Global gloom and community currencies

I’m late to Mervyn King’s The End of Alchemy, which as all the reviewers have noted is a very well written and interesting book. It isn’t exactly cheering. On the contrary, it cast me into gloom.

As the final chapter puts it, “Without reform of the financial system, as proposed in Chapter 7 [a set of reforms with approximately zero chance of happening…..] another crisis is certain, and the failure to tackle the disequilibrium in the world economy makes it likely it will come sooner rather than later.” The chapter goes on to say not to worry, there’s something that can be done: forgive Greek debt and break up the Euro (or go for a full political union). Globally, stop struggling with Dani Rodrik’s trilemma of democracy, national sovereignity and economic intergration – King seems prepared to give up on the third leg. Change policies in China, Japan and Germany. In short, just tackle the underlying global imbalances and all the other problems or symptoms – debt overhangs, zero interest rates etc – will resolve themselves. No problem then.

To be fair, King does speak of “the audacity of pessimism”. Trouble is, you need a lot of people to get a lot more pessimistic before such policy changes would come about. As the book also points out, the last time there was such a big re-ordering was after the 1930s and 2nd world war.

More cheering is Dave Birch’s wonderful forthcoming book Before Babylon, Beyond Bitcoin, the latest in the Perspectives series (and the first full-length one). It surveys the history and the future of money. In this blog post, Dave suggests an e-currency for Manchester (and other cities). As in his previous work, Identity is the New Money, Dave points out the close link between money and trust – indeed, Mervyn King makes this point too. So financial stability is a question of communities of trust. It’s more comforting to think about trust from the ground up rather than global imbalances and crises….



The French and their money

The first chapter of The Wisdom of Money by Pascal Bruckner nearly put me off as it’s all theology, but I stuck with it and ended up really enjoying the book. It’s vairrrry French, which is a good thing in my eyes; I spent my teenage years planning to grow up to be a philsopher living in Paris and sitting in cafes all day. (And if only I’d written Sarah Bakewell’s wonderful At the Existentialist Cafe….)

But back to money. After the unpromising theological start, The Wisdom of Money picked up by pointing out what a commercially-minded entity the (Christian) Church has always been, from the Catholic sale of forgiveness or time off purgatory to the Calvinist thumbs up to the acquistion of riches through work. Then the rest of the book is a series of essays reflecting on different aspects of money and economics. There is a (to me) pleasing scepticism about varieties of idealism and unrealism concerning money: that happiness matters more, that degrowth is feasible etc. I liked the quotation from French presidential candidate Mélenchon on financiers: “Throw the bums out! I am calling for a citizens’ revolution in France to take power back from the oligarchy…” – next line: Mélenchon gets a salary of 350,000 Euros a year.

In fact, having started by saying this is a very French book, it’s very un-French in taking an utterly pragmatic approach to markets and capitalism, in contrast to the utter romanticism of so many French texts on matters economic. Bruckner is not in this long French tradition. (Although he’s not totally alone – here is Jean Tirole in the FT today offering some pragmatic thoughts about the economy in the context of the election.) He observes caustically: “Since a signiifcant number of our compatriots no longer have enough to live on decently, they will be told that prosperity is degrading, that true wealth is found in relationships not goods.”

There are quite interesting thoughts about the persistence of cash; the political vacuum at the heart of the Euro, the contrast between French and American attitudes to money, the strong support among economists for the abolition of slavery, the passive consumerism embedded in the idea of a Universal Basic Income, the scandal of superstratospheric executive pay and tax avoidance by the rich, and much more – appealing to all my prejudices at least. Very enjoyable, and the perfect length for a train ride or flight.



Money and civilization: it’s complicated

William Goetzmann’s [amazon_link id=”0691143781″ target=”_blank” ]Money Changes Everything: How Finance Made Civilization Possible[/amazon_link] is exactly the kind of book I find relaxing to read before going to sleep. Apart from the fact that it’s too chunky to carry around, it is a panoramic historical sweep packed with interesting nuggets.

[amazon_image id=”0691143781″ link=”true” target=”_blank” size=”medium” ]Money Changes Everything: How Finance Made Civilization Possible[/amazon_image]

Money is hardly my Mastermind special subject, and I certainly don’t get emotional about it as so many commentators do. So I have no view about the criticism of the book by people like this reviewer, whose point seems to be that Goetzmann doesn’t agree with every word of David Graeber’s [amazon_link id=”1612194192″ target=”_blank” ]Debt[/amazon_link] . I’m certainly not going to opine about pre-history. However, Goetzmann is making a far more general argument, rather than a specific case about the role of debt in ancient society (& anyway I think that particular dyspeptic reviewer significantly misrepresents the book’s argument).

Goetzmann’s point is that there is an intimate inter-relationship between financial arrangements and instruments and other economic and social institutions. Indeed, he argues that this is causal and financial innovations made ‘civilisation’ (in the sense of social and political changes observed through history) possible. Intellectual innovations like writing or probability theory, and social innovations like the intermediation of individual savings into investment at scale, were driven by finance. Of course, the causality runs the other way round too: certain economic and social institutions were necessary for financial innovations to occur. “The joint development of financial tools and complex society was a process of give and take on many levels.” It’s complicated, folks! Simple accounts are probably wrong.

Goetzmann is certainly not a financial determinist. He writes: “Necessity is the mother of invention. … Financial technology is redundant, adaptive, and sometimes mercurial. The institutions we take to be sacrosanct, inevitable and indispensable probably are not. Given the random outcome of historical events, another set of institutions might have emerged to serve the same financial problems. Financial innovation is thus a series of accidents of history – the caprice of time, location and opportunity.” This seems absolutely convincing to me, rather than any Graeber-like projection of ideology onto the past. And – as Goetzmann notes – “In times of financial crises, society has tended to express a collective nostalgia for a pre-financial world.”

The book is broadly chronological, starting in ancient Mesopotamia, visiting China, mediaeval Europe, 18th century France and western Europe, back via Marx to China, then the 1920s, Keynes and the war, and a final short section on modern finance. There are all kinds of examples I didn’t know about – the Templars as bankers, the early example of corporate structure in the shape of Toulouse’s Honor del Bazacle. Like Jared Diamond through a different lens, Goetzmann sees the fragmentation and political competition of western Europe in mediaeval and early modern times as an important contribution to its subsequent reliance on capital markets. All very enjoyable, and I’d say essential for anyone interested in financial history.


Civilising money

I’m enjoying William Goetzmann’s [amazon_link id=”0691143781″ target=”_blank” ]Money Changes Everything: How Finance Made Civilization Possible[/amazon_link]. So far I’ve gone through pre-history and early Chinese financial innovation and am embarking on mediaeval and early modern Europe. The book’s general theme is that financial innovations enabled civilisation to progress, starting with the origins of writing in ancient Mesopotamia because of the need to record financial transactions including the payment of tribute to the temple. It is stuffed full of the kinds of new information I love to accumulate. For example, in 386 BCE a group of Athenian grain traders were put on trial for price fixing and hoarding. They faced the death penalty, rather stiffer than the fines facing cartels these days. Who knew the Athenians had competition policy?

[amazon_image id=”B017MVYMSA” link=”true” target=”_blank” size=”medium” ]Money Changes Everything: How Finance Made Civilization Possible[/amazon_image]

The book argues that ancient Greece also originated the mentality that wealth could be intangible, abstract. Finance was decoupled from physical assets such as land or grain. What’s more, because hundreds of Athenian citizens acted as jurors in trials, often concerning financial matters such as compound interest or cost-benefit calculations, financial literacy was widespread: “Athenian numeracy was not simply a skill required for a successful business. It was a trait on which the democratic process fundamentally relied. …. The monetization of Athens was not only important to the emergence of democracy, it was also a factor in the development of Greek philosophy. … Monetization led to abstract thought.”

Sadly, we now seem to have the financialization without the widespread numeracy and capacty for abstract thought. Seems like the ancient Greeks were ahead of 21st century democracies on that front. For new technologies – including financial innovations – to bring progress, surely they need to be widely understood. A populace that doesn’t understand can’t ensure they share in the benefits.


Revolutionary money

Today I finished reading properly Rebecca Spang’s marvellous [amazon_link id=”0674047036″ target=”_blank” ]Stuff and Money in the Time of the French Revolution[/amazon_link], having only dipped in when I first bought it. It really repays the attention. What seems to be a book about a specific aspect of the historical episode is really a reflection on the nature of money and its intrinsic relationship with politics and with conceptions of property. Set in the 1780s and 90s, it could not be more relevant to the bitcoin/ledger debate.

[amazon_image id=”0674047036″ link=”true” target=”_blank” size=”medium” ]Stuff and Money in the Time of the French Revolution[/amazon_image]

I learnt much from it, starting with the insight that the problems with the infamous assignats issued after the revolution stemmed from the unquestioned belief that the venal offices sold by the old regime, raising much government revenue, could not be cancelled or expropriated. Spang writes: “Throughout the debate, no one (not even Marat or Robespierre) took the truly revolutionary position of suggesting venal offices might be illegitimate privileges that could be cancelled without payment.” But, she adds, “Simply aboloshing the offices was unthinkable but so too was leaving the debt on the books, since officeholders who had not been repaid woulf retain their property and ‘privilege’ would still exist.” Settling the debts in one go would would consign the ancien regime to history and complete the revolution. Hence the issue of assignats backed by the expropriated land of the church.

The book also has a fascinating section on [amazon_link id=”0691116350″ target=”_blank” ]The Big Problem of Small Change[/amazon_link] (to quote the title of Tom Sargent and François Velde’s book on this): the cost of manufacturing the low-denomination coins used by most people exceeded their face value. A shortage of usable cash led to the proliferation of private currencies in many areas, and eventually their replacement by breaking up the assignats into smaller denominations, so that they morphed from something like bills of exchange, backed by specific property, into generic paper money. A sophisticated credit network built on personal relationships and specificities gave way to anonymity and ultimately distrust. But the distrust was the product of political uncertainty, the dissolution of everything familiar and the clear invalidation of the assumption that the future would be enough like the present that credit – and money – could be relied on.

[amazon_link id=”B00RLHMOF4″ target=”_blank” ]The book[/amazon_link] concludes with a reminder that the past is different from the present but what it does serve to underline is the culturally specific character of not only money but other foundation stones of economic relationships – property and value. These “have never been naturally given categories but are historically produced.” And, perhaps, poised for another revolution, as digital everything continues to strain conventional ideas of property and value to breaking point and beyond.