Books and documents:
Agustí Chalaux de Subirà, Brauli Tamarit Tamarit.
Agustí Chalaux de Subirà.
Agustí Chalaux de Subirà.
Agustí Chalaux de Subirà.
Magdalena Grau, Agustí Chalaux.
Chapter 5. Aristotle against Plato.
An biased viewpoint of the history of currency has made the Aristotelian
vision of currency (third merchandise with intrinsic value) predominant
over the Platonic vision (abstract monetary sign with which to make a rule
Inevitably, we must refer to a little history in order to try to understand
where the muddle comes from. The books on the history of economic thought
usually put Aristotle and Plato as the beginning of the polemic on currency.
Plato suggested that currency should be an arbitrary «symbol»
to help exchanges. He was against using gold and silver because, in his
opinion, the value of currency should be independent from the material
with which money was made.
Aristotle, consciously opposing Plato's theory, gave birth to the following
reasoning: the existence of a non-communal society implies the exchange
of goods and services; this exchange at the beginning takes the shape of
a barter; but the person who wants what another has, perhaps does not possess
what this other person wants; it will then be necessary to accept in exchange
something we do not want, in order to obtain what we want by means of another
barter; this fact will then induce people to choose a merchandise as a
means of exchange; metals are usually chosen because of their features
of homogeneity, divisibility, transportability and relative stability of
value. This metallist vision has been predominant until recently, in spite
of the serious contradictions to which reality has submitted to it.
In short, in the West these are the two positions with which many variations
have been tried without reaching an understanding. Some times the theories
have complemented each other, and some times they have been in contradiction
with the monetary practice. The history of currency and its theories is
full of confusion and crises.
himself, in his impressive work on the history of economic analysis1,
admits that «whatever may be its shortcomings, this theory (Aristotle's),
though never unchallenged, prevailed substantially to the end of the nineteenth
century and even beyond. It is the basis of the bulk of all analytic work
in the field of money.» It has had such a strong influence that,
nowadays, ordinary citizens still think that the paper money being issued
corresponds to an amount of gold which is kept in the vaults of the central
bank, and in general they ignore the creation of money by the banks.
Present-day monetary theories acknowledge and accept the changes which
have taken place in the progressive abstraction of currency, but in spite
of the fact that many of them describe a monetary theory completely detached
from the metallist theory, generally speaking they are still blocked as
far as the imagination of a different monetary system is concerned. The
monetary system becomes then the result of the agreements reached by the
economic powers, and the result of the failures of the world monetary authorities.
These authorities always tempted to drag the weight of metals in face of
the «magic» of a currency which is detached from everything,
which the bank system has created and which they cannot control.
the result is the theoretical and practical predominance of the Aristotelian
vision -metallism- which has been effective until quite recently. «Theoretical
metallism, usually though not always associated with practical metallism,
held its own throughout the 17th and 18th centuries, and prevailed victoriously
in the «classical situation» that emerged in the last quarter
of the latter. Adam Smith substantially ratified it. And for more than
a century to comr it was almost universally accepted (by nobody more implicitly
than by Marx) so much so, in fact, that the majority of economists came
to suspect not only unsoundness of reasoning but something very like obliquity
of purpose behind every expression of antimetallist views2».
«There was also, however, an antimetallist tradition, weaker no
doubt but equally ancient, at least if we choose to trace it to Plato3».
of the most daring attempts both in the theoretical and in the practical
field, was the one carried out by John Law in France in the first years
of the 18th century. «He worked out the economics of his project
with a brilliance and, yes, profundity, which places him in the front rank
of monetary theorists of all times. And this is all that matters for us.
Since it is plain, however, that his analysis has been condemned, for about
two centuries, on the strenght of the failure of his Banque Royale (...)
and the Compagnie des Indes, which it absorbed, failed because the colonial
ventures combined in the latter did not, for the time being, prove to be
the sorce of anything but losses. If these ventures had been successful,
Law's grandiose attempt to control and reform the economic life of a great
nation from the financial angle -for this is what his plan eventually amounted
to- would have looked very different to his contemporaries and to historians4».
Law underlines that the virtues of paper money consist of the fact that
its amount can be reduced to a rational administration. «Silver
that serves as money no other use than to buy goods, it might just as well
be replaced by a cheaper material, in the limit, by one that has no commodity
value at all, such as printed paper, for 'Money is not the Value for
which Goods are exchanged, but the Value by which they are exchanged.»
«This, then, seems to have been the work that gave birth to the idea
of Managed Currency (which implies the administration of currency and of
credit as a means of directing the economic process), which was subsequently
lost to the large majority of ecoomists until it forced itself upon them
after 1919.» «A great plan was behind all this, in fact well
advanced on the road to success: the plan of controlling, reforming, and
leading on to new levels the whole of the national economy of France5».
This is an example of the weight of the inertia of the paradigms which
make up, lead and control our vision of reality. When in 1919 paper money
started to be accepted, and the need for its convertibility into gold was
overcome, it was already late. The extension of current accounts and of
cheques, with the corresponding expansion of credit and the invention of
bank money, started to make the use of paper money inadequate, as it was
no longer able «to reduce its amount to a rational administration»,
according to Law. Today, with the massive introduction of credit cards,
the cash in the hands of the public is further reduced and therefore the
ability to create bank deposits is increased, so that bank-notes and coins
are used less and less.
A. Schumpeter (1954), «History of Economic Analysis», Oxford
University Press, New York, 1963, p. 63.