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What is money?
on 21 May 2014
You've probably never asked this but..
What is money?
The author argues that it's not a commodity but a social construct based on trust that obligations will be met fairly and ethically.
Trust needs to be carefully regulated or it's lost.
This is a strange book. Perhaps it's me and and the mood I was in when I read it but I found it didn't flow smoothly from one sentence to another, from one concept to another. I also found myself agreeing with parts of it and disagreeing with other parts, pretty much in equal measure. Again that didn't help me to get into the flow.
Where the author and I agree is that we are in a mess and that's largely because the finance sector is out of control. The problems can be traced back to President Nixon's decision to break the Bretton Woods agreement of the link between the US dollar and gold which anchored the worldwide monetary system.
We also agree that extremely high interest rates are disgusting although I was surprised that the author described payday loans as affordable at one stage. These companies are the worst offenders at gauging the poor of what spare cash they have and spreading misery in their wake. Where we may differ is what interest rates are fair.
I have problems with the idea that there isn't a shortage of money under sound financial policies. In the old days, getting a loan was difficult because lending was responsibility. We can't resort to central banks printing money for governments to spend over the long term. That's the workings of banana republics heading for hyper-inflation.
Our politics don't match as she has been an advisor to Ken Livingstone. She quotes John Maynard Keynes a lot in this book which I don't have a problem with as I feel his ideas have often been twisted and misrepresented in his name. However she is keen on the "euthanasia of the renter" and therefore interest rates should be suppressed. That will stop people who try to live off their money without working.
This doesn't seem to represent modern society where you can think of us living through three stages:
1) the first 20 years when we are financially supported by our parents.
2) the next 40 or 50 years where we work to support ourselves and our children. Early on we borrow but as we get older we increasingly save for our old age.
3) retirement which may go on for another 20 or 30 years where we have to live off our accumulated savings and whatever pension the state can afford to provide. By this stage we have become "renters" to use Keynes' term.
Now we could leave responsibility for pensions to the government but I don't think that's sensible given the demographic trends and the rapid increase in government debt we've seen in the last decade and which will continue to grow at an alarming rate for the foreseeable future.
It's essential that our pension pots offer hope of growth to encourage saving and individual responsibility. Not only do we need savings rates to compensate for inflation but we need it to compound faster.
The author talks about the social contract of money, loans and interest rates but at the same time, I think she's in favour of inflating out of debt. Surely that breaches the trust of people who are lending money.
I fear the problems are much more complicated than the author pretends. After all there has to be a reasonable why nearly all academic economists and central bankers don't see the world as she does. You can understand private sector economists in the pay of the global leeches (and vampire squids) to see things differently and to push for policies that are advantageous to them but there doesn't seem to be a shortage of economists from the progressive side of politics.
I am struggling with this book. As I said earlier, I agree with some of the aims and accept that economics as a discipline is seriously broken. I'm very worried about this accumulation of massive debt, of growing inequalities, of environmental issues for both climate change and the exhaustion of essential commodities. I abhor the way politicians and big business and especially the financial services companies have cosied up.
I expect big changes over the next few decades but I don't think this book moves the debate forward.