Money, money, money

Money has always seemed mysterious to me, and so I’ve always carefully avoided monetary economics as too difficult (which makes it ironic that when I returned from my US PhD programme to a job in the UK Treasury in 1985 I was assigned to the monetary policy unit – this in the days long before Bank of England independence, when the Treasury and Chancellor made the policy decisions). Still, from time to time I dip in, and found Stefan Eich’s The Currency of Politics: The Political Theory of Money from Aristotle to Keynes an interesting read.

The book is an intellectual history of how certain key thinkers regarded money, covering Locke, Fichte and Marx in between Aristotle and Keynes. The selection is used to illustrate a core point that how money is theorised and governed involves political choices, not technocratic ones. This repeated theme reminded me of Paul Tucker’s Unelected Power, similarly arguing against seeing monetary policy as an expert domain. I was initially resistant to this but on reflection at least partly agreed (partly first, because the technical affordances set the boundaries of policy feasibility, and second, because I hold on to the idea that most ‘experts’ in such areas are motivated by a sense of the public good rather than ideology or personal philosophy).

Anyway, back to this book. Each chapter reflects a close reading of the relevant work of each subject combined with an analysis of the contemporary political context. Thus he argues that Locke, for example, in his contributions to the debate about England’s increasingly clipped silver coinage, made the political move of ‘depoliticising’ money, arguing for its ‘intrinsic value’ linked to a quantity of metal: “Locke’s intervention was itself political, even where it removed political discretion,” with the aim of bolstering the role of the state as a general guarantor of (classical) liberal freedoms while limiting its scope to act in detail.

Similarly on Keynes, he writes, monetary policy, “was a public task tied to social justice. It derived its legitimacy from the implicit political covenant that also grounded the state. But it was nonetheless removed by at least one degree from popular politics since it relied on management by a group of experts who had to carefully navigate between democratic legitimacy and the political uses of their expertise.” This seems spot on. And the act of navigation is challenging in turbulent times. Independent central banks have broadly done a good job of stabilising the aggregate economy since the mid-2000s but a bad job in not recognising the distributional and political consequences of QE on a massive scale.

The other message I took from the book was that political and ideological contention both contributes to the emergence of new monetary technologies and is channelled by the affordances of the technologies. When I worked in the Treasury, my job was basically to try and figure out why monetary aggregates were growing so damn quickly – this was the tail end of the pure monetarist experiment in the UK. It turned out that trying monetary targeting at a time of huge technological change (derivatives markets exploding, ATMs and credit/debit card use spreading rapidly, deregulation of consumer credit) was doomed to failure. I still don’t understand cryptocurrencies but they are certainly part of this continuing dialectic of  – to mix metaphors horribly – walking the tightrope between the inevitably political character of the monetary system and the desirability of stability in the economy which requires taking it out of politics. The Currency of Politics really helps understand this.

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Money stuff

Modern money is intangible, electrons whizzing around – unlike older forms of money, whether paper and coin, or wartime cigarettes, or huge stone wheels. Paid: Tales of Dongles, Checks and Other Money Stuff, edited by Bill Maurer and Lana Swartz, is a reminder that even the 1s and 0s have a material basis – such as credit card machines, dongles, mobile phones, and indeed the whole physical infrastructure of the wired and wireless networks and the electricity network. What’s more, the less tangible the tokens of exchange, the more important the accounting system recording transactions. This explains the emphasis crypto folks put on the blockchain, but as one of the essays in the book points out, this has its drawback as nothing is reversible, not even transactions that ought to be reversed. There is no substitute for trust in a co-ordinating institution that keeps record.

The book is a nicely illustrated collection of essays by money afficionados from different disciplines, and spanning the Inca civilisation to Dogecoin. As a collection, there’s no central argument – except that we would do well to remember the physical and social embededness of money. There are lots of, “Well, who knew?” moments, which makes it an enjoyable read – at least if you have a fact-magpie mind like mine. I particular enjoyed Keith Hart’s reminiscence of becoming a fence and money lender during his PhD fieldwork in Ghana – which gave rise to the notion of the informal economy; I’ve met Keith (a fellow Mancunian) and love his book The Memory Bank.

Also Swartz’s essay about cash, and the notion that technological innovation in money – the Diners Club card and later credit cards – was forced by the postwar economic boom and associated travel. It reminded me of my first job at the Treasury in the 1980s, trying to find a monetary aggregate that wouldn’t grow too damn quickly for a monetarist government, at a time when rapidly increasing use of ATMs and credit cards was affecting the velocity of money and making monetary aggregate control a hopeless task.


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.