Yesterday, I randomly stumbled across the following Adam Smith worshiper Tweet:
Like most clever looking things in economics, this is a clever lie. Not a lie that has anything to do with economics or mathematics or fancy formulas. It’s a political lie.
To understand the problem we have to start at what Adam Smith invisible hand theory said in “The Wealth of Nations”, which everyone by now should have heard about. For Adam Smith, all human relations are trade relations. Cavemen and other ancient human beings used to do barter (nowadays, you’ll hear that humans are “homo economicus”). There is no genuine non-vested human relationships for Adam Smith. Forget about friends and family. Forget about communities of settlers or nomads. Humans exist for one thing: trade! In this context, exchanges and markets are spontaneous things for they are only the expression of an “irrepressible” and natural “inclination”. Later on, as cavemen suddenly realised that barter was not very practical, they decided to invent money!
Money is therefore just a commodity like any other commodity whose sole purpose is to be a means of exchange.
If you were lead to believe in this tale which appears on the first pages on any economics schoolbook right now, you are pardoned. Sadly, this is all false. There is no such thing as a finite pool of money. Nowhere on earth, at any point, anyone has ever found a place where humans actually practiced barter.
What does exist though, and has indeed been found by anthropologists and other field researchers multiple times, is common pools of goods and free exchanges. In plenty of real life instances, historians have discovered that people lent and borrowed stuff from each other. All for free. “You need a hammer? Go and ask Bobby, he’s over there, he has one”. “You need arrows to go and hunt? Let’s build a big pile of arrows and go hunt together.” “You need a pen? Here is one, don’t forget to bring it back!” (who never had that discussion at work?).
Like in any community (I am pretty sure you never ever paid for your partner to cook dinner or do the ironing once in a while at home), people trust each other. There is no precise accounting in place. In fact you are only an “homo economicus” with people you do NOT know! People who are too remote for you to interact with and have a normal, genuine, human relationship. Where Adam Smith thought he was describing natural human interactions, the invisible hand only applies to places where there is no relationship!
In fact, trading, i.e. exchanging private stuff was, for a long time, reduced to relations with our enemies. The tradition of Potlatch, for example, which consists in giving away or destroying wealth or valuable items in order to demonstrate a leader’s wealth and power, was limited to the relationship with other (generally enemy) tribes.
One of the most famous examples that borrowing and lending was the main means of exchange in ancient times is the thousands of clay tablets left behind by the Babylonians during the Bronze and Iron Ages, whose primary and most certainly unique purpose was to keep track of who owed what to whom. What these clay tablets also showed us is that some day, the borrowing and trust system started to get more complex as humans turned sedentary and population expanded, at which point people started to interact with other people they did not really know, as they were geographically or temporarily too far from each other and therefore did not belong to the immediate circle of friends and families. They had then to take note of what they owed to whom, and both parties involved would sign some sort of contract.
Where does this leave us? Well if Peter owes 2 hens to John and John owes 2 hens to Sarah, maybe, we could forget about John and just say that Peter owes 2 hens directly to Sarah? Maybe we could write all this on tablets and if one day Sarah managed to get two hens back from Michael, she would in exchange give him the 2-hen tablet with John’s name written on it? Then they could ask someone they trust (maybe, I don’t know, the prominent religious institution in their community?) to keep those tablets safe and why not, organise their settlement. That way, Michael would be able to go to his local church and ask his two hens back instead of having to look for John indefinitely. Religious institutions have plenty of hens supplies and other riches, and offices all around the country, contrary to John who might turn out be a not very trustworthy person after all, or live very far away, or just be dead!
This, ladies and gentleman, is how money really emerged, not a myth plugged out of thin air. This is scientifically-researched reality. Now you can say it: money has got nothing to do with a fixed commodity. Money is 100% trust. It can be tablets or pieces of paper, or whatever you want. It can also be gold, why not! At the end, money is just one thing: debt. And by the way, contrary to what most economists would have you believe, this debt is not meant to be repaid, for it is the counterparty of constant, real-life exchanges of goods. It can only be repaid — for example through austerity plans — once there is no more trade, i.e. when no one wants or needs to exchange anything with anyone else. A dead world!
So why is the idea of gold-as-real-money so attractive to liberal economists? Well, if you start saying that money is nothing more than the materialisation in real life of (political) trust between human beings, it instantly loses its shine. It’s not mysterious or special anymore, and not something that only powerful or rich people can have. It’s actually deeply rooted in day-to-day human relationships, with its ups and downs, and in negotiations. An apparently powerful technocrat who comes knocking at your door and demands that you repay what you owe him on the spot, because “there is objectively no more money” (or whatever the excuse) might just be bullshitting you, as far as you know! He might look powerful and all, but money is not finite and any debt amounts is just, at the end of the day, an intricate relationship, i.e. a political struggle, a fight for power. Marxists would even call it class conflict (which they did, momentarily, without really attacking the invisible hand myth head on).
You can think about it this way: in a world where money is limited to a fixed pool, uprisings, revolutions, elections, democracy, none of this matters as, once you have borrowed from someone, your financial fate is mathematically sealed — hence the crucial importance of the mathematical veneer (I was going to say bullshit) in liberal and neo-liberal schoolbooks. Once you are in debt to JP Morgan and his mates, there is no other way but pay them back, even if that means entire populations have to starve to death. It’s just a question of numbers, guys, sorry! Which is why in the whole liberalism ideology (and mythology), gold is so convenient: there is just a finite amount of it on earth, hence constraining the total amount of money. As a side note, when President Nixon relaxed the gold standard, liberals actually embraced the new regime of fiat paper money but demanded in exchange total and absolute independence of central banks from political power, i.e. elections.
But how did gold appear as money then? Surely if governments could create money at will, they would not have bothered with gold, which they cannot print! To counter that, you have to know when gold-as-money really emerged in history. We know that for the imaginative Adam Smith, it was used because it was so much practical than barter. Since barter never existed, how did it happen in the real world? Why would faraway peoples and tribesmen use it as tender? Well after being invaded, raped and disposed, those peoples were also forced to pay taxes (which would in turn pay for the foreign forces occupying their country). That’s where it gets clever. Kings thought that instead of having to collect these taxes in kind, like they had been for millennia before (salt, crops, livestock etc.), they could ask them to pay in something that only the occupying soldiers would possess. The consensus among historians and anthropologists is that as religious entities and governments where long gold, it was an efficient sign of prestige and credibility which could impress conquered peoples and local tribes, especially if it had the face of a powerful figure engraved on it, that could pass for a solid proof of debt. That idea killed two birds with one stone: to get those gold bits, local populations would be forced to abandon subsistence agriculture and embrace trade with the occupying soldiers (sell them stuff). In turn, that would alleviate the kings from having to maintain infinitely long supply lines to their colonial armies, a rather heavy financial burden. Bingo! Trade was born.
This exposes a central hallucination of the liberal economist mantra: trade did not appear spontaneously among faraway tribesmen, anywhere. It was imposed from the top by conqueror kings and their (armed) taxmen. Quite ironic that the crux of a so-called “liberal” theory was actually the result of a central state militaristic violence instead of a natural and painless phenomenon, don’t you find?
Money did not emerge because barter was not practical. If barter had been practical, why would it emerge in the first place anyway? Money emerged through 2 mechanisms: political violence and hegemonic prestige. This has been established by scientists for at least 120 years, in a theory called chartalism. Yes, I know, you probably never heard about chartalism, and yet this is the only known reality-grounded theory that explains money apart from the imagined liberal tales. Not even my auto-corrector knows the word chartalism, it is THAT sad. Plenty of authors talk about it: Knapp, Graeber, Mitchell-Innes, Keynes (before he dropped it and sticked to Adam Smith hallucinations) and plenty of others.
Adam lived in a time where peer-reviewed science did not exist. He was what we now call a “logical positivist” i.e. someone who thought that if something sounded logical, it was most likely true. Like we know today, his barter and invisible hand ideas were invented from scratch, merely while gazing outside his window from the comfort of his leather seat, and as a result, is as remote to historical and anthropological reality than say, astrology is from astronomy.
People like JP Morgan who still today pretend that money is real and has therefore to be gold are just liars who, like all powerful hegemons, use their position to impose their narrative to the political arena, a clever process which in turn protects their dominant position. Whoever controls the narrative controls power. Humans love a good story and Adam Smith original barter myth stuck. Today, and although it was debunked many times over in many disciplines (notably mathematics, history, anthropology), the invisible hand and the theory of money that comes with it, appear like what it has always been: a belief. A worship. A religion of modern times, taught in economics lessons at schools. In fact, by judging from the credulous comments below the Tweet I quoted, we can safely say that this is official religion, widely accepted and spread among its ignorant worshipers.
And you thought we were not governed by religious zealots.