Tuesday, July 26, 2016

Credit and Menger

The textbooks all say barter preceded money, money emerged as a solution to the problem of the necessity of double coincidences for trade to occur: a market one has 100 eggs, another has a goat.  Well, those two better be willing to trade each for the other, or no trade today.  Money allows people to sell one egg at a time, to the goat seller who sold his goat of 50 silver pieces.

Upon refection a couple of years ago it seemed to me that there must of been a step certainly before money, maybe after barter, that merchants extended credit.  I am happy to see plenty of people long before me arrived at the same idea.  But apparently the idea is controversial among theorists.  I am glad I am not a theorist.
Did credit precede money? Maybe. Does it matter? Nope.
Hmmm... not sure what is at stake here....
Since direct exchange, i.e. barter, may be inter-temporal. Barter need not be a spot transaction reduced to a particular place and time. If the concept of inter-temporal barter is accepted, then the evidence of credit existing before a common medium of exchange creates no conflict in Menger’s account.
Wait, if you whimsically expand the definition of barter to encompass a credit event, by asserting that a merchant who extends credit (pay me later) can be also deemed an inter-temporal (pay me later is what that means in this instance) barterer, well, I guess so.  But I think it is confusing to twist concepts to fit into theories.    As the writer says, it does not matter (but for another reason.)

The writer warrants the whimsical concept of "inter-temporal barter" with and example of milk today for grain tomorrow.  That's credit. Why call it anything else?  And if the grain dealer puts in writing he owes the milk made grain, so far so good.  But then the writer gets it very wrong:
Imagine that Anastasia has a promissory note (IOU) for a portion of Casimir’s grain harvest, but prefers apples now to a future claim on Casimir’s grain. Thaddeus prefers a future claim on grain than the apples hanging on his trees. So Anastasia offers Thaddeus the promissory note in exchange for apples. If not for the promissory note Anastasia, Casimir, and Thaddeus would have all had to meet to agree to such a transaction. Without inter-temporal barter in the form of a promissory note, Anastasia and Casimir would have never made the transaction and Anastasia wouldn’t have had the promissory note to use to barter for other goods.
That promissary note is not transferable.  Transferability is prohibited in law in most times and places, unless all three parties meet and agree, contradicting the advantage the writer claims,  Transferability of notes without the permission of all parties is a peculiar innovation to modern Western capitalism, necessary to unload junk or aggregate power.  The idea that Jack makes a deal with Jill, and Jill sells the deal onto Andre, without Jack's permission is odious.  Jack made a deal with Jill, based on who Jill is.   (Jill is forbearing, Andre is predatory).  It is very likely Jack does not care for Andre, and refuses to otherwise deal with Andre.  The law once protected people from transferability, and certainly in anarchy one would be protected.
The rejection of Menger based on the fact that credit existed before money is invalid. However, what Innes and Graeber argue is not entirely irrelevant. The story we tell to students and ourselves is oversimplified. We should rewrite our textbook accounts to include the possibility of credit preceding a common medium of exchange and call it inter-temporal barter.
Yes, the textbooks need to be rewritten, but not to add another layer of confusion with contrived definitions only to protect the reputation of a dead theorist, from what?  Clarification?

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