Subtitle: The Conflict of Trust and Authority, St. Martin's Press, NY.,
1977, 163 pgs., index, bibliography, notes
Reviewer comment - This is an unusual and important analysis of current
thought on the role of money in society. It was written in 1977 soon after
Pres. Nixon ended the tie of the dollar to gold and the start of the massive
inflation and depreciation of the dollar. That is the focus of 'conflict'
between 'trust' (that is the people's trust in the stable value of their money)
and 'authority' (that is the theory backed policy of government to manipulate
the value of money to serve its political and social goals). Dr. Frankel
considers this immoral. His is a 'voice calling out in the wilderness' and his
warnings have now been ignored.
The two philosophies are the contrasting theories of Georg Simmel and Lord
Keynes. Professor Frankel compares and contrasts their opposing views on the
role and nature of money. He provides also an appendix with brief biography of
Simmel. He writes that Simmel deplored the new, statist, concept of money and
was pessimistic when predicting the loss of individual freedom that would come
with government control of money. He cites Keynes as the proponent of govenment
manipulation that has created our resulting disaster. With extensive quotations
from several of Keynes' books and essays he claims that Keynes and his
followers advocated and established a false theory of money which has been
responsible for the loss of individual liberty and the encroachment of
This book can be studied and its content compared with the many books on Marx,
Keynes, and the development of concepts about money, several of which I
reference here. The reader comes to realize that there is very much more to
money and its central role in society than is described in the usual depiction
only in the typical statements in economics texts about the three functions it
is said to perform. A full description and positive analysis of the 'modern'
role of government money that Frankel saw being expanded is in
Wray who claims the result is positive.
Jerry Z. Muller - The Mind and the Market - Capitalism in Western
G. L. S. Shackle - Epistemics and Economics: A Critique of Economic
Hunter Lewis - Where Keynes Went Wrong
Geoffrey Ingham - The Nature of Money
Felix Martin- Money, The Unauthorized Biography
Nicholas Wapshott - Keynes - Hayek: The Clash That Defined Modern
Perry Mehrling - The New Lombard Street: How the Fed Became the
Dealer of Last Resort
L. Randall Wray - Modern Money Theory: A Primer on Macroeconomics
for Sovereign Money Systems
Stephen R. C. Hicks - Review of Leonidas Zelmanovitz book The
Ontology and Function of Money
Philip Coggan - Paper Promises: Debt, Money and the New World
David Graeber - Debt: The First 5,000 Years
Glyn Davies - History of Money: From Ancient Times to the Present
Lawrence H. White - The Clash of Economic Ideas
James Rickards - Currency wars: The Making of the next Global
James Rickards - The Death of Money: The Coming Collapse oft he
International Monetary System
Martin Katusa - The Colder War: How the Global Energy Trade Slipped
from America's Grasp
Kwasi Kwarteng - War and Gold: A 500-year history of Empires,
Adventures, and Debt
The author provides a clear summary of his belief and his program to express
"This book deals with the changes which have taken place in the attitude
to the economic and social role of money in the free world. The present
ambivalence towards the money economy rests on the ascription to money of
abstract powers which it does not possess. Consequently much of what goes under
the name of monetary policy arises from false or misleading analogies and from
the belief that it is possible to ignore individual and social custom and
Clearly this is a direct attack on the American Federal Reserve system and
government fiscal-monetary policy. The author expands on this basic view in the
organization of the chapters.
"In the Introduction I discuss why monetary questions are basically
philosophical or moral.
In Chapters I and II he will "show the significance of the cultural
attitudes towards and symbolism of money as expressed particularly in the
conflicting social philosophies of Karl Marx, Georg Simmel and J. M.
In Chapter III he discusses 'the actual foundations of trust and certainty in
monetary policy and practice in the nineteenth century." He includes
discussion of Carl Menger, Macleod, Bagehot and others.
In Chapter IV he stresses the importance of Georg Freidrich Knapp's, theories
and their influence on Keynes.
In Chapter V he devotes more detail to study of "Keynesian and
post-Keynesian morality of money and its assault on the monetary economy
In Chapter VI he assesses the 'implications of these modern ideologies for the
survival of a free society."
Professor Frankel establishes the current environment and his purpose in
"There has been a striking development in statistical and econometric
analysis of monetary data, and in the clarification of logical concepts in the
theory of monetary economics in the last fifty years. It has, however, obscured
the fact that there are basic monetary questions which are not 'scientific' or
'technical' but depend on the particular vision of what men and women hold to
be the truths, principles, or values which do, or should, govern them. The
philosophy of money consists of an analysis of such questions. It forms the
subject-matter of this study."
Chapter I -The Symbolism of Money
Professor Frankel begins with noting that "the Victorians' that is 19th
century thinkers, saw money not only a symbol but that it also seemed to
guarantee the rapid free exchange economic expansion that was taking place. And
this 'enraged' their opponents. Then thinkers of the 20th century have revolted
against their ideas. Today all this is nearly forgotten. Wesley Mitchell
believed that the development of money was a great institutional advance and
the basis of economic rationality. He notes that, "Simmel saw the
likelihood of these developments more clearly than anyone else. To him money
symbolized a certain form or structure but not a static one: the significance
and meaning of money lie in its mobility." But he saw "it is a symbol
of persistence as well as a symbol of movement."
Dr. Frankel describes Simmel's concepts: "He argued that economic forms
are themselves the consequence of deeper social evaluations and forces whose
psychological, indeed, even metaphysical, assumptions must be recognized."
He faults economists for ignoring this.
"Simmel, at the very outset, emphasized that he wished to refute the basic
doctrine of historical materialism, i.e. the insistence on explaining social
change only in terms of extraneous economic or material causes." Dr.
Frankel elaborates on this point, with which he agrees. He regards it a
'fundamental category mistake' and states that he "intends to show (it)
also underlies much of current monetary theory and policy."
"A Category Mistake"
He considers that Simmel shows that the mistake is assigning facts 'as if they
belonged to one category when they really belong to another."
"Money appears to be something additional to, or to stand outside, the
individual things themselves, as if it were 'an empire of its own' This is,
according to Simmel an illusion: not things but people are responsible for the
activities involved." "He (Simmel) illustrates the same category
mistake in the misuse of concepts like wealth, capital, and property, when they
are thought of as existing apart from or outside the socially determined rights
which they express, or the exercise thereof which they permit."
"Money has, or appears to have, that unique potential power of being
incorporated in any future use that its possessor may desire to put it to. Yet,
in fact, given this power and potentiality is not one which stands outside, or
is additional to, these eventual uses. If they are no longer available, or
permitted, the apparent independent power of money disappears with them".
"Money and Exchanges"
Dr. Frankel continues, "Simmel makes the same point in regard to the
process of exchange: outside it 'money is as little as regiments and flags
without collective aggression'...."... "That is why the creation of
values through exchange is as important to Simmel as it is anathema to Marx and
his successors."... "The fact that money grew out of the process of
exchange is of prime importance because it involves the freedom of individual
valuation - without which money cannot function fully as money."
"There is an intimate relationship between money and freedom, between the
keeping of promises and the certainty of contracts; between social functions
and the rule of law. None of these relations is regarded by Simmel as a mere
link in a chain of mechanical interactions: for him money is in the last resort
an abstract form."
Dr. Frankel elaborates for several pages. "One of the basic facts of our
subjective world was that we express social relations through symbolic images.
Money was one of these." It became a symbolic expression of economic
relationships. But these symbols cannot be separated from the circumstances
from which they arose. He continues by contrasting the nature of the symbolic
relations for ancient Greeks , 18th century Europeans and then 19th century
thinkers. The change between the 18th and 19th century conceptions is striking.
He states that for Simmel the 'most paramount and beneficent aspect of the free
monetary order' was its relationship to the freeing of individual citizens from
feudal and national constraints.
"Ideology of Money"
Professor Frankel writes, "In my opinion this view illustrates the change
which has since taken place in attitudes to, or what might be called the 'moral
ideology of money."
Here he voices his central concern, that today money is not in the independent
control of free individuals as a central aspect of that freedom, but rather is
controlled, manipulated, and abused by governments. And, as he elaborates
further on, governments even conceal this. Thus the nature and role of money in
society is misunderstood and resented by much of the public.
"The fear of money lies at the root of many of our present perplexities.
For the nineteenth century, however, it was not fear of money that predominated
- it was faith in it: particularly faith in its power to ensure certainty for
the individual. Therefore nothing should be permitted to undermine the
certainty of money itself."
But of course modern governments have already undermined trust in money.
"Simmel had no illusion at to what enabled money to play this all
pervading role. It was the freedom and security of the economic order on which
the full potentiality of money rested."... "By the full potential of
money he meant the manner in which money affected not only our actions but the
fears, hopes and desires on which they were based."... "The extension
of credit could itself be regarded as a dual- indeed an uncanny - process: what
was a mere future claim, or indeed possibly only an ephemeral hope, in the hand
of the lender, appeared at the very same time as something real in the hand of
the debtor, for whom it was immediately available and expendable."
"It is because money is a sociological phenomenon, a form of social
interaction among people, that its true nature emerges ever more clearly the
more intimate and dependable social bonds become." "It was taken for
granted that the monetary trust on which it (that is peaceful and improving
European society) had been built would continue."
Thus the contemporary destruction of trust in money caused by government policy
is directly related to social chaos. As he notes, "There were destructive,
irrational forces at work which were, to Europe's peril, generally and
dangerously ignored." (Writing about the pre- World War One era.) But
continuing throughout the 20th century.
Chapter II - Money and Individuality
"The Legacy of the Eighteenth Century"
Dr. Frankel states the situation clearly, "No greater contrast can be
imagined than that which separates many of our current conceptions of the
nature and purpose of money from those which were dominant for most of the
nineteenth century. To understand the latter one must appreciate the
reverberations caused by the monetary disasters of the eighteenth
He is writing about the disasters that led to and culminated in the French
Revolution. He cites both John Law's fiasco and the revolutionary Assignat. The
danger was already spreading by the time of John Stuart Mill, who, however,
could not imagine 'that society could be improved by altering the basis
function, or reducing the importance, of money itself." (Shackle also discusses this change and links it
"Challenge to Monetary Order"
He continues, "The difference between the accepted attitude which
prevailed in the nineteenth century and that which has developed since the
First World War, and particularly since the nineteen thirties, lies elsewhere:
in that the very idea of the beneficence of a free monetary order was again
challenged. The challenge was not only to the idea that money is 'neutral' . It
went further. It raised the issue whether an economy based on a free monetary
order was necessarily more desirable than a non-monetary economy. he notes that
Keynes was among those who preferred the latter.
He continues, "Disapproval of money itself was, of course, nothing new. It
goes back to antiquity. What was now made fashionable by Keynes was the formal
rejection of the monetary orthodoxy of the nineteenth century."
Meaning the approval of government manipulation of money for political
purposes. For the classical economists money was the means for individual
Dr. Frankel continues, "Historically the growth of exchange value and of
the power of money are interconnected and the whole exchange relationship
'establishes itself as a force externally opposed to the producers and
independent of them'". He describes Marx's view of money and the bourgeois
attitude toward money and wealth. "Much more important, however, is Marx's
attitude to exchange as such. It lies at the root of his condemnation of money
and of individual freedom within a monetary economy." "He idealized
ancient and medieval economic relations." Frankel supposes that this was
because he knew so little about them. "However, Marx built his utopia on
an idealized conception of the economic organization in such societies."
See Muller.) His analysis is extensive. He relates
Marx's famous concept of 'alienation' to Marx's claim that the 'abstract' role
of money in exchange made men actually less free than they had been when
settled 'safely' in the medieval manorial exchange economy.
"The Philosophy of Georg Simmel"
Dr. Frankel devotes several pages to comparing Simmel's concept of money and
its influence on Keynes. "Simmel's interest in the philosophy of money
rests on his view that money epitomized and illustrated his theory of culture
and the tensions the latter involved for the individual." Simmel had a
very different attitude toward wealth as a part of the individual's being.
Frankel quotes Simmel. 'The most mobile of all kinds of properties is money.
Consequently, there is a close interrelationship between the development of a
money economy and the growth of the role of the individual and the recognition
which is given to him.' For Marx, money creates alienation, but for Simmel it
creates individual freedom.
Dr. Frankel continues, "The same occurred in regard to the relation
between the owner and his property. Money alone made possible the complete
separation of the first from the second." .. "Only in the modern
sophisticated money economy were both property and its owners completely
differentiated - and liberated - from each other."
This is a critical concept. Understanding this, one can understand the
overwhelming desire of the intelligentsia - elite - to regain power over the
money supply and its availability to the common man. Lenin, of course, well
"Scientific Objectivity and Abstract Freedom"
Dr. Frankel writes, "Simmel drew a parallel between the increasing
scientific objectivity with which modern man conceived of the universe and his
attempt to express individual freedom in similar abstract terms." But in
modern society freedom is a process rather than event. The money economy
enhances individual freedom in one sense but also makes the individual
dependent on the activities of millions of other individuals.
"The World of Measure"
The author describes modern man as a mathematician and accountant. Everything
now is measured, calculated, weighted in quantities. "The money economy is
merely the sublimation of economic life. Money expresses the purely economic
aspects of objects just as logic expresses their intellectual or conceptual
ones. Money is a mirror which pictures all elements with complete indifference
to non-monetary values."... "The calculating intellect which operates
through the money economy receives back from that same money economy some of
the mental characteristics in terms of which it dominates modern life."
"Two Forms of Individualism"
The author contrasts the 18th century concept of individuals being homogeneous
and basically undifferentiated with the 19th century concept of qualitative
individualism and uniqueness. These different conceptions were reflected in the
social conception of money.
"The Significance of Moses Hess"
Dr. Frankel describes the influence of Hess on Marx's concept of the abstract
nature of money. Both philosophers despised the "evil of economic exchange
and especially exchange in terms of money.." But Hess recognized that it
had 'resulted in much unanticipated good." - Note, 'unanticipated'. So
while Marx "built his Utopia on the return to primitive non-monetary forms
of social organization, Hess labored under the Utopian illusion that mankind's
productive problems were already mainly solved."
Chapter III - The Nineteenth Century Ideology
"The Miracle of Credit"
Dr. Frankel cites Walter Bagehot's description of the British society and
economy and the amazing role of banking, money, and above all credit. Bagehot
described Britain as the greatest moneyed power in the world, not because of
some vast store of cash but to its 'borrowable money'. "The concentration
of funds in the London Money Market which greatly exceeded that of all of
Europe put together." "On this rested the miracle of new credit
creation". (This is well described by Martin.)
He cites Bagehot again, "Lombard Street was 'a luxury which no country has
ever enjoyed with even comparable equality before.' - which he explains means
that the British banking system rests on an exceptional heritage that engenders
'trust'. Credit rests on trust. Frankel again, "No wonder that for Simmel
it was that faith and belief in the public centrality of the monetary order on
which rested money's potential: its power of promise and performance.."
..."That additional ingredient was nothing other than the faith, belief
and trust which the coin symbolizes.".. ."It was a unique, notional
and abstract guarantee by society to the holder of money that he would be able
to continue to turn it to account and to dispose of it without loss."..
.'the fulcrum of erstwhile relationships between the two parties to the barter
agreement had been shifted."
I wonder if this where Felix Martin found his metaphor of a fulcrum? Contrast
this description of the veracity of Victorian banking and money with the
universal lack of faith in government money today.
Dr. Frankel turns to Carl Menger for another concept. "Menger regarded
custom as the most decisive factor in the development of money. ..For Menger
money was a social institution. It was the result of an evolutionary
process." It was similar to the evolution of law.
Dr. Frankel stresses that Menger believed strongly that social institutions,
including money, resulted from the gradual adoption of custom by common consent
by the people in evolutionary processes. And F. A. Hayek agreed. What concerned
them is the modern 'constructive rationalism' or 'intentionalist' or pragmatic
account of history. This is the prevailing establishment concept used to
justify government (rulers) today that all these "resulted from the
propensity to ascribe the origin of all institutions of culture to intention or
design. Morals, religion, and law, language and writing, money and the market
were thought of as having been deliberately constructed by somebody.'
In other words, if all existing social institutions are the result of some ones
deliberate design and creation, we (elite) can now redesign everything to
correct obvious flaws.
"But the basic assumption underlying this belief is factually false.
"Thus for Simmel and for Menger, as also for most liberal economists of
the nineteenth century, the monetary order was not something to be left to the
whim of the Government or the State. Indeed, Menger pointed out that
Governments had so often and so greatly misused their power that it was
forgotten that a coin is nothing but a piece of metal the fineness and full
weight of which was guaranteed by the mint."
He continues, "If then money neither arises from the edicts of the Sate
nor can be left to its whims, on what 'something' does it depend? There can, in
my opinion, be no doubt that what they both had in mind was a certain
disposition, willingness and aptitude in society which could be counted upon to
ensure, as a matter of justice, the maintenance of the monetary order (and in
normal circumstances the value of money) through law or custom."
..."I would say that in the last resort the monetary order depends on the
moral ideology of society."
It is no wonder we are in such monetary chaos today.
Dr. Frankel continues with discussion of morality, justice and societies's
responsibility to maintain trust in the money of the realm. "The classical
economists generally took this for granted as part of the reaction to the
excesses of the French experiences."
"A Credit Theory of Money"
He continues, "There were many others who stressed the importance of
monetary order." One "foresaw the continually growing significance
which debts would assume in economically sophisticated communities and that
debt could be used as if it were money.".. ."Henry Macleod
suggested that money is the highest and most general form of
credit." Macleod quoted Bastiat and Frankel cites the quotation. The
question is 'what brings about the general acceptability of money?"
"Trust and Character"
Frankel asks, "What meaning can be ascribed to trust? What is its social
significance?" ..."Personal trust can be said to be based on the
belief that the person will honor an obligation, and he will keep a promise,
under all circumstances over which he has control."... "Trust rests
on our idea of the character or nature of the person confronting us."
"Trust and Social Communication"
When it comes to societies, it 'is impossible to attempt to control all social
action on the basis of expectations which can be calculated with certainty.
There are always uncertainties." But the individual perforce has to base
his actions on some element of trust. This brings up money.
"Money, in terms of modern functional analysis, has come to be regarded as
a symbol of communication by means of which social complexity is
reduced.".... 'the belief that the money -mechanism ensures decentralized
freedom of individual decision-making rests on the postulate that money really
does enjoy trust."... "Without trust the monetary system would break
"Personal and Generalized Trust"
"The rational pursuit of advantage through round-about methods of
production, postponement of consumption, saving etc. can only be motivated when
the disturbing influences of the incalculable actions of others can be
eliminated through trust."... "The who believes in the stability of
the value of money, and in the continuance of a multiplicity of uses for it, is
basically assuming the existence of a functioning system."... "But as
Simmel warned, in the last resort it is not the systems, but the individuals
who operate them that have to be trusted."
Can we say that about the governors of the FED today? Or of our presidents and
"Trust and the Monetary Economy"
"The trust in money - i.e., in who does the defining - therefore implies
trust in the maintenance of the monetary order.".. "What is at issue
here is a much more basic question: how can a trustworthy society, with
stability of character be maintained and continue to be relied upon....
"If laws generally are not justly applied then the system of law has
broken down: law itself has been abrogated.... Similarly, a monetary economy
implies the maintenance of a monetary order: one in which trade is conducted,
in which debts and obligations are freely entered upon and discharged and
services remunerated by money, the maintenance of the value of which is
accepted by society in its customs and laws, as its responsibility."
"Whenever and wherever the use of money is restricted in relation to any
existing or potential purpose, there is retrogression to a non-monetary economy
in which political, authoritarian or barter transactions take the place of
money. If money increasingly becomes an instrument of sectional political or
economic action then it ceases to that extent to be inviolate in the sense of
being guaranteed by society through its laws or customs."
"In a free money economy individuals have to act on expectations as to how
they will be permitted to consume or invest or hold money. However, such
expectations are based on the twin assumptions that there will be a system of
money contracts and a monetary system which bears an ordered relation to
them. ... But the maintenance of a free monetary order implies that contracts
freely made in money do, as such, carry society's guarantee that the
measuring-rod of money in terms of which they are made will not be deliberately
tampered with by anyone, not even the Government itself."
Here Dr. Frankel is deploring the post-Bretton Woods government manipulation
and debasement of the money. He is right, the situation is worse now. But,
unfortunately, there never was a 'measuring-rod' against which the 'value' of
money was maintained constant.
He is again right to cite Keynes "The individualistic capitalism of
to-day, precisely because it entrusts saving to the individual investor and
production to the individual employer, presumes a stable measuring -rod of
value, and cannot be efficient - perhaps can not survive -without one."
But what Keynes wanted and proposed was "'regulation of the standard of
value to be the subject of deliberate decision'. So what Keynes was claiming is
not that there cannot be a stable measuring-rod of value, but that the
government should establish one. Of course, what for Keynes was government
creation of a 'stable measurement' was for Frankel the government manipulation
of and shifting any such standard.
But Frankel continues," In my opinion, therefore, when private individuals
or institutions have, as now, to buy gold, commodities or foreign currency, to
ensure greater security for themselves in the face of monetary and currency
uncertainties, this is a sign of retrogression of and deterioration in the
domestic monetary system." No question that after Nixon the domestic
monetary system deteriorated, but it seems to me that it was fragile all along
and so were the misconceptions.
"The Miser and the Spendthrift"
"It was this abstract characteristic that Simmel saw the Achilles heel of
any functionally advanced monetary system. A high degree of abstraction was
very likely to engender profound misconceptions concerning the nature of
"Simmel illustrates the most extreme misconceptions concerning the power
of money by the respective attitudes of the miser and the spendthrift. Both
reject the valuation of the utility of money in terms of other things than
itself. Both attempt to escape from the reality that money itself is nothing:
That it has ultimately always to be translated into specific ends and into
concrete objects of services."
A very interesting point. But it flows from the more general division of human
action into separate categories of which economic activities come to be
considered ends rather than means.
Chapter IV - The Nominalist Dissent
"A Dictionary of Money"
Dr. Frankel quotes Keynes who wrote that 'civilized money' today conforms to
the Chartalist theory of State Money. This theory rests on the idea that
'money' is created by the sovereign - now the 'state' and is therefore also
defined as to its 'value' by the 'state' which claims this prerogative as a
Dr. Frankel disputes the 'state's right.
"Double Talk about Debt"
"It is necessary, however, to pursue this matter a little further. It will
be remembered that Keynes defined Money-Proper as that the delivery of which
will discharge a contract or a debt and Bank-Money as simply an acknowledgment
of a private debt used alternatively with Money-Proper to settle a
This leads Frankel into a discussion of debt - specifically government debt -
and Keynes' proposition that governments can 'settle' their debts by declaring
them money. He considers this no discharge of debt at all and immoral. But this
is in essence what the government issuing credit in exchange for goods and
services it acquires is all about.
"The Moral Situation"
"In my opinion, the fact that a debt represents a promise from the debtor
to the creditor, or his successors in title, is crucial." Dr. Frankel
devotes several pages to discussion of this situation, quoting various
authorities including Keynes again. He considers the whole situation to be
"Not withstanding Keynes's frequent appeals to morality, his claim that
all 'civilized money' is Chartalist and is 'a creation' of the 'state' is in
effect a claim to place discussion of the nature, meaning and significance of
money outside moral discourse and beyond the moral structure of a free
community." And Keynes view of chatalism stems from the concept proposed
by Georg Fredrich Knapp. (Abridged edition translated from German is The
State Theory of Money, London, 1924)
"Knapp's main contention was that money is essentially the creation of law
and wholly a State affair. Money was to be regulated by the State entirely in
its own interest. The value of money is secondary: what is important is its
validity, by which he meant its power to discharge debt. In his opinion this
power was given to money solely by the State."
Dr. Frankel strongly disputes this concept. For a full discussion of the
conflict between Knapp and Menger and the 'Austrian School' please read
Ingham. (Frankel cites many works of Carl Menger
and F. A. Hayek)
He continues, "The monetary unit is, according to Knapp, purely
'nominal'"... Once a money has been established, it can only be changed by
an admission of the nominal character of the monetary unit; this character
consists in the possibility of the State changing the means of payment, while
the relative magnitude of different debts remains unchanged." ...
"Whatever else one may think of these definitions of money one thing is
certain - they are not based on any particular moral conception." ...
"Keynes appealed to history in precisely the same manner in the quotation
I have given." .... "I believe that this conception of money is
fallacious and that it has had an continues to have a very deleterious
influence on monetary thought and policy."
Dr. Frankel continues with several examples of the way in which 'nominalist
conception of money' and caused great harm. He quotes Gail Person ("The
Role of Money in Economic Growth", Quarterly Journal of Economics,
p. 387, vol. 86, 1972) and describes her description of 'modern money' as an
example of current fallacy. He writes that the unlimited expansion of
credit-debt is immoral and will lead to destructive inflation. Then he quotes
at length L. M. Lachmann (The Legacy of Max Weber: Three Essays, London,
1970) to denounce the concept expressed about modern money including claims
against banks and government.
Dr. Frankel writes, "Unfortunately money does not consist of claims but is
the means of settling them by what it will purchase, and that cannot be
'created' by monetary institutions or by the State 'at will' but only - to
repeat - by society's successful production of the things which money can
Unfortunately, or fortunately, governments and Central Banks since 1977 have
proven him wrong - see Wray and
Mehrling and Ingham again. Or read Bernanke's comments about
'helicopter money'. Since Frankel wrote the money supply has become mostly
credit created by the banking system.
But continuing his discussion (above) Dr. Frankel returns to Knapp,
"Knapp's definition of money as purely Chartalist, i.e. and being only the
creation and creature of the State, rests on a category mistake similar to that
to which I have already referred." He continues along this line in
describing both money and capital.
"What, I suggest, Knapp's and all similar Chartalist or nominalist
theories of money have in common is that they are finally self-defeating. For
if we grant the basic assumptions on which they all rest: that the State is
all-powerful in monetary affairs, that it can and should decree what
money is and is to be, how it shall be used and who many and who many not use
it, then we have in assumed away a free monetary order. "
And so we have.
He continues, "The abolition of a free monetary order has, of course, been
advocated by opponents of a free society for a very long time."
Exactly. And he continues with his exposition in theory of the problems, which
by now have been created in reality. He cites again Carl Menger, who pointed
out both the causes and results, but as with most of the "Austrian
School" has been ignored. And then he expresses his disappointment that
even an eminent economist, Milton Friedman, has acquiesced in the expanded role
of government to control money. All of this change has accompanied a change in
the character of society itself and the loss of trust by everyone in everyone.
Chapter V - The Keynesian Morality of Money
"Monetary Theology and Gold"
In this chapter Dr. Frankel elaborates on his description of Lord Keynes'
theories and also his personal objectives in promoting the power and role of
government - that is the intelligentsia - to rule on the basis of their
superior 'scientific' knowledge in the best interests of the ignorant masses.
He begins, "J. M. Keynes reflected both consciously and unconsciously an
ambivalent attitude to money which has been deeply embedded in European thought
since the Middle Ages. This chapter examines the nature of this dichotomy in
Keynes's writings and those of many of his successors." Dr. Frankel notes
that Keynes considered gold a 'barbaric' thing and thought 'gold - hoarding'
was 'barren' and insane. But then he thought any 'hoarding' of money was
'barren' as well.
"From Barrenness of Gold to Barrenness of Money"
Dr. Frankel believes that this concept originated in ancient Athens of Plato
and Aristotle and continued through the Middle Ages because the philosophers
did not understand the 'value' creating activity that takes place during
exchange of assets. Thus, "Keynes came to extend the idea of the
barrenness of gold to that of the barrenness of money." He thought the
whole neoclassical view of the nature of money was foolish. Money retained as a
'store of wealth' was barren because , "our desire to hold money is a
barometer of the degree of our distrust of our calculations and conventions
concerning the future."
Dr. Frankel continues, "Uncertainty, however, is unfortunately not merely
a state of mind. It is the human condition". In this he refers to Shackle for commentary on Keynes.
"The Replacement of Individual Choice"
"But it is worth pointing out that already in the early twenties Keynes
was concerned with the possibility of bringing about another and very different
world of thought and action." Namely, Keynes believed puny individuals
could not assess the unknown future to make 'rational 'decisions even for their
own benefit; hence, must be replaced by the 'scientific' decisions of
government savants. Dr. Frankel includes extensive quotations from Keynes on
"Vision and Technique"
Dr. Frankel here quotes Schumpeter's observations of the meaning of Keynes'
"Symbolism and the Institutional Order" Here, Frankel discusses
Keynes' divergence from the 19th century trust and confidence in the
'maintenance of a symbolic universe' as a foundation of the trust in money.
"Consumed by terror of the night-side of Europe's culture, Keynes appears
to have discounted completely the possible future effectiveness of the very
factors which had made Europe the cultural and financial power-house of the
world. This Europe he now described in words not of hope but of despair;
suitable only as its epitaph."
"The Age of Faith"
Here Dr. Frankel again quotes Keynes at length in describing the Europe prior
to World War One. And he considers that Keynes admired that culture in which
currencies had a stable basis in both gold and each other.
"The Capitalist Bluff"
"The serpent in this Garden of Eden which apparently accounted for Keynes
pessimism was nothing other than the capitalist system itself." Dr.
Frankel quotes Keynes again at length in which Keynes wrote, that the system
'depended for its growth on a double bluff or deception.' Keynes claims the
laboring classes were being deceived into accepting their situation. While the
capitalist classes were 'allowed to call the best part of the cake theirs and
were theoretically free to consume it." And Keynes alleged that
'non-consumption of the cake' was detrimental. Frankel writes that Keynes' idea
was 'misleading' and arose from his idea of an 'abstraction of a neutral money
economy'. He continues with disagreement of more of Keynes's concepts.
"Keynes's assessment of general psychological motivations in a money
economy was even more erroneous". Keynes, he writes, considered the
capitalist propaganda to the working class to be a bluff, and by the end of the
war it had been discovered. Frankel writes that it was not a bluff, nor
discovered, but the economic situation 'was due to political defeat which
brought with it economic and monetary disorder". Plus it was "due to
government weakness and malpractices". Keynes blamed "the capitalist
class because they allowed themselves to be ruined and undone by governments of
their own making and by a Press which they owned."... "He projected
on to the capitalists the final responsibility for failing to prevent
Governments from making scapegoats of them".
Sounds familiar today.
"A Simple Hypothesis"
"In any case there is so far no evidence that it is owing to the actions
of the owners of capital, as lenders or financiers, that the occurrence of
booms and depressions, of inflation or deflation is really due." He notes
that Friedman rejected Keynes because the former thought that the latter had
been contradicted by evidence."
"Deceit in Monetary Policy"
"Keynes was involved - and the Neo-Keynesians are no less so - in a
particular moral issue. That moral issue is whether it is defensible
deliberately to use public deceit in monetary policy." Frankel again
quotes Keynes, "'A preference for truth or for sincerity as a
method may be a prejudice based on some aesthetic or personal standard,
inconsistent in politics with practical good'".
In other words it is fine to lie when it is for the common good.
"Its application in practical affairs, in my view, rests on a morality
which is even simpler; the morality of initiating monetary policies the
consequences of which will appear to others to be different from what they are
known or expected to be to those responsible for them."
We hear this every time a Chairperson of the FED testifies in Congress.
"The essence of the Keynesian prescription is to change the value of
money, in the 'short period' in order to change (mostly in practice to reduce)
the real wage rate - while appearing to do nothing of the kind. So also with
changes affecting the 'burden' of debt."
I have read long ago the Keynes remarked about workers and people in general
that they would much rather receive a higher nominal income even during a large
inflation in prices than to have their income reduced during a period of
declining prices. This is the essence of why economists today claim deflation
is bad and inflation is OK, whereas in earlier centuries deflation caused both
labor rates and asset values and commodity prices all to fall together. Of
course inflation favors governments while deflation does the opposite.
"'Justice' and 'Flexibility'"
Dr. Frankel explains that Keynes explained why he preferred this 'flexible'
money policy, as he called it, to a 'flexible' wage policy. The 'flexible/
money policy can be accomplished be a gradual and irregular change made
justifiable as a matter of 'social justice' or economic expediency. And outside
socialist dictatorships a 'flexible' wage policy would require official decrees
and, moreover, would be difficult to accomplish uniformly for each of the many
different types of wages and salaries. Keynes noted that the policy of
increasing the quantity of money rather than directly decreeing wage rates was
simpler and more obscure.
"by such alterations in the value of money, the wage-earners, the
investors and the entrepreneurs are to be induced to adopt courses of action
which, if they could immediately discern the full consequences of the monetary
devices which were being used, they would not enter upon."
Frankel quotes Keynes again, "I expect to see the State, which is in a
position to calculate the marginal efficiency of capital-goods on long views
and on the basis of the general social advantage, taking an ever greater
responsibility for directly organizing investment; since it seems likely that
the fluctuations in the market estimation of the marginal efficiency of
different types of capital... will be too great to be offset by any practicable
changes in the rate of interest,"
And so it has come to pass.
"Money and Morality"
Dr. Frankel again, "There were even deeper drives below the surface which
accounted for the direction of Keynes's psychological 'laws' ... "What
Keynes had in mind was what he regarded as the moral problem of our age. This
was concerned with the love of money, with universal striving after
individual economic security, with social approbation of money as a
measure of constructive success and with the social appeal to the
hoarding instinct as the foundation of the necessary provision for the
family and for the future." Frankel notes that Keynes thought there was
much to approve of and admire in Soviet Communism, apart from violence.
"The Distrust of Money"
Dr. Frankel continues to examine Keynes' fundamental beliefs that were then
expressed in his written theories.
He quotes Keynes, "I think in the United States of America - there is a
latent reaction, somewhat widespread, against basing society to the extent that
we do upon fostering, encouraging, and protecting the money motives of
Of course Keynes was strongly opposed to this situation, but the presumption
that it is wide spread stems from the economist's conception that economic
activity is an end in itself and should be treated separately from political,
social and psychological aspects of human behavior. Yet, his and other
economists who propose solutions to this perceived problem advocate political
action by government.
Dr. Frankel continues, noting, "But his (Keynes) own distrust of the
money-motive goes even further. Keynes was primarily concerned with the Theory
of Monetary Economy. The evils he wished to correct were regarded by him as
arising out of the very fact that we were living in a money economy. This even
caused hi to consider whether abolition of money would be possible.
(Something the Communists did attempt in Russia.)
"The Belief in Public Wisdom"
Dr. Frankel cites Keynes, "What he advocated was to use the monetary
order, by means of what he called 'public wisdom', to influence the business
man 'steeped in the narrow arts of commercial calculation', whom he accused of
not being able to calculate from a social point of view."
This is the essential concept of the intelligentsia generally, that only they
posses the 'wisdom' knowledge and skill to lead society along the right path.
Dr. Frankel hits the basic fallacy. "This view, however reasonable it
looks at first sight, is really based on a mistaken assumption: that public
wisdom is something apart from or outside private wisdom."
All 'wisdom' or lack of it is possessed by individuals who have just as much of
the same personal desires and interests as everyone else. This is obvious to
any student of history. What is amazing to me that this natural condition has
only recently been conceived of and published by noted economists as a theory
of 'public choice.' Keynes and his followers explicitly (but mostly in relative
privacy) noted that the government of intelligentsia must conceal from the
public the true motives and expected outcomes of their manipulations lest the
public get wise to them. And this is a central theme that Dr. Frankel exposes.
"The fact is that the deliberate creation of Money Illusion is a form of
social deceit. If persisted in, it must, finally, subject the monetary order...
"It does this for two reasons, The first is technical and, in a free
society, inevitable: it is because, once the 'bluff has been discovered' to use
Keynes's own words, individuals will soon take counter vailing action. The
second is less obvious but more fundamental. It is because to use the monetary
system as a means of creating illusions concerning the future in order thereby
to influence individual intentions and actions, in accordance with the beliefs
of those who propagate them, is to destroy the moral authority of the monetary
And this is exactly the nature and role of government money described and
advocated by Wray.
To continue, "To give the impression that the value of money will not be
adversely affected by particular policies, which those responsible for them
well know will be the case, is to deliberately propagate a false belief."
He is thinking here about the planned use of 'financial engineering' after
World War II in which the interest rates available to individual savers were
kept by law lower than the inflation rate in order for the federal government
to reduce its debt. And he also was living in the midst of another era of
massive inflation greater than government prescribed interest rates but during
which the public was reacting.
Dr. Frankel continues with his analysis of Keynes' beliefs.
"Speculative and 'Real' Investment"
He writes, "Keynes had an almost obsessive fear that speculation or
gambling would predominate over investment based on 'the best genuine long-term
This is especially rich considering that Keynes, himself, was an avid gambler
in the stock market and lost and remade fortunes while doing it, not only for
himself but as agent for his Cambridge University.
But Frankel continues by commenting, "Keynes's remedy is worse than the
disease." And describes this in some detail. Fundamentally this was all
about instituting government controls over money to prevent individuals from
making their own mistakes. He simply did not believe typical individuals were
capable of making correct decisions.
"The Monetary System as 'Illusion'"
Frankel writes, "Once again we find ourselves face to face with the basic
Keynesian diagnosis. True to the spirit of his time it associated the failure
of the businessman and he entrepreneur with money motivations and money
calculations. These, it is alleged, are inadequate because they are not
scientific and they are not scientific because they are based on wealth
(i.e. money-getting motives) which are in his view incapable of dealing
with uncertainty." He continues, "The contrast with Simmel's
philosophy of money could not be more striking." Dr. Frankel writes that
for Keynes the entire money system is a 'contrived system', an illusion that
deceives everyone, but for Simmel the monetary system 'was not one which had
been contrived to lull individuals into a false sense of security." ..
"But it 'represented social interaction and mutual trust on the face of
and as a means of combating insecurity."
This goes back to a more fundamental issue- the struggle between society and
government over who really 'owns' the money system. And Wray writes that it is
Frankel writes that, "The dilemma arises out of a category mistake similar
to that we have previously encountered. it results from regarding a money
economy as essentially different from a presumed real-exchange economy. Keynes
as we have seen, thought of a real-exchange economy as one in which one did not
enter into 'motives and decisions'. .. Keynes criticized the classical and
neoclassical economists, such as Marshall and Pigou, because, as he put it, in
their view, though money is made use of for convenience, it may be considered
'to cancel out' for most purposes. This is a misleading criticism. Money does
not cancel out anything." .. "The ' motives and decisions' of people
are not altered through the presence or absence of money." ... "The
category mistake which I have been discussing is one to which others besides
Keynes have fallen victim." .. "In my opinion this criticism makes
confusion worse confounded. The category mistake that both Keynes and Weber
made, and which their followers make today, is to suggest that to express the
goals of society or to calculate them in terms of money is one thing, whereas
goals or values which cannot be so measured or expressed are another: that
there is a real or ultimate rationality which necessarily transcends the
pursuit of goals expressed in money terms."... "But as I have shown,
the money- oriented activities of society are just as part of its
Again, I point out that the problem for economists is due to their on-purpose
divorcing their subject matter from the entirety of real world activity,
reducing it to study of means rather than ends and thereby forcing themselves
to consider such issues as the role of money in a false context.
As Frankel writes, "A monetary economy depends on a vast number of
circumstances arising out of the history, mores, beliefs and political and
economic experience of society as a whole. It cannot be separated from them.
That is why a dependable and free monetary order is a relatively rare
phenomenon in the history of nations."
Chapter VI - Freedom and Monetary Order
In this chapter we find the essence of Dr. Frankel's opposition to the
development of the money system he saw all around him.
If, one wished to characterize the present monetary situation of the free world
in one word, that word would be 'mistrust'. .. "Not one country now enjoys
the confidence which the money of the main European countries commanded before
the First World War." .. "It is my contention that the current world
monetary mistrust is due not only to an ambivalent attitude to money but
reflects also a deliberate attack on the monetary economy." .. "It
arises out of the conflict between money as a tool of state action and money as
a symbol of social trust. .. "The two conceptions are incompatible. I go
so far as to contend that for several decades we have been witnessing an
intense re-action against traditional concepts of the monetary order: it is not
far removed from a revolt against it."
And we have in Wray's book, Modern Money
Theory, the full description of the manner in which governments use
their control of the money supply for political objectives - ends, to which
economies and their money are subordinated. And the author treats this not only
as a given reality but also justifies its objectives. He dismisses the entire
philosophy that Frankel deems not only fundamental, but also critical, to the
functioning of the economy based on trust. Wray simply ignores the social and
moral basis of money,
Geoffrey Ingham traces the controversy over the
nature of money back to the Methodenstreit- the wider conflict between
economists of the German Historical and Austrian 'Schools' over the proper
methods to be used in the study of economics. But he accepts Wray's explanation
of how the government creates money now. And he also focuses on the role of
Keynes in developing the modern theory of money.
Frankel describes the differences between the conceptions of Simmel and Keynes.
He writes that both were pessimistic but for different reasons and with
different results. Simmel 'was pessimistic because he saw an inherent tendency
for the progressive development of an advanced money economy to lead to its own
destruction." .. Simmel's "doubts can be summarized in two questions
- 'Weather people would continue to accept the increasingly abstract ways of
thinking involved in the growing complexity of monetary relations' - and
"weather the abstractions, in which monetary relations are necessarily
increasingly expressed, would not give rise to serious misconceptions
concerning the unlimited power of money itself and lead to the ultimate
destruction of the free monetary order." ..."These doubts are the
obverse and reverse of the same coin."... They characterize the feeling of
helplessness of the individual over against what appear to him as the
inscrutable powers of money. ... but also "They express the feeling that
the mere possession of money confers on the owner infinite, god-like power
Further, he continues, "The ever-increasing demand for direct government
action to replace the market economy illustrates the over-estimation both of
the power of abstract reason (as public 'wisdom') and of the power of abstract
money. It rests on the belief that both can bring about the achievement of any
and every set of goals." This is exactly the essence of Wray's conception
described as a given in in his Modern Money Theory.
"Reason and Money"
Frankel continues, "In the over-estimation of the powers both of reason
and of money the error is always the same. It consists in over-looking that in
practical affairs both reason and money, considered in the abstract, are only
like rules of formal behavior." This, he believes, is why rulers with
political power seek to monopolize money.
"The Monetary order as Tool or Rule"
He writes, "The basic difference between the two philosophies of money
which I have been considering is that the one endeavors to incorporate the view
that the monetary system should be regarded as a means for the achievement of
specific and immediate goals of public policy, while the other regards this
view as incompatible with a monetary order"
The former is the conception that Wray and other materialist economists want
the public to believe is simply reality. "The rightness of an act is fixed
by the utility of its consequences." And only the intelligentsia empowered
by being the government is capable of determining the 'rightness' and 'utility'
of public policy.
"My Fellow Americans"
This section is a quotation and summary of a satirical essay by Art Buchwald in
which the humorist pretends to publish a 'speech' by President Nixon justifying
his ending the dollar link to gold and to creating wage and price controls to
combat inflation. As Dr. Frankel notes, "The element of the absurd in this
parody consists first in blaming the problems on the public rather than
government itself." And second is the idea that the relationship between
money and assets can restored by simple government action. Frankel writes,
"But, of course, that was the exact opposite of the truth. The people's
belief in money, which they could trust, had just been shattered."
And it is still shattered. Which is the point of Wray's and similar economists'
(such as in the FED) creation of the theory that claims that government
creation and control of money is simply normal reality. But time has moved on
and we now live in a reality far changed from even that in which Frankel was
already prophesying disaster.
"Uncertainties of the People"
Dr. Frankel explains, "The confusion in current monetary debates
frequently arises from regarding money in philosophical abstract terms as if it
could be considered as being apart from the complex, many-sided social and
economic factors in which in reality it is embedded." ... "It is,
therefore, not surprising that monetary manipulation intended to reduce
uncertainty has, by destroying faith in the monetary order, actually increased
it. A monetary policy which is directed to shifting goals - as, for example,
full employment, economic growth, economic equality or the attempt to satisfy
conflicting demands of capital and labour - cannot but vary with the goals
adopted. It is significant that the inflation which has resulted from attempts
to meet these conflicting demands has even been regarded by some as providing
an escape valve from the excess claims of competing income groups which will
keep their income conflicts from directly destroying the capitalist
This was written at the height of the inflationary spiral set off in the 1970s
by the LBJ and Nixon policy agenda of a 'welfare state' in action. Now in the
face of world-wide deflation the monetary policy agenda being enacted is to
create 'a little' inflation. Again, it is precisely these very goals for
government monetary policy that Wray explicitly advocates and claims can be
achieved by the monetary policies he advocates while cloaking them in an
abstract theory he claims is simply what is reality.
Professor Frankel describes his current situation, while the opposite
conditions now apply, but the same type of monetary policies (intervention and
"The growing chaos in monetary policy at home is paralleled abroad. Never
before has so much public ink been split to proclaim the need for a new
international monetary order and machinery to ensure better national policies.
But how this is to be achieved, and to what purpose, has not been made
apparent.... Since no goals can be agreed on to please all nations, the
trustworthiness of money is likely to be greater abroad than at home."
Well, now it is the opposite as far as 'trustworthiness' goes but not in the
amount of 'ink' being split, that has greatly increased.
Dr. Frankel then hits another home run. "It is hardly necessary to remind
the reader that one of the prime causes of inflation has always been war and
the preparation for it or the attempt by one nation to appease another by
monetary gifts and transfers."
But in the 21st century even war has not generated enough inflation to offset
the impact of the causes for deflation. Nevertheless the public has still been
induced by fear into the panicked buying of gold that Dr. Frankel notes had
begun in the 1970's.
He describes the situation thusly, "To them, (public) the world of money
often appears to resemble a nightmare; in it representatives of many nations
are seated around a table. They are playing a game which only they can
comprehend. The essence of it appears to be that each player has the right to
pay his losses in tokens which he prints as he likes and to receive his
winnings from others in tokens which they have printed as they like." He
expands on this idea.
The even more greatly expanded situation today is described by such authors as
James Rickards and
Katusa, Kwasi Kwarteng, and many others.
"An Intellectual Contest?"
"The language of monetary policy today makes it appear as if nations were
engaged in an intellectual contest. Each is imagined to be assessing the costs
and beliefs of altering its domestic monetary policies to outwit the
Well, the above mentioned authors and many others today claim this is no
'intellectual contest' but a fundamental war of all against all in the real,
Dr. Frankel sums his view, "The debate is basically not about inflation or
deflation, fixed or flexible exchange rates, gold or paper standards and so
forth, it is about the kind of society in which money is to operate."
"From whatever angle we approach the problem, we are always brought back
to the question of what society really wants the role of money to be and to the
schismatic conflicts concerning it". .. "Perhaps nothing is more
revealing of them than the new view of public debts and the diminished interest
in money's role as a standard of deferred payments or standard of value. I
believe that it is implicit also in money's function as a standard of deferred
payments. Fifty years ago it was still considered of prime importance for the
savings and investments on which the highly developed monetary economies of the
world were built. It is no longer so considered." He elaborates on the
developing situation and its causes and results. A major change has been the
reversed position of creditors and debtors, both domestically in countries and
in their international relations.
"The Moral Issue"
"The causes and consequences of these changes in the debt structure are
complex. It is the belief that it does not really matter who creates debt as
long as it is created; and that the government can always be relied upon to do
so. Moreover it can always 'repay' it by increasing the money supply. According
to this view the creation of public debt does not involve a moral issue in
relation to the purposes for which it is created, the methods by which it is
repaid or the rights and legitimate expectations of individuals whom it may
This is exactly the position that Wray and other economists hold. "Such a
view is untenable in a free society. It rests on the mistaken idea that there
can exist side by side in it two principles governing the making and keeping of
promises". The private sector must conform while the public sector does
not. "In this book I have rejected the nominalist conception of public
monetary obligations according to which they can be abrogated at the dictates
of convenience and expediency".
"The Civil Condition"
In this final section Dr. Frankel discusses the impact of nominalist monetary
policy on society in general -in civil affairs. "What I am concerned to
emphasize is that any free monetary order is a way of civic life." ...
"Perhaps this final negation of the free monetary order may serve best to
illustrate what it really is: a condition of civility, a code of civil monetary
behviour, and idea - the pursuit of trust."
Appendix - Bibliographical Note on Georg Simmel