July 27th 2022

PA.092 | Complementarity between Exogenous Money and Endogenous Money in Global History

Parallel Sessions
14:00 - 17:30 - Recherche Sud - Room 0.019
Adam Smith remarkably depicted money as being like a road (Adam Smith, Lectures on Justice). Indeed, money creates nothing by itself, but no resource can circulate without it. However, he failed to pay attention to the variety of monies in use across the world even in his period. Extending his metaphor, we can say that roads also occur side by side in different complementary forms, and can practically work only in a combination of highways, streets, lanes and paths. Some roads may be constructed exogenously, while others may be built endogenously. Accordingly, some connections may allow direct operation, while others may require transfer. How money is organised determines much of what a society is like. Money serves as a means of exchange across the world and throughout history. However, the forms used to exchange of goods as well as services have always varied and involved credit as well as currency. Typically, there is a significant difference between the exchange among peasants doing business locally and the exchange among merchants engaging in distant trade. It is quite difficult to establish a single medium of exchange that caters to both. The former requires a large quantity of currency whose value is divisible enough to accommodate the transaction among peasants, and whose demand is significantly seasonal. On the other hand, the latter necessitates a smaller quantity of currency whose value is large enough to save on the costs of transporting, counting, and hoarding it, and whose demand is less seasonal. Whether as anonymous currency or named credit, exchanges can endogenously generate the device for mediating transactions. However, in history, people more often used currencies exogenously supplied. In the case of a state relying on a currency to collect taxes and pay expenses at the ground level, currencies had to circulate among local end users (peasants), and simultaneously had to facilitate the transmission of large values at a distance. Not only merchants but also peasants used the currencies supplied by states. States may try to regulate the relationships between currencies, but they always face the difficulty of fixing their relative value. It often happened that locals endogenously supplemented what exogenous currency failed to supply, even if it was done in an illegal manner. Importantly, the combination of exogenous money and endogenous money differs by society and the boundary between them moved according to period. Comparing the cases of East Asia, Europe, Africa and the Americas from ancient to modern era, this panel reveals how plural monies mediated multiple exchanges and why the unification of monies is not easy in spite of the reduced transaction costs that monetary unification brings.
E - Macroeconomics and Monetary Economics
Akinobu Kuroda - The University of Tokyo
Money as a value system: an interpretation of currency circuits
Masato SHIZUME - Waseda University
Inspired by Kuroda (2008a, 2008b, 2020), I propose an interpretation of the complementary relationship among monies by focusing on the nature of money as a system to express and deliver the value of things. Kuroda’s model (2020) explains the coexistence of various monies in terms of the distance and anonymity of transactions. I try to expand the model from a broader perspective by assuming that different monies express and deliver different vectors for evaluating things. When a group of people use the same money, they share one vector for evaluating things, thereby forming “a currency circuit” in Kuroda’s terminology. This type of vector can be formed by distance or anonymity, as Kuroda observes, or by other dimensions of social activity such as cultural or ritual behavior. I apply this hypothesis to cases both in pre-modern societies and contemporary societies. References: Kuroda, A. 2008a. What is the complementarity among monies? An introductory note. Financial History review 15(1): 7-15. Kuroda, A. 2008b. Concurrent but non-integrable currency circuits: Complementary relationship among monies in modern China and other regions. Financial History review 15(1): 17-36. Kuroda, A. 2020. A global history of money. Routledge.
Imperfect Substitution between Banknotes and Small Coins in Modern France
Patrice Baubeau - Universite Paris Nanterre
From 1795 to the 1860s, (chronologically) legal, extralegal and paralegal small banknotes circulated in France, without taking into account the occasional foreign small banknotes circulating on the “wrong” side of the border with Italy. Before the transformation caused by the Franco-Prussian war of 1870-1871, the objectives of these small banknotes were threefold: 1) to overcome the diversity of small coins in circulation and thus provide a better instrument for assessing value; 2) to overcome the limits imposed on the liberatiry value of small coins, in order to escape the limits imposed on payments in small coins; 3) to provide an income to the issuer of the banknote or to the trafficker in small coins. The substitution between banknotes and small coins, thus, was not “free”: on the contrary, the fact that it was imperfect opened up prospects of profit, which in turn fed the substitution process. But the supposed dangers of small banknotes also led to their increasingly strict prohibition. The purpose of this communication is to explore this loop, from imperfect small change, to imperfect banknotes linked through imperfect substitution processes.
Dynamics of complementarity between the Argentine community currencies and their acceptance by local governments in 2001-2002
Gomez Georgina - Erasmus University Rotterdam
While most modern states formally operate with one official governmental money, everyday life depends on a diversity of currencies and means of payment issued by government, communities and private actors (Kuroda 2020). Community currencies are social networks that organize their own means of payment to exchange good and services within a specific community, although they are typically open to new members. Blanc and Fare (2013) discuss the historical development of community currencies around the world and distinguished four generations in terms of their partnerships with governments in a variety of countries, regulations and time frames. However, the deep economic crisis experienced by Argentina in 1999-2002 led to a more diverse ecosystem of formal and informal relations between the communities and municipalities that illustrate the dynamics of currency complementarity. This study will enquire specifically on the acceptance and use of community currencies by municipal governments. How did local governments participate in the community currency systems? What were the implications of this participation for the public sector and for the communities that issued currencies? The presentation will ground the analysis on three cases of community currencies in middle size cities in Argentina during the crisis. The data belong to a large dataset collected over a decade as part of a larger research project, with multiple methods (Gómez, 2009, 2018). The first case is Venado Tuerto, where the municipal government decisively supported the local community currency and accepted it as payment for up to 30% of the local taxes, which subsequently triggered a social policy for low-income households. The second case is Luján, where the community currency was accepted to settle local taxes in arrears but the currency was taken out of circulation. The third case is Moreno, where the municipality supported the community currencies but eventually participated only in kind (trading the use of infrastructure and services). The findings show that the effects of municipal participation caused disruptions in the community currency circuits, and should be planned carefully in line with governmental regulations and capacities.
Spheres of exchange and the disruption of monetary uniformity in early colonial Kenya
Karin Pallaver - University of Bologna
Personal Honor Generated Local Money in Early Modern England
Craig Muldrew - University of Cambridge
Some Economic and Social Aspects of Monetary Plurality in Antebellum New Orleans, 1839-1862
Manuel Bautista-González - Columbia University
Exogenous, endogenous or both: Lessons from the Swedish monetization
Ogren Anders - Uppsala University
Monetary theory can be divided into two distinct approaches in relation to how money enters into an economy, exogenous and endogenous. The most famous debates about money in the history of monetary thought has centered around these differences, such as the real bills doctrine, the bullionist controversy etc. The former view, exogenous money, is the classical, neo classical and monetarist ideas based on money as derived from barter and the transaction costs therein. The logic is that only exogenously provided money whose supply can not be tampered with would be accepted by (instrumentally) rational agents when looking for a means of payments to solve the transaction cost issue. In our days the view on exogenous money have moved from money consisting of precious metals, to paper money guaranteed by reserves consisting of precious metals in a fractional reserve system. According to this view money is also inherently neutral in relation to economic activity and the money supply is set by external forces. The period after Bretton Woods is a puzzle that, arguably has not been solved in this strand, but in general central bank issued money is seen as taking the role of exogenous money. It is through the issuance of central bank base money that the money supply can be affected, i.e. by affecting the supply or price on money. Rule based monetary policy based on (what is argued to be) clear measurable objectives and credibility has replaced the trust in physical objects made of precious metals. The endogenous view is based on Keynesian, post-Keynesian and today the oft debated Modern Monetary Theory (MMT) theory. Also in this view money is important to save on transaction costs but more importantly is the way money enters into the economy, as credit. In short money is credit, some argue the most liquid kind of credit, but it is as credit created in relation to demand. As such the money is not neutral, it does have an issuer and the supply is not decided by external forces but by economic activity through the number of viable economic projects. Arguably empirical studies of money, as in monetary history, provides more evidence for the latter endogenous approach. Yet the exogenous approach is very strong as theoretical foundation of money and in some instances it seems inescapable as explanation for money as in the case of anonymous on the spot transactions in a frontier economy. As is evident, however, most transactions do not take place in such a setting – so the question is why such assumptions based on exogenous money are so strong in the theoretical discourse regarding money. In this presentation I discuss the explanatory power of the exogenous and endogenous approaches, I also highlight some episodes in Swedish monetary history in which both approaches seem to be present.
Dynamics Assorting Exogeneous and Endogenous Monies through Imperial Chinese History
Akinobu Kuroda - The University of Tokyo
Monetary policies by Chinese dynasties had swung between the intervention into transactions at the ground level and the laissez faire principle towards local customs. Copper coins under the Chinese empire revealed a state seriously committed to providing currency at the ground level. However, official coins were able to proliferate across the empire only in three half centuries during the two millennia: around 100 BCE under Emperor Wu of the Western Han, around 1075 under Emperor Shenzong of the Northern Song, and around 1760 under Emperor Qianlong of the Qing. In the intervals between the three great spikes of issuance, monetary demand could only be met through the accumulation of old or counterfeited coins, or otherwise had to depend on non-metal devices, such as cloth. Depending on situation, locals had no hesitation to make currencies and to establish unit of account by themselves. However, local agreements on money could not be formalized enough to bottom up the devices for mediating distant transactions which should have formed a threat against the unicity of empire.