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The Almighty Buck Book Reviews

Book Review: Money: The Unauthorized Biography 91

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.

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Book Review: Money: The Unauthorized Biography

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

    I like C. H. Douglas's Social credit [] 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.

    • by plopez ( 54068 )

      I see money as an exchange, energy flows in one direction and money in the opposite. I expend energy at work so I get money in return. People expend money for me and I give them money in exchange, etc.

    • by Kjella ( 173770 )

      So what did the third oarsman on the left of the trading vessel accomplish by himself? Nothing new about taking a share in a great project led by a lord or rich merchant. And there's nothing new about making products that go into value chains like from wool you spin thread, from threat you weave cloth, from cloth you tailor clothes. With eBay and big data we could probably do better without money now than ever before, simply by finding closed loops where person A wants what B has, B wants what C has and C w

  • 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 [] 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 meburke ( 736645 )

      Actually, there are many kinds of money if you consider money as a "thing." However, money is a "measurement" used to help determine if trading is equitable for all parties.

      Although this book is interesting, I would recommend Ludwig Von Mises, "The theory of Money and Credit" []
      for a more well-rounded look at what money actually "is".

      Question Suppose you needed a board 3' long for a bookshelf, and the government made the "inch" smaller between the time you measured and the ti

      • by smugfunt ( 8972 )

        Commodity money can also change in value when the supply of (or demand for) the commodity changes. This can be naturally arbitrary, or due to market manipulation by large holders. If the commodity cannot be produced fast enough to match wealth creation there will be deflation. The gold standard era was not devoid of economic crises. The tally-stick era was much more stable, probably due to the broader range of commodities it employed and the lack of fractional reserve shenanigans.

        Fiat money should be adjust

      • by Anonymous Coward

        "The theory of Money and Credit" is, like a lot of economics texts, a work of pure fantasy without any reference to real life designed to retrofit a bunch of presupposed conclusions. Every example of human culture we have ever studied, including the ones we live in, completely discredit everything those texts imagine is or was true.

        There are lots of examples of "money things", but they are all tokens representing a unit measure of debt. Or there are commodities.

        "Commodity money" is (according to standard ec

  • by sjames ( 1099 ) on Monday March 31, 2014 @04:37PM (#46625115) Homepage Journal

    Contracts are torn up all the time when circumstances change. There is practically no case where a a party of a contract will be required to drive themselves to ruin to fulfill a contract.

    The same is true of money IF YOU HAVE A LOT OF IT. If you don't have a lot of money, you're screwed.

  • And I suspect they will continue to be.

    In my opinion, the REAL issue with money stems from two things.
    1. Detachment from actual worth. A lot of people harp on gold back and many other schemes but that's not what I'm talking about. In times like ours, where money truly is nothing more than a perception of value, it can be manipulated much like religious talismans have been manipulated throughout history.
    2. Positive interest systems. Positive interest promotes hoarding and a overall m.o. of only contributing

  • Economics is based on biology. Lots of different organisms trade resources back and forth. In fact, if you don't trade and you can't find resources, you die.
    Basic economics and it applies equally to protozoans, elm trees and human global civilization.

    As far as money per se, that is an illusion or artifact of civilization. People who think credit or cash or the gold standard drives economics don't actually spend any time thinking about the concepts or limits. Consider--what is the total dollar value of e
  • Have you heard the good news about Das Kapital? I actually should re-read this, as it's one of the better treatises on money, capital, etc ever. Ignore that communist part if you want, since that part from what I remember was pitched as a logical conclusion but is more of a future prediction.

  • Once upon a time, gold money may have been wealth in itself, but today that quaint method of business is long gone. Money, holes, facilitates the movement of wealth, but is not wealth itself. Frankly the last thing any rich person wants is a big pile of money sitting around doing nothing. To a large degree our fascination with money has caused us to lose sight of the wealth it really represents. Money today is just a measuring stick of wealth, and an elastic one at that. Had more people looked not at th
  • Sisters : I will use two pieces of paper as an example. Can you see this?
    Human : I see one piece of paper, the other's money.
    Sisters : Two pieces of paper.
    Human : What ?
    Sisters : Here are two pieces of paper. Both the same size. Both just paper... Humans are obsessed with money.
    Human : Not all humans; Just some of us... Most of us.
    Sisters : One piece of paper is worth 500 solar credits, the other is worthless; Not even worth a solar centavo. Do you know why?
    Human : Sure! One's a piece o
    • No.. you have to believe that 1) someone has a mandatory payment to make and 2) that they can make that payment in that currency. That's the difference between dollars or pounds or yen and pieces of paper (cloth actually I think).
  • In his book "Stranger in a Strange Land", a human raised by Martians finds himself trying to understand the ways of Earthly humans. One day he groks the concept of "money". Good stuff!
  • ... of money a long time ago. How money interacts with the law (concepts of property) is what's at issue. Money acts as a substitute for the earths energy and resources. The problem comes when you add rules to the game and add in exploitation, greed and the whole nine yards.

  • I am totally agree with you. Great post. Thanks and best regards...

God doesn't play dice. -- Albert Einstein