE) was a purely imaginary state.

(2) By contrast, Ludwig Lachmann criticised Mises for the view that there is a tendency towards general equilibrium, and Lachmann concluded that the economy is an on-going, open-ended “market process” with subjective knowledge and subjective expectations. Other Austrians influenced by Lachmann (e.g., Boettke, Horwitz, and Prychitko) adopt the idea of a market economy as an open-ended, evolutionary process, or “evolutionary ordering process” (Tieben 2009: 264).
This is clearly seen in a passage from 1976 article by Lachmann:
“Professor Hayek and Mises both espouse the market process, but do not ignore equilibrium as its final stage. The former, whose early work was clearly under the influence of the general equilibrium model, at one time appeared to regard a strong tendency towards general equilibrium as a real phenomenon of the market economy. Mises, calling the Austrians ‘logical’ and neoclassicals ‘mathematical’ economists, wrote: ‘Both the logical and the mathematical economists assert that human action ultimately aims at the establishment of such a state of equilibrium and would reach it if all further changes in data were to cease’ ... It is this view of the market process as at least potentially terminating in a state of long-run general equilibrium that now appears to require revision.”
In a kaleidic society the equilibrating forces, operating slowly, especially where much of the capital equipment is durable and specific, are always overtaken by unexpected change before they have done their work, and the results of their operation disrupted before they can bear fruit. Restless asset markets, redistributing wealth every day by engendering capital gains and losses, are just one instance, though in a market economy an important one, of the forces of change thwarting the equilibrating forces. Equilibrium of the economic system as a whole will thus never be reached. Marshallian markets for individual goods may for a time find their respective equilibria. The economic system never does. What emerges from our reflections is an image of the market as a particular kind of process, a continuous process without beginning or end, propelled by the interaction between the forces of equilibrium and the forces of change. General equilibrium theory only knows interaction between the former.” (Lachmann 1976: 60-61).
By these words, it appears Lachmann is saying that there is no tendency towards general equilibrium in a market economy.

Other Austrians invoke the concept of pattern/plan co-ordination as an alternative to equilibrium (e.g., the later Hayek, Rizzo and O’Driscoll), while those who follow Lachmann (the radical subjectivist tradition) would probably hold that there is no reliable, long term tendency to pattern/plan co-ordination or full employment “equilibrium” in a free market economy.

Indeed, the Austrian school is itself split between the Lachmann-wing and the moderate subjectivists. The latter have not properly dealt with the consequences of radical uncertainty and subjective expectations:
“Kirzner initially saw his project as improving neoclassical economics and providing a ‘story’ as to how markets adjust, whereas the kaleidic Lachmann-inspired wing (including Shackle and Loasby) seems to have been reaching out to Post keynesians such as Davidson. Indeed, in their debate with Davidson … both Prychitko (1993) and Torr (1993) acknowledged the tension between the kaleidic wing of Lachmann, Shackle and Boulding, with their stress on divergent and disequilibrating expectations, and the more dominant, market-as-an-equilibrating-process axis of Mises, Hayek and Kirzner” (Dunn 2008: 136).

Arena, R. 2003. “Beliefs, Knowledge and Equilibrium: A Different Perspective on Hayek,” in S. Rizzello (ed.), Cognitive Developments in Economics, Routledge, London and New York. 316–337.

Dunn, S. P. 2008. The ‘Uncertain’ Foundations of Post Keynesian Economics, Routledge, London.

Gloria-Palermo, S. 1999. The Evolution of Austrian Economics: From Menger to Lachmann, Routledge, London and New York.

Hayek, F. A. von. 1975 [1939]. Profits, Interest and Investment, Augustus M. Kelley Publishers, Clifton, NJ.

Lachmann, Ludwig M. 1976. “From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society,” Journal of Economic Literature 14.1: 54–62.

McCloughry, R. 1984. “Editor’s Introduction,” in F. A. von Hayek, Money, Capital & Fluctuations: Early Essays (ed. by R. McCloughry), Routledge & Kegan Paul, London. vii–x

Mayer, H. 1911. “Eine neue Grundlegung der theoretischen Nationalökonomie,” Zeitschrift für Volkswirtschaft Sozialpolitik und Verwaltung 20: 181ff.

Schumpeter, J. A. 1908. Das Wesen und der Hauptinhalt der theoretischen Nationalökonomie, Duncker & Humblot, Leipzig.

Shionoya, Y. 1997. Schumpeter and the Idea of Social Sciences, Cambridge University Press, Cambridge.

Tieben, B. 2009. The Concept of Equilibrium in Different Economic Traditions: A Historical Investigation, PhD Thesis, Tinbergen Institute.

Friday, January 27, 2012

The Rise of State Capitalism

A quick post. The Economist has an interesting article here on the rise of state capitalism in the developing world, particularly China:
Neil Webb, “The Visible Hand,” Economist.com, January 21st, 2012.
Well worth a read.

Thursday, January 26, 2012

What Hoover Should have Done in 1931

The tired and idiotic meme that Hoover tried a properly designed Keynesian stimulus in 1931 and 1932, and that this allegedly should have stopped the Great Depression continues to permeate the minds of various Austrians.

Robert P. Murphy quotes from his book The Politically Incorrect Guide to the Great Depression and the New Deal (2009) in a recent blog post:
“As with the evaluation of Hoover’s high-wages policy, his high-federal-budget policy can be usefully contrasted with the depression occurring at the end of Woodrow Wilson’s watch. With the conclusion of World War I, the U.S. government slashed its budget from $18.5 billion in FY 1919 down to $6.4 billion one year later. As the U.S. economy entered a depression at the turn of the decade, receipts fell. The Wilson Administration responded by cutting spending even more, down to $5.0 billion in FY 1921 and then following with a single-year slash of 34 percent, down to $3.3 billion in FY 1922. (Because of the fiscal/calendar year mismatch, it is debatable whether Wilson or Harding should be associated with the FY 1922 budget.)

So how do the two strategies stack up? We already know that Hoover faced 20+ percent unemployment after the second full year of his Keynesian stimulus policies. Wilson/Harding, on the other hand, was Krugman’s worst nightmare, taking the axe to federal spending in a way that would have given even Ron Paul the willies, and during a depression to boot! Yet as we already know, unemployment peaked at 11.7 percent in 1921, then began falling sharply. The depression was over for Harding, at the corresponding point when a desperate Hoover had decided to (try to) rein in his massive budget deficits” (Murphy 2009: 49).
Some basic facts should be stated first:
(1) In fiscal year 1930, Hoover actually ran a federal budget surplus, not a deficit. Federal policy was contractionary in this fiscal year.

(2) The Federal Reserve raised the discount rate in 1931.

(3) In fiscal year 1933, total federal spending was cut in relation to fiscal year 1932. Hoover introduced the Revenue Act of 1932 (June 6) which increased taxes across the board and applied to fiscal year 1932 and subsequent years. These were contractionary measures, and these two policies are the very antithesis of Keynesianism stimulus.
Murphy declares that Hoover engaged in “Keynesian stimulus policies.” If by this he means that the effect of federal government fiscal policy was weakly expansionary in 1931 and 1932 relative to the collapse of GNP, this is true enough. In 1931, for example, it is well known that fiscal policy was expansionary: one of the stimulative measures (passed over Hoover’s objections, however) included the Veterans’ Bonus Bill. The budget may have expanded demand by 2% of GNP in 1931 more than the 1929 budget, but this was not large relative to the collapse of GNP, which is the key (Temin 1989: 27–28). In 1931, GNP collapsed by 16.11% relative to its level in 1930, from $91.2 billion to $76.5 billion.

If by these words he means that Hoover engaged in the type of proper stimulative Keynesian fiscal expansion designed to halt the depression to restore growth, he is wrong, and contemptibly wrong.

In fiscal years 1931 and 1932, Hoover did indeed raise federal spending (especially in 1932), but it was woefully inadequate. In no sense do these miserable increases compared to the scale of the GDP collapse contradict Keynesian economics. Once you factor in state and local austerity and surpluses total federal spending increases was reduced.

In order to stimulate an economy back to its growth path and potential GDP, one has to do the following:
(1) calculate potential GDP and estimate how severely GDP is likely to collapse by,
(2) estimate the Keynesian multiplier and
(3) then design fiscal policy to expand demand by tax cuts and/or appropriate level of discretionary spending increases to hit potential GDP via the multiplier.
In 1931, US GDP collapsed by $14.7 billion dollars, in a debt deflationary spiral with bank failures and a collapse in consumption, employment and investment. If we assume a multiplier of 4 (which is very high), then Hoover’s federal spending increase of $257 million dollars in fiscal year 1931 might have generated at most $1.028 billion of GDP in fiscal year 1931 (the effect of state and local fiscal policy reduced this, however).

But GDP fell by $14.7 billion dollars, and it is the height of idiocy to seriously argue that Hoover’s increase in spending in fiscal year 1931 could have prevented the depression, to offset such a catastrophic fall in GDP. It could never have done any such thing.

To stop the downturn, Hoover needed to do the following:
(1) spend an additional $3.675 billion in fiscal year 1931 in stimulus;

(2) Hoover needed to at least stop fiscal contraction by states and local government, so some bailout of them was necessary to make (1) work.
He did no such thing. Not even close. $257 million dollars is not $3.675 billion. Hoover’s federal fiscal expansion was 6.9% of the sum required.

Of course, if Hoover had quickly stabilised the banking system in 1931, the GNP collapse would have been significantly reduced as well, and the scale of the needed stimulus would have been reduced too.

There is an easy empirical way to demonstrate that a Keynesian stimulus failed and that, moreover, something is wrong with Keynesian theory:
(1) in an economy experiencing a recession, calculate potential GDP, estimate the Keynesian multiplier and
(2) design fiscal policy to expand demand by tax cuts and/or appropriate level of discretionary spending increases to hit potential GDP via the multiplier, and if
(3) the stimulus is implemented and
(4) GNP continues to collapse, then you have empirical evidence that your stimulus failed, and that there are problems with your theory.
If in 1931, Hoover had designed a fiscal policy that stimulated the economy by an additional $3.675 billion, and US GNP had simply continued to collapse, then this would have been a failed stimulus. It would provide strong empirical evidence against Keynesian theory.

However, no such thing was ever done. Keynesianism did not fail, because Hoover never tried a proper Keynesian stimulus. Hoover’s fiscal policy in 1931 and 1932 was weak and feeble fiscal expansion, woefully inadequate.


Murphy, Robert. P. 2009. The Politically Incorrect Guide to the Great Depression and the New Deal, Regnery Publishing, Inc. Washington, DC.

Temin, P. 1989. Lessons from the Great Depression, MIT Press, Cambridge, Mass.

The Definition of a Depression

What is a depression? What is the proper definition?

In the 19th century, people tended to use the term loosely to refer to contractions in real output often accompanied by deflation. In the Oxford English Dictionary, we get a general definition:
“5. a. A lowering in quality, vigour, or amount; the state of being lowered or reduced in force, activity, intensity, etc. In mod. use esp. of trade; spec. the Depression, the financial and industrial ‘slump’ of 1929 and subsequent years.”

(Oxford English Dictionary [2nd edn. 1989], s.v. “depression,” 5.a.).
The earliest use of the word in this sense cited in the Oxford English Dictionary is from an 1827 publication, where we read that the “commencement of the present year was marked by a continuance of that depression in manufactures and commerce, which had prevailed at the close of the preceding [year]” (The Annual Register: Or a View of the History, Politics, and Literature, of the Year 1826, 1827, p. 1).

In the 19th century, when people referred to output contractions (normally with price deflation), they spoke of a “slump in trade,” “depression of commerce” or “depression of trade and industry”, and so on. Sometimes writers spoke of a “depression” in certain particular sectors as well.

The 1870s and 1890s were widely spoken of as decades marked by depression in the 19th century, and the whole 1873–1896 period was also sometimes misleadingly referred to as a depression by contemporaries, because of the persistent price deflation in these years (even though real output growth went through several cycles).

But the sheer scale and length of the early 1930s contraction in many countries led to the expression the “Great Depression” to refer to this historically unprecedented slump.

However, today we would tend to refer to most contractions of output or downturns in the business cycle as “recessions.” A recession is often defined as two or more consecutive quarters of negative real GNP/GDP growth, accompanied by rising unemployment (Oxford English Dictionary [2nd edn. 1989], s.v. “recession,” 5.b: the earliest use in the quotations is from 1905).

The word “depression” has come mostly to refer to severe recessions. While there is no universal, formal and strictly-used definition, there is in fact a definition widely employed by economists:
“There is no formal definition of a depression, though an old joke says that a recession is when your neighbor loses his or her job, a depression is when you lose your job. An informal definition is an economic contraction in which output falls by more than 10 percent.” (Knoop 2010: 14).

“Another proposed definition of depression includes two general rules: (1) a decline in real GDP exceeding 10%, or (2) a recession lasting 2 or more years.”

“Some economists say that if gross domestic product were to decline at a 10 percent or greater annualized rate for some unspecified period of time, that would be a depression.” (Posner 2010: 218).
This definition is also used by some astute popular writers, commentators and journalists in the popular press.

I contend that the definition of a depression as an real output contraction of 10% or more is a very useful one and ought to be employed in formal economic analysis.

Recessions are those periods where output contacts by less than 10%. I think this is a useful way of categorising recessions:
(1) A mild recession would be a real GDP contraction of up to 3.33%;

(2) a moderate recession from 3.33–6.66%, and

(3) a very severe recession from 6.66–9.99%.
By these definitions, there was no “depression” in 1920–1921 by recent, revised GNP estimates: there was a moderate recession (either a 3.47% or 5.58% fall in real output).

Whatever definition of “depression” economists, bloggers or commentators on economics use, above all they ought to be consistent in their use and see where consistent use of the definition leads.

Let us take a very loose and, I charge, unsound definition of depression: simply using it to refer to the aftermath of a real output contraction where there is positive GNP/GDP growth but high unemployment.

While the “Great Depression” normally includes (1) the years after 1933 when the US economy suffered high unemployment along with (2) the actual period of contraction from 1929–1933, this is a special and often popular historical usage, and it is potential misleading: for the US had positive GNP growth after 1933 and falling unemployment until 1938 (when fiscal contraction again plunged the economy into recession).

Some Austrians claim that the US in 2010 and 2011 was, or is now (January 2012), in depression. Yet the US has positive GDP growth now and did so last year (and has had positive GDP growth since 2009). There has not been a period of actual GDP contraction since 2009. By adopting such a loose definition of depression and applying it consistently, what does this lead to? By using the same definition, I could now claim that the US was in depression for virtually the whole 1890s after 1893 because of high unemployment. I could also claim it was in depression for most of the late 1870s. Only it wasn’t really by the other important metric we have: real GNP growth. There appears to have been positive GNP growth in 1895 and 1897–1900, and after 1874 in the US. What happened was a severe shock to the economy and real GNP fell well below its potential in these years. The economy was not generating enough growth to create high employment. Thus high unemployment persisted for years. This is in fact a regular condition in capitalist economies, even though they are in periods of output expansion: full or high employment is not reached.

But this state is a different situation from an actual depression (a period of severe fall in output by 10% or more). The former is what Keynes’s (misleadingly) called an “unemployment equilibrium” (which is better called an “unemployment disequilibrium”). Keynes’s view was that real-world capitalist systems have a tendency to fluctuate around a state well below full employment:
“our actual experience … [sc. is] that we oscillate, avoiding the gravest extremes of fluctuation in employment and in prices in both directions, round an intermediate position appreciably below full employment and appreciably above the minimum employment a decline below which would endanger life.” (Keynes 2008 [1936]: 229).
But such a state (with positive GNP growth) is not a “depression”: it is better called an “unemployment disequilibrium.”

Moreover, by continuing to use the same loose definition of “depression,” I could also demonstrate that many capitalist economies outside of the 1945–1973 period were very frequently in depression, because they had high involuntary unemployment. But, by that point, I have robbed the word “depression” of useful meaning, and the same also applies to the original loose use anyway: something is wrong with this self-serving definition of “depression.” It is a rhetorical trick, unsound and ought to be discarded.

A depression can be defined with respect to severity of a real output contraction or its duration. In short, a depression is
(1) a period of actual real GNP/GDP contraction where real output falls by 10% or more, or

(2) a period of actual real GNP/GDP contraction that lasts for 2 years or more (but where real output may not fall by 10% or more).

Keynes, J. M. 2008 [1936]. The General Theory of Employment, Interest, and Money, Atlantic Publishers, New Delhi.

Knoop, Todd A. 2010. Recessions and Depressions: Understanding Business Cycles (2nd edn.), Praeger, Santa Barbara, Calif.

Posner, Richard A. The Crisis of Capitalist Democracy, Harvard University Press, Cambridge, Mass. 2010.

The Annual Register: Or a View of the History, Politics, and Literature, of the Year 1826, J. Cuthell, et al., London.

US Unemployment, 1869–1899

There are a number of estimates of US unemployment in the late 19th century. One of the widely-cited estimates is that of J. R. Vernon (1994):
Year | Unemployment Rate
1869 | 3.97%
1870 | 3.52%
1871 | 3.66%
1872 | 4.00%
1873 | 3.99%
1874 | 5.53%
1875 | 5.83%
1876 | 7.00%
1877 | 7.77%
1878 | 8.25%
1879 | 6.59%

1880 | 4.48%
1881 | 4.12%
1882 | 3.29%
1883 | 3.48%
1884 | 4.01%
1885 | 4.62%
1886 | 4.72%
1887 | 4.30%
1888 | 5.08%
1889 | 4.27%
1890 | 3.97%
1891 | 4.34%
1892 | 4.33%
1893 | 5.51%
1894 | 7.73%
1895 | 6.46%
1896 | 8.19%
1897 | 7.54%
1898 | 8.01%
1899 | 6.20%

(Vernon 1994: 710).
I have highlighted in yellow those years where unemployment was over 5% and the years where unemployment showed a tendency to rise when it was above 5%.

According to the figures of Balke and Gordon (1989: 84), the US had negative GNP growth in 1874, 1888, 1893–1894, and 1896. There is a correlation between these recessions and rising unemployment in Vernon’s estimates.

But more puzzling is the marked rise in unemployment in the 1875–1878 and 1894–1898 periods.

While the double dip recession of the 1890s would explain the rising unemployment from 1893–1896, there was stubbornly high unemployment until 1898.

According to the GNP estimates of Balke and Gordon, the US had positive GNP growth rates from 1875–1878, yet unemployment rose in this period. Earlier estimates of GNP showed that the US economy experienced a recession in these years, with the NBER data showing the longest recession in US history from October 1873 to March 1879 (a 65 month recession). At the very least, there appears to have been contraction in certain important sectors.

This confirms that something was wrong with the US economy in these years, and that revised annual GNP estimates do not necessarily give us an accurate picture of the health of the economy on their own.


Balke, N. S., and R. J. Gordon, 1989. “The Estimation of Prewar Gross National Product: Methodology and New Evidence,” Journal of Political Economy 97.1: 38–92.

Vernon, J. R. 1994. “Unemployment Rates in Post-Bellum America: 1869–1899,” Journal of Macroeconomics 16: 701–714.

Tuesday, January 24, 2012

US Unemployment in the 1890s

With all the talk of the recession of 1920–1921 at the moment (see here and here), there is another issue: the double dip recession of the 1890s.

Various Austrians are asserting that 1920–1921 proves that austerity can “quickly” end a recession. I have debunked that nonsense here, and the dishonest (or at least misleading) reference to a depression of 1920–1921, when there was no such thing, just a mild or moderate recession (depending on whether you use the revised data of (1) Romer or (2) Balke and Gordon).

Moreover, there was quite clearly a mild or moderate recession in the 1890s that completely contradicts the Austrians’ belief that austerity leads to rapid prosperity and high employment.

I. The GNP Data
According to the figures of Balke and Gordon, 1890s America suffered a double dip recession, with contractions in real GNP from 1893–1894 and 1896.

Balke and Gordon’s estimates for real GNP are here (the GNP growth rates are my own calculations):
Year | GNP* | Growth Rate
1890 | $183.9 | 1.43%
1891 | $189.9 | 3.26%
1892 | $198.8 | 4.68%
1893 | $198.7 | -0.05%
1894 | $192.9 | -2.91%

1895 | $215.5 | 11.7%
1896 | $210.6 | -2.27
1897 | $227.8 | 8.16%
1898 | $233.2 | 2.37%
1899 | $260.3 | 11.6%
1900 | $265.4 | 1.95%
* Billions of 1982 dollars
(Balke and Gordon 1989: 84).
As we can see, according to these figures, the US had a moderate recession from 1893–1894 in which GNP fell by 2.96%, with a recovery in 1895, but a further serious recession in 1896 with real GNP falling by 2.27%.

II. Unemployment
What were the effects of these output shocks on employment? There are three estimates that have been done:
(1) Lebergott’s estimates of the unemployment rate.
(2) Romer (1986: 31):
(3) Vernon (1994: 710).
Here are Lebergott’s estimates of the unemployment rate:
Year | Unemployment Rate
1890 | 4.0%
1891 | 5.4%
1892 | 3.0%
1893 | 11.7%
1894 | 18.4%
1895 | 13.7%
1896 | 14.5%
1897 | 14.5%
1898 | 12.4%
1899 | 6.5%
1900 | 5.0%
By these figures, the unemployment rates were a disaster in the 1890s, but Lebergott’s figures are challenged by Romer (1986).

The revised figures in Romer are as follows:
Year | Unemployment Rate
1892 | 3.72%
1893 | 8.09%
1894 | 12.33%
1895 | 11.11%
1896 | 11.965
1897 | 12.43%
1898 | 11.62%
1899 | 8.66%
1900 | 5.00%
(Romer 1986: 31).
Even using Romer’s figures, the US economy did not return to high employment for nearly a decade after 1893.

Finally, here are Vernon’s (1994) figures:
Year | Unemployment Rate
1890 | 3.97%
1891 | 4.34%
1892 | 4.33%
1893 | 5.51%
1894 | 7.73%
1895 | 6.46%
1896 | 8.19%
1897 | 7.54%
1898 | 8.01%
1899 | 6.20%
(Vernon 1994: 710).
They are lower than Romer’s, but still in the high single digits.

So it does not matter what figures you use: the double dip recession of the 1890s led to high unemployment that persisted to the end of the decade. There was a period of protracted unemployment in the 1890s comparable to the aftermath of the Great Depression (in the years from 1933–1939).

III. Conclusions
An important point is that 1890s America had no central bank, government spending was a very small percentage of GDP (it fluctuated between 2.55% and 3.62% in the 1890s), and governments tended to pursue austerity in times of recession. In fact, US federal government spending fell from 1893 to 1896 and fell from $465.1 million in 1893 to $443.1 million by 1896, which was obviously contractionary fiscal policy. Yet the culmination of the fiscal contraction in 1896 saw the economy in recession again.

Above all – and I wish to emphasise this – the fiscal contraction from 1893-1896 is correlated with rising unemployment in both the unemployment estimates of Romer and Vernon. Even by Vernon’s figures unemployment remained at nearly 8% until 1898. In Lebergott’s original estimates, unemployment soared from 1892-1894, went down in 1895, but then surged again in 1896 and stayed at 14.5% in 1897. No estimates of unemployment give any support to the view that austerity returns a shocked economy to high employment quickly. Curiously, a quick look at the data on
US federal government spending shows that spending rose from 1897 to 1899, and that this is also correlated with falling unemployment in the estimates from 1897 to 1899.

As an aside, I note how utterly absurd it is for Austrians to invoke 1920–1921 as an (alleged) vindication of their theories, when in that period America had a central bank. By any definition, 1920–1921 was even less of a laissez faire system than 1890s America, so it should be less relevant than the 1890s.

If 1920–1921 can be invoked as some kind of “proof” that austerity works, then, with even greater reason, the 1890s should show the “proof” of austerity too. But it does no such thing: although there was some high real GNP growth after the double dip in 1896, this was not sufficiently high to bring unemployment down.

Why was this? After all, real GNP growth rates of 8.16% (in 1897) and 11.6% (in 1899) seem very high by the contemporary averages of the mature US economy.

But there is a crucial issue: the US was a newly industrialising economy in the late 19th century, and in this respect was very much like China in the last three decades. With a large reserve of urban labour, coming from the countryside and from overseas in the case of the US in the late 1800s, an industrialising economy requires very high growth rates to maintain employment levels. In the case of China, a GDP growth rate of less than 7–8% leads to serious unemployment:
“‘China needs a growth rate of at least 7 per cent to avoid massive unemployment’ (www.economist.com, 10 November 2008). ‘The original estimated for China’s minimum rate of growth, which was made in the mid-1990s, was 7 per cent’ (The Economist, 15 November 2008, p. 88).

More recently somewhat higher figures for minimum GDP growth have been mentioned. ‘Most economists estimate that 8 per cent growth is needed to prevent urban unemployment from rising, which could trigger demonstrations and undermine the country’s social stability’ (www.iht.com, 20 October 2008; IHT, 21 October 2008, IHT, 21 October 2008, p. 11).

‘The government is expected to supply a fiscal stimulus to keep growth above 8 per cent’ (The Economist, 11 October 2008, p. 110). ‘China's own leaders believe they need growth of at least 8 per cent a year to avoid painful unemployment’ (The Economist, 15 November 2008, p. 14).” (Jeffries 2011: 10).
In other words, a growth rate of less than 7% in China today is the functional equivalent of a recession for workers in terms of its effects on unemployment.

I suspect a similar phenomenon was going on in 19th century America: just because there were positive growth rates (even what seem like high ones in 1897 and 1899), it does not mean that unemployment was always falling or that the economy was booming.

A research question I would propose is: what level of real GNP growth was necessary in 1890s America to mop up idle labour and reduce high unemployment? If there was a certain level of positive GNP growth required to prevent falling unemployment, a moderate recession (in technical terms) with a contraction of 2.96% in GNP may well have been a disaster for employment levels. In fact, it is possible that positive growth rates of 1%–4% may have been insufficient to maintain employment. All in all, this suggests to me that America’s actual GNP was well below its potential GNP in these years. This was not a healthy economy: it was an economy operating at well below its potential and no “proof” of the success of austerity at all. Rather, the 19th century, laissez faire policies of the US government were a disaster, above all in terms of unemployment.

It is no surprise to me that you do not see the Austrians appealing to the 1890s as an example of the wonders of the free market allegedly ending the aftermath of a recession, because on the metric of unemployment alone the 1890s completely contradict their absurd fantasies.

Appendix 1: Romer’s Figures for GNP in the 1890s

Romer’s estimates for real GNP are here (the GNP growth rates are my own calculations):
Year | GNP* | Growth Rate
1890 | $182.964 | 4.53%
1891 | $191.757 | 4.80%
1892 | $204.279 | 6.53%
1893 | $202.616 | -0.81%
1894 | $200.819 | -0.88%
1895 | $215.668 | 7.39%
1896 | $221.438 | 2.67%
1897 | $233.655 | 5.51%
1898 | $241.459 | 3.33%
1899 | $254.728 | 5.49%
1900 | $264.540 | 3.85%
* Billions of 1982 dollars
(Romer 1989: 22).
Romer’s figures show no contraction in 1896, and only a mild contraction in 1893–1894. Yet we know by all estimates unemployment soared in these years. What is going on? Romer’s estimates might be flawed. More likely, I think this supports the view that America in the late 19th century was very much like China today: just because growth rates were positive does not necessarily mean the economy was healthy, or that it was growing at its potential capacity.

Appendix 2: Were Movements in the Labour Force Pro-cyclical or Countercyclical in the 19th century?

There is the question whether movements in the labour force – especially involving women – were pro-cyclical or countercyclical in the 19th century. If it was countercyclical, this adds to unemployment, as women, young adults, and perhaps even children go out and look for employment when their husband/fathers/breadwinners lose employment (for literature, see James and Thomas 2007; Weir 1986, 1992). This is relevant for the method and accuracy of unemployment estimates in the 1890s.


Balke, N. S., and R. J. Gordon, 1989. “The Estimation of Prewar Gross National Product: Methodology and New Evidence,” Journal of Political Economy 97.1: 38–92.

James, J. A. and M. Thomas, 2007. “Romer Revisited: Long-Term Changes in the Cyclical Sensitivity of Unemployment,” Cliometrica 1.1: 19–44.

Jeffries, I. 2011. Political Developments in Contemporary China: A Guide, Routledge, Oxon, England and New York.

Lebergott, S. 1964. Manpower in Economic Growth: The American Record since 1800, McGraw-Hill, New York.

Lebergott, S. 1964. Men Without Work: The Economics of Unemployment, Prentice-Hall, Englewood Cliffs, N.J.

Lebergott, S. 1986. “Discussion,” Journal of Economic History 46: 367-371.

Romer, C. D. 1986. “Spurious Volatility in Historical Unemployment Data,” Journal of Political Economy 94: 1–37.

Vernon, J. R. 1994. “Unemployment Rates in Post-Bellum America: 1869–1899,” Journal of Macroeconomics 16: 701–714.

Weir, D. R. 1986. “The Reliability of Historical Macroeconomic Data for Comparing Cyclical Stability,” The Journal of Economic History 46.2: 353–365.

Weir, D. R. 1992. “A Century of U.S. Unemployment, 1890–1990: Revised Estimates and Evidence for Stabilization,” Research in Economic History 14: 301–346.

David Graeber versus Robert Murphy: A Review

Since I have been dealing with David Graeber’s work in the last post, I will also review the debate he had with the Austrian economist Robert P. Murphy.

Let’s review the debate:
(1) This interview with Graeber (“What is Debt? – An Interview with Economic Anthropologist David Graeber,” August 26, 2011) sparked off the debate.

(2) Robert P. Murphy’s attention was drawn to Graeber’s interview by an inaccurate summary of it by Gene Callahan. Murphy admitted he didn’t even read Graeber’s book.

(3) From the very beginning, Murphy appears to have misunderstood Graeber’s position. Graeber does not deny that money in some historical circumstances can emerge from barter between strangers, especially in long distance trade. On p. 75 of Debt: The First 5,000 Years (2011), Graber cites the cacao money of Mesoamerica and the salt money of Ethiopia as instances of money emerging through barter. It is the view that money can only ever emerge from barter spot transactions that must be rejected. Murphy in his original criticism of Graeber also appeared to charge Graeber with denying that moneyless spot trade (barter) had historical existence. That was a completely false charge.

(4) What Graeber attacks is the idea that money-less communities come to have economies dominated by barter spot trades. He also notes that in reality money-less societies tend to be dominated by debt/credit transactions, and that this can largely avoid the immediate, notorious problem of the “double coincidence of wants” that allegedly leads to money’s origin. Robert Murphy eventually made a rather important concession here:
“This is an excellent point, and Graeber is right: In the standard exposition of a barter economy, economists typically think in terms of spot transactions. But in principle, there’s no reason to restrict ourselves in this way. If we can imagine a farmer trading a pig for an axe, we can also imagine a farmer trading a pig for a promise to deliver an axe in two weeks.

Graeber is also right that the possibility of credit transactions expands the scope of a moneyless economy, and mitigates the problem of finding a double coincidence of wants.”

Robert Murphy, “Murphy Replies to David Graeber on Menger and Money,” Mises.org, September 8, 2011.
(5) Murphy cites the work of R. A. Radford (“The Economic Organization of a POW Camp,” Economica 12.48 [1945]: 189–201) that demonstrates the emergence of a cigarette money in a POW camp. But this evidence does not show what Murphy thinks it does. Situations in which barter is observed in groups of human beings in modern times where some good emerges as a medium of exchange can hardly be regarded as confirming the barter origin of money theory, because the people concerned in these cases were already perfectly familiar with money and a price system (Graeber 2011: 37; see also Ingham 2006: 264–265).

Murphy’s citation of Jeff Tucker’s account of “micro-size Three Musketeers bars” emerging as a medium of exchange amongst children bartering with Halloween candies is also invalid and does not prove anything: older and even young children are perfectly familiar with the concept of money and prices.

In any case, Graeber did not deny that money can emerge this way in the distant past: what he denies is that money can only arise this way. As Graeber remarks:
“The idea that there is a single ‘origin’ of money is rather dubious in itself – if money is simply a mathematical system whereby one can compare proportional values, then something of that sort must have emerged in innumerable different occasions in human history for different reasons. The standard version of how it emerged, however, that goes back to Adam Smith, is repeated by Jevons, Menger, etc, is one of the least likely, in fact, which is strongly counter-indicated by all existing evidence.”

Robert Murphy, “David Graeber’s Response to My Article,” Mises.org, September 8, 2011.
(6) Graeber accepts the idea of long distance or regular trade between strangers generating a money unit of account:
“If you have regular exchange between strangers, it’s because there are specific goods that each side knows they want or need. One has to bear in mind that under ancient conditions, long-distance trade was extremely dangerous. …. You show up because you know there are people who have always wanted woolens and who have always had lapis lazuli. Logically, what such a situation would lead to is a series of conventional equivalences – so many woolens for so many pieces of lapis lazuli – which are maintained despite contingencies of supply and demand, because all parties need to reduce risk or the trade would simply stop. And once again, what logic would predict is precisely what we find. Even in periods of human history where money and markets did already exist, high-risk long distance trade has often continued to be carried out through a system of conventional equivalents, administered prices, between specific commodities that merchants already know will be available, or in demand, at certain pre-established locations.

Now, could such a system generate something like money of account – that is, the use of one or two relatively desirable commodities to measure the value of other ones, once more items were added to the mix (say, you’re making several stops)? Sure. It is likely that in certain circumstances, something like this did happen – but it would have meant that money, in such cases, was created first as a means to avoid market mechanisms, and that it was not used mainly as a medium of transactions, but rather, primarily as a means of account. One could even make up an imaginary scenario whereby once you start using one divisible/portable/etc commodity as a means of establishing fixed equivalents between other ones, you could start using for minor occasional transactions, to measure negotiated prices for spot trade swaps on the side, in a more market-driven way. All that is possible and likely as not did happen here and there. However there is no reason to assume that such a system would produce a concrete medium of exchange actually used in making these transactions – in fact, given the dangers of ancient trade, insisting that some medium like silver actually be used in all transactions, rather than a credit system, would be completely irrational, since the need to carry around such a money-stuff would make one a far, far, more attractive target to potential thieves. …. The other problem is there is no reason to believe that such mechanism – which would presumably only be used by that tiny proportion of the population who engaged in long distance trade, and who tended to treat such matters as specialized knowledge to be guarded from outsiders – could possibly create a money system used in everyday transactions within a society or any evidence that it might have done so.

Robert Murphy, “David Graeber’s Response to My Article,” Mises.org, September 8, 2011.
(7) In trying to reconcile Menger’s barter view of the origin of money with the evidence from ancient Mesopotamia, Murphy contends that temples picked silver as an unit of account because silver was what was used to facilitate trades with foreigners. Yet there is a misunderstanding here: the temples used their own produced goods to obtain silver from foreigners, in long distance trade. Silver was a weight unit (Hudson 2003: 42), a high prestige object, and used in temples for objects associated with the gods. As late as the Old Babylonian period (c. 2000–1600 BC), silver was largely confined to temples and palaces (Nemet-Nejat 2002: 267). It did not circulate much as an actual medium of exchange within Mesopotamia in the third millennium BC. It is highly unlikely that silver emerged as the most saleable commodity in barter spot trades and then indirect trades within Mesopotamia to attain the status of money. Rather, a silver unit of account was developed by temples from its use as a weight unit in those temples.


Graeber, David, 2009. “Debt: The First Five Thousand Years,” Eurozine.com, 20th August.
An early summary of Graeber’s work on debt.

“What is Debt? – An Interview with Economic Anthropologist David Graeber,” Nakedcapitalism.com, August 26, 2011.
The original interview with Graeber that sparked the debate.

Gene Callahan, “Fiat Currency,” Saturday, August 27, 2011.
A summary of Graeber’s interview that sparked off a debate between Gene Callahan and Robert Murphy.

Robert P. Murphy, “Have Anthropologists Overturned Menger?,” Mises Daily, September 1, 2011.
This is Robert P. Murphy’s response to Graeber’s interview at Nakedcapitalism.com.

Robert Murphy, “David Graeber’s Response to My Article,” Mises.org, September 8, 2011.
This is a summary of David Graeber’s comments on Robert P. Murphy’s article “Have Anthropologists Overturned Menger?.”

Robert Murphy, “Murphy Replies to David Graeber on Menger and Money,” Mises.org, September 8, 2011.
This is Murphy’s reply to David Graeber’s comments.

David Graeber, “On the Invention of Money – Notes on Sex, Adventure, Monomaniacal Sociopathy and the True Function of Economics. A Reply to Robert Murphy’s ‘Have Anthropologists Overturned Menger?,’” September 13, 2011.
David Graeber’s final response to Murphy, published on Nakedcapitalism.com.


Graeber, David. 2011. Debt: The First 5,000 Years, Melville House, Brooklyn, N.Y.

Hudson, M. 2003. “The Creditary/Monetarist Debate in Historical Perspective,” in S. A. Bell and E. J. Nell (eds), The State, the Market, and the Euro: Chartalism versus Metallism in the Theory of Money, Edward Elgar, Cheltenham. 39–76.

Ingham, G. 2006. “Further Reflections on the Ontology of Money: Responses to Lapavitsas and Dodd,” Economy and Society 35.2: 259–278.

Nemet-Nejat, K. R. 2002. Daily Life in Ancient Mesopotamia, Hendrickson, Peabody, Mass.

Radford, R. A. 1945. “The Economic Organization of a POW Camp,” Economica 12. 48: 189–201.

Monday, January 23, 2012

David Graeber on the Origins of Money

I have just finished reading David Graeber’s Debt: The First 5,000 Years (Brooklyn, N.Y., 2011). While I will not review the whole book, a review of some of the chapters on the origins of money is worthwhile, with reference to some of the specialist literature cited by Graeber.

We won’t get very far without defining what money is, however. Money’s functions are usually divided into the following:
(1) money of account or a unit of account,
(2) a means of payment and medium of exchange and
(3) a store of value.
Graeber (2011: 21) notes that historically economists have been obsessed with the medium of exchange role, and treat the latter as the primary role.

But a crucial division can be made between (a) money conceived as what Keynes called an abstract money of account (that is, money as an abstract unit of account) and (b) things which function as an actual means of payment and medium of exchange, which act as money in an abstract or physical way.

The money of account is the unit of account in which prices and debts are measured. It is abstract. But it is clear you can have an abstract money of account without a large role for an actual physical medium of exchange. For example, in practice, many exchanges in an economy might be done by credit transactions.

Graeber notes that the mainstream view of money as emerging from barter spot trades goes back to Adam Smith (Graeber 2011: 24). The modern neoclassical economics profession is obsessed with barter because they regard money as a neutral veil and their “real” analysis of economies is essentially that of a barter system (Graeber 2011: 44–45).

It is important to note that Graeber does not deny that money in some historical circumstances can emerge from barter between strangers, especially in long distance trade. Graber cites the cacao money of Mesoamerica and the salt money of Ethiopia as instances of money emerging through barter (Graeber 2011: 75; on Ethiopian salt money, see Einzig 1949: 123–126). Graeber also cites the views of Max Weber (1978: 673–674) and Karl Bücher (1901), who argued that money emerged from barter between different societies, not within societies (Karl Polanyi may also have held a position close to this).

The points that can be made against the standard barter theory of money are as follows:
(1) the view that money can only ever emerge from barter spot transactions must be rejected.

(2) even the assumption lying behind standard neoclassical theory that money-less communities come to have economies dominated by barter spot trades is contradicted by the evidence of anthropology.
Money-less societies are frequently dominated by debt/credit transactions, or “gift exchange,” not by barter spot trades (on barter, see Chapman 1980; Heady 2005; Humphrey 1984). Even in cases where goods exchange for goods in spot trades, social relations can complicate matters considerably, and historically barter seems to have been prevalent between one community and another, or, that is to say, between people who were strangers and where relationships were implicitly or explicitly hostile (Graeber 2011: 29–30; cf. Heady 2005: 267). In small human communities, gift exchange and credit transactions in goods, services or social relations can largely overcome the immediate double coincidence of wants problem encountered in barter spot trades, and in such communities there may exist a ranked list of various things according to their value, in which certain things are also deemed roughly equivalent (Graeber 2011: 36; Graeber 2011: 395, n. 24 notes that Ralph Hawtrey was one of the few economists to consider the role of deferred payments).

Situations in which barter is observed in groups of human beings in modern times where some good emerges as a medium of exchange (as in cigarettes in POW camps, for example) can hardly be regarded as confirming the barter origin of money theory, because the people concerned in these cases were already perfectly familiar with money (Graeber 2011: 37).

In ancient Mesopotamia, money as a unit of account seems to have been the invention of temple and palace institutions. These were state institutions with large internal centrally planned economies, with complex weights and measurements for internal accounting of the products produced, received and distributed, and rent and interest owed. The units of account were (1) the shekel of silver (which was equal to the monthly grain ration) and (2) barley. One gur of barley was equal to the shekel. The shekel of silver was set by temple/palace planners to equal to the monthly grain ration (i.e., a gur of wages in barley) doled out to their workers. Thus they seem to have designed a unit of account from the major weight units: many prices were probably even set and administered in the money of account which developed from weight units (Graeber 2011: 39; Hudson 2003; 2004a; 2004b). Payment could be made in silver but in fact was probably not done so in reality very often. The economy operated on credit/debt transactions and payment could be made in real goods.

While a non-enumerated system of debts/credits or gift exchange might not give rise to money, there is clearly a role for debt in the history of money (Graeber 2011: 40), and Graeber draws attention to the work of Alfred Mitchell Innes (1864–1950), who published two important papers on money and the debt/credit origins of money (see Mitchell Innes 1913 and 1914). As a matter of interest, Alfred Mitchell Innes was influenced by the Scottish economist Henry Dunning Macleod’s (1821–1902) credit theory of money (see MacLeod 1902).

In many periods of history when coined money did exist, such as the European Middle Ages, it was actually very scarce, and societies continued to operate on debt/credit transactions: in reality the following conceptual development is wrong:
barter > money > credit.
In the real world, gift exchange and debt/credit arrangements existed long before money, and societies could develop an abstract unit of account in which debt/credit transactions were still the predominant system (Graeber 2011: 40). The use of coinage, when it was developed, could remain uneven and coins scarce. Instances when barter has become a predominate system (as after the collapse of the Soviet Union or Argentina after 2001) are usually when currency collapses (Graeber 2011: 40).

In a society where debt/credits are the major transaction, IOUs/debts can be transferable and used as a means of payment or medium of exchange. Graeber thinks of an example:
“Say, for example, that Joshua were to give his shoes to Henry, and, rather than Henry owing him a favour, Henry promises him something of equivalent value. Henry gives Joshua an IOU. Joshua could wait for Henry to have something useful, and then redeem it. In that case Henry would rip up the IOU and the story would be over. But say Joshua were to pass the IOU on to a third party—Sheila—to whom he owes something else. He could tick it off against his debt to a fourth party, Lola—now Henry will owe that amount to her. Hence money is born.” (Graeber 2011: 46).
A type of medium of exchange could emerge in theory in this way in small communities, or communities of specific people like merchants where IOUs can be verified. The empirical evidence demonstrates that this is precisely how promissory notes and bills of exchange become a medium of exchange. A kind of debt money can emerge in communities where there exist people willing to accept it or cancel the debt IOUs (Graeber 2011: 74). Graeber notes how for centuries English shops issued their own wood, lead or leather token money as debt money redeemable at the particular merchant’s store (Graeber 2011: 74). Graeber’s eclectic view on the origins of money is expressed in this way:
“Throughout most of history, even where we do find elaborate markets, we also find a complex jumble of different sorts of currency. Some of these may have originally emerged from barter between foreigners: the cacao money of Mesoamerica and the salt money of Ethiopia are frequently cited examples. Other arose from credit systems, or from arguments over what sort of goods should be acceptable to pay taxes or other debts. Such questions were often matters of endless contestation.” (Graeber 2011: 75)
Graeber, however, doubts that local or community debt/IOU money systems can “create a full-blown currency system, and there’s no evidence that they ever have” (Graeber 2011: 47). But this is where Georg Friedrich Knapp’s (1842–1926) chartalist theory of money comes in (see Knapp 1905; Knapp 1973 [1924]). When the state issues IOUs it can do so on a large scale, and then demand the same IOU tokens back as payment of taxes. Graeber notes the use of tally sticks in the Middle Ages: the British exchequer could issue them, and they would circulate as tokens of debt owed to the government (Graeber 2011: 48–49), but also circulate as a medium of exchange within England accepted for payment of taxes (Davies 2002: 146–151).

Graeber (2011: 59–62) also refers to the thesis of Grierson on how wergeld-like customs could create a system of measurement of relative values (Grierson 1978: 11; Grierson 1977).

The origins of money, then, lie in different sources, and not simply in a barter origin of money theory.

I end with a curious but important fact: Graeber notes how primitive monies – like shell money in the Americas or Papua New Guinea, cattle money in Africa, bead money, feather money, and so on – are often rarely used to buy everyday items in the societies that use them. Instead, they are employed in social relations like marriages and to settle disputes (Graeber 2011: 60). The story of money is rather more complex than neoclassical economists imagine.


Bücher, K. 1901. Industrial Evolution (trans. S. Morley Wickett), H. Holt and Co., New York.

Chapman, A. 1980. “Barter as a Universal Mode of Exchange,” L’Homme 20.3: 33–83.

Davies, Glyn. 2002. A History of Money: From Ancient Times to the Present Day (3rd edn.), University of Wales Press, Cardiff.

Einzig, Paul. 1949. Primitive Money: In Its Ethnological, Historical, and Economic Aspects, Eyre & Spottiswoode, London.

Fayazmanesh, S. 2006. Money and Exchange: Folktales and Reality, Routledge, New York.

Graeber, David. 2011. Debt: The First 5,000 Years, Melville House, Brooklyn, N.Y.

Grierson, P. 1977. The Origins of Money, Athlone Press and University of London, London.

Grierson, P. 1978. “The Origins of Money,” Research in Economic Anthropology 1: 1–35.

Hart, K. 1986. “Heads or Tails? Two Sides of the Coin,” Man n.s. 21.4: 637-656.

Heady, P. 2005. “Barter,” in J. Carrier (ed.), A Handbook of Economic Anthropology, Edward Elgar Publishing Limited, Cheltenham. 262–274.

Hudson, M. 2003. “The Creditary/Monetarist Debate in Historical Perspective,” in S. A. Bell and E. J. Nell (eds), The State, the Market, and the Euro: Chartalism versus Metallism in the Theory of Money, Edward Elgar, Cheltenham. 39–76.

Hudson, M. 2004a. “The Archaeology of Money: Debt Versus Barter Theories of Money’s Origins,” in L. R. Wray (ed.), Credit and State Theories of Money: the Contributions of A. Mitchell Innes, Edward Elgar, Cheltenham. 99–127.

Hudson, M. 2004b. “The Development of Money-of-Account in Sumer’s Temples,” in M. Hudson and C. Wunsch (eds.), Creating Economic Order: Record-Keeping, Standardization, and the Development of Accounting in the Ancient Near East, CDL Press, Bethesda, MD. 303–329.

Humphrey, C. 1984. “Barter and Economic Disintegration,” Man 20.1: 48–72.

Knapp, G. F. 1905. Staatliche Theorie des Geldes, Duncker & Humblot, Leipzig.

Knapp, G. F. 1973 [1924]. The State Theory of Money (trans. H. M. Lucas and J. Bonar), Augustus M. Kelley, Clifton, NY.

MacLeod, H. D. 1902. Theory and Practice of Banking (6th edn), Longmans, Green, Reader, & Dyer, London.

Mitchell Innes, A. 1913. “What is Money?,” Banking Law Journal 30.5 (May): 377–408.

Mitchell Innes, A. 1914. “The Credit Theory of Money,” Banking Law Journal 31.2 (January–December): 151-168.

Weber, M. 1978. Economy and Society: An Outline of Interpretive Sociology (eds. G. Roth and C. Wittich; trans. E. Fischoff et al.), University of California Press, Berkeley and London.

Daniel Kahneman Interviews

Daniel Kahneman has done a considerable amount of work on human intuition and decision making. I highly recommend his paper “A Psychological Perspective on Economics” (American Economic Review 93.2 [2003]: 162–168), and I have already discussed the “heuristic and biases” method of Tversky and Kahneman, and how this is a very useful approach to decision-making under uncertainty, which confirms and complements the Post Keynesian theory of business decision-making under uncertainty (Tversky and Kahneman 1974; and Kahneman et al. 1982; Fontana 2009: 39–41).

I post two videos below.

The first Daniel Kahneman talks about behavioural economics.

The second is an extended, more general interview with Daniel Kahneman by Harry Kreisler, in the Conversations with History (2007). It is a wide-ranging interview.


Fontana, G. 2009. Money, Uncertainty and Time, Routledge, London and New York.

Kahneman D. 2003. “A Psychological Perspective on Economics,” American Economic Review 93.2: 162–168.

Kahneman, D., Slovic, P. and A. Tversky (eds), 1982. Judgment Under Uncertainty: Heuristics and Biases, Cambridge University Press, Cambridge.

Tversky, A. and D. Kahneman, 1974. “Judgment under Uncertainty: Heuristics and Biases,” Science (American Association for the Advancement of Science) 185 (4157): 1124–1131.

Sunday, January 22, 2012

Austrian Substitutes for GDP – They are Aggregates!

How often do we hear endless nonsense from Austrians that GDP is unsound because it is an aggregate value?

And yet – astonishingly – the only serious Austrian measures of real national output proposed in place of GDP, such as Rothbard’s Gross Private Product (GPP) and Mark Skousen’s Gross Domestic Output (GDO) are nothing but aggregates!

GDP is the following:
GDP = C + I + G + (X-M).
Rothbard’s Gross Private Product is little more than GDP, with G removed. That is to say, Rothbard’s Gross Private Product is merely this:
GDP = C + I + (X-M).
This is an aggregate of aggregates too: the total value of final consumer goods and total value of gross investment (new housing, replacement purchases, net additions to capital assets and investments in inventories), and exports minus imports. If Rothbard’s Gross Private Product is to be taken seriously, then it must be legitimate to aggregate the value of C, I, and (X-M).

Think of C as an example: the aggregation of the sale price of consumer goods in money terms in one year must be perfectly valid and meaningful, though such goods are heterogeneous. If you could not, for example, meaningfully aggregate the value of sales of heterogeneous goods in one year for a firm, how could a firm calculate its total income from sales?

Now gross investment is, as I have said, new housing, replacement purchases, net additions to capital assets and investments in inventories. Obviously, these goods are heterogeneous, and not all capital goods investments in one year will lead to a profit in the future, but you can still aggregate the sale price of these new capital goods bought (or value of new capital goods added into the capital stock). Rothbard’s Gross Private Product requires gross investment.

Government spending (G) is (1) final consumption expenditure by government and (2) government gross capital formation (infrastructure investment or research spending). Government expenditures that are transfers of money (social security payments, pensions, etc.) are transfer payments. Transfer payments are not included in government purchases. Rothbard’s Gross Private Product removes income originating in government and government enterprises.

Mark Skousen appeals to “Gross Output (GO)” – which is intermediate input plus GDP – as a more accurate measure of national output. In The Structure of Production (1990), Skousen attempted to create a new output statistic: Gross Domestic Output (GDO), as his “Austrian” alternative to GDP. However, he seems to regard Gross Output (GO) as an acceptable version of this, and Gross Output (GO) is nothing but an official Commerce department aggregate measure of output that aggregates GDP and the value of intermediate input (or what Skousen calls the “goods-in-process sector of the economy,” including commodity factor inputs, manufacturing, and wholesale stages of production).

Now, if GDP is not a meaningful or valid measure of output, how could Skousen’s Gross Output (GO) be meaningful or valid? The answer is: it couldn’t, and Gross Output can only be meaningful, if we also accept the meaningful nature of GDP.

Without a measure of the value or volume of real output, most attempts by any type of economist (Austrians included) to analyse an economy collapse: for how could you know whether Keynesian stimulus or Austrian liquidationism have the effects allegedly claimed for them, without looking at real output in some aggregate form? How could you even know whether the economy is in a recession or an expansionary phase?


Robert Batemarco (1987) discusses Rothbard’s Gross Private Product, and on p. 183 gives a table of US GNP and Gross Private Product for the period 1947-1983.


Batemarco, R. 1987. “GNP, PPR, and the Standard of Living,” Review of Austrian Economics 1: 181-186.

Skousen, Mark. 1990. The Structure of Production, New York University Press, New York and London.

Skousen, Mark, 2001. “Beyond GDP: A Breakthrough in National Income Accounting,” Mskousen.com, April 1, 2001

Saturday, January 21, 2012

“We Are All Austrians Now” and the Recent Debate about Austrian Economics

Ron Paul hopes for the day when Republicans can say that they are all Austrians (with respect to economics, that is), as you can see in this video.

This has led to a surge of interest in Austrian economics and Austrian-inspired libertarianism in the blogosphere:
Matthew Yglesias, “What is ‘Austrian Economics’?”, Slate.com, January 6, 2012.

Sheldon Richman, “Austrian Economics Hits the Headlines: Critics ought to understand it first,” Freeman Online, January 13, 2012.

Sophie Roell, “Peter Boettke on Austrian Economics,” FiveBooks Interviews, January 12, 2012.
Matthew Yglesias’s “What is ‘Austrian Economics’?” provoked a response from Sheldon Richman (“Austrian Economics Hits the Headlines”).

Although I don’t disagree in principle with Yglesias’s critical post on Austrian economics, there are some other points to be made:
(1) A distinction should be made between (1) Mises’s economic and political version of Austrianism and (2) that of Murray Rothbard. Rothbard was an anarcho-capitalist who wanted the abolition of the state; Mises was a Classical liberal who believed in an important role for government as a minimal state. Ron Paul, although he supports a radical reduction in government, seems to be more like a Misesian Classical liberal than a Rothbardian anarcho-capitalist, as Paul accepts the idea of a minimal state.

An important point is that there is considerable diversity within the Austrian school on both political and economic issues. Important divisions can be made, as follows:
(1) The Anarcho-capitalists
E.g., Murray Rothbard, Hans-Hermann Hoppe and Jörg Guido Hülsmann;
The Anarcho-capitalists support praxeology, and usually natural rights or Hoppe’s argumentation ethic.

(2) The minimal state/classical liberal Austrians in the tradition of Mises
This variety supports praxeology too, but often utilitarianism as an ethical theory;

(3) Hayek’s economics, with a minimal state;
Hayek rejected Mises’s apriorism and strict Misesian praxeology for a more empirical Popperian method for economics.

(4) Moderate subjectivist Austrians
E.g., Israel Kirzner and Roger Garrison;

(5) Radical subjectivists like Ludwig M. Lachmann (1906-1990), and Austrians influenced by him.

See “The Different Types of Austrian Economics,” December 5, 2010.
In fact, on policy and political issues, there was also a clear split in the early Austrian school. Some were Classical liberals; others were what we would now call progressive liberals or even sympathetic to Fabian socialism, including the following:
(1) Eugen von Philippovich, a leader of Austrian social liberalism and Fabian socialist;
(2) Friedrich von Wieser, sympathetic to Fabian socialism;
(3) the early Hayek, sympathetic to Wieser's mild Fabian socialism, and
(4) Richard von Strigl, who was, according to Hayek, “if anything, a socialist” (Nobel Prize-Winning Economist: Friedrich A. von Hayek, pp. 54–56).

See “Friedrich von Wieser and Eugen von Philippovich von Philippsberg: Austrian Economists and Fabian Socialists,” October 21, 2010.

“Why are there no Austrian Socialists?,” June 3, 2011.
The connection with Fabian socialism that some of the early Austrians had is not something much discussed by their modern descendants, the worst of whom – the anarcho-capitalists – are little better than a cult.

(2) Yglesias states that “Austrians reject the idea that there is anything at all the government can do to stabilize macroeconomic fluctuations.” This is indeed the view of the most extreme Austrians, yet there were Austrians who supported government interventions in the depression: Hayek was the most notable example. Hayek allowed for monetary and fiscal stabilization during depressions, and, by the late 1930s, gave (qualified) support for government public works in a depression and monetary stabilization:
“Did Hayek Advocate Public Works in a Depression?,” September 25, 2011.
The Austrian radical subjectivist Ludwig Lachmann allowed an important role for government “interventions for stability,” and accepted that Keynesian macroeconomic expansion would have ended the Great Depression (hear Lachmann say so here):
“A Startling Admission from Ludwig Lachmann,” July 11, 2011.

“Ludwig Lachmann on Government Intervention,” July 9, 2011.
(3) Yglesias could have looked at other critiques of the Austrian business cycle theory (ABCT); in particular the damaging attack of Piero Sraffa (Sraffa 1932a and 1932b) of the Hayekian theory, and the collapse of the Hayekian version of the ABCT once it is seen to be an equilibrium theory requiring Walrasian fantasy notions of stationary equilibrium and the failure to consider uncertainty and subjective expectations:
“Hayek’s Trade Cycle Theory, Equilibrium, Knowledge and Expectations,” January 4, 2012.

“Austrian Business Cycle Theory: The Various Versions and a Critique,” June 21, 2011.
Secondly, Sraffa destroyed Hayek’s flawed concept of the unique natural rate of interest:
“Robert P. Murphy on the Sraffa-Hayek Debate,” July 19, 2011.

“Hayek’s Natural Rate on Capital Goods, Sraffa and ABCT,” December 27, 2011.

“Austrian Business Cycle Theory (ABCT) and the Natural Rate of Interest,” June 18, 2011.
Eventually even Hayek himself came to see his original ABCT was increasingly irrelevant to the modern world where credit flows to consumers were important:
“Hayek on the Flaws and Irrelevance of his Trade Cycle Theory,” June 29, 2011.
Furthermore, even prominent Austrians like Kirzner and Lachmann never thought the ABCT was a universal theory of cycles:
“Lachmann on Trade Cycle Models,” August 27, 2011.
(4) Yglesias notes that “developed countries that have done best in the recession—places like Israel and Sweden—are the ones that have pursued the least ‘Austrian’ courses of action.” That is correct.

One could add that in the 1930s those nations that pursued the course of fiscal contraction had the worst depressions. Weimar Germany engaged in a highly deflationary policy of budget cuts, as did a number of other countries. Yet such policies did not lead to recovery. By contrast, the nations in the 1930s that used large-scale monetary and, above all, fiscal expansion got out of the depression quickly:
“Keynesian Stimulus in New Zealand: 1936–1938,” September 23, 2011.

“Fiscal Stimulus in Germany 1933–1936,” September 3, 2011.

“Takahashi Korekiyo and Fiscal Stimulus in Japan in the 1930s,” August 27, 2011.

Nobel Prize-Winning Economist: Friedrich A. von Hayek. Interviewed by Earlene Graver, Axel Leijonhufvud, Leo Rosten, Jack High, James Buchanan, Robert Bork, Thomas Hazlett, Armen A. Alchian, Robert Chitester, Regents of the University of California, 1983.

Sraffa, P. 1932a. “Dr. Hayek on Money and Capital,” Economic Journal 42: 42–53.

Sraffa, P. 1932b. “A Rejoinder,” Economic Journal 42 (June): 249–251.

Friday, January 20, 2012

Steve Keen on Debunking Economics

I post here a video talk by Steve Keen, held as an open session of the IIEA Economists Group, 16 November 2011. I think this talk was held in Ireland (but I could be wrong).

Thursday, January 19, 2012

Bibliography on the Origins of Money

I will start a bibliography here on the origins of money, and I will attempt to update it.

For the standard Classical, Austrian and neoclassical accounts of the origin of money, see Smith (1811): 16–17, Jevons (1875), Menger (1892), Menger (1909): 555–610 (translation in Menger 2002 [1909]: 25–108), Mises (1998) [1949]: 402–404, Kiyotaki and Wright (1989), Kiyotaki and Wright (1991), Kiyotaki and Wright (1992), and Iwai (2001).

For heterodox theories on the origins of money in ancient Egypt, see Henry (2004). See also Bogoslovsky (1987) (cf. Holtz 1984), and for the history of Egyptian media of exchange, see Curtis (1951). For Mesopotamia, see Hudson (2004) and Hallo (1996): 18-25. For Greece, see the review of the work of Laum (1924) in Economica 14 (1925): 218–222; see also Peacock (2003–2004), Peacock (2006), Peacock (2011), and Semenova (2011).

Grierson (1977) and Grierson (1978) provide important analysis of the role of wergeld-like social customs in the origin of money, by arguing that wergeld provided societies with tariffs of compensation in which heterogeneous types of injury and damage were measured by means of abstract and concrete units of account. Peacock (2003–2004) develops the thesis of Grierson.

For a good starting point for anyone wishing for a specialist treatment of the origins of money from the heterodox economics perspective, see Semenova 2011.


Arestis, P. and M. Sawyer (eds.), 2006. A Handbook of Alternative Monetary Economics, Edward Elgar, Cheltenham.

Ashley, W. M. 1925. “Heiliges Geld: Eine Historiche Untersuchung über den Sakralen Ursprung des Geldes by Bernhard Laum” (Review), The Economic Journal 35.138: 288–289.

B[?], A. R. 1925. “Heiliges Geld: Eine historische Untersuchung über den sakralen Ursprung des Geldes by Bernhard Laum” (Review), Economica 14: 218–222.
N.B. The surname of the author is not listed.

Bell, D. 1991. “Modes of Exchange: Gift and Commodity,” Journal of Socio-Economics 20.2: 155–167.

Bell, S. and J. F. Henry, 2001. “Hospitality versus Exchange: the Limits of Monetary Economies,” Review of Social Economy 59.2: 203–226.

Bogoslovsky, E. S. 1987. “On the Process of Appearance of Money in Ancient Egypt,” Altorientalische Forschungen 14: 227–236.

Crump, T. 1981. The Phenomenon of Money, Routledge & Kegan Paul, London.

Curtis, J. W. 1951. “Media of Exchange in Ancient Egypt,” The Numismatist 64.5: 482-491.

Davies, J. K. 2001. “Temples, Credit, and the Circulation of Money,” in A. Meadows and K. Shipton (eds.), Money and its Uses in the Ancient Greek World, Oxford University Press, Oxford. 117-128.

Dowd, K. 2001. “The Emergence of Fiat Money: A Reconsideration,” Cato Journal 20.3: 467–476.

Einzig, Paul. 1966. Primitive Money: In Its Ethnological, Historical, and Economic Aspects (2nd edn.), Pergamon Press, Oxford.

Goodhart, C. A. E. 1998. “The Two Concepts of Money: Implications for the Analysis of Optimal Currency Areas,” European Journal of Political Economy 14.3: 407–432.

Graeber, D. 2011. Debt: The First 5,000 Years, Melville House, Brooklyn, N.Y.

Grierson, P. 1977. The Origins of Money, Athlone Press and University of London, London.

Grierson, P. 1978. “The Origins of Money,” Research in Economic Anthropology 1: 1–35.

Hallo, W. W. 1996. Origins: The Ancient Near Eastern Background of Some Modern Western Institutions, Brill, New York. pp. 18-25.

Hart, K. 1986. “Heads or Tails? Two Sides of the Coin,” Man n.s. 21.4: 637-656.

Heidel, W. A. 1926. “Heiliges Geld, eine historische Untersuchung über den sakralen Ursprung des Geldes by Bernhard Laum” (Review), Classical Philology 21.2: 191–192.

Henry, J. F. 2004. “The Social Origins of Money: The Case of Egypt,” in L. R. Wray (ed.), Credit and State Theories of Money: The Contributions of A. Mitchell Innes, Edward Elgar, Cheltenham, UK. 79–98.

Holtz, J. 1984. Kritik der Geldentstehungstheorien. Carl Menger, Wilhelm Gerloff und eine Untersuchung über die Entstehung des Geldes im alten Ägypten und Mesopotamien, Dietrich Reimer Verlag, Berlin.

Hudson, M. 2004. “The Archaeology of Money: Debt Versus Barter Theories of Money’s Origins,” in L. R. Wray (ed.), Credit and State Theories of Money: the Contributions of A. Mitchell Innes, Edward Elgar, Cheltenham. 99–127.

Humphrey, C. 1984. “Barter and Economic Disintegration,” Man 20.1: 48–72.

Ingham, G. 2004. “The Emergence of Capitalist Credit Money,” in L. R. Wray (ed.), Credit and State Theories of Money: The Contributions of A. Mitchell Innes, Edward Elgar, Cheltenham. 173–222.

Ingham, G. 2006. “Further Reflections on the Ontology of Money,” Economy and Society 36.2: 264–265.

Ingham, G., 2000. “Modern Money,” in J. Smithin, J. (ed.), 2000. What is Money?, Routledge, London and New York.

Innes, A. M. 1913. “What is Money?,” Banking Law Journal May: 377–408.

Iwai, K. 2001. “The Evolution of Money,” in A. Nicita and U. Pagano (eds.), The Evolution of Economic Diversity, Routledge, London and New York. 396–431.

Jevons, W. S. 1875. Money and the Mechanism of Exchange, H.S. King & Co., London.

Jevons, W. S. 1923. Money and the Mechanism of Exchange (25th edn.), Kegan Paul, Trench, Trubner, London.

Kim, H. S. 2001. “Archaic Coinage as Evidence for the Use of Money,” in A. Meadows and K. Shipton (eds.), Money and its Uses in the Ancient Greek World, Oxford University Press, Oxford. 7-21.

Kim, H. S. 2002. “Small Change and the Moneyed Economy,” in P. Cartledge, E. E. Cohen and L. Foxhall (eds.), Money, Labour and Land. Approaches to the Economies of Ancient Greece, Routledge, London and New York. 52-66.

Kiyotaki, N. and Wright, R. 1989. “On Money as a Medium of Exchange,” Journal of Political Economy 97: 927–954.

Kiyotaki, N. and Wright, R. 1991. “A Contribution to the Pure Theory of Money,” Journal of Economic Theory 53: 215–235.

Kiyotaki, N. and Wright, R. 1992. “Acceptability, Means of Payment, and Media of Exchange,” Federal Reserve Bank of Minneapolis Quarterly Review 2–10.

Knapp, G. F. 1973 [1924]. The State Theory of Money, Augustus M. Kelley, Clifton, NY.

Kraay, C. M. 1964. “Hoards, Small Change and the Origin of Coinage,” Journal of Hellenic Studies 84: 76–91.

Laum, B. 1924. Heiliges Geld: eine historische Untersuchung über den sakralen Ursprung des Geldes, Mohr, Tübingen.

Lo Cascio, E. 2003. Credito e moneta nel mondo romano: atti degli Incontri capresi di storia dell'economia antica: Capri, 12-14 ottobre 2000, Edipuglia, Bari.

Mastromatteo, G. and L. Ventura, 2007. “The Origin of Money: A Survey of the Contemporary Literature,” International Review of Economics 54. 2: 195–224.

Mauss, Marcel. 2002. The Gift: The Form and Reason for Exchange in Archaic Societies (trans. W. D. Halls), Routledge, London.

Menger, C. 1892. “Geld,” in Handwörterbuch der Staatswissenschaften (vol. 3). 730–757.

Menger, C. 1892. “On the Origin of Money” (trans. C. A. Foley), Economic Journal 2: 238–255.

Menger, C. 1909. “Geld,” in J. Conrad et al. (eds.), Handwörterbuch der Staatswissenschaften (vol. 4; 3rd edn.), Fischer, Jena. 555–610.

Menger, C. 1923. Grundsätze der Volkswirtschaftslehre (2nd rev. edn.), Hölder-Pichler-Tempsky, Vienna.

Menger, C. 2002 [1909]. “Money” (trans. L. B. Yeager and M. Streissler), in M. Latzer and S. W. Schmitz (eds.), Carl Menger and the Evolution of Payments Systems, Edward Elgar, Cheltenham, UK. 25–108. [N.B. this is a translation of Menger 1909.]

Menger, C. 2007. Principles of Economics (trans. Grundsätze der Volkswirtschaftslehre [1st edn. 1871] by J. Dingwall and B. F. Hoselitz), Ludwig von Mises Institute, Auburn, Alabama.

Minnen, P. van. 2008. “Money and Credit in Roman Egypt,” in W. V. Harris (ed.), The Monetary Systems of the Greeks and Romans, Oxford University Press, Oxford. 226-241.

Mises, L. von. 1998 [1949]. Human Action: A Treatise on Economics. The Scholar’s Edition, Ludwig von Mises Institute, Auburn, Ala.

Mises, L. von. 2009 [1953]. The Theory of Money and Credit (trans. J. E. Batson), Mises Institute, Auburn, Ala.

Moini, M. 2001. “Toward a General Theory of Credit and Money,” Review of Austrian Economics 14.4: 267–317.

Müller-Wollermann, R. 1988–1991. “Funktionsträger von Geld im Alten Ägypten,” in S. Schoske (ed.), Akten des vierten Internationalen Ägyptologen Kongresses: München 1985 (vol. 4), Helmut Buske, Hamburg. 147–158.

Murphy, Robert P. 2003. “The Origin of Money and Its Value,” Mises Daily, September 29, http://mises.org/daily/1333

Peacock, M. S. 2003–2004. “State, Money, Catallaxy: Underlaboring for a Chartalist Theory of Money,” Journal of Post Keynesian Economics 26.2: 205–225.

Peacock, M. S. 2006. “The Origins of Money in Ancient Greece: The Political Economy of Coinage and Exchange,” Cambridge Journal of Economics 30: 637–650.

Peacock, M. S. 2011. “The Political Economy of Homeric Society and the Origins of Money,”Contributions to Political Economy 30: 47–65.

Powell, M. 1978 “A Contribution to the History of Money in Mesopotamia Prior to the Invention of Coinage,” in B. Hruška and G. Komoróczy (eds.), Festschrift Lubor Matouš, Eötvös Loránd Tudományegyetem, Ókori Történeti Tanszekek, Budapest. 211–243.

Pryor, F. L. 1977. “The Origins of Money,” Journal of Money, Credit and Banking 9.3: 391–409.

Robert, R. 1956. “A Short History of Tallies,” in A. C. Littleton and B. S. Yamey (eds.), Studies in the History of Accounting, Richard D. Irwin, Homewood, Il. 75–85.

Roberts, K. 2011. The Origins of Business, Money, and Markets, Columbia University Press, New York.

Rothbard, M. N., 2009, The Essential von Mises, von Mises Institute, Auburn, Alabama.

Schaps, D. M. 2001. “The Conceptual Prehistory of Money and its Impact on the Greek Economy,” in M. S. Balmuth (ed.), Hacksilber to Coinage: New Insights into the Monetary History of the Near East and Greece. A Collection of Eight Papers Presented at the 99th Annual Meeting of the Archaeological Institute of America, The American Numismatic Society, New York. 93-104.

Schaps, D. M. 2004. The Invention of Coinage and the Monetization of Ancient Greece, University of Michigan Press, Ann Arbor

Schaps, D. M. 2008. “What Was Money in Ancient Greece?,” in W. V. Harris (ed.), The Monetary Systems of the Greeks and Romans, Oxford University Press, Oxford. 38-48.

Seaford, R. 2004. Money and the Early Greek Mind: Homer, Philosophy, Tragedy, Cambridge University Press, Cambridge.

Semenova, A. 2011. “Would You Barter With God? Why Holy Debts and not Profane Markets Created Money,” American Journal of Economics and Sociology 70.2: 376–400.

Semenova, A. 2011. The Origins of Money: Evaluating Chartalist and Metallist Theories in the Context of Ancient Greece and Mesopotamia, PhD dissert. University of Missouri-Kansas City, Kansas City, Missouri.

Smith, A. 1811. An Inquiry into the Nature and Causes of the Wealth of Nations (11 edn; vol. 1), Oliver D. Cooke, Hartford.

Smithin, J. (ed.). 2000a. What is Money?, Routledge, London and New York.

Smithin, J. 2000b. “‘Babylonian Madness’: On the Historical and Sociological Origins of Money,” in J. Smithin, J. (ed.), 2000. What is Money?, Routledge, London and New York.

Tymoigne, É. and L. R. Wray. 2006. “Money: An Alternative Story,” in P. Arestis and M. Sawyer (eds.), A Handbook of Alternative Monetary Economics, Edward Elgar, Cheltenham. 1–16.

von Reden, S. 1997. “Money, Law and Exchange: Coinage in the Greek Polis,” Journal of Hellenic Studies 117: 154–176.

von Reden, S. 2002. “Money in the ancient economy: A survey of recent research,” Klio 84.1: 141–174.

Wittenburg, A. and B. Laum, 1995. “Bernhard Laum und der sakrale Ursprung des Geldes,” in H. Flashar (ed.), Altertumswissenschaft in den 20er Jahren. Neue Fragen und Impulse, Franz Steiner Verlag, Stuttgart. 259-274.

Wray, L. R. 1998. Understanding Modern Money: The Key to Full Employment and Price Stability, Edward Elgar, Cheltenham.

Wray, L. R. 2002. “State Money,” International Journal of Political Economy32.3: 23–40.

Wray, L. R. (ed.). 2004. Credit and State Theories of Money: The Contributions of A. Mitchell Innes, Edward Elgar, Cheltenham.

Wray, L. R. 2008. “Banking, Finance and Money,” in J. B. Davis and W. Dolfsma (eds.), The Elgar Companion to Social Economics, Edward Elgar, Cheltenham. 478–495.

Appendix: Bibliographical Resources for the Ancient Near East

The first money we know of emerged in the ancient Near East in Mesopotamia. For those interested in resources for searching the research literature on the ancient Near East, the following are useful:
(1) “Elenchus Bibliographicus Biblicus,” 1920–1967, Biblica, Rome.
Elenchus Bibliographicus Biblicus, 1968–1984, Rome.
Elenchus of Biblica, 1985–, Editrice Pontificio Istituto Biblico, Rome.

A comprehensive annual bibliography, which covers nearly all relevant journals for the ancient Near East. This work contains extensive indices. For 1920–1967, the index was published in the journal Biblica (Pontificium Institutum Biblicum, Rome). Then it became a separate publication, the latest version of which is Elenchus of Biblica (1985 onwards).

(2) “Keilschriftbibliographie,” 1932–, Orientalia (published quarterly), Pontificium institutum biblicum, Rome.

Published in the Journal Orientalia, this is an index for work on the Ancient Near East. The index has subject and name indices, and is published as the last article in one volume of Orientalia biannually. The index provides bibliographical references to publications in the previous year under ten subject areas, viz., General, Writing and Epigraphy, Language and Philology, History of the Ancient Middle East, Religion and Mythology, Law, Science and Technology, Geography, and Archaeology.

(3) Hupper, W. G., 1987–, An Index to English Periodical Literature on the Old Testament and Ancient Near Eastern Studies. Metuchen, N. J.

This index contains citations for over six hundred journals in English for Near Eastern archaeology, history, language, science, and theology from 1793 to 1970. Five volumes have appeared, and a further five are planned.