By Satyajit Das, a former banker and author of Extreme Money and Traders Guns & Money
Vivek Kaul (2013) Easy Money: Evolution of Money from Robinson Crusoe to the First World War, Sage Publications
Vivek Kaul (2014) Easy Money: Evolution of the Global Financial System to the Great Bubble Burst, Sage Publications
Vivek Kaul (2014) Easy Money: The Greatest Ponzi Scheme Ever and How it is Set to Destroy the Global Financial System, Sage Publications
Disclosure of Interest:
In one of Jorge Luis Borges’ late stories The Bribe, Ezra Winthrop, a specialist in Old English, must select between two academics, to send to an important symposium to present a paper. The choices are Herbert Locke, Winthrop’s faithful colleague who has been of great assistance in his work, and Eric Einarsson, an insolent Icelander. As the old man grapples with his choice, he comes across a piece by Einarsson which indirectly attacks Winthrop’s work and teaching. Winthrop nonetheless selects Einarsson.
Before leaving for the conference Einarsson explain his actions to Winthrop. He confesses that the conference is a pointless waste of time but important to an immigrant seeking professional advancement. He confesses that he published the attack to ensure his selection. It played on Winthrop’s passion for impartiality. The only way that Winthrop could avoid the accusation of reprisal would be to select the Icelander.
The reason for the story is that I know the author Vivek Kaul. I contributed the foreword to the first volume and he saw fit to draw on my books. Borges’ point is that bribes take many forms and do not always have expected outcomes.
Any history, especially of money, must negotiate complex cross-currents.
After all, history, according to Henry Ford, was “bunk”, rubbish. Historians like Oswald Spengler and Arnold Toynbee discerned patterns which might prove useful in understanding the present and providing guidance for the future. Philosophers, Georg Hegel and George Santayana concluded that the lessons are different: no one understood or took heed of history.
Money too is ambiguous. The Beatles only wanted money because nothing else paid the bills. What money couldn’t buy was of no use to them. Pink Floyd wanted to grab the cash, preventing others from getting their hands on their stash. They saw it as the root of all evil, though they thought their status demanded at least a Lear jet. Michael Jackson confessed that he was prepared to lie, spy, kill or die for money. Baron Rothschild once observed that only three people understood the meaning of money and none had very much of it.
The history of money is a well traversed field. Glyn Davies’ A History of Money: From Ancient Times to the Present Day, John Chown’s A History of Money from 800 AD, Jack Wetherford’s The History of Money and Georg Simmel’s The Philosophy of Money, to name just a few, all cover the subject from different perspectives. Easy Money presents an up-to-date history.
Mr. Kaul, a journalist, was motivated to write the book, at the height of the global financial crisis. He describes walking into his office wondering what to write about. Perusing the dense jargon of modern finance, he pondered whether anyone, especially ordinary citizens, really understood any of the terms or what was really going. He confesses that he himself did not understand many of the acronyms, which perhaps ironically put him in the company of a large number of regulators, ratings analysts, and bankers who actually were involved in the transactions Mr. Kaul was writing about. Displaying unusual journalistic courage, he started to write about what the terms really meant. The positive response of readers encouraged him to keep going, a process which eventually led to this book.
Easy Money is really one book, which has been divided into three volumes. Volume 1 Evolution of Money from Robinson Crusoe to the First World War focuses on the history of money until the early twentieth century, covering the experimentation with different forms of money, the evolution of banking and the development of the modern monetary infrastructure. Volume 2 Evolution of the Global Financial System to the Great Bubble Burst covers the twentieth century, especially issues such as gold standard, Bretton Woods and the dollarized economy until the events of 2007/2008. The final volume The Greatest Ponzi Scheme Ever and How it is Set to Destroy the Global Financial System focuses on the global financial crisis and its aftermath.
Well researched, in Easy Money, Mr. Kaul, a fine storyteller, has constructed a seamless and cohesive work. At three volumes and spanning around 900 pages, the series is comprehensive and detailed. The author weaves his narrative around events from around the world, both ancient and modern, and a varied cast of characters, ranging from Leonardo Fibonacci, Kublai Khan to more modern marauding financiers.
Mr. Kaul does not assume that his audience is versed in economics or history, targeting ordinary readers who wish to gain familiarity with the subject. But the book also offers something for the more knowledgeable reader. The author’s fine eye for a quote or anecdote provides the more experienced with interesting detail, unexpected affinities or sometime novel insights.
Few histories of money include particulars about King Henry VIII’s waist size: 54 inches. It is interesting to learn that coins are round because the Chinese “believed that money is meant to roll around the world”. The special status of gold, Mr. Kaul writes, is due to its actual limited usefulness. Malleable, ductile and an excellent conductor, gold’s softness and limited availability make it practically useless for other applications, making it ironically suitable for monetary purposes.
Easy Money also has shortcomings. It is derivative, relying on secondary sources. It does not cover some emerging topics, such as modern monetary theory (“MMT”) and the current vexed issue around the real role of money in economies. The attempt to distil complex structures into simple prose is not always successful, in terms of accuracy or technical detail. The structure, three separate volumes, is also not ideal. It results in repetition and cumbersome cross references, some of which could have been eliminated with better editing. But for someone with a general interest in money, these three volumes provide a fascinating reference work on money and its evolution.
The most striking thing about the history of money is its relationship with power. Max Weber, the father of social science, defined the state as the agency that successfully monopolizes the legitimate use of force. But increasingly, allied to explicit force is the power of economic coercion embodied in the control and manipulation of money. Baron Rothschild once boasted: “Give me control over a nation’s currency and I care not who makes its laws.”
This power has increased with time. At one time, an individual could at least try to exist without money. Anyone could, theoretically, obtain shelter, water, food and clothing through their own direct effort, provided they were willing to accept the hardships, risks and the primitive standard of living. Exchange intermediated by money combined with the inevitable shift away from subsistence economies and specialisation of labour subtly reduces freedom as it increases reliance on an artificial medium which can be manipulated.
The movement to fiat money accentuates this. Connection to a real commodity, such as gold, is illusory. History shows the linkage, a human creation which is an exercise of state power, can be altered at will. The post Bretton Woods separation of money from any tangible real object provides the state, through its monopoly over the printing presses, ever greater control of money and economic activity.
American dollars still bear the words: “In God We Trust.” But God is not directly responsible for control of money; it is governments and central banks. Money has become a matter of pure trust in the state and its agencies. Increasingly, that trust is being betrayed.
Following the Great Recession, extraordinary measures (zero and negative interest rates and quantitative easing (“QE”)) have been implemented to seek to restore prosperity and make unsustainable debt levels manageable. As the policies have failed, bringing stability but not generating growth or inflation, increasingly desperate policy makers have explicitly targeted inflation. There is no consideration of the morality of their actions, which disadvantages smaller savers and retirees, benefitting borrowers. Keynes recognized the risk: “By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”
Impotent governments and central bankers have resorted to financial repression. A punitive combination of higher taxes, public spending cuts, negative real interest rates and devaluation of currencies is now used to debase the value of money and reduce living standards. Indirect or direct confiscation of savings is routine. Governments exert control over deposits, directing it into government securities. Capital controls, such as those in Cyprus and Iceland, may be used to control outflows of funds. In a number of countries, the government has seized pension fund assets to finance government activities.
In order to strengthen their control over money, governments are increasingly trying to eliminate physical or paper cash altogether. In several countries, banks must already report large cash transactions. Increasingly, some limit the amount of withdrawals and require information on how the money is to be used. The initiative is justified on the basis of preventing tax avoidance, crime or terrorism as well as increasing efficiency and lowering cost. But eliminating the freedom, privacy and anonymity of cash with digital or virtual equivalents also allows greater control over the lives and wealth of individuals.
The conjunction of an increasing digital world and the ability to control money allows authorities to exert almost unlimited power over knowledge, information, and economic activity. The control over the life of citizens is analogous to the world of Winston Smith in George Orwell’s 1984. Perhaps, the most interesting thing about this evolution is that human beings have allowed this to come about.
Winston Churchill noted that: “We shape our buildings thereafter they shape us”. Money is one of the human race’s most important creations. It has allowed development. But it also enables manipulation and abuse on a large scale. Perhaps, that is the true lesson of Easy Money.