It would be helpful if we could begin our examination with a definition of money. But immediately we are faced with several obstacles. Economists seem to agree that the working definitions of money are arbitrary. Furthermore, there are several different kinds, ranging from coins in the pocket to entries in a ledger. Finally, since this examination is partly historical, a modern definition, including forms of credit which came into existence in the 1930s, will not be useful until later. Therefore our definition must evolve along with our discussion.
In the nineteenth century money was commonly regarded as a means of accumulating energy. This was accepted by both capitalist and communist, Mill and Marx. Brooks Adams began with it in The Law of Civilization and Decay in 1896:
Whenever a race is so richly endowed with the energetic material that it does not expend all its energy in the daily struggle for life, the surplus may be stored in the shape of wealth; and this stock of stored energy maybe transferred from community to community, either ‘by conquest, or by superiority in economic competition.1
As Pound so often emphasized, false definitions lead to the corruption of the state. Money as energy is a confusion of symbol and substance. Even as metaphor, money is imprecise. A wound-up spring or a charged battery is a true store of energy; but metal under stress fatigues, a battery goes flat. In Western society the materials chosen as “accumulators” of wealth are those which are atomically the most static, i.e., precious metals and minerals. In nature the only metals which are energetic sources, such as uranium, dissipate their energy.a (Perhaps, in an entropic society, the latter would be a more appropriate basis for currency, being both unstable and dangerous.)
Gold and silver were the favoured mediums, not only for their stability, but also for their rarity. In a scarce economy, it was appropriate to symbolize “stored energy” by a commodity which was in short supply. Unfortunately, once the symbolism was established, it took precedence over the goods and services which it represented.b
Economies of scarcity, of course, were prevalent in the nineteenth century. Their model was a closed, impoverished system, such as the Galapagos Islands, where Darwin gathered much of his evidence. It is arguable that the economic conditions of existence determined the structures of art and science, rather than the other way around.c
In the Money Pamphlets Pound commented on this blind spot in Brooks Adams:
. . .not even Adams himself seems to have realized that he fell for the nineteenth-century metaphysic with regard to [money]. . . [H]e slides into the concept, shared by Hill and Marx, of money as an accumulator of energy.2
But if money is not an “accumulator of energy”, what is it? Here we can begin our definition, starting with Pound. He calls it “A MEASURED TITLE OR CLAIM”.3 This, we will discover, is intended as a description of the ideal rather than the actual, since speculation depends on the “measure” being subject to manipulation, i.e. a controlled dissociation between symbol and reality. “Hell,” says Pound’s hypothetical broker, “I don’t want a still market, I couldn’t make any money.”4
If we have not distinguished between money and credit, it is because the distinction is more technical than real. Says Bazelon,
. . . cash is paper immediately and universally exchangeable, also called currency: currency is a contract right currently accepted; and all such contract rights are based on credit of one kind or another . . . Therefore money is credit.5
Pound makes the distinction by calling credit “the future tense of money”.6 But since money is the future tense of unspecified goods and services, the distinction blurs. Henceforth, for the purpose of our discussion, money and credit may be assumed to be interchangeable, unless otherwise specified.
To continue where we left off:
. . . money is credit. And credit is based on reputation. So money is a function of reputation. And everybody knows what reputation is. Reputation, as a matter of fact, is what everybody knows about somebody.7
But reputation is relative, and so a line of retreat must be established:
The modern Keynesian economists and marginal-utility fellows talk about “liquidity preference”. What they refer to is the length of time it will take, and the success that can be expected, in exchanging a particular kind of paper for cash. You venture away from cash in order to earn money on money, but you are ever aware of the line of retreat. . . How far forward you go depends on the state of your “confidence”—so this is one of the biggest words in the vocabulary of business.8
In other words, under our Western economic system, productive activity is backed by a sort of guerrilla warfare which is waged from a safe encampment (e.g., gold). Large or small raiding parties are sent out after “scouts” (investment counselors, etc.) have surveyed the terrain and determined in what directions and how far it is safe to manoeuver; but a line of retreat is always maintained, in case the intelligence proves faulty.
But our guerillas are united only in so far as is necessary for mutual self-defense. Within their ranks there is a constant struggle for supremacy among the officers, so they must guard themselves, not only against the enemy (i.e. the public), but against each other as well.
Our genuine economic progress, the improvement in our standard of living, when and where it has occurred, has been largely a by-product of this insane internecine warfare, just as most of our useful technology has derived from advances in weaponry. And most economists have occupied themselves with drawing up battle plans for the participants, instead of exploring ways in which this energy potential could be more usefully employed.
But this band of merchants and bankers is not only an army: it is also a priesthood. Religious and economic systems alike are based on confidence, which rests in turn on unexamined premises. Both God and Gold must be taken on faith.d
Not much is known about the precise origins of money/credit. Brooks Adams devotes very little attention to the question; he is much more interested in how, having come into being, it took over the reins of power. As Robert Heilbroner succinctly puts it: “In premarket societies, wealth tended to follow power; not until the market society would power tend to follow wealth.”9
Since money is based on confidence, anything which is generally accepted as money is money, but in the West, as we have noted, it has usually taken the form of metallic coin. This is the first stage in the abstraction of value, since the coin’s intrinsic usefulness is less than its conventional worth. Like a magic talisman, such as a saint’s relic, it is endowed with a special power.
So long as the volume of trade and the volume of precious metal are relatively congruent, the system functions relatively well. But as soon as trade expands, there are problems. Either the coinage is debased, which tends to escalate out of control, or confidence must pass to a second level of abstraction. “Gold today” (money) must be supplemented by “gold tomorrow” (credit). Then, as confidence expands, the liability of one man may be accepted as the asset of another, at which point the basic elements are present for the establishment of a banking system.
One logical place for this process to begin was with the medieval goldsmiths. Since they knew how to evaluate its purity and could also be trusted, surplus gold was often left with them for safekeeping.e
The power of the money-lenders rose at the expense of the power of the church; much of The Law of Civilization and Decay is taken up with explaining how this came about. But in the Middle Ages the lines were not so easily drawn. Security lay in defense:10 therefore the most secure repositories were the places that were best defended. Among these were the monasteries, and so absent lords frequently left their treasures there for safekeeping. Having assumed part of the function of banks, the abbots found it difficult to avoid the rest, especially in time of famine when loans were often needed to feed the starving serfs. Some loaned from charity, others for profit. Four times during the eighth century church councils forbade the clergy to lend money at interest, apparently to little effect.11
Credit took a great leap forward with the growth of trade in the 12th and 13th centuries, as Brooks Adams explains :
Such an expansion of trade would have been impossible without a corresponding expansion of the currency, and as no new mines were discovered, recourse was had to paper. By the year 1200 bills of exchange had been introduced, and in order to give the bill of exchange its greatest circulating power, a system of banking was created which operated as a universal clearing house, and by means of which these bills were balanced against each other.12
It is fascinating to observe how much of the mechanism of modern banking had evolved by this time:
. . . a coinage of recognized value had to be provided, and this the banks undertook to supply by their system of deposits. They received coin fresh from the mints, for which they gave credits, and these credits or notes were negotiable, and were always to be bought in the market. The deposits themselves were seldom withdrawn, as they bore a premium over common currency, which they lost when put in circulation, and they were accordingly only transferred on the books of the corporations, to correspond with the sales of the notes which represented them. Thus merchants from all parts of Europe and the Levant could draw on Venice or Genoa, and have their balances settled by transfers of deposits at the banks, without the intervention of coin. A calculation has been made that, by this means, the effective power of the currency was multiplied tenfold. 13
To summarize: “All you have to do to become a banker is to go into debt!” 14
So far we have been discussing money more or less from the perspective of orthodox economics, which rests on the supposition that one is dealing with impersonal forces acting and reacting within a universe of Newtonian equilibrium.15(As the economy stabilizes, the dog-eat-dog rapaciousness of the nineteenth century goes quietly underground.) But the world of economics is not the Garden of Eden without the snake. Pound, as usual, goes straight to the heart of the matter:
Set up a perfect and just money system and in three days rascals, the bastards with mercantilist and monopolist mentality, will start thinking up some wheeze to cheat the people.16
The next chapter will deal with Adams’ and Pound’s discovery of the ways in which the “rascals” operated.
a Pound said much the same thing, taking his analogy from biology rather than physics: “Metal is durable, but it does not reproduce itself.”(Pound, Gold and Work, p.12)
b The dictatorship of the metaphor still permeates literature as well as economics, as Alain Robbe-Grillet demonstrated in Nature, Humanism and Tragedy.
c The “invisible environment” is only now becoming understood, indicating that the centres of control may be passing to other spheres of which we are not yet aware.
d The student of literature should not find this difficult to understand. Art is also based on reputation: stocks go up and down, authors rise and fall. If contemporary literature is difficult to place in the traditional hierarchies, there is always Shakespeare. A dead author is always safer than a live one, since he can do nothing to damage his reputation. A minor book by a major author will usually receive more attention than a major book by a minor author. It is safer to trust the experts than to rely on your own judgement. The parallel was obvious to Pound, who railed against the debasement of the currency wherever it occurred. “A man standing by his word” did not fluctuate with the market.
e Pound knew about this at first-hand, not just from the history books. His father was an assayer for the U.S. Mint at Philadelphia and frequently had to inform “aspirants to fortune” that their gold bricks were adulterated. (Pound, Pavannes and Divigations, p.46ff)
1 Adams, The Law of Civilization and Decay, pp.ix-x
2 Pound, Gold and Work, p.8
3 _____, What is money for?, p.3
4 _____, An Introduction to the Economic Nature of the United States, p.8
5 Bazelon, The Paper Economy, p.75
6 Pound, Gold…, p.11
7 Bazelon, Op. cit., pp.74-5
9 Heilbroner, The Economic Problem, p.32
10 Adams, Op. cit., p.79
11 Heilbroner, The Quest for Wealth, p.74
12 Adams, Op. cit., p.167
14 Bazelon, Op. cit., p.84
15 Hofstadter, Social Darwinism in American Thought, p.145
16 Pound, What is Money For?, p.10