‘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:
- 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.
- 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 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.