Addressing the money question: ‘Vision’ and rhetoric

Neil Smith

‘The money question’ is one of the oldest and most stubborn problems in economics. Renewed interest in the problem comes at a time when access to information has been democratised via the internet, and good conversation on social media has the power to support and enhance knowledge creation. However, if the age-old problem is to be properly addressed by a new generation in the age of mass communication, those seeking change must recognise the obligation to engage with good faith in constructive conversation.

One school of thought around money which has grown up in the age of the internet if not directly in the blogosphere is Modern Money Theory. It does not take many hours of dwelling on social media to understand how polarising, dogmatic (and often vitriolic) conversations about monetary reform have become. This is in fact nothing new and is to be expected: it is part of the human condition. Economics has repeatedly buried itself in ill-mannered doctrinal disputes, the most infamous being the 19th century Methodenstreit between the Austrian School and the German Historical School of economics — a dispute echoed in Britain, encouraging John Neville Keynes to comment (in his ‘The Scope and Method of Political Economy’, 1891) that:

“The sharp distinctions drawn by opposing schools, and their narrow dogmatism, have unnecessarily complicated the whole problem. The subject has become involved in heated controversies, that have not only made it wearisome to unprejudiced persons, but have also done injury to the credit of political economy itself.”

Indeed, dogmatism seems to be a mark of the discipline of economics, not least where the politically contentious issue of money is concerned. Some may argue that political or ideological presuppositions — often unconsciously held and unquestioned — are inherent within the monetary sphere, and inherently divisive in debate. Yet dogmatism is extraordinarily unhelpful, not least when attempting to overthrow a monetary orthodoxy. Orthodox monetary theorists must revel in the implicit divide and conquer reality that dogmatically held beliefs and ego-protecting argumentation feed. As such, a mutual recognition of often opposing presuppositions and ideologies is the starting basis for any monetary debate. It may be suggested that openly embracing one’s ideology is essential to delivering what Schumpeter referred to as ‘Vision’ in economics.

Deeper ideological debates should be acknowledged but demarcated from specific debates over money. Ultimately, many questions of money may only be resolved by reference to competing ideological presuppositions: Should money and credit be private or a property of the commons? Should debtors be favoured over creditors or vice versa? Such questions of ideology cannot be settled easily, but many monetary debates may ultimately depend on resolving such questions.

Leaving ideology aside, a crucial step to promoting the cause of (any kind of) monetary reform must take semantics and rhetoric very seriously. Deirdre McCloskey has been largely responsible for promoting the art of rhetoric in economics, and while her original work in the early 1980s predates the rise of the internet and social media, the key arguments are even more germane today. McCloskey describes rhetoric as ‘exploring through conversation’: an anti-methodology, implying the necessity of a more pluralist approach to understanding economic questions. While rhetoric may be conflated with sophistry — the act of deception through false argumentation — good rhetoric is the art of honest persuasion towards acceptance of what are believed to be legitimate causes.

Sadly, many arguments around money appear not to be made in good faith. While few may argue deliberately in bad faith, a more pernicious and widespread threat is the convinced adherent who is unaware of the presuppositions they hold and the fallacious reasoning they deploy. Fallacious reasoning is the bane of constructive argumentation and reform attempts. Typical fallacies include: ad hominem; appeals to authority; appeals to popularity; blinding with science; complex questions (plurium interrogationum); irrelevant conclusions (ignoratio elenchi); bogus dilemmas. The list goes on and, combined with a sneering that McCloskey suggests is the enemy of conversation, social media ‘debates’ end-up in bad-tempered and fallacious rhetorical cul-de-sacs: the mute button may put a pause on this, but the ‘block’ button may put an end not just to a conversation, but the conversation.

An appreciation of the power of rhetoric, and the need for good (honest) rhetorical practice is essential to progress in monetary reform. Non-specialists have, throughout history, been drawn to the money question precisely because it is deemed as crucial to understanding the ills of society: an issue where good intuition is as invaluable as narrow technical skills. Such non-specialists have uniquely in science been described as ‘cranks’ or heretics for daring to step into the domain of those who earn their living from pondering economic questions. Yet, as (John Maynard) Keynes, an avowed monetary reformer, warned:

The heretics of today are the descendants of a long line of heretics who, overwhelmed but never extinguished, have survived as isolated groups of cranks. […] But they have made no impression on the [orthodox economics] citadel. […] Now I range myself with the heretics. I believe their flair and their instinct move them towards the right conclusion. But I was brought up in the citadel and I recognise its power and might.

The citadel of economic orthodoxy requires a common language: mathematics. While it is generally acknowledged that mathematics is essential for conveying key simplifications, mathematical economists rarely see fit to list the assumptions and presuppositions of their methodology which are deemed to make the logical, tractable models applicable to the infinitely more complex real world. Many critiques of formalist economics recognise that a broader evidence base is required, often requiring narrative descriptions of formal concepts that are intractable in the formalist mathematics deemed admissible by orthodoxy. The notion that economists understanding of money may differ between their informal understanding and their formalist representation was, ironically, conceded by Paul Samuelson (the man largely responsible for normalising mathematical formalism in economics). In his Nobel Prize speech Samuelson warned that optimising (min-max) techniques have nothing to say about dynamic problems. This has often been forgotten by orthodox economists whose models essentially solve-by-assumption the inherently intertemporal and dynamic ‘money question’ in order to make their ‘real-exchange’ economy interrogations tractable. Yet neither austere mathematical formalism, nor narrative realism have a right to a monopoly on reasoning when it comes to questions of money. As William Stanley Jevon’s rightly pointed-out in a lecture to UCL students 150 years ago, the ‘Fallacy of Exclusiveness’ in methodology is unwarranted: it is simply bad science.

While, ultimately, methods of doing economics are driven by individuals’ differing conceptions of what constitutes good reasoning, both the heretics as well as the high-priests of the citadel must learn to communicate in a common language each may understand. This involves humility and stepping outside one’s comfort zone. It also involves an effort to seek a broader understanding of opponents’ views on their own terms. Neither of these tasks are easy:

  1. A wider group of heretics need to learn to better formalise their arguments in order to communicate not just to the citadel, but to fellow heretics of different stripes. Maths is an essential element, but this maths need not be Formalist: John Hicks, having rejected his earlier IS-LM approach, suggested that there is no question in macroeconomics which cannot be addressed sufficiently using appropriate accounting and simple mathematics — a spreadsheet in modern parlance. The future of economics seems more likely to be computable. Most arguments about money can be represented and interpreted with simple equations and spreadsheet simulations. Any temptation to blind with Formalist mathematical reasoning is a fallacious approach, not consistent with scientific method.
  2. Orthodoxy needs to accept that there remains a great deal to learn from narrative history, and simple models of earlier writers, which are yet to be incorporated into orthodox theory. For instance, much orthodox monetary theory in recent years has focused on so-called search and matching models which appear to ignore the fact that most civilised monies in history emerge through institutional power arrangements and laws, not market search. Accepting that money is simply what we use as money, determined by laws and regulations, may seem anathema — but it is essentially true. Equally, Representative Agent Rational Expectations (RARE) models can have little to say about money in the real-world where uncoordinated class interests and naïve/myopic decisions, taken with ‘fast-and-frugal’ heuristics (in information poor environments) are what the real-world is all about.

In summary, several requirements in the nature of debate appear useful. Accepting common definitions of language, or being explicit on where it may be appropriate to disagree is a key step to take if the walls of the citadel are to be breached, and for the tribes of heretics to communicate more fruitfully. Recognising and embracing ideological presuppositions opens the door to competing visions which can be debated on the merits of their ideological pre-commitments, rather than mistakenly believing to be arguing over technical issues. A conscious adoption of mindful, honest rhetoric, exploring ideas through conversation is needed. It has already taken hundreds of years of questioning. The task may appear insurmountable, but that a solution is as urgent as ever should not be underestimated. Monetary reformers must not descend into another fruitless Methodenstreit for future monetary historians to look back on in saddened bemusement. As Keynes warned nearly a century ago, monetary reform “is not a battle which can be won or lost in a day”.

Neil Smith

Neil Smith is an economist at London-based Altus Investment Management, and an Associate at the Universities of Exeter and Plymouth. His background is in financial markets; more recently his research has been focusing on the history of the money question and exploring the appropriate methodologies for understanding the economics of money.

5 Replies to “Addressing the money question: ‘Vision’ and rhetoric”

  1. Rory Short says:


    What is wealth?

    Atoms of wealth are formed by completed voluntary exchanges of goods and/or non-financial services.

    These exchanges form atoms of wealth because in each completed exchange each party to the exchange is more satisfied than they were before the exchange was completed.

    Why use money to make exchanges and create wealth?

    Finding someone who wants what you have to offer for exchange and is offering something that you want in exchange for it is extremely time and energy consuming, i.e. we need the occurrence of a “double coincidence of wants”.

    If there was a Universally Exchangeable Item[UEI] available to be used as the item to be exchanged in one half of any exchange then organising exchanges would be greatly simplified as one half of the “double coincidence of wants” would be automatically satisfied.

    UEIs obviously have to be created by humans as they do not occur naturally. What would a UEI consist of or look like?

    Successfully completed exchanges are infinitely variable in composition but is there a factor which is present in every successfully completed exchange? What is this factor and could it be reflected in a man made item? If so then this item could become a UEI.

    The universal or common factor in every successfully completed exchange is value. But the value of the items successfully exchanged lies hidden within the exchanging party’s heads. Consequently some means of externalising and reliably recording this value needs to be found if we are to create a UEI from it.

    The simplest way to do this is to produce a recording of value which is then used in a successfully completed exchange process. Administratively this works as follows:

    Person B is offering an item Ib for exchange
    Person A wants Ib.
    B values Ib at price Pb
    A calls upon a neutral party C to produce a written recording WR of price Pb
    As A intends to use WR as a surrogate for a real exchangeable item WR is recorded as a debt against A
    A offers WR to B in exchange for Ib and B accepts
    A now possesses Ib but also has debt WR with C
    A, to settle the debt WR with C, supplies an item X into the community at price WR
    C receives payment of WR from A and settles A’s debt WR by means of the payment.

    The completion of this process means that both A and B have, via C, participated in, and completed, an exchange valued at Pb thus WR is a valid recording of a successfully exchanged value and can be used as a UEI.

    We know such validated recordings of exchanged value as money.

    Unfortunately, as it is quite possible to produce unvalidated recordings of value and call them money, we have to distinguish validated recordings of value by adding a qualifying adjective ‘honest’ to money, i.e. honest as opposed to dishonest money. Dishonest money has to get its value by stealing it’s value from the money already in circulation. This debases the currency and causes inflation.

    Credit card facilities offered by banks produce new money which is honest when the money is used to purchase goods and/or non-financial services and the associated new money debt is settled at the end of every month.

    Thus the only way that new money should ever be issued is via credit card purchases of goods and non-financial services. New money issued for any other purpose should not be allowed as it will cause debasement of the currency and thus inflation.

    There is no logical reason why everybody within an economy should not have access to new money, i.e. a credit card facility, provided that their new money debt, at any point in time, is capped so as to prevent debasement of the currency and to provide control of inflation.

    The ultimate solution would be for government to ensure that everybody had access to their own e-wallet App on their mobile phones, using which wallet they could receive and make payments.

    Rory Short

  2. Bob Wilkinson says:

    Interestingly the graphic at the top of the article says ‘VISON (sic) AND RHETORIC’

    I am fairly sure that VISON should be VISION. Unless it is some in-joke that I do not understand. I did skim read the text but saw no reference?

  3. Gordon Sim says:

    WOW !. These are very thoughtful comments but as one from a humble background I think this money thing is well overdone when it really appears to be quite simple.
    1. We are a Sovereign Country that produces its own currency ? Yes/No.
    2. The Chancellor with Bank of England decides how much they need to spend ?.
    3. They sell/offer this amount to the banks ?.
    4. The Banks buy what they want by exchanging gilts/bonds/paper with Bank of England ( BoE ) ?.
    5. The high Street Banks now have credit supported by BoE which pays a nominal interest rate ?.
    6. The Banks can use currency however they like ?.
    7. The make loans to business/individuals with interest added to debt ?.
    8. When this currency is spent/used for services/products it then becomes actual/real currency/money ?.
    ( Prior to currency/money being used to purchase goods or items it is only private/digital/computerised money, virtual ) ?.
    9. Currency/money in the real/actual physical world is now open to all sorts of uses and losses ?.
    10. When the debt currency/money is paid back to bank, the debt is written off and interest kept by bank ?.

    Now why is all this so hard to understand ?.

  4. Howard Connell says:

    J. K. Galbraith a famous Harvard Economist once said: “The study of money above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it”. Much of Modern Monetary Theory is actually common sense and merely describes modern money creation with a Sovereign Fiat Currency. I believe it can be explained in very simple language without resorting to complicated financial jargon which just “muddies the water.”
    It fact it is so simple that in 2012 it was explained to all the assembled experts at a meeting of the Public Banking Institute of Canada by a 12 year old girl named Victoria Grant. It was a “stunt” repeated the following year in England by a 10 year old girl named Holly for a new British group named “Positive Money”. Positive Money was founded because, having found out the real truth, it’s founder believed that not enough people were talking about how banks create money and the role this played in the 2008 financial crisis. The truth is that the economy exists to serve the people and not the other way around,
    However, as Voltaire observed “Common sense is not so common”. Common sense is not so common because I personally believe that there is a major problem regarding the role of belief in society. It was astutely observed a long time ago by the American philosopher Mark Twain when he pointed out that: “It ain’t what you don’t know that gets you into trouble, it’s what you know for sure that just ain’t so.” Others have made similar observations such as Stephen Hawking who said that: “The greatest enemy of knowledge is not ignorance, it’s the illusion of knowledge.” Friederich Wilhelm Nietzsche said that: “Convictions are more dangerous enemies of truth than lies!”

    The problem lies in the unquestioning acceptance of universal beliefs, which have been carefully crafted and implanted through repetition by authority figures and institutions. Sally Kempton exemplified this when she said that:“It is hard to fight an enemy who has outposts in your head”. People today have become as processed as their food but woe betide anybody who tries to point that out, just try pointing out the shortcomings of belief online and see what you get! John Stuart Mill said: “One person with a belief is equal to a force of 99 who have only interests.” There is an old saying that “There is no fury like that against one who, we fear, may succeed in making us disloyal to beliefs we hold with passion, but have not really won.”

    Once it was churches that led the way in manipulating people through belief but today that mantle has been taken over by the “Public Relations Industry”, which was founded by Edward Bernays and Walter Lippmann in America after the First World War at the behest of American banking and business interests. They codified all the “dirty tricks” that had been used for centuries to manipulate people and are the originators of what we now call “spin” and “political correctness”. In recent political history, the Labour MPs Campbell and Mandelson were masters and users of these “dark arts”, as in turn was Cameron when Prime minister, being also a former “Public Relations” man.
    A belief is an acceptance that something exists or is true without factual proof and unfortunately, it has become a truism that for the majority of people that universal beliefs overrule factual knowledge and truth. Mark Twain elaborated further when he said: “In religion and politics people’s beliefs and convictions are in almost every case gotten second hand without examination, from authorities who have not themselves examined the questions at issue but have taken them second-hand from other non-examiners, whose opinions about them were not worth a brass farthing”

    Adults lead children to hold beliefs about “Santa Claus”, the “Tooth Fairy” and the “Easter Bunny” etc., to enchant and entertain them. However, growing experience of the real world sooner or later inevitably proves those beliefs to be false to the child. Unfortunately, those same adults typically also hold many other beliefs which they also pass on to their children and friends. Beliefs that are not so easily recognised to be false as is Santa Claus or the Tooth Fairy.
    Many adult beliefs are such that one imagines that adult experience of the real world ought really to cause them to question them, but they are so universal that most people rarely feel the need to make the required effort to question them and reveal their falsehood. Henry Ford said that: “Thinking is the hardest work that there is, which is probably why so few people engage in it.” Indeed thinking consumes about 20% of our body’s energy and is a major factor in people’s reluctance to engage in it, it is just so much easier to just believe. Unfortunately for the believers as Aldous Huxley said: “Facts do not cease to exist because they are ignored”. The problem lies in an outdated belief system and only education can solve that because true education is a process of diminishing deception.


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