On Money and Defining Things

There is a technical point that I left out of my last post.

Smit et al seek to identify the feature of money that makes it money. They reject its function as a unit of account and a store of value as being “important empirical facts about money, but not constitutive or individuating.” (330)

What does “constitutive or individuating” mean here? When Smit et al rule out a certain function as being constitutive of money, they show either that something could function in that way and still not be money or that something could be money and yet not function in that way. And when they settle on a definition, it is of the form: “x is money if and only if Fx”. It appears, then, they they regard the form of that definition to ensure that the property F is constitutive or individuating. They rule out candidates for F on the grounds that they cannot be placed in such a statement yielding truth.

But this is far from adequate. Many expressions, describing features of money, could be substituted for F in that statement. Are they all “constitutive or individuating” features of money?

Suppose it happened, as a matter of historical contingency, that everything we rightly call “money” traced its history back to some original institution (this is highly doubtful, but suppose it were true). Then “traces its history back to the original institution” could be substituted for F in Smit et al’s definition of money. But it does not seem constitutive or individuating; history could have worked out differently so that money was invented independently in different places and at different times.

We could avoid this problem by attaching a modal operator to Smit et al’s definition. Then we have: [](Mx <-> Fx). Is that enough?

I don’t believe so. What Smit et al are (sans phrase) enquiring after, I believe, is the essence of money. And I agree with Kit Fine, that “the notion of essence which is of central importance to the metaphysics of identity is not to be understood in modal terms or even to be regarded as extensionally equivalent to a modal notion.”

Assuming that what we are looking for is a constitutive property, and that “constitutive” is not just a synonym for “coextensive”, then on the modalised account we still get false positives. Something is money if and only if Midas would love it. Or perhaps something is money if and only if it is easy to confuse with near-money substitutes. Or if and only if it is the root of all evil, or it and a fool are soon parted, etc. These properties, perhaps, can be substituted for F, preserving the truth of the definition. But they are coextensive with the property of being money, not constitutive of it.

If I were to locate the flaw of Smit et al’s test, it would be in its symmetry: [](Mx <-> Fx) trivially entails [](Fx <-> Mx). To me there is something wrong with saying that while being a medium of exchange is constitutive of being money, being money is also constitutive of being a medium of exchange. I have no argument for this, but maybe I can provoke agreement with the following consideration. The sense of “constitute” in use here seems to match D in the Lewis and Short entry for “constituere“: “to fix, appoint something (for or to something), to settle, agree upon, define, determine.” This suggests asymmetry: x’s possession or non-possession of F decides the case about whether x qualifies as M; x’s possession or non-possession of F cannot then hang on whether x qualifies as M.

To say what constitutes something’s being money, I propose, is to give the essence of money. If the essence of M consists in being F, then the converse does not hold, even though it might well be that anything that is M must also be F and vice-versa. Essence is thus hyperintentional (no, not “hyperintensional” – see Geach, Reference and Generality, 157n.)

But this means we can’t decide on essence by the tried-and-true analytic method of looking for obviously false counterexamples. There are many functions associated with being money, perhaps exclusively associated with it. These are merely coextensive not essential or constitutive. What makes an institution money is a purpose, not necessarily represented in the minds of agents (few purposes are), but embodied in the institution. I gloss “embodied” as: coinciding as both the formal and the final cause of the institution – acting as its “primary cause” (Arist. Metaphys. 983a26). Looking for this is something that would have come naturally to most philosophers before the twentieth century. We postlapsarians will have to do our best.

But Is It Money?

chrismartenson_chapter6_whatismoneyThanks to Mike Otsuka for pointing me towards a new article by Smit, Buekens, and Du Plessis in the Journal of Institutional Economics, which addresses the vexed question what is money?

Here is the first part of the abstract:

What does being money consist in? We argue that something is money if, and only if, it is typically acquired in order to realise the reduction in transaction costs that accrues in virtue of agents coordinating on acquiring the same thing when deciding what thing to acquire in order to exchange.

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Descartes on the Syllogism

2000px-square_of_opposition_set_diagrams-svgDescartes made several criticisms of the syllogism. In the Discourse on Method, he remarks that “syllogisms … are of less use for learning things than for explaining to others the things one already knows”. This might lead us to think that Descartes’s main criticism is that syllogisms are non-ampliative. This is the general line pushed by Stephen Gaukroger in his Cartesian Logic. But arguably it presents Descartes as falling into ignoratio elenchi (“of all the fallacies, that which has the widest range”, as De Morgan claimed – Formal Logic, p.260).

No doubt the role of the syllogism was conceived variously by philosophers of Descartes’s time. Many regarded it as a purely didactic device. But it does not follow from the fact that it is non-ampliative that it must be constrained to that role. The power of non-ampliative knowledge can also be harnessed in a decision method. And Descartes, after all, was happy to use such knowledge for such a purpose. His own method of drawing out the consequences of innate ideas by intellectual intuition, in order to decide what is known for certain, seems a paradigm case of such an application. Nothing appears in the consequent that is not contained in the innate idea serving as antecedent. We might try to soften the non-ampliativity by saying that the consequent is only implicitly contained in the antecedent, but I don’t see why we can’t place the same qualification onto the claim that the consequent of a syllogism is contained in its antecedent.

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Inevitable Brexit Post

I am a citizen of Portugal. My mother is from Macau and was born there when it was still under Portuguese control. She went through the long and difficult process of claiming her Portuguese citizenship so that I could have it through legacy. This allows me to live and work in the UK without having to apply for visas every few years (my other passport is Australian).

The process of gaining Portuguese citizenship was long, arduous, and expensive. But the Portuguese government treated us ex-colonials with respect and dignity. It was worlds apart from the way I was treated by the UK Border Agency when I tried to apply for visas as an Australian.

The UKBA treats applicants like criminals. It makes it impossible to speak with anyone in the system. The forms warn that any attempts to contact the agency will not be successful but will result in delays to the processing of your application. The agency is fortified within a labyrinth of Kafkaesque runarounds. It charges outrageous fees. The process of bringing in dependents or applying for spousal visas requires submission to humiliating and invasive examinations.

The UKBA also rejects every application it possibly can by creative interpretation of the laws. A friend of mine had his application rejected because his pen mark went too far outside one of the boxes he ticked. One of mine was rejected because I included the wrong page on one of twenty bank statements I had to send with the application. When your application is rejected, you are told that you have 28 days to leave the country. You are not told that you are allowed to appeal the decision and provide the right documentation (or send another form with all the ticks exactly the correct size). I had to ring a lawyer to find this out. The UKBA also warns that the appeal process can take months. You are not informed that you cannot be deported while the appeal is pending – again, I needed a lawyer to tell me this.

When I had sent in the correct page on my bank statement, my application was eventually accepted after appeal. But from that point onwards, I could never cross the UK border without being made to wait while an agent investigated my sordid past of illegal immigration. I must say that every agent apologised to me after finding out the truth but told me that they are obliged to investigate any visa that has a ‘flag’ on it.

Strangely enough, I still have this problem when entering the UK on my Portuguese passport, since the UKBA has linked together my EU passport with my Australian one. I am told this is (was!) in direct contravention of its treaty obligations to the EU, but that is a different story.

My immigration story is incredibly benign compared with others I have heard. I have heard of people being detained, deported, and fined for the most absurd imaginable reasons. I have heard of children being separated from their families. I have heard worse than that.

Immigration was a core issue in the EU Referendum, possibly the deciding issue. Intelligent people have argued that one advantage of leaving the EU is that Britain will be able to pick and choose its immigrants rather than having them forced upon it. My friend Neil Wilson has made this argument eloquently.

Neil claims that “every other advanced civilised nation on earth, outside the EU” runs a points-based system of selective immigration. I respectfully disagree. Face down the Australian Department of Immigration or the US Department of Homeland Security and tell me if you see evidence of civilisation.

I see a process that is deliberately made as expensive and dehumanising as possible. At times I barely managed it, and I am well off and a native speaker of English, with friends in high places. I cannot imagine what it would be like for somebody less privileged.

Do I believe in open borders? No. I believe, as Michael Dummett argued (please read his book), that just as anyone prosecuted for a crime should be treated as innocent until proven guilty, anyone seeking to migrate to a nation should be treated as legitimate until proven otherwise. We should not be treated as criminals trying to prove our innocence.

Now let me explain one reason why I voted for Britain to remain in the EU. The inhumanity of the UKBA and its counterparts in other nations did not emerge out of nothing. Such procedures are brought in on a wave of popular support, among native populations that always will harbour resentment against immigrants – including the ‘good’ (high point-scoring) sort of immigrants: fancypantses like me with higher degrees, often mixed ethnicity, middle-class jobs, and the requisite impressive bank balance. This popular resentment will always be a rich seam from which votes can be mined. The television stations make documentaries about heavily armed border guards chasing foreigners around, and the native populations squeal with delight. When one nation does it to the immigrants of another nation, that nation retaliates in kind. An accelerating arms race of nastiness between the UKBA and the Australian Department of Immigration has got us to where we are today. Immigrants become cannon fodder in a battle of national egos.

There is one and only one way to escape this vicious cycle. It is for nations to give up their sovereignty over immigration and enter into mutually binding international agreements, overseen by transnational bodies not subject to the ugly identity politics from which no national government can escape on its own. Nations must compromise on core principles of immigration to which they can all agree. The EU’s Free Movement of People might not have been the right principle, and I personally disagreed with its approach to non-EU migrants. But that is a matter that should have been argued within the EU Parliament or, in the ideal case, a Parliament of all the stakeholder nations.

Neil argues that: “People want nations for the same reason they want family and not just friends. People like their friends but want to live with their family – behind their own front door. Demonising nations is like demonising family, and needs to stop.

I strongly repudiate the analogy. We all struggle to get on with our families at times, but if you’re lucky enough to have a good family you know they’ll always be there for you when you need them most. Nations are not like this. The ex-industrial regions of England needed the more affluent regions to support them during the 1980s. Instead they got Thatcher telling them they weren’t getting their grubby hands anywhere near the family jewels, to wild popular acclaim. The resentment builds to boiling point, and the only escape valve for it blows straight through the hearts of immigrants and their families. That is what we have just seen. I’m sorry for being unoriginal, but it is true.

Thoughts on Direct Democracy

I don’t like bureaucrats in Brussels making decisions that affect my life.

For that matter, I don’t like Westminster MPs making decisions that affect my life.

But you know who I really, REALLY don’t want making decisions that affect my life?

The general public of Britain and the Commonwealth nations.

Some explanation on my last post

I was extremely surprised and touched by the supportive responses I had on my previous post where I declared my intention not to blog about economics anymore.

I had no idea how many people took an interest in my blog. I was also flattered by having very intelligent people write to tell me that my contributions are valued. Some even asked me if I was doing ok. I am moved by all this show of support.

I suppose what has happened is that I feel that I’ve run up against a problem I don’t know how to solve.

When I met Warren Mosler, I noticed how often he uses the phrase “the public purpose”. I think it’s a very good phrase – John Kenneth Galbraith’s Economics and the Public Purpose is likewise a very good book. But to use it opens up some deep philosophical questions. I have every intention of continuing to think and write about these questions. But I no longer think (if I ever thought it) that economics is the right way to approach them.

The questions are: What is the public purpose? Who gets to decide what it is? And what institutions are required to serve it?

It is good to make logical arguments in favour of certain answers to these questions. But they’re for everyone to think about, not for me to pontificate upon. Speaking to people in Britain has revealed to me that I just don’t know what people want.

Almost everybody here in the UK complains about greedy, corrupt bankers. Mosler has a very simple policy outline: give banks a list of what they can do – what serves the public purpose – and ban them from doing anything else. Ban them from taking financial assets as collateral, from selling debt to third parties, and other things that are not in the public purpose. Yet this direct and simple solution has zero uptake in the UK. Nobody writes about it in the newspapers. I haven’t heard a single politician even mention it. And activist organisations specifically focussed on banking reform, such as Positive Money UK, are fixated on far more radical solutions that seem aimed at centralising and consolidating the power of banking interests rather than regulating it.

Again, almost everybody here says they want people off welfare and into work and that they want better public services. There is obviously a very simple way of solving both problems at once: offer public sector jobs to anyone currently on welfare who would rather work for a living wage. Again, zero uptake in the UK. Instead, a growing number of people support the idea of a universal basic income. So almost the whole population thinks that one problem for the UK is too many people on welfare and too few people in work, and then half of them think the solution is just to take away the welfare while the other half think it’s to give welfare to everybody. Almost nobody thinks the solution is to offer work to the people on welfare. I just don’t get it.

Neil Wilson suggested to me that maybe it’s politics rather than economics that I don’t understand. I think it’s deeper than that: I just don’t understand the British public. They say they want a banking system that doesn’t just serve the greed of the few. Ok, here’s how to make banking work in the interests of the many instead. No interest. They say they want people to have the chance to work rather than living on government handouts. Ok, here’s how to effect that change simply and straightforwardly. No interest.

I know what I think the public purpose should be. But I have no idea what people in general think it is. And clearly I can’t take what they say they think it is at face value, since they completely ignore the most obvious policies for bringing that about.

To explain my previous point about MMT: I don’t think the problem is that people don’t understand how government spending works. The two policies above don’t even seem like they’d be particularly costly – not in comparison with the status quo. So it’s not that people think they would like these things but believe them to be unaffordable (look at the number of people that support universal basic income). The problem is much deeper and weirder. Are the policies too good – too effective at serving what the public declares to be the public purpose? Are the British worried they might not have enough to complain about if such things are implemented? I just don’t know.

Until I work this out, I don’t know how to contribute anymore. Any help is greatly appreciated.

Apologising to Simon Wren-Lewis and Nick Rowe

This is probably going to be my last post on the philosophy of economics. Some recent events have led me to reassess my priorities.

I’m not abandoning politics or economics. I would just rather use this blog to write about the history of logic, and philosophy more generally. That fits my title better anyway. I’ve also come to the unwelcome conclusion that I’m quite bad at economics, whereas I have to hope that I’m not a terrible historian of philosophy.

What I’d like to do here is concede how much I now think I was wrong about and how much Simon Wren-Lewis was right about. A lot of this also applies to Nick Rowe, who has also been kind enough to engage with me over the last year or so.

First, I think that Wren-Lewis was probably largely right about MMT. His complaints were directed against the hard core of MMT supporters online, not the actual developers of the theory. He had two complaints:

  1. MMT seems obsessed with the accounting detail of government transactions
  2. This seemed to lead to ideas that I thought were standard bits of macroeconomics

Now I think both complaints are quite fair, again if applied to the MMT fan base online rather than to Mosler, Kelton, Wray, Mitchell, Tcherneva, and the rest of the proper MMT theorists. In the blogosphere, I would add that they don’t apply to people like Eric Tymoigne, Brian Romanchuk, and Neil Wilson.

Let me say something, however, about “standard bits of macroeconomics”. Wren-Lewis later pointed out that he is writing about “a world where monetary policy did successfully control demand and inflation”. That is the world of mainstream macro. And he is absolutely right that in that world – given that premise – all the accounting details in the world don’t show his story to be deficient in any way.

In that world, fiscal policy is neither needed nor effective as a macroeconomic stabilisation tool. It is not needed, since by definition demand is managed by monetary policy. And it is not effective, since monetary policy will just adjust to counteract any effects of fiscal policy on demand and inflation that diverge from its targets.

The logic here is faultless. But I, like many others, fell into the trap of trying to pick holes in it by way of facts about accounting. The truth is, if there is a problem with what Wren-Lewis says, it is not with the internal logic of his model; it is with its applicability to the real world.

What Wren-Lewis didn’t know about MMT, and couldn’t have known given the typical comments on his blog, is that it takes for granted a belief (implicitly founded I think on Post-Keynesian microeconomic theory) that interest rates just don’t work the way that they’re assumed to work in standard economics. This was then pointed out to him; he acknowledged it and then implied that it seems to be belied by the empirical evidence.

Again, the proper MMT reply here is subtle. The point is that even if monetary policy does work in the way presumed, it can have terrible unforeseen consequences. Another part of MMT that Wren-Lewis couldn’t possibly have seen (because nobody showed it to him) is its dependence on a Minksyan theory of financial instability: if loose monetary policy works to increase demand, for instance, it also increases instability in the financial markets, because those markets are inherently unstable. Randall Wray’s recent book on Minsky makes this case with admirable clarity.

The proper answer to Wren-Lewis, then, is that he should not be writing about a world in which monetary policy succeeds in controlling demand and inflation. Even if monetary policy is able to do that, the cost is too high: it sets up the conditions for financial collapse. But proving this requires an awful lot of Minskyan and Post-Keynesian theory, about how market signalling doesn’t work in the way assumed, about how people are not rational in the textbook sense, about how prices are largely set through convention rather than through competitive pressure, and so on. In other words, digging below the macro and into the micro is the only way to prove the case against mainstream macro.

What does not work is repeated assertions about the way that government spending works. Wren-Lewis gets this absolutely right. Such facts might be surprising to the general public and probably many micro- and applied economists. They undermine what he calls “mediamacro”. But they are not surprising to macroeconomists. MMTers are wasting an awful lot of time and energy on pointing out such facts when what they need is to promote the pricing theory, capital theory, and theory of financial instability that underpins their fundamental claims.

Again, let me be clear. The main MMT theorists have been making this case for a long time. And they are trying to get it out into the public; just look at Eric Tymoigne’s recent blog series on money and banking. But it hasn’t sunk in with the online MMT fanbase, who still think the problem is that macroeconomists don’t understand government accounting.

I know this because I made the same mistake myself for a long time. The trouble, I think, was that I wanted to have something to contribute to the conversation, and price theory, capital theory, and theories of asset pricing are really beyond my understanding. Accounting I do understand, and so I hoped that that might be enough to make the case for what I believe on instinct. I think a lot of others in the MMT fanbase fall into the same trap. But it is a trap.

I still believe the same things about policy – again, largely on instinct. And I do think that philosophy is useful in terms of clarifying concepts and arranging our moral and social priorities. I also still think that there is an interesting political philosophy contained in MMT that deserves more discussion. But frankly I lack the expertise to make the case I wanted to make. Luckily there are others to do so, but no intellectual shortcuts please. All excellent things are as difficult as they are rare.