It’s a shame that the White House shut down discussion of the Trillion Dollar Coin as a possible solution to the economic problems that will occur if the crazy Republicans refuse to increase the debt ceiling. True, the concept created a number of issues, political, as billmon says at dKos and Phoenix Woman describes here; consitutional, as bmaz shows at Emptywheel, and I discussed here (the Prakash article cited by bmaz in comments is particularly interesting); and, of course, monetary, as we see in this and other diaries by letsgetitdone. Mostly, though, I think we lost a valuable opportunity to look at the nature of money in our society.

I discussed the standard story about the evolution of money here. That story, that money evolved out of barter as a convenience, is false. It didn’t happen. In his excellent work, Debt: The First 5000 Years, David Graeber piles up the anthropological evidence against it, including this at page 29:

The definitive anthropological work on barter, by Caroline Humphrey, of Cambridge, could not be more definitive in its conclusions: “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing.”

So what did happen? In Graeber’s telling, money exists in many forms across ancient societies, and in our own times in societies not integrated into the world culture. It is used for many different purposes, including paying temple contributions, paying bride prices, and settling blood feuds, just to name a few of the more common; the book has a number of fascinating examples of these and more. One of the main purposes is acting as the unit of accounting for credit, loans made for tithing, trading or farming, beginning as early as we have written records, thousands of years ago.

Graeber comes down as a Chartalist. He says that money in the sense we use it today is purely a creature of the state (or the most powerful social entity, perhaps the Temple of Astarte). It was created and used to impose markets on societies, and to organize them. It does this through the medium of taxes (or fines or license fees or tithing). The power announces that some specific thing is the currency, and that anyone who owes money to the power has to pay it in that currency. If you live in that society, either you pay tithes, taxes, license fees, fines and so on, and need it, or you are dealing with people who pay those tithes, taxes, fees and fines, and need it. A good way to get it is by engaging in market transactions in units of the currency. It doesn’t matter whether the specific thing has intrinsic value, as a gold coin might in some societies or to some people, or not. You have to have it whether or not it has intrinsic value.

That is, of course, a ridiculously truncated version of a long and fascinating story, but it is a basic history on which the Chartalist theory of money emerged. Chartalist theory was first formalized in a book by G.F. Knapp in 1895, and was eventually adopted by John Maynard Keynes, who performed his own study of those ancient Mesopotamian texts.*

The Chartalist view is an important element in the work of L. Randall Wray. We were fortunate to have him at a recent book salon, discussing his book, Modern Money Theory, A Primer on Macroeconomics for Sovereign Monetary Systems. See p. 111 for a description of the role of money in contemporary societies.

Chartalism is usually contrasted with “metallism”, the odd notion that money has some intrinsic value. That was the view of John Locke, as Graeber explains. If money has intrinsic value, then the only legitimate role of the State is to protect that value at all costs. Given the centuries of examples of debased coinage, that is a real concern. As credit instruments expanded through trade and lending it took on additional importance to the wealthy, who didn’t want their loans repaid in inflated units of currency.

The United States has a particularly perverse attitude towards this problem. No one wants to see the currency inflate, but powerful interests and conservatives have destroyed trust in elected officials to protect the value of the dollar. So we have this bastardized system of a quasi-independent Federal Reserve Board charged with protecting the value of the dollar (and insuring full employment); a banking system that creates money by lending and fractional reserve banking; and a government in turmoil unable to use fiscal policy to help the recovery.

Right now, only the Fed is creating money, through Qualitative Easing. The banking sector isn’t lending, despite promises made during the bailout. There is no demand and there is no money. And we aren’t going to talk about it, how it happened, what it means, who profits and who loses.

There is plenty of speculation about Obama’s motivations in refusing to consider the Trillion Dollar Coin. I doubt that speculation is useful. We won’t know anytime soon, if ever, why the President thinks this discussion is outlandish. What matters is that we aren’t going to fix our problems with the confused and self-serving thinking that is on offer from the feral rich who dominate financial discourse. #FixTheDebt. We need this discussion to protect ourselves from these predators and the rigidly limited thinking of the politicians who serve their interests at our expense.
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* Here’s Graeber’s description, p. 54 quoting Keynes:

Whatever its earliest origins, for the last four thousand years, money has been effectively a creature of the state. Individuals, he observed, make contracts with one another. They take out debts, and they promise payment.

The State, therefore, comes in first of all as the authority of law which enforces the payment of the thing which corresponds to the name or description in the contract. But it comes doubly when, in addition, it claims the right to determine and declare what thing corresponds to the name, and to vary its declaration from time to time — when, that is to say it claims the right to re-edit the dictionary. This right is claimed by all modern States and has been so claimed for some four thousand years at least. It is when this stage in the evolution of Money has been reached that Knapp’s Chartalism — the doctrine that money is peculiarly a creation of the State — is fully realized . . . To-day all civilized money is, beyond the possibility of dispute, chartalist.