Book Review - Money: The Unauthorized Biography
The volume "Money: The Unauthorized Biography" yesteryear Felix Martin is a comprehensive pop history of money. Money too banking are topics of considerable involvement since the terminate of the fiscal crisis, too they are also areas of nifty confusion. In this book, Felix Martin offers a clear history of the subject.
Description
The volume was outset published inwards 2013, too is 309 pages long (including the comprehensive endnotes, index too bibliography). The mass of the volume describes the history of money, but it ends with only about give-and-take of the fiscal crisis too potential remedies.
Felix Martin holds degrees inwards classics, international relations too a doctorate inwards economics. He worked for the World Bank too straight off industrial plant inwards fixed income at Liontrust Asset Management PLC.
My Overall Assessment
I have got read a number of pre - World War II economical histories, but I am much to a greater extent than familiar with the postwar period. What he writes almost the before history looks sensible, too is consistent with what I have got read elsewhere. But I am non inwards a seat to vouch for the accuracy. Instead, I volition focus on the areas where I have got to a greater extent than expertise, equally good equally his analytical views.
The key theme of the volume is that money is a social excogitation – it did non arise from barter, based on gilded with a fixed value. The theory that money developed from barter appears to have got been a completely unsupported conjecture, but which has been mysteriously repeated yesteryear economists for centuries.
Since this is a broad history, he is forced to concentrate on sure enough episodes. What he wrote almost the before episodes seems reasonable, but I imagine that only about specialists could dispute parts of his version of events. But that is inherently truthful for whatsoever pop history of this scope.
He discusses only about of the episodes with a fair amount of detail. On recent episode discussed was when the Irish Gaelic banking organization was shuttered equally a final result of labour disputes inwards 1970. The economic scheme proceed to role despite the closure of the official clearing system. People too businesses institute workarounds. The best known illustration of this was the role of publicans clearing the cheques of their customers, on the theory "one does non later all serve potable to someone for years without discovering something of his liquid resources" (a nifty quote from the economist Antoin Murphy inside the book).
The volume is live a goodness starting signal for understanding the monetary system. I do non have got substantial disagreements with what he writes, rather I observe that I have got only about disagreements with his tone at only about points. This is in all probability because I seem to attach less importance to the distinction betwixt "money" too "credit". (For example, come across my article "Are Banks Special? Yes too No.") But I dubiety that volume entitled "Money: It's Fairly Important" would sell real well, thence the author's editorial stance seems sensible.
The coverage of recent history too possible reforms, although technically non also of import for the overall history of money, could mayhap have got been expanded. These are topics of considerable electrical current interest.
Bond Vigilantes
One sub-theme inside the volume which I stance equally somewhat anachronistic is how the money too bond markets tin champaign of study of governments. Of course, the James Carville bond marketplace quote appears. It is abundantly clear that weak governments, which is what nosotros had for much of the pre-war era, are vulnerable to marketplace discipline. Many governments are "weak" because their taxing too spending footprints were real small, or they are dependent upon unusual imports.
This status of weakness does non genuinely apply to the modern developed welfare solid ground economies with floating currencies. Writers who wishing to observe examples of on markets disciplining such countries are stuck with repeating the same rating means downgrade anecdotes too the James Carville quotation.
He refers to the ascent of mortal currencies equally beingness a "nightmare" for key bankers, for illustration referring to an Argentinian example. However, with all due abide by to my Argentine readers, Argentine Republic is non just a shining illustration of goodness governance. Private currencies only correspond a threat to a authorities inwards that they brand taxation avoidance easier. H5N1 performance value-added tax, or income taxation system, prevents mortal money from beingness anything other than a curiosity, equally all transactions generate taxation obligations - which have got to live settled via the official monetary clearing system.
He uses the Irish Gaelic banking concern closure illustration equally a proof that Chartalism (the theory that money is "a beast of the state") is a "misleading preconception". My reading of Modern Monetary Theory - which is ofttimes identified equally neo-Chartalist - does non Pb me to believe that that illustration represents a challenge to what self-described Chartalists genuinely believe. Chartalists are real good aware of the nature of the mortal banking system. But the signal is that the mortal banking organization operates inwards a unit of measurement of work organization human relationship that is determined yesteryear the government, too the mortal banking organization would non hold out its outset fiscal crisis inwards the absence of authorities support.
It's All Locke's Fault
If y'all believe mainstream economics, this is yet only about other volume that volition brand y'all unhappy. The mainstream to non just comprehend itself inwards glory during the fiscal crisis, thence this handling is somewhat to live expected. There has been a lot of writings almost the failings of mainstream economic science (and my writings are included inwards that group). But this volume has a fresh novel angle (to me, anyway) on the topic - it's the mistake of the philosopher John Locke.
In 1695, the British parliament asked William Lowndes, the Secretary of the United Kingdom of Great Britain too Northern Ireland of Britain too Northern Republic of Ireland Treasury to written report on the management of the British coinage. The nominal value of United Kingdom of Great Britain too Northern Ireland of Britain too Northern Republic of Ireland coinage was worth less than its silverish content, too coinage was disappearing (due to clipping too smelting). He proposed reducing the silverish content yesteryear 20%, which was normal do throughout history. John Locke opposed this move, disputation that money was genuinely silver, too thence it made no sense to who redenominate debt. It would live equally ridiculous equally "to lengthen a human foot yesteryear dividing it into Fifteen parts, instead of Twelve" spell nevertheless "calling them Inches".
Modern economic science is based upon a barter concept, where goods/services are voluntarily traded for other goods/services. Money is difficult to jibe into this framework, unless it has objective value. This leads us to a well-documented style with only about gratuitous marketplace purists to back upward things similar a gilded standard. Felix Martin traces this style dorsum to Locke, which won over the economic science profession on the footing of his influence inwards liberal political thought.
I cannot genuinely guess whether Locke was equally influential inwards economical idea equally stated. But I would banknote that the barter framework used inside economic science is highly convenient for defenders of unfettered gratuitous markets. Barter transactions only occur inwards this theory if they enhance the utility of the 2 parties concerned. If the authorities interferes with transactions, the implication is that the final result is suboptimal. This is also useful a theoretical final result for those who wishing to shrink authorities mightiness to laissez passer on upward on, no affair how flawed the theoretical framework it generates is. (One could in all probability banknote for sake of residual that analysis of governmental actions yesteryear Socialists are presumably biased inwards the other direction.)
Felix Martin argues that Locke's conception of money equally having fixed value (in precious metals) leads to the fixation on barter. My suspicion is that the wishing for a barter-based organization is to a greater extent than of import for mainstream economical theory, too money has to live turned into only just about other commodity to jibe that analytical framework.
Finance And Economics
The book’s analysis of the fiscal organization is strong. Although he discusses the weaknesses of macroeconomic theory, he also raises the number of weaknesses inwards the modern fiscal theory.
In chapter 13, he makes the real interesting observation:
Yet yesteryear focusing alone on the pricing of securities on mortal markets, academic finance developed an exact mirror ikon of the flaw of neoclassical macroeconomics. By ignoring the essential link betwixt fiscal securities traded on the upper-case missive of the alphabet markets too the monetary organization operated yesteryear the sovereign too the banks, academic finance built a theory of finance without the macroeconomy only equally classical macroeconomics had built a theory of the macroeconomy without finance.
The focus on an "infinite array of substitutable claims, with no scream of sovereign money" inside finance leads the truthful believers towards strategies that magnify leverage at every opportunity, since borrowing augments the run a peril premium received. Of course, without an economic scheme (or fundamental uncertainty) inwards your fiscal model, in that location is no run a peril associated with borrowing...
Whither Reform?
At the terminate of the book, he discusses only about possible reforms of money too banking. Things such equally total reserve banking, which tin live conceived of inwards a few ways. He also discusses the possibility of making money to a greater extent than flexible, thence that debt repayment is less burdensome. For example, the authorities could y'all do that he too volition number debt linked to nominal GDP, which is related to the taxation base.
I have got non written much almost banking reform, but I am highly skeptical that major banking reforms would piece of work inwards the absence of a total restructuring of the economy. Almost all of the problems inwards the concluding crisis originated inwards the shadow banking system, although formal banks were caught upward inwards the madness. As long equally in that location are large pools of upper-case missive of the alphabet generated yesteryear the economical organization – such equally pension funds – in that location volition live large amounts of money that volition have got to live placed yesteryear diverse shadow banking mechanisms (noting that bonds are a venerable shadow banking instrument). And portfolio investors have got niggling incentive to do detailed, conservative credit analysis. All that matters is that y'all have got less credit losses than your peers.
Correspondingly, my feeling is that the tight focus on money too banking improves the readability of the volume (a volume that attempted to comprehend the entire economical history of monetary economies would live also vast), but if 1 is interested inwards the modern economies, 1 needs to have got a wider analytical view.
Finally, the volume is available at Amazon.com: Money: The Unauthorized Biography (affiliate link).
See Also:
(c) Brian Romanchuk 2014
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