Questions on Mises IV: Updates and a Challenge to Historians

by Liberty and Power

First I must say I have been thoroughly enjoying the public reading/discussion of Mises' Theory of Money and Credit. As I mentioned by e-mail to one discussion participant, a critical, public, written engagement with a text, carried out as you read it, constitutes a new form of reading, one that barely existed a few years ago and that certainly came into being during my lifetime. This way of engaging a text is not a book review, nor even a book discussion group, although the latter is the closest precedent outside the Internet. The only thing that prevents me from reading all of my books this way is how slowly I must go through the text. I'd have finished TM&C days ago if I weren't holding myself back to blog it. Discussion continues below the fold.

Regarding my earlier question -- How does Mises define price? -- I'm not sure I have gotten a fully satisfactory answer yet. Commenter Quasibill writes,

Price is merely the relative value you place on something versus all of your (other) assets, including your future labor.

But I am not sure that this is a satisfactory definition. As I wrote in reply,

First, there is no clear way to derive [this definition of price] from an ordinal ranking of my wants, which to Mises is the only proper way of talking about how individuals value goods. Second, this definition excludes market price, which might not (indeed probably won’t) reflect the purely internal values I place on goods.

It also neglects marginalism: Any proper definition of price must take into consideration the question of whether this is the nth unit of a given good or the n+1th unit. This is a relatively easy defect to remedy, however, since we could simply write,"Price is the relative value you place on [an additional unit of a good] versus all of your (other) assets, including your future labor."

We continue to debate it below, but I remain less than satisfied about price, as price simply isn't an ordinal ranking. It's a quantity of money associated in some sense with a good. It also seems that, in the popular usage at least,"price" can be a putative attribute of a good, not necessarily one that induces any market transactions. When a price is bid up at an auction, for example, is only the final price a selling price? Aren't they all prices? And yet... and yet...

On the other hand, nearly all of my doubts regarding money as a commodity were satisfied in book I chapter 5 of TM&C, which considers much more precisely what kind of good money is: Is money a production good, a consumption good, or something else? The case that money is a consumption good is exceedingly weak. The case that it is a production good is somewhat stronger, as it facilitates the movement of other goods, and the movement of goods is indeed a kind of production. But the case that money is a third kind of good -- an exchange good -- is strongest of all, since money, and through it other goods, may be exchanged without moving much of anything at all.

(At this point it may be useful to note that, if I were writing a book review, the second part of my continuing series would almost certainly never have been written at all, no matter how many words my editor permitted. That it was written, and that it generated discussion and thought among the participants in the conversation, is only a consequence of not having read chapter five before I posted. It's also a demonstration of the promise (peril?) of this new method of writing.)

But in any event, here is my next question to readers. In particular, I have the historians in mind when I ask it.

In book I chapter 3 part 4, Mises discusses the asserted governmental prerogative to debase the currency as follows:

Fiscal considerations have led to the promulgation of a theory that attributes to the minting authority the right to regulate the purchasing power of the coinage as it thinks fit. For just as long as the minting of coins has been a government function, governments have tried to fix the weight and content of the coins as they wished. Philip VI of France expressly claimed the right"to mint such money and give it such currency and at such rate as we desire and seems good to us" and all medieval rulers thought and did as he in this matter. Obliging jurists supported them by attempts to discover a philosophical basis for the divine right of kings to debase the coinage and to prove that the true value of the coins was that assigned to them by the ruler of the country.

Nevertheless, in defiance of all official regulations and prohibitions and fixing of prices and threats of punishment, commercial practice has always insisted that what has to be considered in valuing coins is not their face value but their value as metal. The value of a coin has always been determined, not by the image and superscription it bears nor by the proclamation of the mint and market authorities, but by its metal content. Not every kind of money has been accepted at sight, but only those kinds with a good reputation for weight and fineness.

This embroils us in the question of fiat money, about which I will have much more to ask in the coming days. Laying it aside for the moment, however, I wanted to make a few notes here about early modern understandings of money and challenge historians in a general way about them. I am not asking a specific question with a specific answer, as I did above with Mises' definition of price, but rather I am issuing a challenge: Hey, historians, what do you think about this stuff?

Mises is certainly right when he notes that kings had long claimed the issuing of money as a royal prerogative. Not only that, but they had some very particular ideas regarding the circulation of money, notions that may strike us as simultaneously confused and yet all too familiar.

Counterfeiting, coin-clipping, and other acts that interfered with the sovereign's ability to mint money and make it circulate were all usually likened to the crime of lèse majesté. We may protest, as antimonarchists, that lèse majesté is an illusory crime. We may also protest, as Austrian economists, that the sovereign no more makes the currency circulate than he makes the earth revolve around the sun. But this is perfectly indifferent to the study of belief. As the adage goes,"Nonsense is nonsense, but the history of nonsense is scholarship." It strikes me that, much like the history of diseases and public health, the social history of economic thought -- really, for much of human experience the history of economic ignorance and superstition -- has yet to be told. How did all of the bad ideas people had about money (cf. Aristotle!) hold back the growth of material civilization and technology?

I know that in Mises' time, it was far more acceptable to talk, in a Whiggish sense, about the history of material progress than it is today, and that historians are often seen as somehow failing in their duties if they affirm that progress has indeed been made. (Eight years of graduate school has failed to make this perfectly plain to me, I'm afriad.) But... Outside of the narrow intellectual specialty of the history of economic thought, it strikes me that there are many new questions to be asked in this area: questions about culture and practices, about knowledge/power, perhaps, and about the background assumptions that color political and social actions. Nearly all decisions in past political and social history were premised, it now seems clear, upon what can only be called economic superstitions -- much as nearly all medical care during those same years was premised on theories that had only the remotest connection to health and disease as we now understand them.

The scholarship on the French Revolution is instructive. Although one can hardly deny the role played by economic ignorance as a proximate cause of the Revolution -- pre-Revolutionary credit structures were primitive and were ultimately a bad bargain for the French state -- the odd economic ideas of the time seem ready for exploration through such incidents as the Law of the Maximum, the various embargoes and trade restrictions, the fear of"speculators" and hoarders, and the assignats. The very idea that clipping a coin was not merely fraud, but an attack on the majesty of the king, indicates that a popular understanding of economics, grossly wrong but probably quite important, has been mostly lost to us in the meantime, and that we have only imperfect hints at it in our present understanding. A systematic look at the folk economics of an era could tell us a great deal about its history. Folk economics, as with folk medicine and popular religion, must surely change over time, and what changes might this work in the realm of event-history?

Almost makes me wish I were back in the academy.

comments powered by Disqus

More Comments:

Andrew D. Todd - 12/9/2006

One point you might want to deal with is wartime rationing, and peacetime food stamps. A ration coupon is a kind of money, but an extremely intricate kind. One thing you often find about rationing systems is that the often have a strong minatory and didactic content.

http://www.worldwar2exraf.co.uk/Online%20Museum/Museum%20Docs/foodration.html

http://www.nymcam.co.uk/key31c.htm

http://www.johndclare.net/wwii10_rationing_longmate.htm

http://www.google.com/search?hl=en&;lr=&q=%2B%22british+restaurant%22+%2Bwar+%2Brationing&btnG=Search

========================================================================

Angus Calder, The Peoples War: Britain 1939-45, Jonathan Cape, London, 1969

Reading Note Follows:

calder, the peoples war

This is an account of daily life in england during the war, mostly constructed as an enormous number of vignettes. Calder's argument is that most of the wartime reforms were never planned by anyone, but were simply the agregate of an infinity of individual acts of regulation or provision designed to meet particular situations.

His treatment comes under two headings. essentially: 1) response to the blitz, and 2) the needs of mobilization.

The essential consequence of the blitz was that anyone could be rendered homeless, and practically anybody could be rendered destitute by a random act.

To put it on a more explicit basis than Calder does, the distinction between the lower working class and homeless and shiftless was an extraordinarily local and particularistic thing. The best study is probably a sociological one, Family and Kinship in East London, by Michael Young and Peter Wilmot. They stress that a respectable family would live in a row house or flat obtained by the wife's mother's intercession with the estate agent who was her landlord, and the husband worked at a job obtained by his father's intercession with his employer, one of the small proprieters with which east london abounded. Add to this a cetain quantity of furnishings and you have the distinction between the two castes. All this meant that social status could be liquidated in one bombing raid.

Obviously this was intollerable, so, as a matter of pure self defence, there had to be an improvement in the treatment of the most down-and-out. This turns up in the way various schemes immediately intended to deal with problems caused by the bombing were converted to deal with more fundumental problems like poverty.

For example, when a particular borough in london's east end was obliterated by bombing, the local authorities were simply incapable of coping, so the central government had to step in, and the cumulative result of such interventions was that provision for the homeless became a responsibility of the central government, instead of the local government with its finances limited by the poverty of its area. The effect on things like the fire service was similar. Fire Brigades were amalgamated into a National Fire Service, which quite apart from its superior ability to concentrate in response to the Luftwaffe, could in peacetime deploy its resources according to fire hazard instead of ability to pay.

Returning to purely social services, the evacuation of women and especially children from london illustrates the process of transformantion. On the outbreak of war, when it was not reallized how ineffective aerial bombing really was, the government assumed that the Luftwaffe would stage an attack on the scale of tokyo or hiroshima. In view of this, the initial evacuation from london was conducted in a pell-mell fashion, with an emphasis on loading the people into the trains and getting them out in time. The result was that no particular care was taken to match evacuees to their hosts, and a considerable portion of midland suburbia recieved an unusually direct exposure to the way the other half lived, one normally experienced only welfare workers, and which must have contributed to the later labor victories. When it became apparent that the bombing would be in manageable driblets, most of the evacuees filtered back, and gradually the program changed. It came to focus more on aiding whole families to go to their own relatives elsewhere in the country. The remaining part of the evacuation program proper became more concerned with providing for war orphans and the like, gradually becoming more like a foster parent- placement agency.

For those who it turned out would be staying in the cities, bomb shelters were provided. The government produced and issued shelter kits, the first of which was the anderson shelter which could be used to create a sort of covered foxhole in one's garden. Later the Morrison Shelter was introduced, which could be used indoors, making it useable for those who did not have gardens. A Morrison Shelter was essentially a steel table with wire-mesh skirts. Insubstantial as this was, it was enough to stop flying glass, etc, and protect one from falling objects. Both shelters were efficient enough against anything except a direct hit, but they were never universal, and their social significance was even less. In a way, one might say that the Morrison Shelter was the perfection of non-interference, since the user did not even have to displace his lifestyle to the semi-public zone of his garden.

What were far more significant were the communal shelters. A communal shelter could be roofed-over trenches in a park, a subway station, the space under a bridge, or even an ordinary building, such as a church. In many cases, it was worse than useless from the point of view of objective safety. When a shelter was struck, there were hundreds of casualties. But even so, people flocked to them. In a manner familiar to the readers of S. L. A. Marshall, what they found terrifying was not so much being under fire as being alone under fire. Increasingly, some people came to practically live in the shelters (or absolutely, in the case of many who had been bombed out), so the government recognized the situation, and set about furnishing them properly. Ultimately, a shelter would become attractive enough that the poorest people prefered it to their own homes (not to mention the permanently homeless). As the bombing tapered off, and rehousing programs got under way, the bomb shelter became more and more of a homeless person's shelter. In england, this was the traditional role of the workhouse. But workhouses had traditionally been run along much the same lines as jails. The 'bomb shelters' were much less punitive, since their inmates were designated as large-scale arson victims instead of shiftless folk who wouldn't work.

Food: the practical effect of food rationing was to implement something approaching de-facto vegetarianism. Bread, potatos, and other vegetables were unrationed (as a sidenote, I should add that the conversion efficiency of most farm animals is on the order of 10%) There were significant channels of 'off-ration' meals in the form of restaurants, including the new low-priced government caffeterias, or 'British Restaurants.' The authorities were primarily concerned that the meat should be diluted in other foods, and to that end they regulated how much could be served per meal. A range of less popular animal products, such as fish, poultry, wild game, and offal were also unrationed. Official spokesmen extolled such dishes as fish and chips, which had the advantage of being produced in britain without requiring grazing land. The same principle applied to whole-meal bread. Incidentally, rationing did not nearly approach enforcing dietary equality. Even without recourse to true black-marketeers, the better classes could generally supply themselves as well as their social consciences would allow. The sense is that food rationing was not meant so much to allocate hunger, as to deal with an intensely conservative common people, who were quite capable of starving out of pure ignorance when they could not get their usual and customary foods, and could not grasp that the offered substitutes were edible, or could not successfully prepare them. The spirit of rationing was more oriented to preventing a panic, in which people might get hurt.

There were an extraordinary variety of mass-participation organizations: Home Guard, ARP, auxiliary firemen, air raid rescue, firewatchers, Women's Volunteer Service, and so on. At first these were voluntary, but they gradually merged into the labor direction-conscription system. Additionally there were salvage drives (e.g. housewares for scrap metal), and sponsorship schemes. The net effect of these was to give practically everyone a sense of being an active participant in the war.

Appropriate bodies were set up to run the war economy proper, mostly consisting of self-direction by the industry concerned. Additionally, there was a system of directing labor which eventually became more or less comprehensive. One significant aspect was that, under the ex-trade-unionist labor minister Ernest Bevin, obtaining relatively favored status within the system of priorities was often conditional upon a firm becoming a union shop, establishing full cooperation with the relevent trade union, including various forms of industrial democracy (among other things, what sounds like an early form of quality circle). The labor unions had agreed to dilution, the temporary replacement of skilled workers (generally men) with unskilled workers (women and youths). In many cases this meant reorganizing the job on a more nearly assembly line basis, but there was also an emphasis on setting up technical school courses to supply new skilled workers. The continual shortage of labor required exploring more and more unconventional sources of it, such as employing handicapped people, as well as setting up arrangements whereby women could work at home.