Martin, Money

I can’t remember ever reading a book in which John Locke was a villain, nay perhaps the villain. But in Felix Martin’s Money: The Unauthorized Biography (Knopf, 2014) Locke is described as a “physician, philosopher, and, fatefully, monetary theorist.” (p. 116) “The old” and, for the author, the only defensible “understanding had been that money is credit, and coinage is just a physical representation of that credit. The new understanding was that money is coinage, and that credit is just a representation of that coinage. Lowndes and his ilk [the good guys] had believed that the Earth went round the Sun. Locke had explained that the Sun in fact revolves around the Earth.” (p. 131)

Martin’s work, written for the layman, is primarily a historical/geographical/philosophical account of the notion of money. He begins with the monetary system of the Pacific island of Yap whose coinage, as documented in 1903, consisted of fei, “stone wheels ranging in diameter from a foot to twelve feet.” (p. 8) He describes the accounting technology used in England from the twelfth to the late eighteenth century—the Exchequer tally, a wooden stick on which were inscribed details of payments made to or from the Exchequer. (In the nineteenth century the vast archive of tallies remaining in the Exchequer were incinerated in an “overgorged” stove in the House of Lords in an act that managed to reduce not only the sticks but both Houses of Parliament to ashes.)

Throughout Martin advances his view that money is a social technology, “a set of ideas and practices which organize what we produce and consume, and the way we live together.” (p. 30) This stands in stark contrast to Locke’s view that “economic value is a natural property, rather than a historically contingent idea.” (p. 193)

The author introduces us to the Aegean invention of economic value as well as to the sophisticated monetary theories developed at the Jixia academy in China during its heyday in the late fourth and early third centuries B.C. The Jixia scholars argued that “money’s value was directly proportional to how much of it was in circulation compared to the quantity of goods available. They wrote: “[i]f nine-tenths of the kingdom’s currency remains in the hands of the ruler and only one-tenth circulates among the people, the value of money will rise and prices of the myriad goods will fall.” If, on the other hand, the ruler chooses an inflationary policy, “[h]e transfers money to the public domain, while accumulating goods in his own hands, thus causing the prices of the myriad goods to increase ten-fold.” (p. 72)

Walter Bagehot, editor of The Economist and author of the 1873 classic Lombard Street, is one of the author’s heroes. He argued against the abstract, mechanical theories of Locke, Adam Smith, and John Stuart Mill. Instead, he focused on the empirical realities of money, banking, and finance where the social properties of trust and confidence reigned supreme. As he wrote, “Credit is an opinion generated by circumstances and varying with those circumstances”; “no abstract argument, and no mathematical computation will teach it to us.” (p. 185)

The “biography” part of Money, by far the longest, is also the strongest. When Martin turns to policy recommendations in his closing chapters, the argument flags. (Or perhaps we’ve just heard so much about how to fix our banking system that everything begins to sound banal.) But for anyone with even a passing interest in the history of money and banking, Martin’s book is a treat.