Money and civilization: it’s complicated

William Goetzmann’s Money Changes Everything: How Finance Made Civilization Possible 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.

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 Debt . 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.

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Different and alone

Courtesy of striking French air traffic controllers, I had a longer journey back from Toulouse than I’d expected today, and managed to read the whole of Olivia Laing’s thought-provoking book The Lonely City: Adventures in the Art of Being Alone.

It wasn’t what I’d expected from the reviews, which made it seem like a kind of travelogue about her having some time alone in New York and reflecting on modern urban life; I’m a sucker for books about sitting in foreign cafes feeling a sense of anomie while writing in one’s notebook. Instead, The Lonely City is more a sort of successor to Susan Sontag’s Illness as Metaphor with a soupcon of Patti Smith’s Just Kids. Through her research into the work and lives of four artists who engaged with and battled with loneliness, but also with poverty, rejection, AIDS, Laing actually gives us a profound discussion of society’s inability to tolerate difference.

She also reflects on the role of our use of digital contact through social media and always being online – using it as a shield against human contact and at the same time a means of human contact. Laing notes the trajectory of Sherry Turkle’s assessment of digital tech through her trilogy, The Second Self (1984), Life on the Screen (1995) and the far more pessimistic Alone Together (2011).

Andy Warhol, one of the artists discussed by Laing, predates Twitter and Facebook. What would he have done with them, I wonder?

China, not Europe

Yesterday – the morning after the Brexit vote – it was too painful to think about what had happened. I’m horrified by the outcome. At least for my train journal I had a completely absorbing book to read. It’s Rob Schmitz’s Street of Eternal Happiness: Big city dreams along a Shanghai road. Schmitz is the China correspondent for Marketplace, a speaker of Mandarin and has spent many years living in the country.

The book uses stories about different characters living on or near the street to illustrate some broader themes. The owner of a not-very-successful sandwich bar opens up the aspirations and culture of young people whose life experience has been so different from that of their parents, who suffered the Cultural Revolution, grew up with siblings, above all conformed. A flower seller has lived the rural-urban migration to work in a factory story, before setting up her small business and bringing her sons to Shanghai. An elderly couple scraping by on pension and a street food stall are victims of a fraudulent pyramid scheme.

The themes are familiar, but here are woven into the fabric of everyday life, and made human. I’ve only been to China once (Beijing) & would love to return, although am not at all sure I’d want to live there as Rob Schmitz has. It’s pretty clear now that America is in its post-imperial decline, the European dream is disintegrating, and the next century will be the Chinese one. Anyway, I really enjoyed reading Street of Eternal Happiness and if it could keep me from brooding over the UK’s historical (not in a good way) decision, that’s real testament to how interesting it is.

Early modern finance, central planning and technology

Self-indulgently, I read *another* novel this week, Francis Spufford’s Golden Hill. It has some relevance to this blog, with fascinating insight into early modern (18th century London-New York) finance. Unlike his brilliant Red Plenty, however – which was about the formal equivalence of a centrally planned economy and a decentralised competitive general equilibrium (under certain assumptions, naturally) – Golden Hill is only tangentially about economics, to be transparent about it. It is, though, a rattling good read, highly recommended, and impossible to say more about without spoilers.

Anybody who hasn’t yet read Red Plenty should make it a priority. I also adore Spufford’s Backroom Boys, a hymn to the otherwise unsung heroes of British engineering. And his volume with Jenny Uglow, Cultural Babbage: Technology, Time and Invention.

The platform era

The economics of digital platforms, including the sharing economy, has become a hot topic – not only among researchers but also with several new books for the non-specialist reader. Yesterday I took part in the Digital Forum organised by the Toulouse School of Economics – home of Nobel Laureate Jean Tirole, one of the first economists to analyse platforms (or two-sided or multi-sided markets). It was a packed event with some fascinating contributions. And on the train to and from Paris, I read Matchmakers by David Evans and Richard Schmalensee. This follows on from Platform Revolution by Geoffrey Parker, Marshall Van Alstyne and Sangeet Paul Choudary (which I reviewed here), and The Sharing Economy by Arun Sundararajan (here).

All three are well worth reading – they all clearly explain the economic characteristics of digital platforms, with lots of examples. Inevitably there is some overlap but in fact the books complement each other nicely and also include different examples. Platform Revolution takes more of a business design perspective, while The Sharing Economy is specifically focused on peer-to-peer markets. Matchmakers has more about the economic analysis and public policy questions including competition – David Evans’ earlier book, a collection of papers, Platform Economics, was quite heavily focussed on the competition issues.

Some of the examples in Matchmakers are very nice. I particularly liked the case of the US trucking industry. There’s also a chapter on M-Pesa, which I know a bit about; it is a nice description of how it worked in Kenya, although I’d have been interested to read about why mobile money platforms have failed in so may unbanked countries – regulatory barriers in my view. One of the questions about platforms’ success or failure is the extent to which they take advantage of opportunities for regulatory arbitrage on the one hand and can be killed by hostile regulation on the other hand.

Marshall Van Alstyne was one of the participants in the Toulouse School of Economics event and gave a great talk including this chart; he and I agreed that there is a huge research agenda on this subject as we’re entering the era of platforms. I have an issues paper out soonish, sketching some of the questions.

Marshall Van Alstyne at the TSE Digital Forum 16/6/2016

Marshall Van Alstyne at the TSE Digital Forum 16/6/2016