Source
[In
most respects, Eric Lonergan said it far better than I could have
done. His comments are reprinted here with my occasional comments.]
Felix
Martin tempts fate by opening with a quote from A. H. Quiggan:
"Everyone, except an economist, knows what 'money' means."
Martin is a former World Bank economist, and at the end of this book,
I sympathised with Quiggin
After 260 pages of heavy-going
argument, Martin concludes that money is: "not a thing but a
social technology - a set of ideas and practices for organising
society. To be precise (!) ... [money] is a concept of universally
applicable economic value.
Earlier he states that:
"Coins and currency ... are useful tokens to record the
underlying system of credit accounts and to implement the underlying
process of clearing."
Rather than providing a new and
counter-intuitive insight into money, which he claims, there is
analytical confusion.
A logical fallacy in much analysis of
money is repeated here: because debts have often been used as money,
it does not follow that money is a debt. Martin's novel version of
this fallacy is to argue that because we use credit accounts and a
clearing system to net off payments, this makes the credit and
clearing system "money". This is a logical error. The
standard definition of money - anything accepted as payment for goods
and services - is clear, and distinguishes it from debt and the
clearing system. This definition does not assume, as Martin
implies, that money is a "commodity". The accepted means of
payment, as his many examples illustrate, can be physical, or
abstract (or virtual).
This is really a history book, which
claims to have identified an unconventional and more relevant
understanding of what money is. There is lots of history, but the
central thesis is unconvincing. Martin goes as far as to suggest that
a flawed definition of money, with intellectual roots in Locke and
even Aristotle, explains the economics professions' failure to
foresee the financial crisis. We know this to be false. Economic
policymakers and academics ignored the financial system. The
reason is not because they had incorrectly defined money, it is
because they focus on the last problem. The obsession with inflation
targeting was a prolonged response to the inflation shock of the
1970s and 80s. Unsurprisingly, economists - academics and
policymakers - are now producing a vast literature on the financial
system, banking and asset bubbles, without any re-definition of
"money" (and it goes without saying that the next problem
will lie elsewhere). [...we presume he is saying that “the next
problem” will likewise be dealt with by them, as arising from
somewhere other than the present financial system.]
Consistent
with this mainstream response, Martin places far too much faith in
the idea that "narrow" banking will save the world. It
is a variant of the old proposal that when you deposit money with a
bank, it should hold an equivalent amount of cash in reserve. This
view re-emerges in some form after every major banking crisis.
Friedman was an advocate in the 1950s. The interesting question,
which Martin evades, is why it is never adopted. Perhaps it is not
such a good idea. [... or perhaps the whole matter needs critical
re-evaluation. We suggest, for just one instance, that the credit
clearing or transaction clearing functions of a financial system are
one activity and that finance is a separate activity and that the two
should not be combined as they are in traditional banking.]
I
had looked forward to reading this book. Martin's main argument is
initially intriguing and there's plenty of history, but ultimately it
is unconvincing and confused. For really good histories of money, I
would first read Milton Friedman's Money Mischief or Paper Promises
by Philip Coggan. The absence of reference to either of these is odd.
Even more so is the superficial dismissal of Hayek, without reference
to his views on money. Hayek's economics is flawed [we're certainly
glad to see this in print as we share this view], but his insights
into money, drawing on David Hume, are profound, and close to
Martin's. Indeed, Martin's "novel" idea - that money is a
social institution, not a physical object - originates with Hume, who
is unacknowledged. These omissions, and errors of fact, do not
reassure the reader. For an example of the latter, Domingo Cavallo,
Argentina's former economy minster and a central figure in Chapter 4,
is re-christened "Domenico," an error repeated in the
Index. [LOL!]
[I
had one major quibble with Martin on page 69. It dealt with his
attitude toward those in Argentina who went about creating and
issuing their own money. He's clearly a statist; since money is a
social institution more than anything else, it should be run by
government and banks, etc. We're sorry to inform him, his backers,
fellow pundits, etc. that these remarks and attitudes amount to a
JEER to all of us who will not be bamboozled by the elites and their
shills, including Martin. Those people in Argentina and elsewhere
needed to continue their lives and could not be bothered by people
who had claims on their national currency due to the actions of
people operating well above their heads. Society springs from
individual people making agreements among themselves, not from a
distant and often disinterested state. All real society everywhere
is local, globalism is an illusion and without FORCE would certainly
fade away. But while we would agree with Lonergan concerning the
book's flaws, it does present a very good description of conditions
in ancient Mesopotamian and Greek societies. The ancient
bureaucracies of Babylon are back, as is the craze for mass planning
of all kinds. Ancient Babylon was a Soviet style state operated by
and for an elite. This system will ultimately fail precisely because
it has already defied natural laws to scale, size, efficiency and
responsibility. We have adequate proof of this in history; since it
has happened before it shall with certainty happen again. The only
solution; “come out of her, my people” into something better that
does not require either governments or banks, awaits serious
consideration.]
