Money as a Hierarchical System
Discussion on the Origins of Money and its Legal Architecture Kicks Off Series Organized by Columbia Law School Students to Shed Light on the Economy
New York, September 17, 2013—What is money? Four speakers tackled that and other weighty questions at the first seminar in a series conceived and organized by Columbia Law School students to shed light on the economy and how it operates.
The event was the first this year by the "Modern Money Network," the next iteration in a series created last year by Rohan Grey ’14. Five presentations are scheduled for this fall.
Law students often learn about the genesis of modern-day transactions, such as marriage, but the legal history of money is far more obscure, said Raúl Carillo ’15, who served as moderator of the Sept. 12 event, “Money as a Hierarchical System”.
“Interesting things start to happen when lawyers delve into macroeconomic thinking,” Carillo said .
Four experts presented their views on what money is and some of the rules governing it: Harvard Law School Professor Christine Desan, Barnard College Professor of Economics Perry Mehrling, Columbia Law School Professor and director of the Center on Global Legal Transformation Katharina Pistor, and University of Missouri-Kansas City Professor of Economics L. Randall Wray.
“When we came to the global financial crisis, I felt it was an opportunity to begin rethinking the relationship between law and finance,” said Pistor, the Michael I. Sovern Professor of Law and author of The Legal Theory of Finance, which asserts that financial markets would fail if all legal commitments were honored.
For instance why did AIG receive a federal government bailout, but not Lehman Brothers, she asked, noting that the discrepancy shows how the laws governing money and finance are flexible and can be applied differently for different parties.
“I start with the premise that all financial systems and money are legally constructed,” said Pistor, explaining that we rely on their enforceability in the court of law when we accept their value. “They’re all IOUs.”
Desan also spoke about the idea that money is closely tied to the law.
“Sex, kidneys, slaves — those debates about what we can buy are fundamentally legal debates,” she said.
Desan cast doubt on the common notion that money emerged from a system of barter. Instead, she suggested a stakeholder theory in which money evolved as a method of receipt for service to a group.
Wray argued that early money was a record of credits and debits on rocks. Today, instead of using rocks, we have electronic recording systems, he said.
The “wholesale money market,” a vast global trading network among banks and governments, accounts for most money in the world, said Mehrling, who noted that the cash consumers use to buy groceries and other items represents just a tiny fraction of that market.
The evening concluded with the speakers answering questions from the audience and via Twitter about Bitcoin, the Eurozone crisis and other topics.
The “Modern Money Network” series was conceived in 2012 by Grey, who envisioned seminars, lectures, and online reading materials that would serve as an educational resource.
He and fellow law student M. Jonathan Brice ’15 partnered with the Columbia Law Workers' Rights Student Coalition to launch the series. In the first year, speakers explored the debate about financial regulation, accounting, debt, and other timely issues.
The 2013-2014 event program will feature speakers with backgrounds in law, economics, and other disciplines. Each event will be livestreamed.