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The Social Life of Money

Author(s):Dodd, Nigel
Reviewer(s):Caton, James

Published by EH.Net (June 2015)

Nigel Dodd, The Social Life of Money. Princeton, NJ: Princeton University Press, 2014. ix + 444 pp. $35 (hardcover), ISBN: 978-0-691-14142-8.

Reviewed for EH.Net by James Caton, Department of Economics, George Mason University.

It is not uncommon, nor is it unfounded, for academics who are themselves non-economists, or for economists who operate outside of the mainstream of the discipline, to accuse economists of engaging in academic imperialism. This charge has commonly been leveled against cliometricians whose statistical analyses sometimes ignore broad consideration of historical context (North 1997). In his book, The Social Life of Money, Nigel Dodd casts a much broader net in his critique of economists. For Dodd, economic theory, not just its technical manifestations, misrepresents the role of money in society. Throughout the book, Dodd presents his skepticism toward price theory. He discounts the traditional framing of money as a medium of exchange, store of value, unit of account, and standard of deferred payment that price theory implies and argues that money “is not an objective entity whose value is independent of social and political relations . . . money is a process” (p. 386, emphasis in the original). He questions the traditional view that holds money as a class of objects with particular characteristics suited for its economic role. Dodd dismisses the view that imagines “money is a thing with a stable meaning” whose “functions are constant” (p. 393, emphasis in the original). To defend this claim, Dodd takes the reader on a tour through the history of sociological and economic thought. The tour is divided into eight categories: Origins, Capital, Debt, Guilt, Waste, Territory, Culture, and Utopia. The topics contained within each category are too numerous for explication here. Instead, I will focus on some of Dodd’s core claims: that politics and economics are inseparable and that price theory does not hold analytical primacy in interpreting the role of money — a claim best represented by his unacceptance of Carl Menger’s theory of money emergence.

Dodd continually reiterates that “money is a process, not a thing” (p. 272). He separates his analysis from modern economic orthodoxy, forming his analysis of money from the perspective of political economy. Dodd’s rendition of political economy expands his analysis beyond a strict framing of monetary theory. The reader will find a number of uncommon, and often ideologically charged, interpretations as the author builds on insights from canonical figures like Proudhon, Marx, Lenin, Bukharin, and the like, tying them to modern research in the sociology of money and markets. He shows that money is not a bland object, used only in a manner described by textbooks. Rather, money, often in the process of fulfilling its economic function, can be employed in the pursuit, exercise, and reinforcement of power within social structure. Past manifestations of this process include debtors’ prisons, legal tender monopolies and publicly funded corporate bailouts. Also included are socially obligatory gift exchange and wealth accumulation enabled by money’s lowering of transaction costs (Dodd refers to overaccumulation). Of critical importance for Dodd is money’s “expression . . . as a particular mode of simulating the reality of capitalist political economy” (p. 192, emphasis in the original). This finds one form of expression in the proliferation of financial instruments and the importance of the subsidiary role of those instruments as money. This double role gives financiers a privileged political position as harm generated from the collapse of the credit structure and subsequent price volatility serve to justify intervention that favors those “too big to fail.” As we have seen within the last decade, such a scheme produces conflict that culminates in transfers of wealth and reconfiguration of power that benefits politically connected financial firms. Power begets power.

Although Dodd provides the reader with a well-needed reevaluation of the role of money in the social economy, this perspective does not represent a robust replacement of core economic theory. This holds for the story of money’s original emergence that economic theory implies. Early in the book, Dodd challenges the traditional interpretation of money’s emergence as proposed by Menger (2007 [1883], 1892) in favor of a number of other theories, including Chartalism. Dodd misinterprets Menger’s story of money’s emergence to mean that 1) all money must arise by these means and 2) that all moneys must have some underlying use value as a commodity. Neither of these claims are true. Rather, Menger’s early high-theoretic, analytic narrative tells us that, in its first instance, money, as defined by its economic functions, arose through barter. Once the concept of money, a good with exchange value, arises, money takes on a form as a type. Variations from its original form are not impossible. In fact, they are likely. While we cannot be absolutely certain, due to lack of evidence of the world’s first monetary exchanges, that the earliest money’s arose according to Menger’s formulation, the rapidity with which commodities like cigarettes are adopted as money in places where money is not allowed — prison — or where money’s value has been debauched — hyperinflation — suggest that the theory is coherent (Radford 1945; Burdett, Trejos, and Wright 2001). Dodd’s aversion to Menger’s theory of money appears to be influenced in part by ideology. He connects an apparent libertarian love for gold and public austerity with Menger’s theory of money’s emergence. Dodd’s challenge to the Mengerian story is indicative of his skepticism toward price theory, a theme that runs throughout the book.

In his Principles of Economics, Menger declares that he wishes “to reduce the complex phenomena of human economic activity to the simplest elements that can still be subjected to accurate observation” (2007 [1883], p. 46). Menger presents a general structure of economic taxonomy and process, including a minimalist theoretical structure of money. In a manner reminiscent of German scholars during the Methodenstreit (Mises 1969), Dodd identifies a broad array of categories of analysis whose primary elements are not obvious, but which he colorfully portrays for the reader. This broad analysis provides the work with its richness. Dodd shows the reader that money does not only play the role suggested by traditional monetary theory, but is an object with potential for diverse employment and that may be analyzed according to diverse perspectives. I grant Dodd the significance of the perspectives and processes that they represent. However, the existence of particular instantiations of money that include exotic functions does not change money’s primary role; as implied by its role as a class of economic objects, money serves as a medium of exchange. The value of money is itself subject to the forces of supply and demand. In the Mengerian sense, fluctuations in money’s value regulate its quantity within the market order, whether by production of commodity money or fluctuation in the credit stock. Money’s primary elements are economic in nature. The addition of politics — i.e., power — and other social phenomena to the analysis complicates, rather than invalidates, these dynamics. If we are to take away anything from Dodd’s argument, it is that the application of economic theory must always consider the effect of social and political context on the functioning of market processes. As Wagner (2010) argues, we need always to consider the entangled nature of economics and politics.

References:

Burdett, Kenneth, Alberto Trejos, and Randall Wright (2001) “Cigarette Money,” Journal of Economic Theory 99: 117-142.

Menger, Carl. (2007 [1883]) Principles of Economics, Ludwig von Mises Institute.

Menger, Carl. (1892) “On the Origins of Money,” Economic Journal 2: 239-55.

Mises, Ludwig von. (1969) The Historical Setting of the Austrian School of Economics, Arlington House.

North, Douglass (1997). “Cliometrics: 40 Years Later,” American Economic Review 87 (2): 412-14.

Radford, R.A. (1945) “The Economic Organization of a P.O.W. Camp,” Economica 48 (12): 189-201.

Wagner, Richard (2010) Mind, Society, and Human Action: Time and Knowledge in a Theory of Social Economy, Routledge.

James Caton is a graduate student at George Mason University.

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Subject(s):Financial Markets, Financial Institutions, and Monetary History
History of Economic Thought; Methodology
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative