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Reading Colin Drumm’s book through a CasP filter has led me to a few conclusions and one big question.
The conclusions include:
First, for capitalism to emerge, the ruling elites had to change the fundamental nature of money by cleaving from it the function of storing value (wealth), thus allowing wealth (now “capital”) to accumulate within the accounting books of finance without removing money from circulation.
Second, changing the nature of money changed the nature of the market, allowing it to become the primary tool for transferring power from the ruled to the rulers (via contractual obligations instead of tradition). Before the introduction of modern money stabilized the money supply and allowed it to grow with the population, through peace and war, the market itself was intermittent and could not play a central role to daily existence.
Finally, for the ruling elite (whether capitalist or pre-capitalist), power equates, first and foremost, to freedom FROM the market (i.e., Drumm’s “outside option” and “liquidity preference”). You can only be free from the market, or relatively free from it, if you can meet your basic needs WHILE accumulating wealth. You do not need liquidity to live.
The question:
While capitalism fundamentally changed the nature of money and “the Market” (among other things), did it change the nature of power, or did it just change how power is expressed and experienced?
I would argue the fundamental nature of power is the same under capitalism as it was under feudalism. Both modes of power rely on laws to impose obligations on (“coerce”) the individual. The fact that the laws of feudalism arise from a mixture of secular and religious sources is irrelevant (and to be expected, given the history). The Law, whatever its source, is the rulers’ primary mechanism for subjugating the ruled (whereas violence is the the conqueror’s primary mechanism).
To me, the real difference between capitalism and feudalism is how power is expressed by the rulers and experienced by the ruled. Under feudalism, power was expressed and experienced the same way, personally. There was no way to hide, obscure or avoid cause and effect, or its consequences. Under capitalism, power is expressed impersonally through the Market, which creates an asymmetry in how power is experienced by the rulers and the ruled. The rulers are relatively free from the Market, which creates for them the opportunity to accumulate more power. The ruled, however, are completely dependent on the Market, and their need (their liquidity preference) leads them to a condition of chronically surrendering their power to “market forces,” which render the hand of the rulers invisible.
Regardless, for the concept of different “modes of power” to make sense to me, the nature of power must remain constant from mode to mode. If the very definition of power changes between modes, you might as well coin a new term each time.
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Interesting questions and ideas, Scot. I haven’t read Drumm’s dissertation, so I can’t comment on his ideas. But I do have some questions for you.
First, if we’re going to talk about the ‘nature of power’, how do you define power?
Second, what is the ‘nature of money’?
My own take is that focusing on money itself is a bit of a distraction. My view is that money is nothing but a quantification of property rights. Part of the development of capitalism involved making the unit of quantification progressively more abstract. But really, the abstraction has been there all along. There is nothing in gold that makes it valuable. But it is convenient (for the human mind) to give a unit a physical dimension.
The more interesting element of money, at least for me, is the progressive expansion of property rights — the ability to own and therefore quantify anything.
To get back to the question of power, I agree that power is essentially the same everywhere, in that it is simply the ability to influence others. But what is not constant is the ideology that motivates the followers.
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“There is nothing in gold that makes it valuable.”
Blair, this is just not true. Gold is valuable because it is a material that can be used to make very impressive status objects out of. In order to say that there is nothing valuable about gold, you would have to also say that there is nothing valuable about the vast majority of things that are produced by modern economies. You might think this, but it’s a normative judgment, not a description of how things work.
Gold is valuable because it can be used to make objects that impress people, and impressing people is a very important kind of power. A view that is centered around **power** would do well not to abstract from this. It is important for understanding the phenomenon of money at an anthropological level.
You are voicing a version of the “abstraction thesis” about money that forms part of the received common sense, but it doesn’t really do a good job of accounting for the phenomena. On this point, “Private Money and Public Currency: The Sixteenth Century Challenge” by Boyer-Xambeau et al is especially important.
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I take your point, Colin. Yes, gold is an extremely important status symbol. And that has to do, in part, with its properties. But the same goes for anything that is desired. It is partially due to the properties of the thing … but it also has to do with cultural values.
There is an strong connection between rarity and price, as the graphic below show. Does this connection say something about the ‘inherent’ value of a commodity? Or does it say that, all things being equal, things that are more difficult to find will cost more?
I am not familiar with the ‘abstraction thesis’, but am interested to learn more. Would you say that in ‘Debt’, David Graeber voices this thesis, as he proposes that abstract credit was the first form of money?
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Interesting questions and ideas, Scot. I haven’t read Drumm’s dissertation, so I can’t comment on his ideas. But I do have some questions for you. First, if we’re going to talk about the ‘nature of power’, how do you define power?
Blair,
I apologize for not responding earlier. For some reason, I did not see you had replied.
I know that CasP theory typically defines “power” as “confidence in obedience;” however, I find this definition assumes too much about the awareness of both ruler and ruled regarding their respective status. Accordingly, I prefer defining the term a bit closer to how proto-liberals (e.g., Locke, Jefferson, and Paine) defined it, which is the antonym of how they understood freedom (from the power of others). The power we are concerned with is the arbitrary, coercive power of an individual to subjugate the agency/will of another. Thus, to me, power is necessarily coercive, and I don’t care if coercion is applied directly through violence or the threat of violence, or indirectly through the denial of access to resources necessary to exist.
If your choices are controlled by another, you are not free. You are, effectively, a slave.
Second, what is the ‘nature of money’?
Historically, money has been identified as having three major functions: (1) acting as a unit of account; (2) acting as a medium of exchange; and (3) acting as store of value.
One of my key takeaways from Colin’s book (as he likes to call his dissertation) is modern money transplanted the “store of value” function from money (bimetallic coins with intrinsic wealth value based on the amount of the particular metal the coins contained) to capital (tallies of wealth value maintained in accounting books). Severing wealth from money allowed wealth to be “hoarded” without hoarding money, a problem that prevented capitalist economies from manifesting in the first place due to the counter-intuitively negative effects of peace (preparing for the next war required hoarding the wealth required to fund it and/or the crown taxing the hoarded wealth of the elites). This hoarding/taxing dynamic led to distrust between the king and his elites, which ultimately led to the solution of modern money as first instituted by the Bank of England.
Modern money capitalizes the future labor of the debtor. Hence, all modern money begins as indentured servitude. Ancient money and wealth, on the other hand, was grounded in existing metal, which is why hoarding wealth withdrew money from circulation, depressing the economy, at least as we measure it today with GDP. Ancient money enforced a zero-sum game because it had to. Modern money enforces exponential growth because it has to.
My own take is that focusing on money itself is a bit of a distraction. My view is that money is nothing but a quantification of property rights. Part of the development of capitalism involved making the unit of quantification progressively more abstract. But really, the abstraction has been there all along. There is nothing in gold that makes it valuable. But it is convenient (for the human mind) to give a unit a physical dimension.
I disagree. As Colin says, money makes a difference. Market exchanges occurred before there was “money,” but the the commensurating commodity itself, e.g., a particular weight of silver or wheat, did all the work. For some reason, forever lost to the sands of time, somebody introduced money as a substitute for the underlying commensurating commodity. (Note: Colin will insist that it was Lydian kings who introduced money, but, like most ancient historians, he is far too credulous of ancient historians, who are famous liars). In hindsight, it is easy to see that the “spread” between the nominal value (Colin’s “inside option”) and the intrinsic value (Colin’s “outside option”) of coined money created a tax that accrued to the king and his cronies, but I don’t believe that’s how ancient money began because the outside option always existed. It was the inside option that was new, and the king could have just as easily taxed the bullion as the money. Thus, ancient money, like modern money, solved a problem. What was that problem? I don’t know, but I think it most likely relates to securing the loyalty of a standing army (specifically, the Neo-Assyrian army). By paying soldiers in a way that gave them more wealth in the state they served then could be gained by the intrinsic metal value of the means of payment, it made it less likely for the soldiers to switch sides.
The more interesting element of money, at least for me, is the progressive expansion of property rights — the ability to own and therefore quantify anything.
Credit money is the primary mechanism for transferring power from the ruled to the rulers. The ruled need money to live. The rulers condition the availability of money on a debtor’s servitude, and whether the debtor is among the rulers or the ruled, the ruled ultimately pay. Money is not at all based on the expansion of property rights because no property is exchanged, only credit for a promise of servitude (among CasPers, Di Muzio gets this best, I think). Capital is based on the expansion of the money supply (debt) and the expansion of property rights (equity). CasP metrics focus on equity, which creates a blindspot regarding debt. CasP needs to understand money, debt and equity (and the relationship between all three) to be a comprehensive theory.
To get back to the question of power, I agree that power is essentially the same everywhere, in that it is simply the ability to influence others. But what is not constant is the ideology that motivates the followers.
Ideologies are, always and everywhere, created by, and for the benefit of, the rulers. What is particularly insidious about the liberal/capitalist ideology is the ruled have been duped into believing they are free. The reality is that you are not free in a liberal society unless you are free from the Market.
I, like Marx and Locke, believe in the promise of what today is known as liberal ideology– freedom from coercive power. That is what I would like to see, more than anything else, but even what that means is subject to interpretation. For example, Nitzan believes in the idea of an autonomous democracy, but I believe that such a democracy imposes too much work from the vast majority of people, who just want to vibrate in their happy place, which ought to be okay. As long as those who care about ruling are not allowed to exploit (impose arbitrary, coercive power over) those who don’t, then everything should work out.
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Thanks for the response, Scot. I agree with much of what you said. But one thing caught my attention. What is the ‘intrinsic value of money’? Does this not require some absolute standard for judging value? Since this is about Colin’s thesis, perhaps he has more to add.
In this case, the “intrinsic value of money” is the market value of the precious metal contained in the coin. It requires only an objective standard for measuring value, not an absolute one. What matters is the spread, i.e., the difference, between the “inside” value (the nominal value of the coin in the domestic market as currency set by the sovereign) and the “outside” value (the market value in foreign markets of the precious metal contained in the coin). Different sovereigns had different standards for equating weight with currency, creating these differentials or “spreads” in the value of coins that could be exploited by hoarders.
What matters is every coin has two nominal values, not one. The first is set by the sovereign in units of currency. The second is set by the market in terms of the value assigned by weight of a precious metal (silver and gold). It is not clear to me from Colin’s thesis whether this “optionality” (the ability to arbitrage) would arise in a coinage system based on a single metal (i.e., either silver or gold) because he discusses the idea of “breaking”points” solely within in bi-metallic systems. As he says at page 336 of his dissertation, “The [silver breaking point] and [the gold breaking point] represent the thresholds at which the foreign ask for gold in silver terms falls low enough (the silver point), or the foreign bid for gold in silver terms rises high enough (the gold point), to make it possible to arbitrage the standard.”
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A monometallic mint standard does contain the same “option” since there is a legally defined premium on the domestic coin. a legal silver coin is worth more under domestic law than the silver in it, but also contains the option to melt or export the coin.
The monometallic mint cannot be arbitraged in quite the same was as a bimetallic mint. But there is a potential for arbitrage in the case that the price of a coin on a foreign exchange rises higher than the price of a bill exchange. In other words, if I can sell 240 pence for X foreign money and purchase a bill for a pound sterling drawn on london for X-Y foreign money, that would also constitute an arbitrage point.
There’s nothing mysterious about “intrinsic value.” But it has units denominated in metal, not in terms of nominal unit of account. In order to know the relationship between these two things, we need to know the policy stance of the mint (the level of seignorage + brassage and the mint price). That will give us the legal overvaluation of the coin. But whether this overvaluation is correct or not (too high or too low) is something that can only be determined by comparison to a foreign market.
“Colin will insist that it was Lydian kings who introduced money, but, like most ancient historians, he is far too credulous of ancient historians, who are famous liars”
i would say nothing of the sort. the earliest *coins* are indeed from Lydia, but not all money is coins. coinage is an intervention into a monetary system that already existed for a long time before the development of coinage during the breakup of the neo assyrian empire.
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need to keep in mind that for most of the time period covered by this chart, the unit of account is in silver and the gold coin would be sometimes cried up or down in terms of the value of silver. so the main thing this chart is going to be tracking is the bimetallic ratio. Also, which price is being tracked here, — the mint price, or some market price? those are not necessarily the same. This matters precisely because the English monetary system for much of this period is characterized by an *undervalued* silver coin that defines the unit of account and an *overvalued* gold coin that made up the vast majority of the total nominal money supply.
There are a LOT of reasons for this changing price, which involve the entire world system: the black plague and the collapse of the yuan-ming fiduciary money in the 14th century, or the american treasure, etc. At the end of the 16th century the price of gold relative to silver is being suppressed in northern europe by the effects of the Habsburg-Genoese financing of the occupation of the Netherlands… and so on.
It’s not easy to disarticulate the changing value of money “as such” from the changing value of one money *against another*…
Issues with the CPI deflator aside…
Here is the pound price of gold relative to other UK prices. Is this price the same as gold’s value? If yes, why is this value changing? If no, what is this value?
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