The Evolution of Money
Page 34
28. Jill Treanor and Dominic Rushe, “Banks Hit by Record Fine for Rigging Forex Markets,” Guardian, May 20, 2015.
29. Peter Cohan, “Big Risk: $1.2 Quadrillion Derivatives Market Dwarfs World GDP,” DailyFinance, June 9, 2010, http://www.dailyfinance.com/2010/06/09/risk-quadrillion-derivatives-market-gdp/.
30. The money supply is “ultimately determined” by the central bank, with banks functioning only as “cooperating partners in this process” (Paul A. Samuelson and William D. Nordhaus, Economics, 17th ed. [Boston: McGraw-Hill, 2001], 551).
31. Michael McLeay, Amar Radia, and Ryland Thomas, “Money Creation in the Modern Economy,” Quarterly Bulletin [Bank of England], no. 1, March 14, 2014, 1.
32. Adair Turner, “Printing Money to Fund Deficit Is the Fastest Way to Raise Rates,” Financial Times, November 10, 2014.
33. McLeay, Radia, and Thomas, “Money Creation in the Modern Economy,” 1–14.
34. Margrit Kennedy, Interest and Inflation Free Money, Creating an Exchange Medium That Works for Everybody and Protects the Earth (Philadelphia: New Society, 1987).
35. L. Randall Wray, Understanding Modern Money: The Key to Full Employment and Price Stability (Cheltenham: Elgar, 1998), 77–80.
36. To maintain this balance, we should have R + I + B > D, where R is the growth rate of GDP, I is the inflation rate, B is borrowing costs as percentage of GDP, and D is the primary deficit—that is, the difference between spending and taxes, again expressed as percentage of GDP. See Rickards, Death of Money, 178.
37. Quoted in G. Edward Griffin, The Creature from Jekyll Island: A Second Look at the Federal Reserve, 4th ed. (Westlake Village, Calif.: American Media, 2002), 187–188.
38. “Debt to GDP Ratio Historical Chart,” Macrotrends, www.macrotrends.net/1381/debt-to-gdp-ratio-historical-chart.
39. Ben Bernanke, interview by Scott Pelley, “Ben Bernanke’s Greatest Challenge,” 60 Minutes, CBS, March 12, 2009.
40. David Orrell, “Making Sausages,” World Finance, March 4, 2013.
41. Jack Weatherford, The History of Money (New York: Three Rivers, 1997), 48.
42. Ralph Abraham, Chaos, Gaia, Eros: A Chaos Pioneer Uncovers the Three Great Streams of History (New York: HarperCollins, 1994), 92.
43. Along with a major shift in science toward areas such as complexity. See David Orrell, The Other Side of the Coin: The Emerging Vision of Economics and Our Place in the World (Toronto: Key Porter, 2008), 150.
44. Bernard Lietaer, “The Mystery of Money” (unpublished manuscript, 2002), http://www.scribd.com/doc/294011240/Bernard-Lietaer-The-Mystery-of-Money-287pp-full-pdf-download.
45. Lietaer, for example, describes gold as a yang currency in “Mystery of Money.” Peter L. Bernstein wrote that since the fall of the gold standard, “gold has been emasculated. … We have relegated gold to its traditional role in jewelry and adornment” (The Power of Gold: The History of an Obsession [New York: Wiley, 2000], 368).
46. James Dawson, “When It Comes to Coins, Isis Is Clearly Not as Good as Gold,” New Statesman, November 19, 2014.
47. Alison Smale and Melissa Eddy, “Greek Debt Crisis Pits Greeks Against Germans,” New York Times, July 11, 2015.
6. The Money Power
1. Frederick Soddy, Wealth, Virtual Wealth and Debt: The Solution of the Economic Paradox (New York: Dutton, 1926), 69.
2. Richard Dobbs, Susan Lund, Jonathan Woetzel, and Mina Mutafchieva, “Debt and (Not Much) Deleveraging” (McKinsey Global Institute, 2015), www.mckinsey.com/insights/economic_studies/debt_and_not_much_deleveraging; Ami Sedghi, “Global Debt Has Grown by $57 Trillion in Seven Years Following the Financial Crisis,” Guardian, February 5, 2015.
3. Bill Gross, “Barron’s 2015 Roundtable Highlight,” Barron’s, January 17, 2015, http://online.barrons.com/articles/bill-gross-1421929674.
4. International Monetary Fund, “Global Financial Stability Report: Risk Taking, Liquidity, and Shadow Banking: Curbing Excess While Promoting Growth,” October 2014, www.imf.org/external/pubs/ft/gfsr/2014/02/index.htm.
5. Norbert Häring and Niall Douglas, Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards (London: Anthem, 2012), x.
6. M. Neil Browne, and J. Kevin Quinn, “The Lamentable Absence of Power in Mainstream Economics,” in Future Directions for Heterodox Economics, ed. John T. Harvey and Robert F. Garnett (Ann Arbor: University of Michigan Press, 2008), 240–261.
7. Frederick Soddy, The Role of Money: What it Should Be, Contrasted with What it Has Become, 1934. Reprint, London: Routledge, 2003, ix–x.
8. Murray N. Rothbard, Wall Street, Banks, and American Foreign Policy (Burlingame, Calif.: Center for Libertarian Studies, 1996).
9. Howard Zinn, A People’s History of the United States (New York: Harper Perennial, 2003).
10. Ibid., 242.
11. Ibid., 255.
12. Quoted in Stephen Gandel, “By Every Measure, the Big Banks Are Bigger,” Fortune, September 13, 2013.
13. Quoted in Marcus Baram, “Government Sachs: Goldman’s Close Ties to Washington Arouse Envy, Raise Questions,” Huffington Post, July 3, 2009, www.huffingtonpost.com/2009/06/02/government-sachs-goldmans_n_210561.html.
14. Joris Luyendijk (journalist and author), private conversation with Roman Chlupatý, April 2013.
15. Nick Mathiason and Melanie Newman, “Finance Industry’s Multimillion-Pound Lobbying Budget Revealed,” Guardian, July 9, 2012.
16. Essential Information, Consumer Education Foundation, “Sold Out: How Wall Street and Washington Betrayed America”, March 2009, www.wallstreetwatch.org/reports/sold_out.pdf.
17. Ian Bremmer and Cliff Kupchan, “Top Risks 2015: Weaponization of Finance,” January 5, 2015, www.eurasiagroup.net/pages/top-risks-2015#4.
18. Quoted in Roman Chlupatý, “(Ne)konečná krize: 4 expertní názory na současné i budoucí turbulence” [(Never)ending crisis: 4 expert takes on current and future turbulences], InvestičníWeb.cz, http://www.investicniweb.cz/2014/6/11/nekonecna-krize-4-expertni-nazory-na-soucasne-i-budouci-turbulence.
19. “Reserve Currency,” Wikipedia, http://en.wikipedia.org/wiki/Reserve_currency.
20. Jeffrey Gundlach, “Americký dolar zpívá labutí píseň,” Investicniweb, June 16, 2014, www.investicniweb.cz/2014/6/17/jeffrey-gundlach-americky-dolar-zpiva-labuti-pisen.
21. Joseph R. Peden, “Mises Daily: Inflation and the Fall of the Roman Empire,” Mises Institute, September 7, 2009, http://mises.org/library/inflation-and-fall-roman-empire.
22. Susan Strange, Authority and Markets: Susan Strange’s Writings on International Political Economy, ed. Roger Tooze and Christopher May (New York: Palgrave Macmillan, 2002), 138.
23. “Handle with Care,” Economist, March 26, 2009.
24. Shannon Tiezzi, “China to Be World’s Largest Economy in 2014?” Diplomat, May 1, 2014.
25. An imploding Chinese real estate market could threaten global financial stability, as the Bank of England implicitly admitted in 2015 by stress testing the ability of British banks to withstand such an event.
26. Mark Leonard, What Does China Think? (New York: PublicAffairs, 2008), 84–86.
27. Sebastian Mallaby and Olin Wethington, “The Future of the Yuan: China’s Struggle to Internationalize Its Currency,” Foreign Affairs 91, no. 1 (2012): 135–146.
28. Quoted in ibid.
29. Ansuya Harjani, “Yuan Trade Settlement to Grow by 50% in 2014: Deutsche Bank,” CNBC, December 11, 2013, www.cnbc.com/id/101263663.
30. V. N. Sreeja, “Yuan Overtakes Euro as Second-Most Used Currency in International Trade Settlement: SWIFT,” International Business Times, December 3, 2013, www.ibtimes.com/yuan-overtakes-euro-second-most-used-currency-international-trade-settlement-swift-1492476.
31. Mallaby and Wethington, “Future of the Yuan,” 135–146.
32. Parag Khanna, How to Run the World: Charting a Course to the Next Renaissance (New York: Random House, 2011), 58.
33. Greg Palast, “Robert Mundell
, Evil Genius of the Euro,” Guardian, June 26, 2012.
34. Quoted in David Marsh, The Euro: The Politics of the New Global Currency (New Haven, Conn.: Yale University Press, 2009), 106.
35. John G. Ruggie, “Territoriality and Beyond: Problematizing Modernity in International Relations,” International Organization 47, no. 1 (1993): 139–174.
36. Marwan Kraidy, Hybridity: The Cultural Logic of Globalization (Philadelphia: Temple University Press, 2005).
37. L. Randall Wray, Understanding Modern Money: The Key to Full Employment and Price Stability (Cheltenham: Elgar, 1998).
38. Harris Dellas and George S. Tavlas, “The Gold Standard, the Euro, and the Origins of the Greek Sovereign Debt Crisis,” Cato Journal 33, no. 3 (2013): 491–520.
39. Martin Feldstein, “The Failure of the Euro,” Foreign Affairs 91, no. 1 (2012): 105–116.
40. Michael Hudson, “The Financial Attack on Greece: Where Do We Go From Here?” CounterPunch, July 8, 2015. www.counterpunch.org/2015/07/08/71809.
41. A “former Mexican diplomat,” quoted in Khanna, How to Run the World, 52.
42. Benedict Anderson, Imagined Communities: Reflections on the Origin and Spread of Nationalism (London: Verso, 1991).
43. Quoted in Dean Carroll, “Latvia’s Membership Shows Euro Is ‘Major Achievement’—claims EU,” PubAffairs: Public Affairs Networking, December 2013, www.policyreview.eu/latvias-membership-shows-euro-is-major-achievement-claims-eu.
44. “Russian Ruble Becomes Only Valid Currency in Crimea,” RT, June 2, 2014, http://rt.com/business/162992-crimea-adopts-ruble-currency.
45. Jeffrey Cavanaugh, “FOREX Africa: The CFA Franc aka the African Euro,” AKF Insider, February 12, 2014, http://afkinsider.com/41946/forex-africa-african-euro.
46. Henry Kyambalesa and Mathurin C. Houngnikpo, Economic Integration and Development in Africa (Aldershot: Ashgate, 2006), 88.
47. Mervyn King, The Political Economy of European Monetary Union (Florence: European University Institute, 1998).
48. Martin Dokoupil, “Gulf Arabs Shouldn’t Delay Single Currency—Qatar Central Bank Official,” Reuters, July 26, 2012.
49. Steve H. Hanke, “Why the World Should Be Rallying for the ‘Yuan-ization’ of North Korea,” Business Insider, June 22, 2013.
50. Pew Charitable Trusts, “The Complex Story of American Debt,” July 29, 2015. www.pewtrusts.org/en/research-and-analysis/reports/2015/07/the-complex-story-of-american-debt.
7. Solid Gold Economics
1. Thomas Pownall, A Letter from Governor Pownall to Adam Smith, Being an Examination of Several Points of Doctrine (London: Printed for J. Almon, 1776).
2. The principle of an “invisible hand” that guides market forces is an ancient idea that was developed long before Smith, as noted by Tomáš Sedláček, Economics of Good and Evil: The Quest for Economic Meaning from Gilgamesh to Wall Street (New York: Oxford University Press, 2011), 10.
3. William Stanley Jevons, The Theory of Political Economy, 5th ed. (New York: Kelley and Millman, 1957), p. 1.
4. Jevons writes, for example: “Suppose that a person possesses one single kind of commodity, which we may consider to be money, or income” (ibid., 138).
5. John Stuart Mill, Principles of Political Economy (London: Parker, 1848).
6. Gilles Dostaler and Bernard Maris, “Dr. Freud and Mr. Keynes on Money and Capitalism,” in What Is Money?, ed. John Smithin (New York: Routledge, 2000), 235–256.
7. Irving Fisher, The Purchasing Power of Money, 2d ed. (New York: Macmillan, 1922).
8. Federal Reserve Bank of St. Louis, “Velocity of M2 Money Stock,” 2014, http://research.stlouisfed.org/fred2/series/M2V.
9. David Hume, Essays, Moral, Political, and Literary, ed. Eugene F. Miller (Indianapolis: Liberty Fund, 1987), www.econlib.org/library/LFBooks/Hume/hmMPL26.html.
10. Irving Fisher, Mastering the Crisis (London: Allen & Unwin, 1934).
11. Milton Friedman, The Counter-revolution in Monetary Theory (London: Institute of Economic Affairs, 1970), 24.
12. Milton Friedman, interview by Russell Roberts, “An Interview with Milton Friedman,” September 4, 2006, http://www.econlib.org/library/Columns/y2006/Friedmantranscript.html.
13. The media also play a role. As Marshall McLuhan wrote in 1974, “Whereas all current inflation theories tend toward Newtonian rationality and balance, there is a huge disequilibrium factor of irrationality that results from information movement” (“A Media Approach to Inflation,” New York Times, September 21, 1974).
14. Quoted in Felix Martin, Money: The Unauthorized Biography (New York: Knopf, 2013), 170.
15. Quoted in Todd G. Buchholz, New Ideas from Dead Economists: An Introduction to Modern Economic Thought (London: Penguin, 2008), 237.
16. John Maynard Keynes, “Economic Possibilities for Our Grandchildren,” in Essays in Persuasion (New York: Norton, 1963), 369.
17. Glyn Davies, A History of Money: From Ancient Times to the Present Day, 3d ed. (Cardiff: University of Wales Press, 2002), 410.
18. Friedrich A. Hayek, Denationalisation of Money: The Argument Refined (1978; repr., London: Institute of Economic Affairs, 1990). 23–24.
19. Paul A. Samuelson, Economics, 9th ed. (New York: McGraw-Hill, 1973), 55.
20. Paul A. Samuelson, “An Exact Consumption-Loan Model of Interest with or Without the Social Contrivance of Money,” Journal of Political Economy 66, no. 6 (1958): 467–482. Our answer to the question of how money attains value, as discussed in chapter 2, is that it is assigned value.
21. John Maynard Keynes once wrote: “If we speak frankly, we have to admit that our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes to nothing” (The General Theory of Employment, Interest and Money [New York: Harcourt, Brace, 1936]).
22. Steve Keen, “Will We Crash Again? FT/Alphaville Talk,” YouTube, 2015, www.youtube.com/watch?t=130&v=JKy6_yy3C3U.
23. Kenneth J. Arrow and Gérard Debreu, “Existence of a Competitive Equilibrium for a Competitive Economy,” Econometrica 22 (1954): 65–90.
24. Yanis Varoufakis, Joseph Halevi, and Nicholas Theocarakis discuss the “propaganda value” of the Arrow–Debreu model, while emphasizing that this use was not the intention of the modelers, in Modern Political Economics: Making Sense of the Post-2008 World (New York: Routledge, 2011), 253–254.
25. Johanna Bockman, Markets in the Name of Socialism: The Left-Wing Origins of Neoliberalism (Stanford, Calif.: Stanford University Press, 2011), 47.
26. So presumably this book qualifies!
27. The usual technique was to offer a country loans and investment in return for it opening its economy; engineering a crisis; and offering debt relief in exchange for a fire sale of state assets. See Naomi Klein, The Shock Doctrine: The Rise of Disaster Capitalism (Toronto: Knopf Canada, 2007).
28. Frederick Soddy, The Role of Money: What It Should Be, Contrasted with What It Has Become (1934; repr., London: Routledge, 2003).
29. Gary S. Becker, The Economic Approach to Human Behavior (Chicago: University of Chicago Press, 1976).
30. Andrew Haldane, “The Revolution in Economics,” in Economics, Education and Unlearning: Economics Education at the University of Manchester (Manchester: Post-Crash Economics Society, 2014), 3–6. For a discussion of the role of aesthetics in economics, see David Orrell, Truth or Beauty: Science and the Quest for Order (New Haven, Conn.: Yale University Press, 2012).
31. William R. White, “Is Monetary Policy a Science? The Interaction of Theory and Practice over the Last 50 Years,” in 50 Years of Money and Finance: Lessons and Challenges, ed. Morten Balling and Ernest Gnan (Vienna: SUERF, 2013), 84. An exception is that used in Jaromir Benes and Michael Kumhof, “The Chicago Plan Revisited” (working paper, International Monetary Fund, 2013), which Steve Keen described as “the first theoretical neoclassical paper to acknowledg
e the actual nature of banking, and to try to take this into account in a mathematical model” (“The IMF Gets Radical?,” November 5, 2012, www.businessspectator.com.au/article/2012/11/5/business-spectator/imf-gets-radical).
32. White, “Is Monetary Policy a Science?”, 85
33. David Orrell, Economyths: How the Science of Complex Systems Is Transforming Economic Thought (London: Icon, 2010), 32.
34. Quoted in Eric D. Beinhocker, Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics (Boston: Harvard Business School Press, 2006), 59.
35. Eugene F. Fama, “Random Walks in Stock-Market Prices”, Selected Papers, no. 16 (Graduate School of Business, University of Chicago, 1965).
36. John Cassidy, “Interview with Eugene Fama,” New Yorker, January 13, 2010.
37. J. Doyne Farmer and John Geanakoplos, “The Virtues and Vices of Equilibrium and the Future of Financial Economics,” Complexity 14, no. 3 (2009): 25.
38. R. Shiller, “Stock Prices and Social Dynamics,” Brookings Papers on Economic Activity 2 (1984): 457–510.
39. Gillian Tett and Anuj Gangahar, “Limitations of Computer Models,” Financial Times, August 14, 2007.
40. Adair Turner, “Printing Money to Fund Deficit Is the Fastest Way to Raise Rates,” Financial Times, November 10, 2014.
41. Hites Ahir and Prakash Loungani, “Can Economists Forecast Recessions? Some Evidence from the Great Recession,” Oracle, March 2014, forecasters.org/wp/wp-content/uploads/PLoungani_OracleMar2014.pdf.
42. Quoted in John Cassidy, “Letter from Chicago: After the Blowup,” New Yorker, January 11, 2010.
43. According to White, despite the work of Minsky and others on the nature of financial crises, “All of this publically available literature was essentially ignored by major central banks. So too were any warnings implicit in the papers prepared for the private meetings of central bankers at the BIS itself. Thus, when the crisis broke in 2007, it came as a complete shock to many central bankers” (“Is Monetary Policy a Science?”, 97).
44. Alan Greenspan, The Map and the Territory: Risk, Human Nature, and the Future of Forecasting (New York: Penguin, 2013), 7.