Philosophy of Money
Here is the course syllabus.
Check back periodically for additional readings or information. Scroll to bottom for new posts!
You'll recall from the syllabus that I will be posting questions for weekly
response. These need be no longer than a paragraph, provided that they
demonstrate active engagement with the material. They may be direct
answers to a question, or sometimes a question or reflection of your own.
These should simply be an email to me, but (a) send it from your BSU account as
opposed to your personal account, and (b) put "Weekly response #x" in the
subject line, where x=the actual number. Email them back to me by Sunday
Weekly response #1: this short video combines an account of money's origins with an explanation of inflation. Why does Prof. Davies argue that inflation is contrary to the very purpose of money?
For week of 9/20 -- chapter VIII of Carl Menger's 1871 book Principles of Economics -- on line here, and G. F. Knapp's The State Theory of Money (1924) -- PDF here (pp. 1-44)
Weekly response #2: In chapter VIII section 3 of the excerpt from Menger linked above, he says that money is not a measure of value but a measure of price. Can you explain that distinction?
Additional reading for next week: Your primary reading assignment for 9/24 is
chapter 3 of Zemanovitz. He mainly discusses Menger, Georg Simmel, and
Ludwig von Mises.
Mises' 1912 book The Theory of Money and Credit is available entirely online, here: http://www.econlib.org/library/Mises/msT.html --read Part 1.
Simmel's book doesn't have an online edition, but here are some excerpts in PDF from his 1900 book The Philosophy of Money.
As we work through Simmel, another work by Mises, Chapter 1 of his 1949 book Human Action, is directly on-point. That's online too: http://www.econlib.org/library/Mises/HmA/msHmA.html
Here's some Marx to read, on alienation: https://www.marxists.org/archive/marx/works/1844/manuscripts/preface.htm Mainly the "First Manuscript," and particularly the section entitled "Estranged Labour" ("estranged" being another word for "alienated").
Weekly response #3: In the Simmel reading linked above, have another look at the section that runs from p. 210 to the end of the PDF. Reflect on the contrast between that and Marx's view of money exchange, and in a few sentences try to summarize that reflection.
Additional reading for week of 10/2: the same link to Mises' book Human Action, above, but now also see chapters 11, 12, 25 and 26. Also, chapter I of Marx's Critique of the Gotha Programme.
Weekly response #4: what does Mises mean by "praxeology"? How does Mises' understanding of human action compare with Simmel's?
For next week: Regarding the division of labor and the coordination of dispersed knowledge, here again is the video about trying to make a toaster from scratch, and here is the related video I mentioned about making a sandwich (this is a short version, but it contains links to longer versions), which is apparently another thing no one can really do, at least not without spending thousands of dollars. Related: no one knows how to make a pencil. You should at this point be able to see why the reasons that it's hard, verging on impossible, to do these things alone is related to the railroad problem from class today - prices (and markets generally) not only aggregate dispersed knowledge, they also contain and signal information. More sophisticated presentation in this famous 1945 paper by Hayek, The Use of Knowledge in Society.
You'll recall from the syllabus that in addition to the weekly responses, your
are to write two short papers (3-5 page range). No WR this week; instead
get started on the first paper, which is due Oct 22. Unlike the weekly repsonse, this should be a
WORD document (meaning a .doc or a .docx)
formatted thus: double-spaced, 1-inch margins, 12-point Times New
Roman font, page numbering on, your name, date, and PHIL252 top left of first
page - and then emailed to me as an attachment from your @bridgew address.
Slides on paper writing guidance.
This is due in my inbox 9:00 am Oct 22. Topic: Evaluate the role of money (or its absence) in conveying knowledge in both the planned economy Marx describes and in a market-driven system. Is Mises and Hayek's criticism, the "knowledge problem," a valid one, or does Marx have a better solution than Hayek and Mises understand?
Mises again: "In an exchange economy, the objective exchange value of commodities becomes the unit of calculation. This involves a threefold advantage. In the first place we are able to take as the basis of calculation the valuation of all individuals participating in trade. The subjective valuation of one individual is not directly comparable with the subjective valuation of others. It only becomes so as an exchange value arising from the interplay of the subjective valuations of all who take part in buying and selling. Secondly, calculations of this sort provide a control upon the appropriate use of the means of production. They enable those who desire to calculate the cost of complicated processes of production to see at once whether they are working as economically as others. If, under prevailing market prices, they cannot carry through the process at a profit, it is a clear proof that others are better able to turn to good account the instrumental goods in question. Finally, calculations based upon exchange values enable us to reduce values to a common unit. And since the higgling of the market establishes substitution relations between commodities, any commodity desired can be chosen for this purpose. In a money economy, money is the commodity chosen."
In addition, start working through chapter 6 of the Zelmanovitz book.
Our next unit for the semester is on inequality and state policy regarding money. We began with the range of options for state redistribution of wealth: at one end of the spectrum would be complete egalitarian redistribution; at the other would be none whatsoever. Regardless of the morality of either option, neither is remotely feasible politically. We'll return to a consideration of those, but we should begin with options such as the existing welfare state and its chief conceptual competitor, known variously as the UBI (universal basic income) or BIG (basic income guarantee). Begin with this overview. Pro piece here. Con piece here. Read these pieces for next week.
First inequality link
Remember, Thursday class will meet in DMF 120. Weekly response #5 will be based on the guest speaker's presentation. For next week, start reading the De Soto book.
Here's the global poverty slide I mentioned. And here's the one I couldn't find, visually demonstrating the income-mobility shift.
Weekly response #5: your thoughts on Prof. Mulholland's analysis of
inequality and mobility issues.
More on inequality and mobility here.
Weekly response #6: after looking at DeSoto's analysis of some of the barriers to mobility in the 3rd world, what parallels do you see with poverty in the US?
No weekly response this week. But give this a read.
Weekly response #7: I direct your attention to the last 2 pages of the De Soto book (bottom of 226-top of 228): he claims that capitalism as implemented in developing nations is "not equitable" and has "lost its way." In the middle of 227 he lists 6 principles that sum up what he was been documenting throughout the book, the concludes on 228 that it's not that he's a "die-hard capitalist," but that he favors capitalism because it's more effective at delivering "freedom, compassion for the poor, respect for the social contract, and equal opportunity." (As an aside, note that just in those 2 pages, both senses of the word "capitalism" that we were discussing in class are present: one connoting a system rigged by elites to serve their own interests, the other connoting a system that reliably enriches poor people, creates mobility, and decreases social inequality.) Review those two pages, and then for the weekly response reflect on that. Because of the long weekend, you may submit this on Monday 11/12 rather than Sunday.
Then, to occupy your week, here's some additional reading which combines some of the metaphysics of money with the social significance angle. It's hard to imagine teaching a course like this and not including the famous speech by Francisco D'Anconia on the meaning of money from Ayn Rand's 1957 novel Atlas Shrugged. Have a look at that, and then have a look at this essay by economist Steven Horwitz in which he explains the philosophy of money underlying it. Implicit in this discussion is the nature of currency - her argument seems to be that fiat currency cannot do what money is supposed to do, and that only a commodity-backed currency can. It's worth wondering whether, even if that is correct, it needs to be metal. Cryptocurrency seems to represent a conceptual challenge to the metallist view while at the same time not being a fiat currency.
We'll get to that on the 20th, but for Weekly response #8, due 11/18, consider the "penny problem" that I mentioned on the first day of class: Among the necessary characteristics of money, we noted that divisibility was one of them. It’s hard to use cows for currency because you can’t use one to pay for things that are worth less than a cow (or, for that matter, more than one but less than two). Bushels of wheat or salt, on the other hand, easily lend themselves to division. Metal does also. And regardless of whether the dollar is a token for an amount of gold or silver, or a fiat currency dollar, that too can be divided up: we mint coins in denominations of half-dollars (for some reason rarely used), quarter-dollars, and also 1/10 dollars (dimes), 1/20 dollars (nickels) and 1/100 dollars (pennies). This is great, because it allows for transactions among very-low-value items (penny for a gumball, e.g.), and for fine distinctions in pricing generally ($5.37 a pound for this cheese). We can conceptually divide even smaller – the 1/10-of-a-cent divisions at the gas station – but we don’t actually have any unit smaller than the penny. I joked about buying exactly one gallon of gasoline and then asking for my 1/10 of a cent in change, but in reality, they would just round it up – so even though it costs $1.89.9/gal, I’m “really” paying $1.90. So we are left with pennies, nickels, dimes, and quarters (and the legal but rarely-used half-dollar). So far so good. But hang on. It costs the US Mint 2.41 cents to produce a penny (figures here are from 2014). Think about that a moment. That means to circulate the approximately $70 million in pennies we use, the government spends close to $170 million! That’s a lot of money. If the penny isn’t even worth a penny, why do we do this? Well, there’s the saying “a penny saved is a penny earned” – but if it takes you 5 seconds to stop and pick up a penny, you’re not even earning minimum wage (do the math if you like). What for? “But they add up!” The other thing that adds up is time. The average American spends about two and half hours a year handling pennies. That’s about $15 billion in lost productivity. (On a related note, it costs the Mint over 11 cents to make a nickel, prompting a similar issue. Last I checked, dimes were still worth it though.) Arguably, at least, the benefits of divisibility are more than offset by the cost to both the individual and the government. There’s actually a movement, therefore, to abolish the penny. Sellers could calibrate their pricing to the nearest tenth or twentieth rather than the nearest hundredth. That would streamline things on the business end, save the government a lot of money, and save individuals time and money. Objections: 1, businesses would all round up and people would be gouged as much as nine cents per transaction. 2, this would have an inflationary effect. 3, it might hurt charities. But (a) Canada has already gotten rid of pennies and (b) the US used to have ˝ cent coins, to which all of these arguments ought equally to apply – and both (a) and (b) show no harmful effects. So why do we keep using pennies? Superstition? Sentiment? Economic misinformation? Your 8th weekly response, then – should we abolish the penny or not? Why or why not?
Cryptocurrency: what is it? Is it money? Is it good or bad? Here are some readings on Bitcoin (which is not the only example of a cryptocurrency, but the most popular): Tucker More Tucker Carden Patterson Tucker again We'll conclude our discussion of this on 2/29 - remember 2/27 we have a guest lecture, so class will meet in DMF120. Then: Weekly Response #9: your thoughts on Prof. Skarbek's presentation.
We talked in class about the idea that inflation and stimulus spending are good on one model and bad on another - on the first, the idea is that these are useful and possibly necessary tools to respond to a serious situation; on the second, the idea is that these activities exacerbate and are even responsible for the problems in the first place. The leading proponent in the 20th century of the former is J. M. Keynes; his main intellectual opposite is F. A. Hayek. For Keynes, here is a web version of his book The General Theory - minimally, read ch 22-24; optionally ch 3, 8-9, 16-17. For Hayek, see the essay "Reflections on the Pure Theory of Money of Mr. J. M. Keynes" and optionally look around in his book Pure Theory of Capital, esp. ch 26.
Interestingly, the Keynes-Hayek debate has been made into a rap battle which accurately captures their basic arguments and even manages to include some direct quotations from their writings. Be sure to watch that and also the video of Keynes-Hayek rap battle round 2, which gets more into the kosmos/taxis distinction. So, for Weekly Response #10: reflect on which model seems more plausible. Due Sunday as usual.
Then: SECOND PAPER ASSIGNMENT: as before, 3-5 pages is the range. Same
formatting and delivery instructions as the first paper (scroll up).
Due: 10:00am, December 18th.
Topic: Choose ONE of these prompts:
(1) expanding on weekly response #10 - besides using inflation to cover costs such as war, some argue that it's helpful to create inflation to relieve the burden on consumers with high debt. Do you think so, or not? Why or why not?
(2) is it right to consider Bitcoin money, and is it a good thing or not?
Update: this was just published today, so it's 100% optional reading, although if you're choosing option (2) for your 2nd paper, you'll want to see it. Cryptocurrencies and the Denationalization of Money