Commodity Currencies vs Fiat Money; Automaticity vs Embedment

Commodity currencies have been stood against fiat money in the discourses on the history of money, implying a development from primitive forms of money – which needed anchor in a real commodity to gain acceptance, for instance gold, silver or copper – to a more sophisticated monetary regime based solely on confidence and trust. This paper argues that the idea of a gradual replacement of the former form of money by the latter is an ahistoric construct: commodity and fiat monies have replaced each other over the millennia, and the latest craze for commodity currency was as recent as the 1920’s when numerous European currencies were based on gold. More fundamentally, money is here viewed as a social relationship, where the anchoring of money in commodities over the centuries may be seen either as strengthening the social contract between the regent and the people, or as undermining it by reducing the space of politics at the expense of automatic regulators. With the break-through of democracy in the early 20th century, the benefits of automaticity were increasingly questioned, and finally abandoned in the 1930’s. In this light, the Bretton Woods regime (1945-1970), although based on dollar-gold convertibility, is not to be interpreted as a commodity currency system but rather as one where politics took the lead over market forces, ushering post-WWII Europe, North America and Japan into a stage of embedded liberalism. It is customary to pin the demise of this era to the misuse of the USA of its de facto international currency monopoly, but the crucial shift was rather the advent of neoliberal political domination of the 1980’s which disembedded markets from politics once again, not the over-reach of the USA. The tying of the hands of politics, and thus of democracy, of disembedding the markets, took another leap forward with the convergence criteria established by the EU as a precondition for joining the euro zone. The paper concludes that just as the embedding of the markets post-WWII grew out of the interwar years’ dismal economic, social, political and military experiences, so, too, a re- embedment of markets may take its point of departure in the economic, social and political catastrophes following the financial crisis of 2008, and the difficulty of dealing with its consequences which have beset the euro zone countries ever since. If such a trend begins to take hold, it is argued, it is the political embedding of markets which we should focus on, not the tying of currencies to a commodity anchor.