On Money.

A Brief Intellectual Interpretation

Massimo Fornasari
University of Bologna

ABSTRACT
The nature of money continues to perplex us. Over time anthropol-
ogists, economists, historians and sociologists have provided various
answers to the question “what is money?” Ultimately these answers
reflect different and often contradictory approaches to the dynamics
of economic systems and especially the dynamics of market
economies. But the answers to this question have determined both
the reconstruction of certain crucial passages of European economic
history, as well as the formulation of targeted economic policies.
This paper investigates some of these aspects, juxtaposing the two
prevalent orientations, metallists and chartalists. Here we analyse
their different theoretical foundations and how each of them directly
or indirectly influenced historical research. What emerges is the in-
adequacy of the position that asserts the neutrality of money. In re-
ality, far from representing a veil, money is an ancient social
technology, actually one of man’s fundamental social technologies,
along with writing and accounting.

Money’s Puzzle

“What is money?” asked Alfred Mitchell Innes, a brilliant British

diplomat and economist, at the beginning of the last century in a
paper which appeared in The Banking Law Journal and was
favourably reviewed by J.M. Keynes in the Economic Journal.1 Like

1
Innes’s paper appeared in 1913; the following year Innes published another impor-

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the author, the paper, which proposed a unique monetary theory,

has recently been rediscovered and republished, contributing to re-
vitalising a debate on the nature of money – a debate that actually
never ceased.2
The timeliness of Innes’s question has been substantiated in nu-
merous monographs published before, during and after the great fi-
nancial crisis of 2008. Of those writings the ones with the greatest
impact, in this author’s opinion, were written by Geoffrey Ingham,
Niall Ferguson and William Goetzman.3 The last two authors in par-
ticular, Ferguson and Goetzman, traced a significant parallel be-
tween the ascent of money and the ascent of the West, in terms of
finance and civilization. The first emphasised that “despite our
deeply rooted prejudices against ‘filthy lucre’.…. money is the root
of most progress,” listing off the innovations that from the 13th cen-

tant paper, “The Credit Theory of Money”, in the same journal. Both articles were re-
published nearly a century later in a volume edited by L. Randall Wray, Credit and State
Theories of Money: The Contributions of A. Mitchell Innes, London, 2004. Keynes’s review
appeared in 1914 and while he defined as erroneous Innes’s credit theory of money
“and it will not be worthwhile to discuss it in this review”, he had kinder words for
Innes’s historical research: “the main historical conclusions which he seeks to drive
home have, I think, much foundation, and have often been unduly neglected by writers
excessively influenced by the ‘sound currency’ dogmas of the mid-nineteenth century”.
2 The rediscovery of Innes was mainly thanks to the above-mentioned Randall Wray,

author of Credit and State Theories of Money: “I believe the 1913 and 1914 articles by Innes
stand as the best pair of articles on the nature of money written in the twentieth cen-
tury”, p. 223.
3 G. Ingham, The Nature of Money. New Directions in Political Economy, Cambridge, 2004;

N. Ferguson, The Ascent of Money, A Financial History of the Word, London, 2008, William
N. Goetzmann, Money Changes Everything. How Finance Made Civilization Possible, Prince-
ton, 2016. This ever present interest in money and its history has also been confirmed
in the excellent, recently published book of S. Battilossi, Yossef Cassis and Kazuhiko
Yago (eds.), Handbook of the History of Money and Currency, Singapore, 2020. The book’s
preface observes how “Interest in financial history has continued unabated but has
taken a different turn in the wake of the Global Financial Crisis of 2008. No longer con-
fined to academic circles, the search for the meaning of past experiences has extended
to policy makers and even to banking practitioners trying to make sense of the enormity
of the debacle that had shaken the financial world. Professional economic historians,
including economists engaged with the past, have had to bear a new responsibility: to
extend the depth and scope of their investigations, share their results with a broader
audience, and maintain exacting academic standards”.

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tury up to the present have placed the West at the centre of the
world.4 The second author clarified how “financial solutions im-
proved the capability of humankind to create cities, to explore new
worlds, to expand and equalize economic opportunity, to control
risk, and to provide for an uncertain future,” while at the same time
averting the multiple risks connected with their use.5
It would be tempting to answer the initial question in the same
way St. Augustine answered when asked what time was: “if no one
asks me, I know what it is. If I wish to explain it to him who asks, I
do not know.”6 In reality, as Sir Gladstone ironically stated in the de-
bate that took place in England before approval of the banking law
of 1844, which modified the role and organisation of the Bank of
England, “even love has not turned more men into fools than has
meditation upon the nature of money.”7 Indirectly inspired by Glad-
stone’s aphorism, Massimo Amato published a book a few years ago
significantly entitled L’enigma della moneta (The enigma of money): “In
our epoch, marked by a pervasive infatuation with economics, what
is missing is the knowledge of money; but even worse is the fact that
people don’t bother to even ask themselves what money is.”8 More
recently, G. Ingham mentioned Money’s Puzzle, pointing out that “de-
spite money’s pivotal role in modern life, it is notoriously puzzling
and the subject of unresolved – often rancorous – intellectual and
political disputes that can be traced at least as far back as Aristotle
and Plato in Classical Greece and the third century BCE in China.”9
Thus we continue to ask ourselves what money is: what is its
nature, its functions, what is the relationship between money and
currency, whereby we can observe that up until now currency has

4
N. Ferguson, The Ascent of Money, cit., p. 3, who continues by clarifying how “the as-
cent of money has been essential to the ascent of man”.
5 W. Goetzman, Money Changes Everything, cit., p. 12: “But at times financial innovation

has created serious disequlibria in and across societies”.

6
Agostino, Le confessioni, XI, 14 e 18, Bologna, 1968, p. 759.
7 The famous aphorism was also mentioned by K. Marx, A Contribution to the Critique

of Political Economy, New York, 1970, p. 64.

8
M. Amato, L’enigma della moneta e l’inizio dell’economia, Milan, 2010, p. 1.
9 G. Ingham, Money, Cambridge, 2020, p. 3.

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actually been just one historically determined form of money. Those

who claim the opposite are confusing the object (currency) with the
concept (money).

Metallism vs Cartalism

According to the standard definition money has certain main func-

tions.10 It is a means of exchange and a means of payment; it is a
measurement of value, and thus expresses the value of goods by re-
ferring to monetary quantities (what is price if not a monetary ex-
pression?). And finally, money functions as a store of wealth, a
circumstance – claimed Keynes – that functions to calm our anxieties
about the future.11
Which of these functions appeared first? According to the con-
ventional theory of money its first function was in the form of cur-
rency as a means of exchange. In other words, it was an object or

10 The standard definition of money’s function was set out by S. Jevons in Money and

the Mechanism of Exchange, New York, 1875, and was later taken up again by Francis
Amasa Walker, the first President of the American Economic Association, who on that
basis stated that “money is what money does”, Money, New York, 1883, p. 407.
11 J.M. Keynes, “The General Theory of Employment”, in The Quarterly Journal of Eco-

nomics, 51 (2), Feb 1937, who observed how “Money, it is well known, serves two prin-
cipal purposes. By acting as a money of account it facilitates exchanges without its being
necessary that it should ever itself come into the picture as a substantive object. In this
respect it is a convenience which is devoid of significance or real influence. In the sec-
ond place, it is a store of wealth. So, we are told, without a smile on the face. But in the
world of the classical economy, what an insane use to which to put it! For it is a recog-
nized characteristic of money as a store of wealth that it is barren, whereas practically
every other form of storing wealth yields some interest or profit. Why should anyone
outside a lunatic asylum wish to use money as a store of wealth? Because, partly on
reasonable and partly on instinctive grounds, our desire to hold money as a store of
wealth is a barometer of the degree of our distrust of our own calculations and con-
ventions concerning the future. Even though this feeling about money is itself conven-
tional or instinctive, it operates, so to speak, at a deeper level of our motivation. It takes
charge at the moments when the higher, more precarious conventions have weakened.
The possession of actual money lulls our disquietude; and the premium which we re-
quire to make us part with money is the measure of the degree of our disquietude”.
On these aspects, see among others G. Lunghini, Conflitto, crisi, incertezza. La teoria eco-
nomica dominante e le teorie alternative, Torino, 2012).

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instrument that enabled exchange on the market. Once barter, in an

indeterminate era, had become unworkable, currency began to fa-
cilitate commercial transactions. This started with the development
of the division of labour and the expansion of the sphere of ex-
change, i.e. when society transformed into a commercial society.
Thus, currency came into being to resolve the problem that
economists call “the double coincidence of wants.”
This evolving narrative became a topos. Adam Smith in The
Wealth of Nations, published in 1776, took up the topic with great
clarity, albeit without questioning it. In the paragraph On the Origin
and Use of Money Smith wrote the following, cited below in its en-
tirety for succinctness:
“When the division of labour has been once thoroughly estab-
lished, it is but a very small part of a man’s wants which the
produce of his own labour can supply. He supplies the far
greater part of them by exchanging that surplus part of the pro-
duce of his own labour, which is over and above his own con-
sumption, for such parts of the produce of other men’s labour
as he has occasion for. Every man thus lives by exchanging, or
becomes in some measure a merchant, and the society itself
grows to be what is properly a commercial society.
But when the division of labour first began to take place, this
power of exchanging must frequently have been very much
clogged and embarrassed in its operations (…) In order to
avoid the inconveniency of such situations, every prudent
man in every period of society, after the first establishment of
the division of labour, must naturally have endeavoured to
manage his affairs in such a manner, as to have at all times by
him, besides the peculiar produce of his own industry, a cer-
tain quantity of some one commodity or other, such as he
imagined few people would be likely to refuse in exchange for
the produce of their industry. Many different commodities, it
is probable, were successively both thought of and employed
for this purpose. But – concluded Smith –, in all countries,
however, men seem at last to have been determined by irre-

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sistible reasons to give the preference, for this employment, to

metals above every other commodity.”12
Smith enunciated a particular theory of money, that of commod-
ity money.
Smith’s narration, which actually had illustrious precedents,13
was systematized by Carl Menger in an apparently unassailable
manner from a logical point of view. Menger was one of the protag-
onists, along with Leon Walras and Stanley Jevons, of the so-called
marginalist revolution which at the end of the 19th century broke
with the paradigm of classical political economy and reformulated
the way of thinking about economic science, moving the focus from
the macro, dynamic dimension to a micro, static perspective.14
In 1892 Menger wrote a paper that was decisive for asserting the
conventional theory of money: entitled Geld, it was a work that
would also influence subsequent historical research on money.15 In
Menger’s interpretation money emerged spontaneously as a means
of exchange through attempts by entrepreneurial individuals to re-
duce to a minimum the costs of barter transactions. Thus money was
first a means of exchange which lubricated the gears of the market
and derived its value from the intrinsic properties of the precious

12
A. Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Oxford Uni-
versity Press, 1976, pp. 37-38.
13
Without going back too far in time we refer to Bernardo Davanzati, who in his Notitia
de’ Cambi, Torino, 1988, observed that “things that are marketable are either goods or
money; one can bargain over these things in three ways: Barter, Sale or Exchange”;
specifically “the second mode was discovered to facilitate the first” from the time that
man realized that “things cannot easily be brought close or far away”: to avoid “a lot
of bother it made sense to choose some things that had a common measurement of
value for everyone (…). These being gold, silver and copper; the noblest and most
portable metals, containing a lot of value in a small mass”, pp. 67-68.
14
J. Wasserman, The Marginal Revolutionaries: How Austrian Economists Fought the War
of Ideas, New Haven, CT, 2019.
15
C. Menger, “Geld,” in Handwörterbuch der Staatswissenschaften, 1892. The English ver-
sion, “On the Origin of Money”, was published in The Economic Journal, Vol. 2, No. 6.
(Jun., 1892), pp. 239-255 In 1909 Menger expanded the paper in Money, translation of
Geld (1909) in Latzer M. & Schmitz S. (eds.), Carl Menger and the Evolution of Payments
Systems, Cheltenham, 2002. On Geld G. Conti, L. Fanti, Sovranità, credito e mercato. Verso
l’arte del governo economico totale, Pisa, 2020, p. 180.

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metals of which it was made. In Menger’s works the metallist current

reached its theoretical apex; it was revisited in the 20th century by
monetarists, contributing to the creation of the myth of the neutrality
of money, linked to the conviction that the state should renounce its
prerogative of monetary control and cede it to private operators.16
This is a key point in the debate about the nature of money. In-
deed, between the 18th and 19th centuries, in contrast to the con-
ventional theory of money, another theory emerged called chartalism:
like its precedent, this theory had a major impact on historical and
economic thought as well as on the application of monetary policy.
Like the metallist theory, chartalism had significant precedents.
Without going back to classical antiquity, these precedents refer to
the main exponent of Scolastica, Thomas Aquinas. According to
Aquinas “money is not a measurement founded upon nature, but
on nomos, or the law.”17 In contrast to other goods, currency has no
intrinsic value but has conventional value imposed by principle, a
valor impositus. It was a symbol invented by man to facilitate ex-
change, and since it was destined to wear out with use, it was con-
sidered a non-durable good, and not a durable capital good, in
contrast to land or a house: thus it could not give rise to usage rights.
Money does not breed money, as Aristotle claimed.
According to this line of thought money is above all an institu-
tional object.18 An example of this were the clay tokens used for ac-
counting in Mesopotamic civilization, the spread of which has been
connected to the origin of writing. Found by archaeologists in the
first half of the 1800s at Uruk, the ancient Sumerian city (4000-3000
BC), these tokens were the accounting tool used by the priestly cast
to realize the complex redistribution of agricultural surpluses. From
a graphic point of view they represented “single elements of agri-
cultural production (wheat, barley, oil, etc.)” and were used to count

16
G. Conti, L. Fanti, Sovranità, credito e mercato, cit., pp. 181-182.
17
Cit. in P. Evangelisti, Il pensiero economico nel Medioevo. Ricchezza, povertà, mercato e
moneta, Rome, 2016, p. 140.
18 L. Fantacci, La moneta. Storia di una istituzione mancata, Venice, 2005.

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them: “profit and rents were initially calculated in accounting units,

but paid to the state in kind (typically with barley). Subsequently
the state began to accept tokens for the payment of taxes: thus the
monetary accounting object became a means of payment.”19
Or there were fei, huge circular limestone disks with a hole in
the centre, still used at the beginning of the 19th century by the in-
habitants of the island of Yap, a tiny piece of land in Micronesia, east
of the Philippines. The young Keynes wrote about them, almost sur-
prised, in an article published in 1915 in the Economic Journal, de-
scribing them as the first example of earmarking, or transferring
bonds without moving money. He returned to the topic in 1930 in
his Treatise on Money.20 Used to socially sanction a transaction that
has taken place, fei were not a means of exchange or payment, but
expressed the balance of exchanges between the island’s inhabitants
in accounting terms. As it was nearly impossible to physically trans-
fer property, these objects exchanged hands as a public acknowl-
edgement of a transaction.
But there were many other types of currencies; alternative, par-
allel or primitive money, as some economists and historians defined
them: cowry shells, used across vast regions of Africa21 and in China;
wampum, necklaces of shell beads used by Native Americans; and
even axes, pots, pepper and livestock.22 In China for example, even
before paper money was introduced by the Celestial Empire in the

19 E. Longobardi, “Visione antropologica degli economisti e antropologia economica”,

in E. Longobardi, D. Natali (eds.), L’essere umano e l’economia: ricerche per una nuova
antropologia, Rome, 2019, pp. 91-92).
20 J.M. Keynes, “The Island of Stone Money”, in Economic Journal, 1915, 25 (98), pp. 281-

283. “The recent establishment of British authority in these islands – wrote Keynes –
has brought us in contact with a people whose ideas on currency are probably more
truly philosophical than those of any other country”.
21 K. Pallaver, “Dal baratto al mobile money: limiti e pregiudizi di un’interpretazione

evoluzionistica dei sistemi monetari africani”, in Cheiron, numero monografico “Mo-

neta. Storia non lineare di un oggetto istituzionale”, 2019, n. 1-2, pp. 225-248, exemplary
above all for its heterodox approach. In this article Pallaver refers specifically to the
kingdom of the Buganda which under the British protectorate was to assume the name
Uganda, where cowry shells were used as a means of exchange in markets as well as
to pay taxes.

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7th-8th century BC, the cowry shells that had been used as money
began to be cast in bronze. Significantly, the Chinese ideogram indi-
cating “coin” derives from the stylization of a cowry shell. In a sub-
sequent epoch in China, special bronze monetary instruments began
to appear, initially in the shape of knife blades with a ring at the bot-
tom: the handles were inscribed with the wording “Construct the
Nation.”23
Another example that is chronologically closer to our era were
the English tally sticks used by Henry I, son of William the Con-
queror, up until 1832 when the English Parliament decided to ban
their use. Tallies were sticks of hazel wood that were carved with
notches representing – according to the different sizes – the initial
amount of a debt (or credit) a subject owed the sovereign, and sub-
sequently of purchases made between private parties. These sticks
were a few dozen centimetres long and transversally divided into
two parts, each of which was marked with the details of the trans-
action: date, name of debtor and sum owed. The notches were di-
vided exactly in half so that the two parts matched perfectly, to avoid
fraud or tampering to the detriment of the debtor. One part – the
stock – was delivered to the creditor, and the other, the stub or
counter stock, to the debtor. With time these became negotiable and
transferable instruments exactly like bank notes or metal coins.24
What did these different forms of money have in common? They
shared the fact that their value did not depend on the intrinsic value
of the material they were made of; their value was assigned by the
state, which guaranteed their use in order to fulfil an obligation. On

22
F. Braudel, Civilization and Capitalism. 15th-18th century, The Structures of Everyday Life,
The Limits of the Possible, Vol. 1, Berkley and Los Angeles, 1992, pp. 436, which perhaps
defines them too hastily as “imperfect and primitive currencies”, but then specifies in
the following text how “the dialogue between ‘perfect’ money (if such a thing exists)
and ‘imperfect’ currencies can shed light on the very roots of the problem”.
23
W.N. Goetzman, Money changes everything, cit., p. 158.
24 W.N. Goetzmann and L. Williams, “From tallies and chirographs to Franklin’s print-

ing press at Passy: the evolution of the technology of financial claims”, in William N.
Goetzmann and K. Geert Rouwenhorst (eds.), The origins of value: the financial innovations
that created modern capital markets, eds., Oxford, 2005, pp. 108-109.

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the other hand, using these monetary forms sui generis was not
linked to their function as a means of exchange, but to another func-
tion that the chartalists saw as a primary one.
Let us take the best known case of clay tokens used in
Mesopotamian civilization. We have already observed, based on
Longobard’s considerations, that the tokens represented single ele-
ments of agricultural production and were used to count them. Ini-
tially profits and rents were calculated in accounting units, but were
paid to the state in kind (typically with barley). Next, the state begins
to accept tokens in payment of taxes; the monetary unit of account
becomes a means of payment. On the basis of this genealogy it could
be affirmed that “as the logical foundation of money is to be found
in money of account it is here that we should attempt to locate its
historical origins and not in the excavation and dating of money-
stuff money.”25
But there is a further point that derives from what was written
above. The widespread diffusion of tokens in the Fertile Crescent
ensured that they were increasingly used in private exchanges as
well, exactly like other forms of money, initially functioning as an
accounting unit and subsequently as a means of payment and ex-
change. These additional functions derived from the fact that the
state acknowledged in them the ability to “extinguish tax obliga-
tions”. From then on exchanges began to be mediated by currency;
the latter “creating” the market, or the place where monetary ex-
change took place, and not vice versa. As Max Weber observed in
his General Economic History, “From the evolutionary standpoint,
money is the father of private property.”26
Thus money absolves above all the function of an accounting
unit, and then a means of exchange: The chartalists refuted the ge-
nealogical reconstruction proposed by Smith and systematized by
Menger: barter-exchange-currency. The barter economy, apart from
some exceptional circumstances, never existed as a system. David

25
G. Ingham, The Nature of Money, cit., p. 89.
26
M. Weber, General Economic History, New York, 1961, p. 179.

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Graeber, author of Debt, observed that “the reason that economics

textbooks now begin with imaginary villages is because it has been
impossible to talk about real ones. Even some economists have been
forced to admit that Smith’s Land of Barter doesn’t really exist.”27
Also from a logical point of view it has been demonstrated that
“goods do not buy goods” since barter would assume an almost im-
possible double coincidence of wants between the exchangers and
would require complicated equivalence calculations between goods.
Why then does the myth of barter continue to survive? It sur-
vives because it is part of the economic discourse as framed by clas-
sical political economists, for whom “this economy operated
according to laws of much the same sort as Sir Isaac Newton had so
recently identified as governing the physical world”: the naturalistic
assumption – that the market since the dawn of time – would have
caused them to run into a serious error of perspective.28
In sum, the chartalist theoreticians consider:
a) that the original function of money is as a measure of value and
an accounting unit;
b) that its value does not derive from the material it is made of;
c) and therefore, they assign the state a preeminent role in society
in acknowledging money.
In 1905 Friedrich Knapp, a German economist who adhered to
the German historical school, published a book that exhaustively de-
fined the statalist theory of money; the 1924 English translation of
this book was called The State Theory of Money. The opening lines of
Knapp’s book, which functioned as a counterbalance to Menger’s,
is striking: “Money is a creature of law.” The corollary is equally sur-
prising “A theory of money must therefore deal with legal history.”
It continues: “The favourite form of money is specie. As this implies
coins, most writers have concluded that currency can be deduced
from numismatics. This is a great mistake.”29

27
D. Graeber, Debt. The First 5,000 Years, Brooklyn, London, 2014, p. 43.
28
Ibidem, p. 44.
29 F. Knapp, The State Theory of Money, London, 1924, p. 3.

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On the one hand, the contrasting positions of the metallists and

chartalists have influenced the historical reconstruction of the West’s
monetary events; on the other hand, they have oriented recent mon-
etary policy. In regard to the first aspect, I will briefly examine three
macro contexts – a constant theme for economic historians, from the
Middle Ages through the modern era and up to contemporary times.
In reality, as Innes poignantly stated in 1913, historiography’s
sounding board appears to be essential for testing the solidity of the-
ories, and especially those regarding money.30 For this reason, it is
useful to recall what Marina Romani and Cecilia D’Ercole recently
wrote in their introduction to the monograph in the journal Cheiron
dedicated to Moneta. Storia non lineare di un oggetto istituzionale
(Money. A non-linear history of an institutional object): “If there is one
topic of study – write the two editors – in which the ascetic and lin-
ear significance of economists’ deductive methods conflicts with his-
torians’ and anthropologists’ intricate inductive puzzle, giving rise
to completely different interpretations, that topic is money.”31

History and Theory

The first historical macro context regards the Carolingian monetary

reform undertaken by Charlemagne’s father, Pippin the Younger, in
the second half of the 8th century. The Carolingian monetary reform
assumed the aegis of political control over minting, annulling
minters’ or coiners’ previous power. The reform introduced a new
accounting system based on the livre, initially weighing 408 grams
and divided into 20 sous, each worth 12 deniers. Thus it reorganised
and rationalised the monetary system and in the end this coincided

30 A. Mitchell Innes, “What is Money”, cit., p. 15, who write: “So universal is the belief
in these theories among economists that they have grown to be considered almost as
axioms which hardly require proof, and nothing is more noticeable in economic works
than the scant historical evidence on which they rest, and the absence of critical exam-
ination of their worth”.
31 M. Romani, C. D’Ercole, “Introduzione”, in Cheiron, cit., p. 5.

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with the establishment of silver mono-metallism. From this point on

– initially the units of money and weight coincided – denier was ex-
clusively minted in silver. And with this, minting in gold ceased.
This was such a profound change that it influenced the French
language which uses argent to indicate the term money.32 Since one
livre corresponded to 240 deniers, the system was thus duodecimal,
with each livre weighing approximately 1.7 grams. The money had
neither multiples nor submultiples: livre and sous were «imaginary
coins» or accounting units; they were used as units to measure the
value of coins and goods in circulation, or real abstractions. This sys-
tem was defined by Spufford as “dichotomic.”33 On the one hand it
was an actual minted coin, which over time weakened in terms of
weight and alloy; on the other hand, it was an accounting unit, the
livre, with its submultiples, which nominally never changed.
Thus the new monetary system established the separation be-
tween accounting units and a means of payment in metal coins, a
separation that remained in force for the entire modern era, but
which had the effect of restoring the abstract monetary calculation
that had been practiced in ancient times.34
But what was the goal of the Carolingian reform? Orthodox eco-
nomic historians of money sustain that Charlemagne intended to cre-
ate a standard measurement of value as a “public good” with the aim
of facilitating the exchange of goods. And therefore that the reform
of the monetary system was aimed at expanding the market, which
at that time was still in an embryonic phase. In reality the fiscal needs
of the church and state were much more important, especially trans-
fers of money within the areas where Christianity had taken hold.
The counter hypothesis was that “the Carolingian currency sys-
tem had an essentially fiscal role, especially in Italy.”35 Denier was

32
J. Le Goff, Lo sterco del diavolo. Il denaro nel Medioevo, Rome-Bari, 2010, the original title
of which is Le Moyen Age e l’argent, Paris, 2010.
33
P. Spufford, Money and its Use in Medieval Europe, Cambridge, 2008, p. 411.
34
G. Ingham, The Nature of Money, cit. p. 110.
35
A. Saccocci, “La monetazione del Regnum Italiae e l’evoluzione complessiva del si-

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used mainly to pay taxes to the imperial administration and not to

carry out small exchanges, as its value was too high. According to
some historians and archaeologists this would explain the conspic-
uous recovery of denari minted on the Italian peninsula dating from
the years between 793 and 900 A.D. and found in various parts of
Europe. These denari found their way to the residential centres of
Carolingian power but did not sustain the development of a mone-
tary economy, as occurred instead in parts of Carolingian Europe.
The second situation to be analysed briefly here is the so-called
Price Revolution of the 1500s, a term at once ambiguous but power-
fully evocative, coined at the end of the 1800s by representatives of
the school of German history. This term describes a century of infla-
tion which began early in the 16th century, was consolidated mid-
century, coinciding with the ever increasing arrival of American
silver in Europe. American silver, coming mainly from the Spanish
colonies of Zacatecas in current day Mexico, and Potosì, in present
day Bolivia, reached Seville – the gate and port of the Indies – and
despite the Spanish crown’s ban, began to circulate abundantly all
over Europe.36 The long prevailing explanation of price inflation,
which was also responsible for causing the dramatic polarization of
monetary incomes with a growing phenomenon of social hardship,
can be traced back to the quantity theory of money (QTM).
Its embryonic formulation can be found in the writing of some
contemporaries: in Spain, by those Jesuit exponents of so-called Sec-
ond Scholasticism; in France in the work of the social scientist Jean
Bodin, and in England in William Stafford’s (anonymous)
pamphlet.37 All of them established a cause-effect relationship be-

stema monetario Europeo tra VIII e XII secolo”, in C. Alfaro, C. Marcos, P. Otero (eds.),
XIII Congreso Internacional de Numismática, Madrid 2003, Madrid, 2005, p. 1039.
36 C.M. Cipolla, Conquistadores, pirati, mercatanti. La saga dell’argento spagnolo, Bologna,

1996.
37 The authors cited in the text are mentioned in the pioneering work of A. De Mad-

dalena, Moneta e mercato nel ‘500, La rivoluzione dei prezzi, Firenze, 1973. For a more recent
analysis of the price revolution, see John H. Munro, “Precious Metals and the Origins
of the Price Revolution Reconsidered: The Conjuncture of Monetary and Real Forces
in the European Inflation of the Early to Mid-Sixteenth Century”, in Clara Eugenia

196 THE JOURNAL OF EUROPEAN ECONOMIC HISTORY

 ON MONEY. A BRIEF INTELLECTUAL INTERPRETATION

tween wider monetary circulation, made possible by the import of

precious metals from the New World, and rising prices. This rela-
tionship then formed the basis in the 19th century for the famous
equation of exchange by the American economist Irving Fisher, on
the basis of which MV = PT, where P is directly proportional to M
and V is inversely proportional to T.38
For a long time, this equation of exchange oriented historical re-
search on the causes of the price revolution, beginning with Earl J.
Hamilton, who in the 1930s published a book that then became fa-
mous, American Treasure and the Price Revolution in Spain. The book’s
basic data had been obtained from the libros registros of the Casa de
Contratacion di Siviglia, preserved in the General Archive of the In-
dies.39 Actually the quantity theory of money appeared as a “simple
truism”. The QTM “responded to a static and mechanistic vision of
the relationships between the purchasing power of money [ergo
prices] and market variables,” a vision that could be defined as func-
tional.40
A different position was held by the historians who referred to
Keynes. Here the accent was placed not on the money supply, and
therefore on the consequences of its expansion, but on the greater
demand for money resulting from the economic and demographic
dynamics that at that time were in full swing. According to them,
variations in the demand for money are what affect the quantity sup-
plied and how it is used: “As Keynes observed, in opposing the
Quantity Theory, such an increase in M would most probably lead,
directly or indirectly, to an increase in investment, production, trade,

Núñez, (ed.), Monetary History in Global Perspective, 1500-1808, Proceedings of the

Twelfth International Economic History Congress at Madrid, August 1998, Seville, 1998.
On the Salamanca School, authoritative site of the Second Scholasticism, see H. Ekstedt,
Money in Economic Theory, London, 2014, pp. 27-30.
38 Specifically, I. Fisher, The Purchasing Power of Money: its Determination and Relation to

Credit, Interest and Crises, New York, 1911.

39 Earl J. Hamilton, American Treasure and the Price Revolution in Spain, Cambridge, 1934,

comprehensively and brilliantly reviewed in 2007 by John Munro at

https://eh.net/book_reviews/american-treasure-and-the-price-revolution-in-spain-
1501-1650, among others.
40 A. De Maddalena, Moneta e mercato nel ‘500, cit., p. 5.

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MASSIMO FORNASARI

and thus in y [the real net national income in constant monetary

units] but also to a reduction in V, which together, especially in an
economy with drastically underemployed resources, might fully off-
set any effects on prices otherwise to be expected from M.”41
In reality the most recent economic historiography emphasises
how the main motivation for rejecting the monetarist theses is the
fact that “such inflation had commenced about thirty or so years be-
fore Europe had received any large quantities of Spanish-American
silver: as early as the 1510s in north-west Europe, and by the early
1520s in Spain itself,” and thus well before the beginning of the silver
cycle, midway through the 16th century.42 The factor behind the orig-
inal increasing trend in prices was demographic growth, which
could be ascertained at the beginning of the 1500s in certain Euro-
pean regions, with consequent pressure on the largely inelastic sup-
ply of goods. Thus the focus shifted to the most important variable
that came into play during the 1500s: the demand for consumer
goods, stimulated by strong demographic dynamics. This was per-
ceived by one of the above-cited authors, Jean Bodin, who stated
“l’abondance d’or et d’argent c’est la principale er presque seule
cause” for rising prices.43 More than purely monetary factors, it was
the revolution in consumption characterising the 16th century that
turned out to be the key factor for understanding price dynamics
during the 1500s.
The third situation I will refer to regards the gold standard of the
1800s and its subsequent dissolution. The gold standard emerged de
facto in England at the beginning of the 18th century; it was Isaac
Newton, then master of the mint, who oriented England towards

41
John H. Munro, Precious Metals and the Origins of the Price Revolution Reconsidered, cit,.
p. 43.
42 Ibidem, p. 35.
43 J. Bodin, Reponse aus paradoxes de M. de Malestroit touchant l’enchérissement de toutes

choses et des monnoies (1568), Paris, 1599, p. 46. The other causes identified by Bodin
were “le monopoles”; “la disette qui est causée, tant par la traite (exportation de
marchandise) qui per la dégât”; “la plaisir du roi et grands signeurs”; “le prix de mon-
naies, qui est ravalé de son ancienne estimation”.

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 ON MONEY. A BRIEF INTELLECTUAL INTERPRETATION

gold mono-metallism, demonetising silver, the value of which had

declined vis-à-vis gold. During the second half of the 19th century
the gold standard became de jure the principle international mone-
tary system for industrialised or industrialising countries. This was
a system of fixed exchange rates in which the value of money was
expressed in terms of a certain quantity of precious metal, in accor-
dance with Locke’s monetary doctrine whereby real coins were
made of gold.44
From 1816 until the outbreak of World War I the pound sterling
was worth 7.32 grams of gold: on the surface the gold standard rep-
resented the triumph of commodity currency. The conventional the-
ory of money described it as a system of automatic adjustment of
trade balances according to the principle of monetary price-flow
enunciated by David Hume in the mid-18th century. This was a prin-
ciple that emphasised the mechanism of the invisible hand and on
the other hand reduced government policy to the point of it being
considered useless.45 Because the gold standard was a system that
was solidly anchored to gold, it was considered as immune to the
instability of legal tender, lacking in intrinsic value. In reality the
gold standard was much less stable than what one was led to be-
lieve. Its adoption was supposed to have a basically deflationary ef-
fect. In reality, once it became a global currency, gold tended to
become scarcer than the volume of payments it was supposed to
support. By virtue of the quantity theory of money, the structural
consequence of the gold standard should have been price deflation.
Especially if gold was actually used as a means of payment of last
resort.
In reality, this purely quantitative effect could have been coun-
tered, according to Keynes, by the “habits of the public in the use of
money and of banking facilities and the practices of the banks in re-
spect of their reserves;”46 in other words, more in general, by the

44
D. Carey, Money and political economy in the Enlightenment, Oxford, 2014, pp. 57-81.
45
Barry J. Eichengreen, Golden Fetters. The Gold Standard and the Great Depression, 1919-
1939, Oxford, 1995, p. 32.
46 Cited in M. Amato, L. Fantacci, Fine della finanza. Da dove viene la crisi e come si può

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way money was or was not spent, which is the same as saying that
it could be countered by the nature of credit, or by money issued by
the commercial banking system in the form of credit.
Actually, in this period all commercial banks in countries adher-
ing to the gold standard reduced their gold reserves, relying on the
respective central banks for their financing. While the problem of
the gold system was its deflationary effect, the function of the bank-
ing system, and especially the English one, was “to retard rather
than enhance the functioning of the free gold market, to ‘put sand
in the wheels’ of the international gold standard, to stabilize domes-
tic interest rates and credit conditions” according to Marcello De
Cecco, one of the most important scholars of the international mon-
etary system in the 19th and 20th centuries.47 In other words the global
sustainability of trade balance deficits was made possible not by au-
tomatic movements of gold reserves but by their being financed with
credit instruments, bypassing payments in gold, contrary to what
would have been required by the rules of the gold standard.
Ironically Innes, who was writing on the eve of the Great War
when the gold standard was still fully functioning, observed that
“Future ages will laugh at their forefathers of the nineteenth and
twentieth centuries, who gravely bought gold to imprison in dun-
geons in the belief that they were thereby obeying a high economic
law and increasing the wealth and prosperity of the world.”48

The Present (and Future) of Money

I conclude with a reference to the fallout from monetary policy de-

riving from the different meanings attributed to money by the two
great currents of thought that I have attempted to delineate. In a re-

pensare di uscirne, Roma, 2009, p. 202. Keynes’s article is in A Tract on Monetary Reform,
London, 1924, p. 79.
47 M. De Cecco, “From Monopoly to Oligopoly: Lessons from the Pre-1914 Experience”,

in, Eric Helleiner and Jonathan Kirshner (eds.), The Future of the Dollar, London, 2009,
p. 136.
48 A. Mitchell Innes, “What is the money”, cit. p. 49.

200 THE JOURNAL OF EUROPEAN ECONOMIC HISTORY

 ON MONEY. A BRIEF INTELLECTUAL INTERPRETATION

cent book by Felix Martin, Money: The Unauthorized Biography, the

Italian translation of the title poses the problem of what capitalism
has not understood. Martin’s answer is: the nature of money.49 In re-
ality money counts... but some economists, the same ones who iden-
tify with the narration of commodity-money, deny the importance
of money for the purposes of representing the functioning of a mar-
ket economy. Frank Hahn, a German economist and naturalised
British citizen who taught at Cambridge for many years, claimed
that “the most serious challenge that the existence of money poses
to theorists is this: the best model of the economy cannot find room
for it.”50 Paradoxically, those economists with whom Hahn identified
think of a market economy as a sort of barter economy barely lubri-
cated with money, which one could easily do without.
As Schumpeter critically pointed out, for these economists “cur-
rency adds nothing new to economic phenomena; it merely repre-
sents the veil of economic events and nothing essential is overlooked
in abstracting from it.”51 Money, and monetary and financial insti-
tutions and instruments, would therefore be neutral. It is the “invis-
ible hand” of the market that ultimately decides the capacity and
efficiency of the system, which would find its own equilibrium any-
way. Monetary policy is thus inefficient from the point of view of
stimulating economic growth: it only has an effect on the price level
but not on production.
This orientation has money coinciding with currency and the
latter with a commodity, in particular precious metals. And even
when money ceased to be coined in gold or silver, or any material
with an intrinsic value, the supporters of that orientation still con-

49
F. Martin, Money: The Unauthorized Biography - from Coinage to Cryptocurrencies, New
York, 2015.
50 Frank H. Hahn, Money and Inflation, Oxford, 1982, p. 1. A short biography of Hahn

(1925-2013) states that: “The perennial renegade, Frank H. Hahn spent most of his pro-
fessional life at Cambridge as virtually the sole Neo-Walrasian member of an ardently
Keynesian department”: https://www.hetwebsite.net/het/profiles/hahn.htm.
51 J. Schumpeter, The Theory of Economic Development. An Inquiry into Profits, Capital,

Credit, Interest, and the Business Cycle, New Brunswick, 2004, p. 51.

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sider money to be a commodity in the sense that it can be explained

like any other commodity with the microeconomic categories of sup-
ply and demand, marginal utility, and so on.
On the opposite side are those who assign money and financial
institutions an active role in the processes of economic development,
attributing to the first and the second the capacity to stimulate, di-
rectly and indirectly, the growth of incomes and effective demand.
For these thinkers, money is not a veil. They clearly point out the
political and social nature of money and feel that it does not coincide
with a commodity but instead was founded by the state. For the first
group money carries out above all the function of a means of ex-
change; for the second group it is a measure and reserve of value.
As such it protects against future uncertainty. The Keynesian theory
of preference for liquidity is based on this theoretical context; for
those who share a broader vision of money, the market economy is
in constant tension, characterised by inherent financial instability
that compromises presumed long term harmony and equilibrium;
an instability that gave and gives rise to real financial crises.52
In conclusion, returning to the initial question – What is
Money? – we can sum up the answer in this way:
a) money is mainly a measure of value, an accounting unit, and not
a commodity of exchange or a simple intermediary;
b) its value does not derive from the material it is made of but from
its fiscal obligation, in that it is the only accepted means of pay-
ing off sovereign debt;
52
H. Minsky, Financial Instability Hypothesis (FIH), in Levy Economics Institute Working
Paper No. 74 (1992), pointed out how “The Financial Instability Hypothesis (FIH) has
both empirical and theoretical aspects that challenge the classic precepts of Smith and
Walras, who implied that the economy can be best understood by assuming that it is
constantly an equilibrium-seeking and sustaining system. The theoretical argument of
the FIH emerges from the characterization of the economy as a capitalist economy with
extensive capital assets and a sophisticated financial system” (p. 1). As suggested by
M. Mazzucato and Randall Wray, “Unlike J.A. Schumpeter, Hyman Minsky did not see
the banker merely as the ephor of capitalism, but as its key source of instability”, Fi-
nancing the capital development of the economy: A Keynes-Schumpeter-Minsky synthesis, in
Levy Economics Institute Working Paper No. 837 (2015), p. 1. A recent reflection on
Minsky’s scientific works is by L. Randall Wray, Why Minsky matters: an introduction to
the work of a maverick economist, Oxford, 2016.

202 THE JOURNAL OF EUROPEAN ECONOMIC HISTORY

 ON MONEY. A BRIEF INTELLECTUAL INTERPRETATION

c) historically the state has had a preeminent role in its recognition

in society, which also eventually benefitted the system of private
credit.
Thus money is an ancient social technology, actually one of
man’s fundamental social technologies, along with writing and ac-
counting. It has allowed the transfer and payment of debts between
people and the state and between individuals; essentially it is a social
relation.53 Therefore, to understand its nature, ironically, one must
abandon economics, or at the very least, understand that money can-
not be treated and understood from a purely economic perspective.54
And thus there is not and never will be an end to money, as claimed
by the theorists of the New Monetary Economy, who assume “that
computerized bookkeeping could become the basis for a gigantic
Walrasian sophisticated barter system.”55 This has also recently been
asserted with the spread of so-called virtual money, with the aim of
“removing money entirely from its social and political founda-
tions.”56 Bitcoin, and the other dozens of similar but less famous vir-
tual currencies will never replace money as legal tender.57 Never?
Only if the state should abdicate its historical role and accept bitcoin
or other similar virtual currencies in payment of fiscal obligations.

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