[OPE-L:1951] Re: [MIKE WILLIAMS] electronic money

Paul Cockshott (wpc@cs.strath.ac.uk)
Thu, 25 Apr 1996 04:48:01 -0700

[ show plain text ]

I agree with RBs argument that money is created from nothing
by the banking system, but I disagree with him when he says
that we must ignore the state and deal only with private agents
when trying to theorise this.

In a purely private banking system, where anybody can set up
as a banker, the bankers individually need some guarantee of
their ability to make payments, which can only be provided by
gold or silver held as reserves. One needs a social guarantee
of the restricted supply of money, with gold, geology ensures
this in a way that the commercial reputation of the individual
banker can not.

This social guarantee is now provided by something else outside,
the domain of private contracts - the state bank. It is able
to enforce its guarantee through two mechanisms:

1. The private contractors have to have recourse to the courts
to settle disputes over contracts, and the state may legislate
to the effect that its paper has to be accepted in payment of
any debt.

2. The state has the power to tax, and, this taxation now absorbs
a very large part of the social product. If it levies taxes in
money rather than in kind, it can enforce the circulation of
its money. This was an important means by which state money was
introduced into Africa for example. The colonial governments levied
taxes that had to be met in the notes and coin which they

The important factor though, is that private contracts by themselves
can never be the foundation of a banking system. This I take to be
the import of Marx's accounts of how in a commercial crisis,
endorsed bills which had been accepted as means of payment,
ceased to function as such, and the cry went out for settlement
in gold.
Paul Cockshott