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Money
The Unauthorized Biography
Felix Martin
Today we define land in terms of its size - length X breadth. But in medieval times that was irrelevant. What mattered to them was how long it took to plough, and how much grain it would yield. Didn't matter if the measures varied from village to village. But industrial Age demanded uniform measures.
In 585BC Thales, Greek philosopher, correctly predicted a solar eclipse. The astronomy behind this calculation had been known for centuries in Egypt and Mesopotamia. But what was new was the use of science, Thales rejected the idea of a universe controlled by whimsical gods. Instead he substituted a universe governed by impersonal, natural laws.
NINJAs - loans extended to people with No Income, No Job or Asssets.
(NY Times)
Most people are used to owing money to others, but few think about what money may owe us: an equitable society, a functioning political system, a peaceful economy that can stay off the exhausting roller coaster of financial booms and crashes.
We don't usually think of money as a tool to accomplish all that, but Felix Martin, an economist and former World Bank official and author of the compulsively readable new book Money: The Unauthorized Biography, says that money can give us all those things; it can deliver both stability and freedom. The catch is that we must radically rethink money itself. It's not a fixed, physical thing, he argues, but a virtual social technology that should be used to enable a more democratic and equitable world, bring order to the banking system and foster peace, prosperity, freedom and fairness. Sign me up.
Martin's best stories remind us of the quirky ways money existed in the past. He opens the book late in the 19th century in Yap, a Pacific island that favored as its currency enormous stone wheels the size of boulders. One especially rich family's only proof of their wealth was a boulder at the bottom of the sea. (Talk about underwater homeowners.) For centuries in England, accounts were marked on wooden tally sticks; in 1834, when Treasury officials burned the tallies in a tantrum of modernization, not only did they wipe out English financial history, they also created a conflagration that literally burned down Parliament.
“Money” is a fascinating and entertaining pep talk for bankers, economists and armchair revolutionaries dissatisfied with the current financial system, and an attempt to galvanize them into action. The best arguments center on widespread unfairness: 'Global bankings current structure generates an unjust distribution of risks, where losses are socialized - taxpayers are on the hook for bailouts - while gains are private - the banks and their investors alone reap any profits.' In addition to widespread wealth inequality and stagnant incomes, 'the baby boomers own all the houses, and no one under 30 can get on the property ladder.'
Martin's complaint will be familiar to anyone who has kept up with the flailing of finance in the five years or so since the crash. A wide group of dissidents has strengthened its opposition to the current financial system. This worldview — which holds, roughly, that banks are greed-driven agents of chaos and governments their weak-willed enablers of social inequality - crystallized first in the back alleys of the Internet, then on the streets through the Occupy protests, on to the campaign trail with Ron Paul's 'End the Fed,' and now peeks through the growing debate around the virtual currency Bitcoin, which is backed by no government or bank. This set of movements was spurred by what its adherents consider a failure of capitalism as we know it and a desire to either change it for the better or escape it entirely. Martin is very much with them - or at least with some of them.
Martin sides strongly with the camp that says the financial system failed, particularly the banking system. He suggests that banks broke their traditional bond with governments by going rogue: issuing trillions of dollars of derivatives that flooded the shadow banking system and creating a largely unregulated parallel monetary universe. He calls it a coup d’etat, and he's sympathetic to the dissidents - 'Why respect the rules of the system, ask the Occupy protesters and indignados in Madrid, if the system consistently generates crises?' - but rejects financial anarchy and interlopers like Bitcoin and comes down on the side of changing our financial system for the better.
His practical solution is to break up the banks in the Chicago Plan style of the Depression-era economist Irving Fisher: Some will be utilities regulated and backed by the state, and a separate set of financial institutions will make loans and speculate on their own. It sounds a little like using separate sets of plates to keep the financial system kosher. 'Money and banking, incorrectly understood, and so incorrectly configured, are what brought us here.' Martin writes. He adds, optimistically, 'Money and banking, correctly restructured, will be what brings us out again.'
His intellectual agenda takes more work. He says both consumers and economists are mistaken when they connect money to things - whether it is gold or cash or goods in a supermarket. We need to understand money as a set of promises, 'not as a thing, but as a social technology' that should be “unflinchingly responsive to the demands of democratic politics.” Economists, similarly, when they obsess about inflation, are merely conflating money with the fixed value of the things it buys, like the price of an average basket of goods.
The financial crisis demonstrates, in Martin's view, that money has failed its democratic promise. He reminds us that money, as we know it, has been the primary tool of democratic government and social mobility. 'Under the old social regime, social position had been absolute: born a peasant, died a peasant; born a chieftain, died a chieftain,' Martin writes. 'In the new world, everything was relative. The only real measure of a man's worth was money — and the accumulation of money has no intrinsic limits.'
Of course, those Occupy dissidents would argue that our supposedly malleable social order promised by money has turned into a new kind of feudalism, with power concentrated in the hands of a few property owners — the divide between the 1 percent and the 99 percent.
Martin doesn't disagree. He may not advocate class war explicitly, but he does go for a hard sell, using language more suited to the Pentagon than to the genteel halls of central banks. 'The war on financial instability requires not conventional tactics, but a counterinsurgency strategy,' he argues, adding later that our current regulations and attempts to change banks behavior are inadequate. 'Conventional warfare will be an infinite regress: attempting to supervise the financial sector is a fool's errand.'
The revolutionary, populist theme is carried through to the last chapter. If we're going to reform money, 'it will ultimately come down to ourselves.' A friend of Martin's says, 'If you want something done properly - you have to do it yourself!' Spoiler: That's the last line of the book, and it's a cliffhanger. Martin doesn't provide any answers on how the masses can reform money, although he provides an enjoyable account of why we should entertain the idea. Still, he says, his attempt to reform the banking system 'isn't meant to start a socialist revolution - it's meant to stave one off.'
The outstanding flaw in Martin's argument is whether the system can change, and whether the impetus exists to change it - whether, in fact, the crash was bad enough to force a revolution of any kind. There are enough strong voices on the other side of his argument who would suggest it wasn't, including Daniel W. Drezner in his book The System Worked, and the economists Charles W. Calomiris and Stephen H. Haber, who suggest in their book, Fragile by Design that financial crises are an inevitable outcome of the push-and-pull between banks and governments. Into this pitched battle of economic ideas wanders the well-meaning American consumer, just trying to pay for a latte. Whether he uses cash, credit, loyalty cards or Bitcoins is largely irrelevant to him; he just wants coffee and isn't looking for a fight. Too bad. He is a potential economic foot soldier in Martin's view, and the war is very much on.
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