History of Political Economy 32.1 (2000) 159-160
[Access article in PDF]
Property, Interest, and Money:
Unresolved Puzzles in Economics
Property, Interest, and Money: Unresolved Puzzles in Economics. By Gunnar Heinsohn and Otto Steiger. Reinbek bei Hamburg: Rovohlt, 1996. 544 pp.
This massive book, as the subtitle suggests, aims to provide the solution for some unresolved puzzles in economics. The book deals in turn with (1) the exchange paradigm in neoclassical economics, (2) the concept of property as opposed to tenancy, (3) interest as the key institution providing returns on property, (4) money and the institution of collateral, (5) the market, (6) accumulation, wage labor, and technical progress, (7) crisis business cycles, depression, and unemployment, and (8) the economic constitution or order of the market, dominion, money, and property.
The two authors draw on a large body of evidence from many disciplines, including economics, sociology, and even ethnology. The basic point of the book is found in an English summary of a discussion paper by the authors on the same topic as the book: "Our approach and the three major schools of economics [i.e., classical economics, neoclassical economics, and Keynesianism] . . . all explicitly concede the existence of money and interest and the necessity to explain these fundamentals. Moreover, they all make use of the term property. Our analysis will show that these three schools fail to re-comprehend the formative economic role of property. . . . None of them can grasp property's unique capacities to back by its encumbrance and to serve as collateral. Yet it is in this very capacity that a loan creates interest and money." 1 Their basic proposition is correct, and in this sense, the two authors have made a contribution. However, the contribution is relatively simple. The authors have merely reinvented the theory of property rights and applied it in an effort to understand the role of money. Well, herein lies the twist of interest to both historians [End Page 159] of economic thought and economists of monetary affairs (who seem sometimes to be given to creating a certain myth around the basic institution of money): property rights, through the three basic functions of property, contracts, and allow people to transfer property not only at present times but also over time and even across nations and generations. Herein lies the contribution of this basic property rights theory of money.
What is puzzling is that the two authors seem to believe that they have invented something new. Several sources on the economics of property rights make the same point as Heinsohn and Steiger. In the New Palgrave Dictionaries of Economics and the Law (1998), for instance, in the entry on property rights written by Harold Demsetz, property rights are said to be exclusive, alienable, and presumptive. The same three qualities are assigned to property rights in The Economic Foundations of Property Rights (1997) and The New Institutional Economics: A Collection of Articles from the Journal of Institutional and Theoretical Economics (1991).
Heinsohn and Steiger's work shows, with remarkable clarity, that crossing subdisciplinary boundaries in economics, as between monetary economics and law and economics, for instance, can yield substantial returns. Despite its vain claim to revolutionary originality, this book is impressive and is best read with modern property rights theory firmly in mind; then it does make sense.
University of Maastricht
1. Gunnar Heinsohn and Otto Steiger, "The Paradigm of Property, Interest, and Money and Its Application to European Economic Problems: Mass Unemployment, Monetary Union, and Transformation," Institut für Konjunktur und Strukturforschung, Discussion Paper no. 10, University of Bremen, July 1997.