In an age of rising new powers and new financial technologies, could the US dollar’s status as the global reserve currency finally come to an end? To answer such questions, it helps to adopt a historical perspective, because the future of money may well resonate with its deep past.
VITERBO, ITALY – We live in a time of unprecedented monetary innovation. Novel private monies like Bitcoin abound, because new technologies have made possible payment systems that bypass traditional banks. With the COVID-19 pandemic having expanded the frontier of “unconventional” monetary policies, central banks have been debating whether to create new digital currencies (CBDCs) of their own.
Never before has the future of money been more uncertain – and thus full of possibility. And yet a historical perspective can help us make sense of unfamiliar terrain, because the future of money may well resonate with its deep past.
I say “deep” past because it is important to look beyond the familiar notion of money that most people have. They imagine a national currency, issued solely by a state authority within territorial borders. In the United States, there is the dollar; in Japan, there is the yen; and in Europe, there is a great regional currency bloc. But this kind of money is a recent development, dating only to the nineteenth century, and arguably even later.
Before that, there were “multiple” and “complementary” monies, earmarked for different purposes. I might use one currency to pay taxes (rendering unto Caesar what is Caesar’s) and another currency for reciprocal exchanges with my neighbors. Another currency would allow me to buy goods from some other part of the world, and yet another one would allow me to save wealth or invest capital in an enterprise.
We have all grown up in a world of “homogenous” national monies, where every territorial jurisdiction has just one currency that must be used for every monetary purpose – from exchange and keeping accounts to paying taxes and storing wealth. But money may someday return to its more historically typical “heterogeneous” baseline. It may already be happening.
The Birth of Money
The historical fact of multiple monies is a central theme of Japanese scholar Akinobu Kuroda’s A Global History of Money, the most revelatory account of the subject to be published in a very long time. (It is also arguably the only truly global history of money available today, thanks to Kuroda’s language skills.) Though the book is relatively short (228 pages), it is nonetheless a dense and demanding work of scholarship that deserves to be read widely. It offers not only an absorbing new global history of money – from the Mongolian silver to the US dollar – but also an incisive and original perspective on the phenomenon of money itself.
In the Western academy, scholars typically fall into established camps in debates about the nature of money. Neoclassical economists argue that money is just a “neutral” device for dispensing with the cumbersome need to barter in exchange. Another school, known by the inelegant name of “chartalism,” argues that money arises from the state’s need to issue a medium of taxation, and must first be understood as a governance tool. Yet another school, led recently by the late anthropologist David Graeber, argues that in the first instance, money is a form of credit in social relations.
Kuroda transcends these debates by borrowing from each perspective, though without losing analytical clarity. He argues that money can arise from a coercive “top-down,” state-centered mechanism that establishes a “means of payment,” including for taxes, or from a more spontaneous, “bottom-up” mechanism that establishes a “means of exchange.” He then distinguishes between credit-based monies for “named” transactions versus currency-based monies for “anonymous” transactions. Finally, there are monies of both types for either “proximate” or “long-distance” exchanges.
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We end up with four modal types of money, for the four modal “quadrants” of exchange. There are monies fit for “proximate” and “named” exchanges, like store credit; monies for “long-distance” and “anonymous” exchanges, like the US dollar today; monies for “proximate” and “anonymous” exchanges, like small-value copper coins favored by peasants in Chinese dynastic history; and monies for “long-distance” and “named” exchanges, like the mercantile “bills of exchange” that greased the wheels of European commerce for centuries before the industrial revolution.
At times, single monies – like national monies today – may function as moneta franca and bridge the quadrants of exchange. But more commonly, different monies have complemented each other by focusing on one of the four quadrants. The market on its own will not unify monies. States must.
Kuroda incorporates the chartalist insight that, ever since the birth of coinage in Greek and Chinese antiquity, state-based means of payments have been crucial to the economy. When states are powerful, state currencies sit at the top of currency hierarchies. But because states have not always been able to meet popular demands for money, communities have repeatedly demonstrated an ability to generate monies – whether metals, cowrie shells, credits, or something else.
Breaking with many neoclassical economists, however, Kuroda holds that money does not simply follow from the cumbersomeness of barter exchange. Rather, history shows that the causal arrow often runs in the opposite direction: fresh supplies of money generate new marketplaces and new divisions of labor, increasing wealth.
The Monies Go Marching
Kuroda’s history begins with the first “silver march,” which spanned the late thirteenth and early fourteenth centuries. This was the height of the Mongol Empire (the largest contiguous land-based empire in world history), the first time the Eurasian landmass had been united through a single monetary “unit of account”: silver. Many scholars assume that wherever money appears, it acts as a means of exchange, a unit of account, and a store of value. But Kuroda’s historically based perspective leads him to treat these functions separately.
For example, he points out that the world’s first global money was a unit of account only. How did it emerge? Since the collapse of the Roman Empire, Western European states had earned income by charging seignorage when minting high-value silver coins, which sat at the top of the currency hierarchy.
By contrast, in China before the thirteenth century, silver was not a money. Though Chinese dynasties minted low-value copper coins for proximate, anonymous exchanges among peasants, they charged no seignorage, and silk served as the principal medium of Chinese long-distance trade. The Song Dynasty (960-1279) even issued paper money. But all this changed following China’s conquest by the Mongols, who taxed their populations in silver.
As the Mongol Empire spread west to Eastern Europe, silver moved with it, where it met with great European demand (since it was already established as coin). The Western European economy then silverized further and experienced a commercial uptick. In 1260, the Mongols began to issue paper money, in terms of silver. But with the collapse of the Mongol Empire a century later came the collapse of its paper currency and the end of the first global silver march.
Kuroda argues that what happened next was crucial. After 1360, silver flows within Europe dried up, and paper currencies gradually disappeared from China. But the demand for money in both places was no less intense.
This focus on the demand for money is a persistent feature of the book, setting Kuroda apart from conventional neoclassical economics and its “quantity theory of money.” This view holds that while the money supply determines the absolute price level, money itself is otherwise “neutral.” And yet, as Kuroda shows, the post-Mongol demand for money launched Europe and China on two very different trajectories. While Chinese dynasties focused on currencies, Europe replaced dried-up silver flows with credit, including both book credit for proximate, named exchanges and bills of exchange for long-distance, named exchanges.
China thus became a currency-based economy, while Europe became credit-based. Historically, this great monetary divergence mattered very much, especially when the second “silver march,” also spanning a century, began after the European conquest of the Americas. Prodigious amounts of silver flowed from the infamous slave mines of Potosí, in contemporary Bolivia, to Eurasia, which was silverized yet again, much to the benefit of its economies.
But there were two key differences in this second silver wave. First, silver this time also served as a truly global means of exchange, rather than only a global unit of account. Second, the global economy’s center of monetary demand was not Europe but rather China.
In 1522, the Ming Dynasty (1368-1644) passed the first of its “single whip” tax reforms, commuting Chinese tax payments into silver. However, this was silver by “count” or weight, not by state-minted coin. After Spanish-minted dollars (“pieces of eight,” the great coin of the second global silver march) were created in 1497, they found their way to China, where they were melted down. For roughly a century, up until the late 1500s, Chinese demand for silver was insatiable. In a highly profitable arbitrage trade, European merchants exchanged silver for Chinese silks and other Asian luxuries.
Unlike what the neoclassical quantity theory of money predicts, there was no general price rise in China during this time. So, where did the flood of silver go? For his part, Kuroda argues that because silver remained within a distinct Chinese “currency circuit,” it could not affect the prices for most goods, which were still exchanged with copper coins at the peasant level. In addition to being a device for long-distance exchange, silver largely remained a fiscal medium in China, residing at the top of its hierarchy of complementary currencies. By 1783, Kuroda notes, the Qing Dynasty’s (1644-1912) idle hoard of unminted silver was worth six times its annual tax revenue – an extraordinary fiscal surplus.
The British Experience
The arrival of American silver had a different effect in Europe, which was already a credit-oriented economy. Even though most of the silver that arrived on European shores eventually made its way to China, the inflows abetted a tremendous expansion of private and public credit. Through the linkage of silver (the conceptual unit of account) to circulating credits (means of exchange), prices in Europe for many goods did rise in the late sixteenth and early seventeenth century. But, again, what happened next was even more consequential.
In England, the latter half of the seventeenth century brought a dearth of silver currency, triggering a monetary crisis. Among the solutions following the Glorious Revolution of 1688 were the founding of the Bank of England in 1694 and the Great Recoinage of 1696. The BOE was a private corporation that was granted the authority both to issue public currency – denominated in the conceptual unit of account (silver) – and to fund the Crown’s public debts. Public and private credit merged and burgeoned. England maintained a hard-metal standard, even though silver was flowing out of the country to Europe and Asia. To reverse the flow, the British Empire would infamously plunder Indian silver.
But to Kuroda, the most important monetary factor in the British Empire’s rise to global hegemony was that it had a credit-based economy. By 1783, when the Qing Dynasty was sitting on a massive inactive mound of silver, Britain’s public debt had grown to 20 times its annual tax revenue. In simple Keynesian terms, the British economy enjoyed a remarkable fiscal stimulus in the run-up to the period of industrial revolution and global hegemony. At the same time, Britain’s novel system of public and private credit had turned money into more than a ready means of exchange or conceptual unit of account. It had also become an expanding store of value: capital.
Unfortunately, the final part of Kuroda’s global history does not pursue this connection between the birth of modern credit and modern capitalism. Instead, it asserts the contrarian claim that global monetary heterogeneity did not cease, even with the rise of the nineteenth-century British gold standard (which was accomplished when the British replaced silver with gold in the Great Recoinage of 1816). In the global currency hierarchy, silver coins and other spontaneous “people’s monies” still circulated throughout the world. The project of national monies was not truly executed until the twentieth century, when it was carried out by central banks – led by the Federal Reserve as the United States rose to global economic preeminence.
Making Cents
That development brings us nearly up to the present. But as political theorist Stefan Eich shows in The Currency of Politics, there is another vantage point from which to consider the broader historical story. In examining money’s place in the history of political philosophy, Eich dwells on a question that Kuroda’s book leaves aside: Should money be more consciously politicized in today’s democracies, or should it remain depoliticized and left in the hands of independent central banks? That is the conundrum now facing the world’s policymakers as they confront the reemergence of price inflation.
Eich asserts that money is always political – full stop – he sides clearly with the theorists who associate money with credit. What is original about his philosophical account of money is his insistence that, “Money is best understood as a fragile project of political language.” As with language, which each generation passes on to the next, money’s store-of-wealth function makes it possible for communities to exist over time, conveying what is valuable in human institutions that transcend the arcs of human lifespans.
Thought of this way, money cannot help but pose normative questions about reciprocity, distributive justice, and – most fundamentally to Eich – the legitimacy of political institutions, given that it is the state that holds the power to establish and politically order money. As an inescapably public good, money is inescapably a currency of politics.
But this certainly doesn’t mean it is always democratic. That basic point is perhaps the simplest distillation of Eich’s wide-ranging account, which starts with Aristotle on coinage and reciprocity and moves forward in time from there. He runs through John Locke on silver and intrinsic value; Immanuel Kant and his interlocutors on paper money; Karl Marx on the relationship between the commodity form and the money form; and John Maynard Keynes on the “barbarous relic” of the international gold standard and the prospect of genuine international monetary reform. Finally, the book culminates in the late twentieth-century neoliberal attempt to depoliticize money.
Under Locke and Keynes
Eich offers a rich treatment of each historical episode. But the chapters on the two Englishmen, Locke and Keynes, stand out, with Locke emerging as the villain and Keynes as the hero. During England’s Great Recoinage of 1696, Locke was a leading advocate for maintaining the pound’s strict adherence to its centuries-long silver count, in recognition of what he called the “intrinsic” value of silver. Eich shows that Locke was not really arguing for the intrinsic value of metal. Rather, by focusing on silver’s “intrinsic” value, he was stressing the need to stabilize the value of money as a linguistic medium of account and exchange. To devalue the pound would be like throwing out the dictionary to remake the English language from scratch.
Locke shrewdly saw that monetary stability was especially important in an economy so newly erected upon the foundation of public and private credit (and we know the significance of that development from Kuroda). But in Eich’s account, Locke went a step too far. By adhering to an outdated silver standard too stringently, he restricted the currency of politics too rigidly and thereby “depoliticized money.” According to the Lockean view, any political reform of the monetary system would surely end in chaos and disaster.
Not coincidentally, that charge echoed many early modern criticisms of democracy. Worse, as Kuroda also shows, Locke advanced this view in the final decade of the seventeenth century, just as the transformation of money into a form of private capital at the helm of the economy was being completed in England. The depoliticization of money thus neutered the proper public governance of capitalism.
Keynes, writing centuries later, appreciated Locke’s position. In the crisis decades of the interwar period, Keynes fashioned himself as the kind of expert whom society should put in charge of the monetary system – occupying a position half, if not fully, removed from the vagaries of democratic politics. But, contrary to Locke, Keynes also believed that monetary systems must sometimes reform to remain aligned with society’s highest normative and political commitments.
This view underpinned Keynes’s famous critique of the international gold standard, which came undone during the Great Depression, as well as his advocacy for a new international monetary system at the Bretton Woods Conference. He envisioned a system that would be both stable and flexible, open just enough, but not too much, to democratic pressures. But Keynes was only partly successful at Bretton Woods, and the system fashioned there would last only until the 1970s. As Eich’s last chapter details, we have since lived in an era of “central bank independence,” featuring a Lockean kind of technocratic control over money.
New Foundations
Are we now entering a new moment in which money will be consciously politicized? I suspect the answer will be yes, but neither of these books offers direct insights into that question. Kuroda does not address contemporary monetary questions; and while Eich argues persuasively that any serious normative discussion of the politics of money must first excavate past debates, he does not conclude programmatically. He neither articulates a new normative theory of money nor offers practical policy proposals. If Kuroda’s book represents the first stab at a genuinely global history of money that will surely inspire followers, Eich fashions some of the building blocks that anyone will need to construct a robust political theory of money in our times.
Among these pathbreaking books’ many insights, two are especially relevant to current predicaments. First, Kuroda’s history shows that no matter what economists’ models say, the dynamic factor in the history of money is demand – as Keynes emphasized.
Moreover, China, the world’s most populous economy, has always been the great monetary lever of global economic history. In an uncanny parallel, Chinese demand for silver was a driver of the world’s first great age of globalization in the late fifteenth century, much as Chinese demand for dollar-denominated assets was a driver of the most recent era of globalization. Both then and now, patterns of trade, finance, and geopolitics have rippled out from this global source of demand.
The second, related takeaway concerns Kuroda’s theme of monetary heterogeneity. Not coincidentally, this is also the leitmotif of Chinese monetary history. Today, commentators quibble over the fate of the US dollar as the world’s dominant global reserve currency, with most assuming that America’s economic decline (as a share of global GDP) must presage the dollar’s replacement by some other national currency, such as the Chinese renminbi.
But Kuroda offers reasons to doubt this scenario. The dollar is a national currency, but it is also a global currency. National monies may predominate in proximate exchanges – both named and anonymous – but much of world trade is denominated in dollars, even when it does not cross US borders. Many corporations issue their debts in dollars, as do many states. Since the 1960s, there has been a private dollar-based credit system based in the City of London, outside US jurisdiction. The world’s central banks hold two-thirds of their foreign exchange reserves in dollar-denominated assets. During the 2008 global financial crisis, Fed “swap lines” provided dollar credits for central banks around the world.
But while the US dollar belongs to the world, as well as to American citizens, global monetary heterogeneity rules, even if many do not see it. One exception is the Chinese state, which almost certainly does see it. Given the Chinese state’s long history of living with multiple, complementary currencies, the dollar’s global hegemony may yet last for quite a long time. If anything, we should expect that global Chinese monetary hegemony would lead to even greater monetary heterogeneity, not less.
Viewed from this perspective, obsessive worrying over the dollar’s future looks misplaced. The real question is how to design a global monetary world of multiple and complimentary currencies that will work to the benefit of everyone. The task is both technical and economic as well as normative and political. It is one that requires a deep understanding of both history and political philosophy. Contemporary policymakers and anyone else interested in the future of money would do well to read these two very different but equally essential books.
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Akinobu Kuroda, A Global History of Money, Routledge, 2020.
VITERBO, ITALY – We live in a time of unprecedented monetary innovation. Novel private monies like Bitcoin abound, because new technologies have made possible payment systems that bypass traditional banks. With the COVID-19 pandemic having expanded the frontier of “unconventional” monetary policies, central banks have been debating whether to create new digital currencies (CBDCs) of their own.
Never before has the future of money been more uncertain – and thus full of possibility. And yet a historical perspective can help us make sense of unfamiliar terrain, because the future of money may well resonate with its deep past.
I say “deep” past because it is important to look beyond the familiar notion of money that most people have. They imagine a national currency, issued solely by a state authority within territorial borders. In the United States, there is the dollar; in Japan, there is the yen; and in Europe, there is a great regional currency bloc. But this kind of money is a recent development, dating only to the nineteenth century, and arguably even later.
Before that, there were “multiple” and “complementary” monies, earmarked for different purposes. I might use one currency to pay taxes (rendering unto Caesar what is Caesar’s) and another currency for reciprocal exchanges with my neighbors. Another currency would allow me to buy goods from some other part of the world, and yet another one would allow me to save wealth or invest capital in an enterprise.
We have all grown up in a world of “homogenous” national monies, where every territorial jurisdiction has just one currency that must be used for every monetary purpose – from exchange and keeping accounts to paying taxes and storing wealth. But money may someday return to its more historically typical “heterogeneous” baseline. It may already be happening.
The Birth of Money
The historical fact of multiple monies is a central theme of Japanese scholar Akinobu Kuroda’s A Global History of Money, the most revelatory account of the subject to be published in a very long time. (It is also arguably the only truly global history of money available today, thanks to Kuroda’s language skills.) Though the book is relatively short (228 pages), it is nonetheless a dense and demanding work of scholarship that deserves to be read widely. It offers not only an absorbing new global history of money – from the Mongolian silver to the US dollar – but also an incisive and original perspective on the phenomenon of money itself.
In the Western academy, scholars typically fall into established camps in debates about the nature of money. Neoclassical economists argue that money is just a “neutral” device for dispensing with the cumbersome need to barter in exchange. Another school, known by the inelegant name of “chartalism,” argues that money arises from the state’s need to issue a medium of taxation, and must first be understood as a governance tool. Yet another school, led recently by the late anthropologist David Graeber, argues that in the first instance, money is a form of credit in social relations.
Kuroda transcends these debates by borrowing from each perspective, though without losing analytical clarity. He argues that money can arise from a coercive “top-down,” state-centered mechanism that establishes a “means of payment,” including for taxes, or from a more spontaneous, “bottom-up” mechanism that establishes a “means of exchange.” He then distinguishes between credit-based monies for “named” transactions versus currency-based monies for “anonymous” transactions. Finally, there are monies of both types for either “proximate” or “long-distance” exchanges.
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We end up with four modal types of money, for the four modal “quadrants” of exchange. There are monies fit for “proximate” and “named” exchanges, like store credit; monies for “long-distance” and “anonymous” exchanges, like the US dollar today; monies for “proximate” and “anonymous” exchanges, like small-value copper coins favored by peasants in Chinese dynastic history; and monies for “long-distance” and “named” exchanges, like the mercantile “bills of exchange” that greased the wheels of European commerce for centuries before the industrial revolution.
At times, single monies – like national monies today – may function as moneta franca and bridge the quadrants of exchange. But more commonly, different monies have complemented each other by focusing on one of the four quadrants. The market on its own will not unify monies. States must.
Kuroda incorporates the chartalist insight that, ever since the birth of coinage in Greek and Chinese antiquity, state-based means of payments have been crucial to the economy. When states are powerful, state currencies sit at the top of currency hierarchies. But because states have not always been able to meet popular demands for money, communities have repeatedly demonstrated an ability to generate monies – whether metals, cowrie shells, credits, or something else.
Breaking with many neoclassical economists, however, Kuroda holds that money does not simply follow from the cumbersomeness of barter exchange. Rather, history shows that the causal arrow often runs in the opposite direction: fresh supplies of money generate new marketplaces and new divisions of labor, increasing wealth.
The Monies Go Marching
Kuroda’s history begins with the first “silver march,” which spanned the late thirteenth and early fourteenth centuries. This was the height of the Mongol Empire (the largest contiguous land-based empire in world history), the first time the Eurasian landmass had been united through a single monetary “unit of account”: silver. Many scholars assume that wherever money appears, it acts as a means of exchange, a unit of account, and a store of value. But Kuroda’s historically based perspective leads him to treat these functions separately.
For example, he points out that the world’s first global money was a unit of account only. How did it emerge? Since the collapse of the Roman Empire, Western European states had earned income by charging seignorage when minting high-value silver coins, which sat at the top of the currency hierarchy.
By contrast, in China before the thirteenth century, silver was not a money. Though Chinese dynasties minted low-value copper coins for proximate, anonymous exchanges among peasants, they charged no seignorage, and silk served as the principal medium of Chinese long-distance trade. The Song Dynasty (960-1279) even issued paper money. But all this changed following China’s conquest by the Mongols, who taxed their populations in silver.
As the Mongol Empire spread west to Eastern Europe, silver moved with it, where it met with great European demand (since it was already established as coin). The Western European economy then silverized further and experienced a commercial uptick. In 1260, the Mongols began to issue paper money, in terms of silver. But with the collapse of the Mongol Empire a century later came the collapse of its paper currency and the end of the first global silver march.
Kuroda argues that what happened next was crucial. After 1360, silver flows within Europe dried up, and paper currencies gradually disappeared from China. But the demand for money in both places was no less intense.
This focus on the demand for money is a persistent feature of the book, setting Kuroda apart from conventional neoclassical economics and its “quantity theory of money.” This view holds that while the money supply determines the absolute price level, money itself is otherwise “neutral.” And yet, as Kuroda shows, the post-Mongol demand for money launched Europe and China on two very different trajectories. While Chinese dynasties focused on currencies, Europe replaced dried-up silver flows with credit, including both book credit for proximate, named exchanges and bills of exchange for long-distance, named exchanges.
China thus became a currency-based economy, while Europe became credit-based. Historically, this great monetary divergence mattered very much, especially when the second “silver march,” also spanning a century, began after the European conquest of the Americas. Prodigious amounts of silver flowed from the infamous slave mines of Potosí, in contemporary Bolivia, to Eurasia, which was silverized yet again, much to the benefit of its economies.
But there were two key differences in this second silver wave. First, silver this time also served as a truly global means of exchange, rather than only a global unit of account. Second, the global economy’s center of monetary demand was not Europe but rather China.
In 1522, the Ming Dynasty (1368-1644) passed the first of its “single whip” tax reforms, commuting Chinese tax payments into silver. However, this was silver by “count” or weight, not by state-minted coin. After Spanish-minted dollars (“pieces of eight,” the great coin of the second global silver march) were created in 1497, they found their way to China, where they were melted down. For roughly a century, up until the late 1500s, Chinese demand for silver was insatiable. In a highly profitable arbitrage trade, European merchants exchanged silver for Chinese silks and other Asian luxuries.
Unlike what the neoclassical quantity theory of money predicts, there was no general price rise in China during this time. So, where did the flood of silver go? For his part, Kuroda argues that because silver remained within a distinct Chinese “currency circuit,” it could not affect the prices for most goods, which were still exchanged with copper coins at the peasant level. In addition to being a device for long-distance exchange, silver largely remained a fiscal medium in China, residing at the top of its hierarchy of complementary currencies. By 1783, Kuroda notes, the Qing Dynasty’s (1644-1912) idle hoard of unminted silver was worth six times its annual tax revenue – an extraordinary fiscal surplus.
The British Experience
The arrival of American silver had a different effect in Europe, which was already a credit-oriented economy. Even though most of the silver that arrived on European shores eventually made its way to China, the inflows abetted a tremendous expansion of private and public credit. Through the linkage of silver (the conceptual unit of account) to circulating credits (means of exchange), prices in Europe for many goods did rise in the late sixteenth and early seventeenth century. But, again, what happened next was even more consequential.
In England, the latter half of the seventeenth century brought a dearth of silver currency, triggering a monetary crisis. Among the solutions following the Glorious Revolution of 1688 were the founding of the Bank of England in 1694 and the Great Recoinage of 1696. The BOE was a private corporation that was granted the authority both to issue public currency – denominated in the conceptual unit of account (silver) – and to fund the Crown’s public debts. Public and private credit merged and burgeoned. England maintained a hard-metal standard, even though silver was flowing out of the country to Europe and Asia. To reverse the flow, the British Empire would infamously plunder Indian silver.
But to Kuroda, the most important monetary factor in the British Empire’s rise to global hegemony was that it had a credit-based economy. By 1783, when the Qing Dynasty was sitting on a massive inactive mound of silver, Britain’s public debt had grown to 20 times its annual tax revenue. In simple Keynesian terms, the British economy enjoyed a remarkable fiscal stimulus in the run-up to the period of industrial revolution and global hegemony. At the same time, Britain’s novel system of public and private credit had turned money into more than a ready means of exchange or conceptual unit of account. It had also become an expanding store of value: capital.
Unfortunately, the final part of Kuroda’s global history does not pursue this connection between the birth of modern credit and modern capitalism. Instead, it asserts the contrarian claim that global monetary heterogeneity did not cease, even with the rise of the nineteenth-century British gold standard (which was accomplished when the British replaced silver with gold in the Great Recoinage of 1816). In the global currency hierarchy, silver coins and other spontaneous “people’s monies” still circulated throughout the world. The project of national monies was not truly executed until the twentieth century, when it was carried out by central banks – led by the Federal Reserve as the United States rose to global economic preeminence.
Making Cents
That development brings us nearly up to the present. But as political theorist Stefan Eich shows in The Currency of Politics, there is another vantage point from which to consider the broader historical story. In examining money’s place in the history of political philosophy, Eich dwells on a question that Kuroda’s book leaves aside: Should money be more consciously politicized in today’s democracies, or should it remain depoliticized and left in the hands of independent central banks? That is the conundrum now facing the world’s policymakers as they confront the reemergence of price inflation.
Eich asserts that money is always political – full stop – he sides clearly with the theorists who associate money with credit. What is original about his philosophical account of money is his insistence that, “Money is best understood as a fragile project of political language.” As with language, which each generation passes on to the next, money’s store-of-wealth function makes it possible for communities to exist over time, conveying what is valuable in human institutions that transcend the arcs of human lifespans.
Thought of this way, money cannot help but pose normative questions about reciprocity, distributive justice, and – most fundamentally to Eich – the legitimacy of political institutions, given that it is the state that holds the power to establish and politically order money. As an inescapably public good, money is inescapably a currency of politics.
But this certainly doesn’t mean it is always democratic. That basic point is perhaps the simplest distillation of Eich’s wide-ranging account, which starts with Aristotle on coinage and reciprocity and moves forward in time from there. He runs through John Locke on silver and intrinsic value; Immanuel Kant and his interlocutors on paper money; Karl Marx on the relationship between the commodity form and the money form; and John Maynard Keynes on the “barbarous relic” of the international gold standard and the prospect of genuine international monetary reform. Finally, the book culminates in the late twentieth-century neoliberal attempt to depoliticize money.
Under Locke and Keynes
Eich offers a rich treatment of each historical episode. But the chapters on the two Englishmen, Locke and Keynes, stand out, with Locke emerging as the villain and Keynes as the hero. During England’s Great Recoinage of 1696, Locke was a leading advocate for maintaining the pound’s strict adherence to its centuries-long silver count, in recognition of what he called the “intrinsic” value of silver. Eich shows that Locke was not really arguing for the intrinsic value of metal. Rather, by focusing on silver’s “intrinsic” value, he was stressing the need to stabilize the value of money as a linguistic medium of account and exchange. To devalue the pound would be like throwing out the dictionary to remake the English language from scratch.
Locke shrewdly saw that monetary stability was especially important in an economy so newly erected upon the foundation of public and private credit (and we know the significance of that development from Kuroda). But in Eich’s account, Locke went a step too far. By adhering to an outdated silver standard too stringently, he restricted the currency of politics too rigidly and thereby “depoliticized money.” According to the Lockean view, any political reform of the monetary system would surely end in chaos and disaster.
Not coincidentally, that charge echoed many early modern criticisms of democracy. Worse, as Kuroda also shows, Locke advanced this view in the final decade of the seventeenth century, just as the transformation of money into a form of private capital at the helm of the economy was being completed in England. The depoliticization of money thus neutered the proper public governance of capitalism.
Keynes, writing centuries later, appreciated Locke’s position. In the crisis decades of the interwar period, Keynes fashioned himself as the kind of expert whom society should put in charge of the monetary system – occupying a position half, if not fully, removed from the vagaries of democratic politics. But, contrary to Locke, Keynes also believed that monetary systems must sometimes reform to remain aligned with society’s highest normative and political commitments.
This view underpinned Keynes’s famous critique of the international gold standard, which came undone during the Great Depression, as well as his advocacy for a new international monetary system at the Bretton Woods Conference. He envisioned a system that would be both stable and flexible, open just enough, but not too much, to democratic pressures. But Keynes was only partly successful at Bretton Woods, and the system fashioned there would last only until the 1970s. As Eich’s last chapter details, we have since lived in an era of “central bank independence,” featuring a Lockean kind of technocratic control over money.
New Foundations
Are we now entering a new moment in which money will be consciously politicized? I suspect the answer will be yes, but neither of these books offers direct insights into that question. Kuroda does not address contemporary monetary questions; and while Eich argues persuasively that any serious normative discussion of the politics of money must first excavate past debates, he does not conclude programmatically. He neither articulates a new normative theory of money nor offers practical policy proposals. If Kuroda’s book represents the first stab at a genuinely global history of money that will surely inspire followers, Eich fashions some of the building blocks that anyone will need to construct a robust political theory of money in our times.
Among these pathbreaking books’ many insights, two are especially relevant to current predicaments. First, Kuroda’s history shows that no matter what economists’ models say, the dynamic factor in the history of money is demand – as Keynes emphasized.
Moreover, China, the world’s most populous economy, has always been the great monetary lever of global economic history. In an uncanny parallel, Chinese demand for silver was a driver of the world’s first great age of globalization in the late fifteenth century, much as Chinese demand for dollar-denominated assets was a driver of the most recent era of globalization. Both then and now, patterns of trade, finance, and geopolitics have rippled out from this global source of demand.
The second, related takeaway concerns Kuroda’s theme of monetary heterogeneity. Not coincidentally, this is also the leitmotif of Chinese monetary history. Today, commentators quibble over the fate of the US dollar as the world’s dominant global reserve currency, with most assuming that America’s economic decline (as a share of global GDP) must presage the dollar’s replacement by some other national currency, such as the Chinese renminbi.
But Kuroda offers reasons to doubt this scenario. The dollar is a national currency, but it is also a global currency. National monies may predominate in proximate exchanges – both named and anonymous – but much of world trade is denominated in dollars, even when it does not cross US borders. Many corporations issue their debts in dollars, as do many states. Since the 1960s, there has been a private dollar-based credit system based in the City of London, outside US jurisdiction. The world’s central banks hold two-thirds of their foreign exchange reserves in dollar-denominated assets. During the 2008 global financial crisis, Fed “swap lines” provided dollar credits for central banks around the world.
But while the US dollar belongs to the world, as well as to American citizens, global monetary heterogeneity rules, even if many do not see it. One exception is the Chinese state, which almost certainly does see it. Given the Chinese state’s long history of living with multiple, complementary currencies, the dollar’s global hegemony may yet last for quite a long time. If anything, we should expect that global Chinese monetary hegemony would lead to even greater monetary heterogeneity, not less.
Viewed from this perspective, obsessive worrying over the dollar’s future looks misplaced. The real question is how to design a global monetary world of multiple and complimentary currencies that will work to the benefit of everyone. The task is both technical and economic as well as normative and political. It is one that requires a deep understanding of both history and political philosophy. Contemporary policymakers and anyone else interested in the future of money would do well to read these two very different but equally essential books.