8. General Theory of Seigniorage

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“Niemals aber werden diese Stücke Geld (currency—JR), weil der Staat es befiehlt; denn nur die Übung der am Tauschverkehr Beteiligten vermag Geld zu schaffen” (von Mises 1924, p. 35).

There is an interesting stream of literature on the construction of the monetary order within the twentieth century socialist writings. The debate started with Hilferding and Kautsky in 1912. The debate began after the publication of Hilferding’s Das Finanzkapital (1973; first edition in 1910). Hilferding, who continued Marx’s work, supposed that money has to be supplied by the government. This led to a debate regarding the nature and organization of money between him and Kautsky (see Kautsky 1912, Gold, Papier und Ware). The debate continued until the end of the Soviet Union; Hilferding found support from Atlas and Varga [Atlas (1953) Theorie des Sowjetgeldes and Varga (1957) Das Geld im Sozialismus]; their opponents were Kronrod (1963, Das Geld in der sozialistischen Gesellschaft) and others. An overview is to be found in Koziolek (1989) Aktuelle theoretische Fragen zum Wesen und zur aktiven Rolle des Geldes in der sozialistischen Planwirtschaft.

For the difference see Chap. 1.

All analysis has to consider whether the monetary system under investigation is one in which the legal tender (and therefore the unit of account) is the national currency and vice versa and where this is not the case. Eucken (1959, p. 115) argued there were in principle two forms of economies which had to be distinguished. First, a modern monetary economy in which a unit of account exists, thus a modern monetary economy is one in which a common measure of value exists which makes goods, services, and liabilities commensurable. Second, a monetary economy in which no unit of account exists, even though money may exist and circulate. It is our working hypothesis here that such a unit of account exists and that the national currency provides this anchor. Anthropologists, for example, mostly focus on societies in which there is no such generally acceptable means of payment which additionally supplies the unit of account. The distinction between these “two” forms of monetary systems, thus one in which a unit of account exists, i.e., a monetary economy, and one in which no unit of account exists, i.e., a barter economy, is sometime not emphasized as much as is necessary (see Graeber 2011).

Throughout the book a modern monetary system is assumed to exist and to be based on a common unit of account: (in western economies) the national currency.

The institutional nature of money was vigorously debated among economists in previous centuries. The historical evolution of money was quite a controversial issue. Some economists highlighted the development of money from commodities, some from debt relations, and others saw its origin in national currency regimes. This debate will not be dealt with here.

“People are often reproached because their desires are directed mainly to money and they are fonder of it than of anything else. Yet it is natural and even inevitable for them to love that which, as an untiring Proteus, is ready at any moment to convert itself into the particular object of our fickle desires and manifold needs. Thus every other blessing can satisfy only one desire and one need; for instance, food is good only to the hungry, wine only for the healthy, medicine for the sick, a fur coat for winter, women for youth, and so on. Consequently, all these are only [...] relatively good. Money alone is the absolutely good thing because it meets not merely one need in concreto, but needs generally in abstracto” (Schopenhauer 1850 [2000], p. 347).

“Käuflich sind nur gewisse Dinge, ob Güterleistungen, Rechte, Ansprüche oder Chancen. Der Kreis dieser käuflichen Dinge ist anfänglich sehr klein. Er erweitert sich jedoch mit der wirtschaftlichen und sozialen Entwicklung immer mehr. Umfang und Inhalt dieses Kreises bestimmen die objektive Kaufmacht des Geldes. Man kann sie als die Kaufbreite des Geldes bezeichnen” (Gerloff 1952, p. 195).

“Das Geld ist kaufmächtig nur in der Hand bestimmter Personen; anders ausgedrückt: die Kaufmacht des Geldes ist subjektiv beschränkt. Die durch Gesetz, Herkommen, Sitte usw. begründete Extrakommerzialität schließt Erwerb und Veräußerung der betreffenden Güter legalerweise für jedermann—für physische und juristische Personen—aus. Sehr häufig ist es jedoch, daß Geldbesitz und Geldverwendung gewissen Personen vorbehalten sind und nur diesen zustehen. Vom Gelde her gesehen—wobei wir uns bewußt sind, daß dies ein durchaus einseitiger Gesichtspunkt ist—bedeutet das eine subjektive Beschränkung der Kaufmacht des Geldes oder der Kaufweite des Geldes. Eine subjektive Beschränkung der Kaufmacht des Geldes ist also dann gegeben, wenn die Ausübung der Kaufmacht nicht allein an die Verfügung über Geld, sondern an subjektive Voraussetzungen gebunden ist. Diese können sein Rang, Stand, Klassenzugehörigkeit, Einkommenskategorie oder eine sonstwie bedingte Bezugsberechtigung. Aus was für Gründen immer auch solche Bestimmungen getroffen und durchgeführt werden, die mehr oder weniger weitgehende Begrenzung des Kreises der Kaufbefugten durch sie kann ihre Wirkung auf das Geld und den Geldgebrauch nicht verfehlen” (Gerloff 1952, p. 196).

Despite the distortions caused by the unit of account, liquidity may prove to be a relatively unreliable index. Empirical estimations of liquidity depend on marginal purchases and sales. These marginal trades may be a bad estimator. Current accounts, for example, can be exchanged at no cost and high speed. Every bank client faces limits in transferring or withdrawing his current account balances. Until this limit is reached current accounts are perfectly liquid, and beyond the limit, they are perfectly illiquid. They can neither be withdrawn nor transferred at this point in time. Even if these upper limits are ignored, the liquidity of current accounts depends on the solvency of the bank. As long as the bank is solvent, the accounts are perfectly liquid, and if the bank becomes illiquid, current accounts do so as well. Thus even if liquidity is understood as a gradual quantities index, it may prove to be discontinuous or conditional on certain other circumstances.