Blood and Oil: Eighteenth-Century Monetary Anxieties
Dario Castiglione[1]
... trust and confidence in each other, are as necessary to link and hold a people together, as obedience, love, friendship, or the intercourse of speech.
Charles Davenant (Discourses on the Public Revenues)[2]
... the fact that two people exchange their products is by no means simply an economic fact.
Georg Simmel (Preface to The Philosophy of Money)[3]
Setting the scene: Money, credit and everyday life
When earlier this year I moved with my family from Britain to Washington to take up a one-year visiting fellowship, I did not expect many practical difficulties. For someone working in the University system, such a temporary move is not unusual. Moreover, we had carefully prepared it in advance. Even before leaving the UK, we had a house where to live, a school for our child, and a reliable - though rather big for our standards - car. We had no trouble in getting our visas, and were well informed on what to do regarding taxes, medical insurance and banking. All the rest was routine - or so we thought. We soon discovered otherwise. From the day we arrived, we realised that without a US social security number, a state driving licence, and an American credit card, we had become invisible to most public and private administrative bodies. Our passports and visas were not sufficient, since they were no part of a national and easily accessible database. That the social security number and the driving licence were used, to all intent and purposes, as substitutes for a national identity card was not very surprising. But the request for an American credit card to have trouble-free access to the more "stantial" kinds of services such as water, gas, electricity, a telephone line, or even a cell phone, struck us as odd. After all, we had used our international credit cards all over the world (including the USA) to acquire the most diverse goods and services. Why all the fuss? Moreover, switching to an American card did not seem to solve our problem; since the reason behind this request was neither chauvinism nor parochialism (at least not obviously so), but the more practical one of allowing the service provider to check our credit record. In the circumstances, acquiring a new credit card was of no help, for such a card had no previous credit worthiness to speak of: hence, our practical difficulties.
At this point the reader may ask: "What’s in this anecdote?" The realisation, perhaps, that in our ordinary life we seem to take for granted the complex and rather flimsy operations of the credit system on which our everyday exchanges and transactions normally rest. Let me explain. For most of us, credit and debit cards have become an easy substitute for either ready cash or checks. We now use them to pay for most of the things we purchase in our daily life: from a meal to a jumper, from a theatre ticket to an air ticket. Some of the readers may still remember the sense of uneasiness and slight uncertainty, the cautiousness with which they first paid something by using "plastic" instead of checks or "real" money. The latter two gave a greater sense of security. Checks, for instance, seem more permanent. A paradox, considering the difference in the materials used, but one entirely supported by symbolism. Their authenticity is conveyed by one’s personal signature, a clear and distinct sign of one’s intention in purchasing something from another person. As for banknotes, that very same sense of permanence and durability is expressed by the national symbols represented on them,[4] while their value is vouchsafed by the neatly printed, though hardly noticeable, signature of the "Secretary of the Treasury". Even though we may have now forgotten the uneasiness felt in switching to "plastic", we can probably surmise the even more unsettlingly sensation experienced when we first paid for something by phone or on the web, by the mere - almost magical - use of the card's numbers: Will it work? Will it be safe? In our ordinary lives, once we overcome the sensation of insecurity associated with doing things for the first time, the use of cash, checks, cards, or numbers is a matter of relative indifference, since they appear to us as nothing but different means of payment, with varying degrees of practicality. Indeed, it is entirely feasible that in a few years time we may dispense with most, if not all of them altogether. Payments could then be made by mere "information", through the use of voice recognition machines linked to some central computer, which automatically transfers our money into someone else’s account. By then, we shall have no use for what in ordinary language we call "money". This will have become no more than a numéraire. But the question - the point around which this essay will revolve - is whether money has ever been more than a simple numéraire – the product, as Locke once wrote, of "fancy and agreement".[5] This is no recent discussion, but one that has periodically punctuated the intellectual history of monetary debates. The main purpose of this essay is to illustrate it by focusing on a particular episode of such intellectual history, one which had three prominent Enlightenment figures as protagonists at a distance: David Hume in Edinburgh, Ferdinando Galiani in Naples, and the Abbé Morellet in Paris. Intriguingly, the dialogue I am here piecing together - the one mainly between Hume and Galiani - never took place, if not through the mediation offered by Morellet, who acted as an intermediary in their "indirect exchange" - a kind of exchange, one may add, that it is typical of monetary transactions, which in the early progress of mankind have come to substitute the more direct, but cumbersome, exchanges through barter.[6]
Act one: How it was that a young man decided to write an important book
The protagonists of our episode, and the other writers I shall examine hereafter, are only a few amongst the many who engaged in the wide-ranging debate on money, inflation, debasement, and monetary reforms, which started in the second half of the seventeenth century and further developed throughout the eighteenth century, at a time when the effects of the commercial and financial revolutions captured the attention of philosophers, moralists, legislators, politicians, and men of business in Europe and the American colonies.[7] Mine is not an account of the historical and political impact of such a complex debate, nor does it cover the whole range of monetary theories and issues raised by it. My analysis is limited in both scope and substance. The precise object of the half-imaginary discussion that I am going to stage between Galiani and Hume is not easy to define, for it can only be located in between some of the traditional questions comprising the literature on money, straddling across now firmly established - but once undefined - disciplinary boundaries. Money as a topic can be discussed from very different perspectives. Perhaps somewhat simplifying the issue, we can identify four such perspectives: money's origins and diffusion; the social impact of the monetary economy; the relationship between money and "value"; and the more particular disputes on the substance and technicalities of monetary policies. Each of these questions has been the object of separate though occasionally overlapping literatures, with distinct disciplinary interests. Obviously, the economic literature dominates the field, claiming an interest in all aspects of the phenomenology of money, but it has mainly exercised itself on the issues of value and policy, leaving the origins and impact of money to the investigations of historians, anthropologists, sociologists, moralists and philosophers. The issue of value, however, is one where economic theory and philosophical investigation are often indistinguishable, the more so at a time - as the mid-eighteenth century still was - when economics had not yet emerged as a separate science. Moreover, seventeenth- and eighteenth-century discussions of the value of money tended to mix all four levels of analysis, with many authors making use of arguments on its origins in order to prop up their own theories of value and to support their preferred monetary policies. The topic at the centre of the "indirect exchange" between Hume and Galiani inevitably mixes these various levels of analysis together. It mainly concerns the nature and functions of money, something that Joseph Schumpeter was later to describe as the "fundamentals" of money - or, what in German he referred to as the Grundlagenforschung.[8] For Schumpeter and other economists, the study of the "fundamentals" of money implies a logical, rather than simply historical, investigation of why we need money and what money does: a search for its definition, which inevitably touches on the way in which money relates to value and to its social functions.
The first act of our story starts with the appearance of Ferdinando Galiani's impressive first work, Della Moneta (1751), published anonymously and composed when the author was only twenty-one year old.[9] Franco Venturi has suggested that the central role that the monetary question played in the Italian political debate of mid-eighteenth century - after this debate appeared to be waning in other parts of Europe - was mainly due to the inflationary tendencies and the large increases in public expenditure and public debt in the Italian states, following the Austrian war of succession.[10] As in most other cases, the question of the debasement of the value of the currency functioned as a trigger for the discussion. This was more immediately concerned with the likely effects and overall efficacy of debasement, with the justness of such a measure from both a legal and a moral perspective, and more generally with the sovereign's right to manipulate the "value" of the currency. Nowadays, Galiani's book is rightly considered as the most original and accomplished product of that discussion.[11] But even when it first appeared, at the height of the monetary controversy, it made an immediate impact and was acclaimed as a remarkable piece of work. Its fame rapidly travelled to France, where l'Abbè Morellet, one of the other protagonists of our intellectual episode, planned its translation. In spite of its instant fame, and of a certain amount of influence that the work seems to have exercised on later writers and on the development of monetary theory at large, the book never became a European success. Only two abridged translations can be found in other European languages, one in English and one in French, and there seems to be no recent translation in circulation.[12]
In his preface to the second edition published in 1780, Galiani - whose name now appeared as that of the author - stated the two more immediate reasons that had convinced him to write the book in the first place. One was the publication, a few years earlier, of Carlantonio Broggia's Trattato de' tributi, delle monete e del governo politico della sanità,[13] where the author defended the role of the "money of account" (moneta immaginaria) in stabilizing the value of the currency, and fencing off inflationary tendencies.[14] The other reason was what Galiani regarded as the widespread alarm and confusion that dominated monetary discussions in the kingdom of Naples particularly after the peace of Aquisgrana in 1748. Ostensibly, and somewhat encomiasticly, the young Galiani intended his book as a vindication of the political acumen and wisdom of the sovereign of the time, Carlo VII, King of Naples (Charles III of Spain), and hoped it would thus contribute to restore public confidence in the economic fortunes of the kingdom.
The book, however, was not entirely concerned with matters of monetary policy; nor were its arguments solely confined to the Neapolitan State. As Galiani himself noted, money was the "occasion" to write more generally on the economy.[15] He commented that, his was one of the very first books dealing with that "very noble and almost new science regarding the economic government of Nations" - a science, as he added, that was becoming corrupt even before attaining maturity, due to the obscure and metaphysical jargon of the physiocrats (economisti).[16] Galiani's claim regarding the wide compass of his own book is not without justification. A large part of the book deals with what we would now consider to be main problems of economics. It does so with consistency of approach and a sophisticated level of analysis, shading light on some of the questions involved in the development of a modern commercial society.
In his treatment of money in particular, Galiani's main polemical intention was to reject what he regarded as the wrong attitude towards wealth supported by the moralists (savi, filosofi) and the Aristotelians (moralisti, giureconsulti). In his view, their conception of money and riches ran against the grain of common sense (pensiero comune), being instead based on mere prejudice and on the illusion that wisdom has a prominent role in human history. According to Galiani, the "origins" of money is one of the key questions to address, if one wishes to understand the "true nature" of both money and wealth, counteracting in this the moralistic attitudes towards commercial society that Galiani himself detected in those ancient writers on the subject such as Aristotle and his followers. However, Galiani was also critical of those more modern writers such as Davanzati, Locke, Broggia, and Montesquieu, who - though more sympathetic towards commerce and to Galiani's own position on monetary and economic issues - paradoxically based their own conclusions on mistaken premises. It was in order to put the foundations of monetary policy and economic thinking right, that Galiani decided to write his Della Moneta.
Act two: The heavy burden of tradition
But what was the tradition against which Galiani was reacting, and which were the wrong premises he wanted to correct? The second act of our intellectual story takes us back to a more distant past, to Aristotle's discussion of money in the Politics and the Nicomachean Ethics.[17] The particular passages in the two texts in which he discussed the matter seem to point towards different directions, although they are not necessarily inconsistent. In the Politics, Aristotle analysed two forms of chrematistics. One he described as being "natural", meaning by this all those activities that, directly or indirectly, are concerned with the household's administration and the satisfaction of its needs. The other he called "commercial", identifying it with those exchanges of commodities that take place through the medium of money. Aristotle claimed that commercial chrematistics, like medicine and the arts, has limited means, but no limits to its ends. In the Nicomachean Ethics instead, Aristotle considered money within the context of a discussion of the nature of justice. According to him, commercial exchanges are paradigmatic of those exchanges where comparisons are made of things that are not exactly equal. In commercial justice, men are bound together on the basis of reciprocity "in accordance with a proportion".[18] But exact proportions between things can only be established when things are commensurable, or, to put it another way, when human beings reduce different things to a common measure. In commerce, as Aristotle argued, money does not operate as a common measure of commodities themselves, but as an approximation to the demand for different commodities.
In both texts Aristotle dealt with money as part of an exchange economy, but in each of them he developed different aspects of his analysis, with the result that he seems to be presenting different theories on the nature and functions of money. In the Nicomachean Ethics, Aristotleintroduced the idea that the origin of money is conventional, in so far as it is the product of common agreement. Money, as we have seen, represents the demand for commodities, and its function is that of acting as a common measure and a guarantee for future exchange (what could be described as its pledge function). In the Politics, Aristotle was less sanguine about the conventional origin of money, an idea that here he associated with the Cynics' criticism of money as a form of unreal wealth. Instead of emphasising its function as a common measure or as a pledge, he talked of money as performing the more obvious functions of means of exchange and store of value (by hoarding). The whole passage of the Politics was more obviously concerned with the social significance of commerce and money, and it is significant that from his analysis of the opposition between a natural and a commercial chrematistic, Aristotle derived his condemnation of usury as a "non-natural" use of money, whose real function (and nature), he insisted, was exclusively as a means of exchange for the satisfaction of natural needs.
This brief summary of Aristotle's complex position shows how later authors could find different kinds of inspiration in his texts. Both the two main lines of thinking that dominated successive discussions on the nature of money can already be found in embryo in his work. From the more rarefied perspective of the history of economic theory, Aristotle's position can be assimilated, as Schumpeter has indeed done, to what the latter describes as a "metallist" conception of money. By this, Schumpeter means a position that regards the value of money as ultimately determined by the intrinsic value of the "currency-commodity" (usually a metal). This line of thinking seems to develop Aristotle's account of the passage from barter to exchange as he presented it in the Politics. There, he suggested that for the convenience of exchange, some metal of "intrinsic" value and easy applicability was used as a means of exchange. This was first measured by weight, but later the practice developed to use a stamp so to simplify matters. But the upshot of this account of the origins of money is that money acts as measure of the value of other things in so far as it has already a value of its own. According to Schumpeter, this was the dominant tendency on the "fundamentals" of money up to recent times, though "theoretical metallism" seems to have fully triumphed in the eighteenth century. However, when we turn to the Ethics, one may consider things otherwise. Indeed, the dominant interpretation of Aristotle's position until the eighteenth century was that, if anything, he supported an agreement-theory of money, which, in Schumpeter's terms, made him a defender of "theoretical cartalism". In the Ethics,Aristotle maintained that money is only a representative of the demands for goods by law and convention (nomos), hence its name: nomisma. He concluded that for this reason "we have the power to alter its value and even to render it useless".[19]