The Babylonian Economy

[Ted Winslow <winslow@xxxxxxxx>]

Paul writes:

> At least since Aristotle's time, there have been
> two views regarding the nature of money in a money-using market oriented
> entrepreneurial economy: the Chartalist view and the Monetarist (or
> Metallist) view. The latter assumes that the institution of money evolved
> from barter relationships where producible goods always traded for other
> producible goods. Ultimately, in this Monetarist view one commodity
> (normally a metal) became the embodiment of the other goods traded for any
> specific good. Thus, behind the Monetarist conceptualization of money is the
> idea that money merely represents the trading of one specific producible
> commodity for all other producible commodities. From this there develops the
> idea that the use off such a (producible) commodity-based money is more
> efficient than direct barter for it avoids what Clower called "the double
> coincidence of wants".
>     According to Schumpeter [    , p. 56], Plato can be considered the "first
> known sponsor" of the second 'fundamental ' theory of money -- an
> anti-monetarist theory that we now call Chartalism. For Plato money comes
> into being only once a society has organized itself along continuous market
> lines and it is at least social custom supported by social behavior or
> legislation that gives money its unique importance in a system where as
> Clower noted "goods trade for money and money trades for goods, but goods do
> not trade for directly for goods".


There is another way of dichotomizing "views regarding the nature of
money in a money using market oriented entrepreneurial economy", a way
which in my judgement provides a more fundamental basis for interpreting
Keynes.

On the one hand, there is the tradition going back at least to the
beginning of Western civilization which recognizes "the love of money as
a possession", - i.e. _avarice_ - as potentially and frequently actually
playing a role as a significant and irrational aspect of human
motivation.  Thus there is Aristotle with his distinction between
Oeconomic and Chrematistic, and of course there is the myth of Midas
which figures prominently in Keynes's own writing about money
particularly about gold, and there is Pliny "But from money first
springs avarice ... this grows by stages into a kind of madness, no
longer merely avarice but a positive hunger for gold" (cited by Marx in
_A Contribution to the Critique of Political Economy_ p. 132).
Brilliant insights into the psychology of avarice can be found in
Shakespeare (e.g. _Timon of Athens_), Goethe, Balzac, Ibsen and so on.

On the other hand, there is economics in the form given it in the 19th
century and now completely dominant.  In this form, the existence and
importance of avarice in human motivation are totally denied, the most
extreme and emotional version of this denial being "monetarism".

As I've tried to show in earlier posts, there is great deal of textual
evidence that Keynes's economics starts from the premise that avarice -
"the love of money as a possession" - is a central feature of the
motivation dominant in capitalism and that this introduces a very
significant irrational element - "a somewhat disgusting morbidity, one
of those semi-criminal, semi-pathological propensity which one turns
over with a shudder to the specialists in mental disease" - into that
motivation.  In Keynes's economics, it is this, I think, that in
combination with "true uncertainty" (a feature of all human reality and
not just of capitalist reality) produces the characteristic features of
the capitalist economy.

Part of the textual evidence for this claim is found in Keynes treatment
of ancient economies.  Here we find him using the term "Babylonian
Economy" to mean an economy dominated by "the instinct of Avarice".

Some years ago Rod O'Donnell ("The Unwritten Books of J.M. Keynes" in
_HOPE_ (1992) vol. 24, pp. 767-817 ) published some materials from the
Keynes Papers in which Keynes outlines a number of writing projects
having to do with socialism and the ideal society.

The idea of a Babylonian Economy is mentioned several times in the
outlines Rod published. One of these provides the following
elaboration.  Keynes claims we have new evidence giving "details of
business from far back - clay tablets from Babylonian period" so that
"now for the first time we can view economic history in a long
perspective."  From this: "We learn that many of the practices most
characteristic of private capitalism were already highly developed in
certain parts of the world four thousand years ago, and, with the hints
now in our hands, we can trace how the Babylonian Economy has
successively subjugated, enriched and ruined races and societies which
had been nurtured for ages in different ideas and other morals."

Keynes then identifies "the Babylonian Economy" with "the foundation of
Society upon the instinct of Avarice" and, in so doing, claims that:

"The foundation of Society upon the instinct of Avarice is not a modern
improvement.  Until lately this social technique has never conquered the
whole world simultaneously, but, two Dark Ages apart, it has always
existed somewhere.  Its history presents a grave paradox.  Wherever it
has been introduced, it has been successful 'beyond the dreams of
avarice'; it has enriched and aggrandised those Societies which have
employed it beyond comparison above those which have not; but such
Societies do not live - after no very long enjoyment of its wealth and
power each declines and falls." p. 812

In my judgement, this definition of a "Babylonian Economy"  informs the
material on "ancient currencies" published in vol. XXVIII.

Keynes does not identify chartalism with the beginning of the "monetary
economy" and its characteristic problems.  Instead, the importance of
chartalism is said to be that it makes it possible for the state to
debase money and in this way free the positive embodiment of the
instinct of avarice (the "entrepreneur") from the "dead hand" of its
negative embodiment (the "rentier").  The History of Money in this sense
begins with Solon.  But this is not the beginning of the history of the
"Babylonian" or "monetary" economy.

"So far from the act of coinage constituting the veritable introduction
of money, it could be argued that the races, which founded the monetary
economy and have shown special aptitudes for its development, have been
especially suspicious of the inexactitudes and pitfalls of coinage, have
coined reluctantly if at all, and have preferred the straightforwardness
and simplicity of bullion.  The presumption of many writers that where
there were no coins there was barter is far from accordance with the
truth.
        "On the other hand the full-blown use of the precious metals as
money
for each of the four essential purposes outlined at the beginning of
this section had already prevailed universally within the sphere of
Babylonian influence for more than two thousand years at the least.  The
introduction of a money, in terms of which loans and contracts with a
time element can be expressed, is what really changes the economic
status of a primitive society; and money in this sense already existed
in Babylonia in a highly developed form as many years before the time of
Solon as separate Solon from Mr Pierpont Morgan and had had a continuous
tradition during the whole interval in the districts of its origin." p.
254

As Skidelsky points out, Keynes understanding of the implications of
"the foundation of Society upon the instinct of Avarice" changed through
time so that what was initially seen primarily as "morally inefficient"
came to be seen as economically inefficient as well.  In my judgement,
the General Theory's "three fundamental psychological factors" give us
his final working out of these implications.

On this dichotimization of views regarding the nature of money, the
economist whose approach to capitalism is most like Keynes's is Marx.
Marx in fact cites Aristotle ("the greatest philsopher of antiquity") on
"chrematistic" in defence of his own view that avarice underpins
M-C-M'.  (The passage is at the following address in the Marx/Engels
Internet Library:
http://csf.colorado.edu/cgi-bin/mfs/24/csf/web/psn/marx/Archive/1867-C1/Part2/ch04.htm?414#mfs)

Ted Winslow
York University