Alexander Del Mar was a true renaissance man, one of the most creative American thinkers of the 19^th century. His genius took him into fields as diverse as economics, monetary history, numismatics, philosophy, statistics, law and religion, and in many of them he challenged the conventional wisdom of his time. James Tobin, a Nobel Laureate in economics, called him one of the most important U.S. monetary economists of the 19^th century.¹ Yet Del Mar’s prescient and profound scholarly contributions were ignored for almost a century, partly because he defied conventional categories but also because he was “too hot to handle”, as Robert Mundell, another Nobel Laureate in economics, explained.² Indeed, Del Mar was so far ahead of his time that some of his insights remain instructive today, as some insurgent Tea Party populists call for a return to the gold standard.

Born in New York City in 1836 to a Sephardic Jewish family, Del Mar was a practicing Jew. He spent part of his youth with his uncle in England, where he received a rigorous education from Sir Arthur Helps, a noted historian and biographer and later an adviser to Queen Victoria. After earning a degree in civil engineering from New York University, he studied mining engineering at the Madrid School of Mines. Upon his return to the United States in 1854 Del Mar formed editorial connections with such influential publications as Hunt’s Merchant’s Magazine, the Commercial and Financial Review and the New York Social Science Review: Devoted to Political Economy and Statistics. Contemporary scholars consider the latter periodical, which Del Mar co-founded with Simon Stern, one of the formative journals devoted to economics in the United States.

In 1866, U.S. Treasury Secretary Hugh McCullach appointed Del Mar the first Director of the newly formed U.S. Bureau of Statistics, which later evolved into the U.S. Department of Commerce. At the time, however, the Bureau operated as a board of trade with executive functions, among which included the supervision of the commissioners of mines and immigration as well as commerce. In 1869 Del Mar was forced to resign his position. His superior, David Ames Wells, then serving as Commissioner of Revenue, and Wells’s friend Francis Amasa Walker, rejected Del Mar’s views on the nature of money. (More on Mr. Walker anon.)

Del Mar nevertheless remained among the nation’s elite economists. In 1872, he was presidential candidate Horace Greeley’s choice for Secretary of the Treasury, and later that year represented President Grant and the United States at the International Statistical Congress in St. Petersburg, Russia. In 1876–77 Del Mar served as Statistician and Corresponding Secretary to the U.S. Monetary Commission, which was created by Congress in response to fallout from the Panic of 1873. In 1878, Del Mar became clerk to the U.S. House Committee on Expenditures in the Department of the Navy.

Throughout these phases of his career and after leaving public service, Del Mar remained a prolific writer, publishing more than a dozen major books and another two dozen more modest ones. At the Bureau of Statistics, too, he undertook statistical studies on an extensive scale. One such study concerned cotton production, about which there had been no reliable quantitative information before Del Mar got to work. The project fell beyond his job description, but in 1867 Del Mar set out to obtain the number of acres of cotton sown and the quantities yielded for each state. Given cotton’s importance to the economies of the Southern states, it’s no surprise that news of his activities leaked to the press. Del Mar reported that he was offered a bribe of $25,000 for the information he had assembled:

I feel proud in being able to boast that . . . overworked as I was, I did not hesitate about the thing for an instant . . . and, from that moment, my correspondence and connection with him ceased. . . . My only safety, the only safety of any official, was in publicity, continual and circumstantial publicity. Accordingly, I at once gave to the country, through the newspapers, all the returns that have been received at the Bureau up to that time, stating how many districts had been heard from, how many remained to be heard from, and whereabouts they were. . . . The latest publication was, I think, some time in February, and footed up, as nearly as I can remember, about 530 districts, 6,800,000 acres, and 2,400,000 bales, which results were probably as near as the exact truth as has ever been ascertained with reference to this subject.³

The release of Del Mar’s data fed a speculative frenzy. The price of cotton first fell by nearly half on the belief that the data revealed U.S. cotton production to be far larger than had been assumed. Prices then rose sharply as the final data confirmed lower production. Parts of the press accused Del Mar of provoking a bubble in the price of cotton and then bursting the bubble. He replied:

I was savagely attacked in the independent press, and other publications, which printed my partial returns as complete ones, and condemned me for a representation for which they alone were responsible. I had certified that returns from a portion of the districts footed up 1,500,000 bales, and they quoted me as having announced that figure as the sum of the whole crop.

Nonetheless, the episode led to his dismissal from his position. This was, once again, less a consequence of his work’s quality than of the context into which it fell.

The Nature of Money

In 1857, Del Mar began writing a treatise entitled A History of the Precious Metals, which he finished 22 years later. Over the years, the project led to his interest in the broader subject of the nature of money and money’s impact on the economy. He produced shorter works, however, with much greater rapidity, and after the late 1870s, he began pouring forth treatises densely filled with facts, provocative ideas, conjectures and insights. Yet his writings, short and long, were ignored by his academic contemporaries and by successive generations, garnering neither citations nor book reviews.⁴ Why was this so?

The main reason for Del Mar’s obscurity has to do with his then-revolutionary view about origins and nature of money. “What is money?” is one of the fundamental questions of economics. Until the beginning of the 20^th century, most writers took it for granted that the primary function of money is to serve as a means of payment for the purchase of goods and services. They thought money should necessarily consist of or be backed by some physical, material thing—a commodity, in other words. In their day this “commodity” was generally gold or silver, in part because it could be standardized and was small enough in coin form to be carried and exchanged.

The prevailing metallic monetary standards led authors to emphasize the similarities between money and other commodities and to conclude that the value of money was determined by the same dynamics of demand and supply that determine the prices of all commodities. They stressed the idea that the role of the state should be to guarantee that the coins it mints really contain the weight of gold or silver indicated by the coin. In essence, money was considered a physical object to be used in conducting transactions; it was assumed that its value derived from the relative scarcity and desirability of the particular commodity designated as money.

The transition from commodity money to paper (or fiat) money during the course of the 20^th century posed a major problem for this conventional thinking. If what is designated as money has neither intrinsic worth nor backing in terms of precious metals, why should it have value at all? Why should anyone accept paper money that could not be converted on demand into gold or silver in the exchange of goods and services? Del Mar provided the first answer to these questions, one subsequently popularized by Georg F. Knapp, a German economist writing at the beginning of the 20^th century, and a name known to all, John Maynard Keynes.

Del Mar sought to determine the particular quality that gives valuableness to money. His studies of the history of monetary systems revealed a common pattern in the adoption of money by ancient societies. The earliest form of exchange among rudimentary communities was barter, the direct exchange of one good for another. However, barter exchange depends upon what economists call a “double coincidence of wants.” What person A has to offer must match what person B desires, and vice versa. To remedy this inconvenience, Del Mar concluded, civilizations began to adopt some given commodity, such as a number of beans, shells, or lumps of metal, to serve as a crude measure of value. Such a measure “enabled any given exchange to be effected upon a more equitable basis than before, simply by its operation in holding a vast number of parities in view at once.”⁵

What exactly did Del Mar mean? He referred to the example of the ancient states of Ionia, Byzantium, Sparta and Athens. As far back as the 10^th century BCE, these states created huge discs of sheet iron or bronze that had no practical value but served as common measures of value against which all exchanges of goods could take place. In other words, Del Mar realized that money originated not to serve as a medium of payment in purchases (these discs were too heavy and bulky to be exchanged for goods), but to serve as a measure of value, or what economists call “a unit of account.” By establishing common units of account, early societies enabled the direct exchange of goods against goods to take place without the need for a physical object to be interposed as a medium of exchange.

Del Mar saw that the existence of a unit of account is a necessary condition for the emergence of a full-fledged money economy, and that two further steps were required to complete the transition from a pure barter economy to a modern monetary economy. One was the sanction of the unit of account by the state. Specifically, the modern state could establish the general acceptability of whatever it designated as money. The state, Del Mar noted, possesses the legal power to name the unit of account (that is, dollar, euro, pound, franc, peso) and to declare what thing (that is, gold, silver or a certain kind of printed paper) corresponds to the unit of account. In the second step, the state accepts the proposed money for the payment of taxes. With the latter step, everyone who has obligations to the state will be willing to accept what it designates as money in the settlement of transactions, since they can be certain that the state itself will accept that money for taxes.

Del Mar’s tripartite formulation is the essence of the “State Theory of Money” that was fully developed by Knapp and Keynes in the first half of the 20^th century and now forms the basis of the modern view of the essence of money. In essence, the numeraire (dollar, pound, franc) grounds the arithmetic that keeps score in the economic game. Without the monetary unit, the calculation of exchange ratios among so many different goods, services and financial claims would be impossible.

The observations—first, that the function of money is to measure value rather than itself be value, and, second, that in advanced societies the state determines what is used as money—allowed Del Mar to develop a further insight. Since money measures value, if the state creates too much money, then it can cause an inflation of prices. In such a circumstance, the valuableness of money diminishes because its ability to perform its primary function degrades—that of measuring the value of one good against another. Money, he argued, is a measure like a yardstick. For the measure to be valuable, it has to remain unalterable, or at least relatively stable.

Many years later, Austrian economist Friedrich von Hayek identified this problem as one of “information distortion.” When inflation is high, it distorts the “yardstick” function that money performs, not so much because it changes the measure but because it makes the measure unpredictable over time. A unit of monetary measure can be arbitrary to some extent, so long as everyone understands what it is when it is in use. The problem with sharp inflation is that the future value becomes uncertain, since trading often involves items whose net value can only be calculated over time as investment and inventory. Del Mar understood this before anyone else.

To deal with this problem, Del Mar proposed that the state regulate the increase of the supply of money in accordance with what he had estimated to be the annual increase in the supply of goods and services in the United States: about 3 percent per year. That is, by increasing the supply of money by 3 percent annually, prices would be unchanged and money could perform its primary function. If the money supply remained constant while the supply of goods and services increased, it would create deflation, which, Del Mar understood, would also have damaging effects on the economy.

Del Mar first proposed his policy norm for a stable price level in 1886. He was ignored. Deflation became a serious problem, leading ultimately to a severe crisis during the 1890s. More than seventy years later, Milton Friedman put forward an identical policy proposal: that the money-supply should increase by 3 percent per year, a proposal that was put into practice, to varying degrees, by many central banks in the 1970s and 1980s. Friedman didn’t know that Del Mar had beaten him to this idea.

The radicalism of Del Mar’s views on what constitutes money can be illustrated by contrasting them with those of Francis A. Walker, Del Mar’s successor as Director of the Bureau of Statistics, who is still considered “the most widely and esteemed American economist of his generation.”⁶ Like Del Mar, Walker wrote extensively on the subject of money. Unlike Del Mar, Walker believed that money had to consist of a precious metal. “Money is as money does”, he argued: Money is essentially a medium of exchange that settles debt obligations and payment for goods and services. Walker argued that money does not measure value as the yardstick measures length or the bushel measures capacity.⁷ In his much more concrete conception of money as a mere substitute for value, not a yardstick or measure, money worked because it was easier to move around from person to person than furniture or bushels of corn or barrels of nails. But as far as Walker was concerned, there was no other significant difference. As Del Mar put it:

As for the definition given by Mr. Francis Walker that ‘money is as money does’, it is no more applicable to money than to steam engines, or cartwheels, and it does not enable us to distinguish money from either of these objects. What is it that ‘is at it does’ is a puzzle to which a thousand answers might be given, without either of these leading to ‘money.’ It is an idea without any definitive idea behind it.

Walker did not respond to this criticism. Indeed, he never acknowledged Del Mar in his work, even though at one point two of their essays appeared in the same issue of a periodical. Why did Walker decline to acknowledge Del Mar? One possibility is that Walker was a bigot with a menu of bigotry that included the Jews. Del Mar was not only openly Jewish, but he had written about the “plundering” and “ostracism” suffered by the Jews for more than 2,000 years. Such writings no doubt failed to endear Del Mar to an academic community that at the time was often, like Walker, anti-Semitic.

Walker’s bigotry has rarely been mentioned in discussions of his work or in his role in the founding of the American Economic Association (AEA), but it is not hard to discern. During the 1890s, while serving simultaneously as president of the AEA, the American Statistical Association and the Massachusetts Institute of Technology, Walker took a strong stance against immigration, especially immigrants from eastern and southern Europe. In an extended 1896 essay, “Restriction on Immigration”, he characterized these immigrants in Social Darwinist terms as “beaten men from beaten races, representing the worst failures in the struggle for existence.”⁸ The worst of what he called this “degraded peasantry” were “Jews from Russia”, who replaced the Italians (who had replaced the Irish) at the bottom of the barrel:

If the administrators of Baron [De] Hirsch’s estate send to us 2,000,000 of Russian Jews, we shall soon find the Italians standing on their dignity, and deeming themselves too good to work on streets and sewers and railroads. But meanwhile, what of the Republic? What of the American standard of living? What of the American rate of wages?

Walker concluded his essay with this observation:

For one, I believe it is time that we should take a rest, and give our social, political, and industrial system some chance to recuperate. The problems which so sternly confront us today are serious enough, without being complicated and aggravated by the addition of some millions of Hungarians, Bohemians, south Italians, and Russian Jews.

These views don’t necessarily prove that prejudice drove Walker to refuse to acknowledge Del Mar’s intellectual contributions. Yet an investigation of the faculty and staff appointments at MIT from 1881–98, during Walker’s presidency, reveals that out of 290 faculty and staff appointments only one appointee was Jewish: future Supreme Court Justice Louis D. Brandeis, who taught corporate law in MIT’s Department of Economics for just one academic year (1893–94). This was not for a lack of qualified candidates; in the late 19^th century, Jews comprised 7 percent of the population of Boston, a good many of them highly educated Jews of German origin.

It is ironic that today Walker is considered a towering figure in the original stages of the American academic community, when his work on the subject of money was demonstrably deficient and his attitudes on race and ethnicity a modern-day embarrassment. Del Mar’s work, in contrast, stands at the core of contemporary thinking on the subject of money, but his contribution is only beginning to be recognized.

Indeed, many of Del Mar’s writings remain to be plumbed for their lasting insights. For example, in 1885 he authored The Science of Money, a book of pioneering analysis of the interactions of fiscal and monetary policies. One can only imagine what value there might be in reading this old book anew in light of the current travails of the international monetary system.

¹Tobin, “Neoclassical Theory in America: J.B. Clark and Fisher”, American Economic Review (December 1985).

²Mundell, “Comment on Academic Exclusion: the Case of Alexander Del Mar”, European Journal of Political Economy (March 2004).

³Del Mar, “Recollections of the Civil Service”, Appleton’s Journal, September 12, 1874, p. 330.

⁴The rehabilitation of Del Mar began with Joseph Aschheim and George S. Tavlas, “Alexander Del Mar, Irving Fisher, and Monetary Economics”, Canadian Journal of Economics (May 1985).

⁵Del Mar, History of Monetary Systems (Effington Wilson Royal Exchange, 1895), p. xxxi.

⁶A.W. Coats, “Francis Amasa Walker”, in J. Eatwell, M. Milgate and P. Newman, eds., The New Palgrave: A Dictionary of Economics (Macmillan, 1987).

⁷Del Mar, The Science of Money (The Cambridge Encyclopedia Company, 1849), p. 26.

⁸Quotations taken from Walker, Discussions in Economics and Statistics (Holt, 1909)