Download What`s Your Ontology? - The Progressive Economics Forum

Modern Money
A Critical Realist Approach
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PAVLINA R. TCHERNEVA
ASSISTANT PROFESSOR OF ECONOMICS
FRANKLIN AND MARSHALL COLLEGE
[email protected]
PEF/CEA CONFERENCE
OTTAWA, CANADA
6/3/2011
The paper
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 Why Methodology, why ontology
 Structure of Scientific Practice and the link with Actual Practice
 Actual practice is theory laden; theoretical practice is ontology laden
 Unpacking the ontological commitments of competing money theories
 taxonomy
 Three theories; three ontologies.
 Metalist/Commodity Money (Mainstream), Sociohistorical (Geographical), and Chartalist (Modern
Money) theories of money.
 Assessing the knowledge claims about money of different paradigms
 Ipso facto critique the theories themselves emanating from problematic ontologies
 Answering specific questions about the origins, nature, and role of money
 Money as a creature of the market vs. creature of the state
 What exactly is money? Why do we use it?
 Role of legal tender laws
 Causal generative mechanisms
 Policy implications
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Story #1: Metalist/Commodity money view
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 ORIGIN: a market phenomenon
 Individuals have universal proclivity for exchange
 Trouble with double coincidence of wants
 Common, mutually agreed medium of exchange
 FUNCTION: primary medium of exchange, based on ‘intrinsic’
value gold
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Secondary functions: means of payment, unit of account, store of value.
 NATURE: Money=thing/asset, but it is neutral, only lubricates
transactions, no impact on production, gives price equivalencies
 GOVERNMENT
 usurps power over the gold stock and production of coins
 Debases coins due to tendency to overspend
 Markets  barter  gold/coin  governments  paper 
(hyper)inflation
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Story #2: Sociohistorical account
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 ORIGINS: social norms and custom
 FUNCTIONS: multiple
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defined by the social uses and cultural meanings of existing currencies (Zelizer, 1994 The
Social Meaning of Money)
mental map a subjective image we carry in our heads (Cohen, 1998 , The Geography of
Money).
In a global world domestic currencies circulate abroad, 1-currency 1-nation regularity is
being undermined, because our territorial images/our mental landscapes of money are
changing
 NATURE: neither culturally neutral nor socially anonymous,
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a symbolic token, mental image infused with meaning by cultural and social norms
Does not exist independently of culture
 GOVERNMENTS:
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One nation-one currency regularity
Role of the state in the origins of money is limited to legal tender laws
Money is accepted because of collective trust or law
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Story #3: Chartalist or Modern Money view
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ORIGINS: not a market phenomenon
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FUNCTIONS: primary – unit of account, secondary – store of value/medium of
exchange/means of payment
NATURE: a very specific social credit-debt relationship denominated in a state-administered
unit of account
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DEBT: Two-sided affair. Anyone can issue debt.
HIGHERARCHY OF MONEY: least to most acceptable debts. Most acceptable that of the state
(delivers its own liability in final payment)
CREATURE OF THE STATE: state imposes a tax liability, determine what ‘thing’ will be used as
payment and thus establishes the unit of account, markets adopt that ‘thing’ for transactions.
GOVERNMENTS: central authorities, modern nation states (church, temple, king, priest)
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Predates markets and barter (barter is not an organizing economic principle)
Early forms of money - first evidence of writing and number
Money predates coinage by at least 3000 years.
Early penal system: to pay=to pacify, to make peace
Central price administration/internal accounting system in Mesopotamia
Key: non-reciprocal obligations to the authority
CENTRAL AUTHORITY/GOVERNMENT  taxes/dues  unit of account  medium of
exchange /means of payment  MARKETS
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3 ontologies: Positivist
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 Positivist ontology: “to BE is to be perceived”
 Reality is made up of unrelated, atomistic, isolated
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events that are observable
Seeing is believing
Scientist examines surface phenomena
What cannot be observed cannot be studied and is
denied ontological birthright
Positivist science aims to uncover relationships
among independent and atomistic events.
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it posits a world of chaos but ties to discover order!
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Positivist views of money
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 Metalists conundrums?
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Why does money exist and persist?
 existence: 1) money is a universal because rational agents
use it; and 2) rational agents use it because it is
universal.
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Reducing transaction costs do not explain why all agents settle on a
particular medium of exchange
NO DEFINITIVE PROPERTY, infinite regress, spontaneous choice is
a theoretical necessity for this approach (hence the helicopter drop)
 No notice or explanation of the 1-nation 1 currency
regularity:
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OCA  EU (exception to the rule)
 Logically necessary vs. socially necessary relationships?
 Policy implications
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3 ontologies: Hermeneutics
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 Hermeneutic ontology: “to BE is to be meaningful”
 To understand objects, their material existence is unimportant
(which hermeneutist do not deny) but the meaning they carry
 Theories are culture specific. There is a social constitution of reality,
but objects gain ontological significance only when they are
integrated into the cultural universe.
 If there is no cultural context, for all practical purposes, the object
itself does not exist
 Anthropomorphic approach
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objects exist only if we are around to perceive them (as in positivism) or to endow
them with meaning (as in hermeneutics)
 hermeneutic paradigm is self-referential; it has circular
epistemology: the truth of a proposition refers to the proposition
itself. Interpretation of an object’s meaning refers to the collective
meaning society has endowed it with.
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Hermeneutic view of money
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 Self referential sociological and historical accounts (Zelizer and Cohen):
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“…General acceptability…falls within the perplexing but fascinating group of phenomenon
which is affected by self-justifying beliefs. If members of a community think that money will
be generally acceptable, then it will be, otherwise not.” (Cohen 1998, 12)
 No definitive property that makes $ acceptable, no underlying causes,
generative mechanisms and essential structures.
 Explanation ultimately boils down to universal trust and legal tender laws.
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Why I invoke these stories?
 Laws, just like trust, pertain to the hermeneutic dimension of society.
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define social meaning and ground it in legal code.
 Infinite regress? Why do some societies use currencies they do not trust?
 Policy implications?
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3 ontologies: Critical Realist
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 Critical Realist ontology: “to BE is to be able to do”
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Reasons must be causes otherwise they will be ontologically redundant, must be immanent
(event if latent or partially manifested)
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Not a ‘regulation theory of reality’, but a ‘causal-generative theory of reality’
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The world exists outside of us (or our ability to understand it), it is stratified with depths not
readily observable
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We discern their existence by their material consequences
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Real structures interact with and are elaborated by agency
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2 types of agents – not atomistic and independent individuals that add up to general society
(positivism) or products of culture themselves (hermeneutics), but primary and corporate
agents (the latter are organized, with power, able to affect change and therefore make and
remake the social reality and the structures within which we all operate and which in turn
influence us).
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Reality is open and changeable
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Ontological reflexivity is key: if critical realists no longer produce explanations consistent with
actual reality they are forced to modify the relationships that constitute the posited (or
theorized) social reality.
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Critical Realist View of Money
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Legal tender law
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Not a causal mechanism for the existence or use of $, not all countries have legal tender laws
But tax laws ubiquitous : 3rd dynasty of Ur 20-21c BC, earliest codes of law stipulating punishable acts and their settlement in monetary fines
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Settlement in court
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Not the power to print or issue money but the power to create “the promise of last resort” (Ingham, 2000, 29)
Power to tax and determine how taxes will be paid is a causal power.
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Launches a currency
Establishes a unit of account and the thing which will serve as medium of exchange
Causes the private sector to transfer real g&s to the public sector
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Power to make final payment by delivering its own IOU. (no one else can do this)
Power to deficit spend (as taxes do not finance spending==money has to be spent into existence first, before it can be collected
back in taxes)
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Power / obligation to mobilize the monetary system for the public purpose
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Obligation to accept its own IOU is payment of debts dues
Obligation to maintain its value
Obligation to maintain a sound stable monetary system
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Some nations abdicate these powers: EU, Dollarized, Boards of Fixed exchange rate regimes.
Some mismanage their money, Weimar, Zimbabwe
Some mobilize them for the public purpose, some don’t
SOVEREIGN vs. NON-SOVEREIGN key distinction (non-sovereign governments mimic the commodity money view but they
essentially handicap themselves)
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Net saving of the private sector? Deficits as the norm. But how and on what government spends?
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Policy implications: if money is a creature of the state, a public good and a public monopoly
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the payments system is a public institution and must be regulated as a public utility.
Key role for government
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