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The Almighty Buck Book Reviews

Book Review: Money: The Unauthorized Biography 91

Posted by samzenpus
from the read-all-about-it dept.
jsuda (822856) writes "Most of us know that making money is difficult and saving it is even harder, but understanding money is easy–it's just coins and folding certificates, a mere medium of exchange. That's wrong! according to Felix Martin, author of Money: The Unauthorized Biography. Not only is that understanding wrong but it's responsible (in large part) for the 2007 Great Recession and the pitiful 'recovery' from it as well as a number of previous financial and credit disasters." Keep reading for the rest of Jsuda's review.
Money: the Unauthorized Biography
author Felix Martin
pages 336
publisher Knopf
rating 8/10
reviewer jsuda
ISBN 0307962431
summary A sweeping historical epic that traces the development and evolution of money
Mr. Martin draws a comparison of the orthodox understanding of money as a mere medium of exchange as typified by material objects–coins, gold bars, measuring sticks, and the like and a different way of thinking about it--as a social accounting construction based on mutual trust. That way of thinking acts as a primary social organizing tool. As such, a monetary system is much more sophisticated than just a logical extension of primitive bartering systems. It is imbued with major political aspects which account, in part, for the differences between the haves and have-nots, the policies selected to address financial/economic busts, and the relationship of the state to the monetary/financial systems.

The differing understandings of money underlie even now the varied explanations by economists of the causes of the Great Recession and the varied reactions of political leaders to it. It is also relevant to the deliberate removal of the government from the monetary system in favor of an impersonal computer network, as in the digital coin system now developing.

The author is a professional economist, bond trader, and analyst with the George Soros Institute for Economic Thinking. The book is a very worthwhile look at the concept of money as a (implicit, at least) political and social determinant and is quite topical as alternative monetary systems (mostly digitalized) like Bit Coin and competitors are garnering much attention. While the book does not address those new developments, it's clear that the digitalized coin systems imply acceptance of the orthodox understanding of money as a commodity. Some of Martin's criticism of the limitations of the orthodox view seem to apply to these alternatives, as well.

Mr. Martin writes in a relatively accessible manner relating stories, mostly, about money in historical and global contexts. His approach reminds of Malcolm Gladwell's books which use elaborate historical stories to illustrate relatively complex topics. Gladwell writes better but, arguably, covers simpler issues. However, this book, too, is relatively simple. It is no treatise on money or systems; it doesn't cover every issue which relates to money and exchange; and it seems a bit thin on theory even on those topics it does focus on. The major topic is the nature of money–a medium of exchange or social/political organizing tool and that issue has been theorized differently for centuries.

Mr. Martin starts his critique of the orthodox view of money by explaining how the early Pacific island Yap culture relied upon the symbolism of large stones (known as "fei.") These stones were kept by individuals as value storage devices, even though they had few of the characteristics which typically would be present in money systems–tokens of some sort small enough to carry and to hide, a consistent look, ease of exchange, a readily determinable unit value, etc. None of that was relevant for the Yaps as they understood money as mere transferable obligations, commercial or otherwise, based on mutual trust. The bigger your stone, the more value you had to trade, even though no stones physically moved anywhere. The Yaps had a small community and violations of community trust were easily discouraged. The stones (including a large one on the bottom of the ocean) were only tangential to the much more relevant element of social trust.

Mr. Martin reviews a large handful of other historical situations involving credit collapses, bank runs, recessions, and big bank/governmental associations to make his main point that when money is rigidly understood merely as a commodity of exchange, bad things can happen to financial, credit, economic, and political systems, especially in difficult times. Take, for instance, the Irish potato famine of the mid-19th century where potential government/social aid to the jobless and hungry was stymied by creditor interests who valued the absolute sanctity of (bond and debt) contracts even at the consequences of millions of deaths. As they saw it, those victims were either responsible for their own problems or just losers in a competitive economy. Some economic thinkers at that time believed that those awful consequences were just part of the natural order and represented (unfortunately for the victims) unavoidable consequences of "good" finance.

While Mr. Martin doesn't address it much, most of the little people in America and elsewhere were also victims of the absolute sanctity of debt contracts. They lost jobs, homes, pensions, and savings in the Great Recession while big bondholders who legally had assumed investment risks lost nothing. Their debt contracts were inviolate. (The personal and social contracts of the little people naturally were worth nothing.)

Some of the major policy implications of money deal with: 1) inflation and deflation where a political decision is implied involving the contrary interests of creditors and debtors: 2) social responses to credit collapses and the role (if any) of government in moderating them; 3) who or what entities are or should be guarantors of trustworthiness (i. e., big banks? government? a computer network? 4) the role of formal contract law versus the principle of the good social good, and more. These are not mere abstract matters of formal theory but highly consequential matters of life and death (as the Irish potato farmers and lots of little people have found out.)

The author spends a lot of time explaining how trust works--in small organizations and communities, nations, and in globalized financial systems. At the top of the trust ladder (even for the most libertarian types) is the sovereign, i. e., government. There are important reasons why governments are generally lenders of last resort, stabilize financial and economic systems, and ultimately, the only potential savior for citizens from total economic collapse (as in the Great Recession.) There are various alternatives for the governmental role, none of which please everyone.

Hence, the political dimension of the money-social relationship. Mr. Martin comes down hard in favor of the flexible, social understanding of money. He praises John Maynard Keynes, Walter Bagehot, and even Salon, of centuries ago for their insights. He blames the great liberal philosopher, John Locke, of all people, for having a decidedly ill-liberal and ill-formed understanding of money. Lock was an orthodox monetarist and helped justify the philosophy which is still prominent. Each of the two philosophical approaches discussed here offer both liberal and conservative themes though rarely opposed as such.

That raises one major objection to Martin's thesis that orthodox monetary theory is wrong. He wants to substitute the social tool concept for it, but it seems pretty obvious that both frames of reference have their utility and truth. It's not easy to discredit respect for contract rights. On the other hand, it's hard to accept the starvation of millions of people to maintain them fully intact.

Nearly all such fundamental frames have their truths, even if inconsistent with the other. The better philosophical view is that we are guided (or not) by multiple, logically inconsistent frames. That is a philosophical point which he doesn't address well enough. He does concede that the orthodox theory mostly works well when times are good (but breaks down horribly when circumstances are bad.) This seems to imply a need for high-level judgment somewhere in the system, e. g., democratic political processes, a conclusion which tends to support his position.

He offers a couple of not very well-explained alternative monetary systems designed to remedy the faults of the orthodox approach while maintaining its virtues. He ends the book by suggesting that even if his thesis is correct, that getting the rest of the world to accept it is difficult–most people have rigid orthodox views, fiercely held. He lamely suggests without any elaboration that the power is within each of us to change those views. That would seem to require another book.

There is a lot of good meat, so to speak, to chew on in this book.

You can purchase Money: The Unauthorized Biography from amazon.com. Slashdot welcomes readers' book reviews (sci-fi included) -- to see your own review here, read the book review guidelines, then visit the submission page.
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Book Review: Money: The Unauthorized Biography

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  • by roman_mir (125474) on Monday March 31, 2014 @02:57PM (#46623999) Homepage Journal

    Sure, money is a social construct, however real money, as in money that is not fiat, money that is not declared by the government to be legal tender, namely gold stood in the way of governments destroying value of money by creating inflation (printing money, expanding monetary supply) and stood in the way of government from stealing more and more, since with real money, the innovation always led to higher productivity and lower prices (in the 19th century prices were falling, while money was gaining value, which is in stark contrast with the today's world of huge inflation and very low productivity and extremely high unemployment, all leading to rising prices). Of-course governments hate real money, as it prevents governments from expanding beyond their role of a LUXURY GOOD. Government is a luxury good that needs to be cut first when times are difficult, thus allowing the people to start rebuilding their savings and restructuring the economy, all of this on the backdrop of falling productivity, lost jobs and thus falling prices is what is necessary to fix the problems created by preceding round of inflation and expansion. In a market not controlled by government intervention, these are local phenomena, short-lived, and they allow scarce resources to be reallocated from inefficient uses to more efficient ones.

    Governments controlling currency, printing money, taxing income are the reason for deep lived recessions and depressions that eventually worsen, as more and more resource misallocation is accumulated in the system. 2008 recession was caused by the Federal reserve and Treasury, which worked together to monetize USA debt (that Clinton and Rubin managed to push into short term category out of long term bonds). The reason governments are able to rack up the debt that can never be repaid is because they can print money literally, once they default on the honest money, whatever was known as currency (legal tender) becomes money in itself, its only role to be true money place holder is lost and the paper becomes money itself, no longer currency, no longer bank notes, but actual money backed by the con game that the governments run.

    In any case, governments have no legitimate role in money manipulation, but this never stops them, because of-course it is so lucrative, to seize power from the people, to destroy the money by declaring paper to be it and then to buy political influence with this new concept - paper money, that can never be backed up by any amount of production. All of this of-course leads to bigger and bigger government, fewer and fewer individual freedoms, more and more oppression, which forces businesses to leave, eventually the money becomes the only product of that system, inflation becomes the only export.

    Keynes was not an economist, he was a charlatan. To economics Keynes is what an astrologist is to an astrophysicist.

    Yes, you do need to understand what money is, no you will not build any understanding of it from this nonsensical piece of crap of a book, whose author should be ashamed of himself, either for this complete lack of understanding or for the politics he is playing by selling this piece of shit.

  • by blue trane (110704) on Monday March 31, 2014 @03:17PM (#46624123) Homepage Journal

    In the 19nth century, when prices were falling, the small farmers were being hurt because there wasn't enough inflation, so they kept owing more and more to the banks. So they formed the Greenback Party, ahead of its time, urging the US to get off the gold standard permanently (Lincoln had already printed over $400 million greenbacks during the Civil War, and species payment had been suspended, so the gold standard wasn't rigidly adhered to), and print more greenbacks. The small farmers understood that deflation benefited the big money holders more than the poor.

    The problem with the gold standard is that it didn't permit elasticity. Elasticity in the money supply was needed during times of panic, or with seasonal variations in the demand for money. So farmers would withdraw money to get product to market in the fall, and the banks would pull it out of the stock market to pay them in gold, and the stock market would crash and there would be a panic. So the banks on their own evolved a clearinghouse system that functioned essentially like a central bank, creating credit, using paper money. Eventually the private sector agreed it was better for the government to run a centralized clearinghouse, rather than let J. P. Morgan run it, because Morgan had no obligation to serve the public interest, and could help his friends and hurt his enemies. So after Morgan ended the Panic of 1907, it was generally agreed upon by the private sector that the creation of the Fed was a better idea.

    Inflation is used as a scare tactic by gold-mongers. One common story is: a suit cost $20 in 1920 (or whenever). But how much was a computer in 1920? $Infinity, because they didn't exist. So along with some inflation, came a huge increase in standard of living and technology. An increasing money supply fuels innovation. The Song Dynasty in China was the first to experiment with paper money, and saw great innovations as a consequence.

  • by blue trane (110704) on Monday March 31, 2014 @03:24PM (#46624183) Homepage Journal

    I like C. H. Douglas's Social credit [wikipedia.org] definition of money:

    According to economists, money is a medium of exchange. Douglas argued that this may have once been the case when the majority of wealth was produced by individuals who subsequently exchanged it with each other. But in modern economies, division of labour splits production into multiple processes, and wealth is produced by people working in association with each other. For instance, an automobile worker does not produce any wealth (i.e., the automobile) by himself, but only in conjunction with other auto workers, the producers of roads, gasoline, insurance, etc. In this view, wealth is a pool upon which people can draw, and money becomes a ticketing system. The efficiency gained by individuals cooperating in the productive process was coined by Douglas as the “unearned increment of association” – historic accumulations of which constitute what Douglas called the cultural heritage. The means of drawing upon this pool is money distributed by the banking system.

    Douglas believed that money should not be regarded as a commodity but rather as a ticket, a means of distribution of production.

  • Money: Two Kinds (Score:4, Interesting)

    by smugfunt (8972) on Monday March 31, 2014 @04:11PM (#46624793)

    There are (at least) two kinds of money, and they work differently.

    Commodity money is based on some thing which is in limited supply. We don't use this anymore.

    Fiat money is created by the Government out of nothing. It gets it into circulation by Government spending. It gets it out of circulation by taxing. People use it because they have to pay taxes in it. If the total amount of wealth is increasing the Government must run a deficit or there will be deflation. If it runs a surplus there will be inflation and recession.

    See MMT [wikipedia.org] for more info.

    Part of our economic problems come from people (including policy makers) being stuck in commodity money mind-sets when we are using a different kind of money entirely. Currently there is a deficit and a recession because the deficit isn't big enough and there is too much tax! There are structural reasons too, like the Government spending on the wrong things.

  • by meustrus (1588597) <meustrusNO@SPAMgmail.com> on Monday March 31, 2014 @04:37PM (#46625113)
    *sigh* no mod points today. I may disagree with the basis of roman_mir's assertions, but I don't think the post should be voted down. It's not nasty; the closest thing to vitriol is calling the book a "piece of shit" (which reads more like a thesis statement than an ad hominem). I know that a lot of fucking crazy Republicans (or more likely trolls masquerading as such) have been posting some pretty steamy piles of shit around here lately, but this post definitely is not one of them.
  • by meustrus (1588597) <meustrusNO@SPAMgmail.com> on Monday March 31, 2014 @04:58PM (#46625341)

    You say that governments print money and control the money because government wants more of it. In America, my friend, the government is the people. In the words of the great Republican Abraham Lincoln, "government of the people, by the people, for the people". Our government is not an entity of its own, clawing away for every advantage. Our government is a body of leaders representing all people living within our nation: a Republic.

    Therefore when one thinks of the ways that our government takes away our wealth, takes away our freedoms, takes away our dignity, we must not think of it as a great leviathan, secure in itself by virtue of its ability to lay waste to the lesser people. It is not some abstract deity that takes from us. It is ourselves. It is the political circus we have all become part of. And whether or not all the elephants recognize them, every circus has ringleaders.

    Who benefits from all this taking? Who benefits from the government printing money while still taxing it from the people who earned it? Who really holds the power that is being sucked into Congress? You're right about one thing: it's not us. But I guarantee you that if the government itself reaped the benefits, we would not have a deficit in the trillions.

  • by rev0lt (1950662) on Monday March 31, 2014 @05:01PM (#46625365)

    however real money

    There is no real money. Its a trust system. You have only perception of value.

    as in money that is not fiat

    There is no real money. Its a trust system. You have only perception of value.

    namely gold stood in the way of governments

    Gold has no intrinsic value by itself. Its a rare metal. Its not money. Its perceived value is not even stable across time. Again, its a rare metal in a trust system. Gold has value for you because you can exchange it for stuff you actually need. Other people accept it exactly because of the same motive. Oddly enough, if gold was rated at production cost, would probably be way cheaper today than it was 150 years ago (you know, before combustion engines and dynamite and TNT). Why people like gold so much? Its a noble metal, shiny and it doesn't oxidate. What's not to like?

    In any case, governments have no legitimate role in money manipulation

    You mean, the same governments that actually LEGISLATE about what and how the currency system works, and how, how much and how far transactions will be taxed?

    Keynes was not an economist, he was a charlatan

    It may be the case, but because even a 4th grader can dismantle your arguments, I'd take your opinion with a grain of salt.

    you do need to understand what money is

    Apparently you feel lonely. I'd suggest you'd start with the basics.

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