My Review of David McWilliams' "The History of Money"

Money Makes the World go Round

 

Irish economist David McWilliams has written a very informative and entertaining book on the history of money with loads of anecdotes. McWilliams views money as one of the great innovations of human beings just behind fire and the wheel. Why? Money facilitates intra-community and inter-community transactions to the benefit of society as a whole. As the great economist Paul Samuelson noted that money is a social contrivance. McWilliams argues that puts human interactions into overdrive as the lust for it propels economic progress.

 

He takes us back in time to the Sumerian Civilization of 2000 BCE where a handful of grain equaled a shekel and where there were lending transactions calling for the payment of interest all the way up today’s quantitative easing of central banks. The first real breakthrough occurred around 1500 BCE where in Lydia the first gold coins were produced. Later Greek and Roman coinage unify the Mediterranean region as one giant free trade zone.

 

McWilliams history is not dry. He introduces us to Johannes Guttenberg of printing press fame who was quite the scoundrel. One of the original users of his new technology was the Catholic Church where the printing press automated the production of indulgences which brought in great wealth. Calligraphy was out and printing was in. He also tells us that much of the church land in Europe came from the foreclosing of mortgages of the nobility. We also witness John Law’s Mississippi Bubble in France which cratered the economy and made banking a scandalous profession where the name bank was not used for years.

 

There is also an interesting vignette on James Joyce, who while living in Trieste owned a movie theater and later owned one in Dublin. The great writer was from immune from the temptations of money.

 

Gold plays a key role in the history of money. It was widely used for centuries as the coin of the realm. For example, the Florin gold piece of the Florence Republic was widely circulated for three hundred years. However, over time gold backed paper notes were used in place of physical gold thereby creating the gold standard.

 

McWilliams is a critic of the gold standard because it places the economy in a straitjacket by limiting the supply of money which, in his opinion, slows economic progress. When money is easy, but not too easy to cause inflation, the way is open for all kinds of invention and innovation. He believes that the gold standard stifled innovation and thus progress making him a strong proponent of the central bank managed (fiat) currencies we have today. Of course, fiat currencies require a high degree of trust in the issuing authority. Without that its value craters.

 

Here, I think, he goes too far. Economist Robert Gordon makes a convincing case that the bulk of economic progress that we have today arose from 1870-1940 where for almost all of that period the gold standard reigned supreme. (See: Shulmaven: My Amazon Review of Robert J. Gordon's "The Rise and Fall of American Growth" ) Think automobiles, electricity, telephones, indoor plumbing, aircraft and radio, for example. I would note that in 1879 the year the U.S. returned to the gold standard both the incandescent light bulb and the telephone were invented and over in Germany the internal combustion engine was invented and in the 1880’s the U.S experienced a record railroad building boom. It is hard to make the case that the gold standard stifled progress. What did in the gold standard were the huge distortions caused by the financing of World War I and the subsequent battles over reparations and inter-war debts.

 

McWilliams argues that money subjugated the people under colonial rule from 1600- 1960. That was certainly true of Belgium’s barbarism in the Congo caused by the need for rubber to make bicycle tires at the turn of the 20^th Century. Those tires were invented by the Irishman John Dunlop. However, Latin America was liberated in the early 1800’s and long-term economic growth in that entire region was hardly stellar.

 

McWilliams has the U.S. leaving the gold standard in 1936; it was, in fact, 1933. He has the United States returning to the gold standard in 1873; it was 1879. In 1873 the U.S. started the process of returning to the gold standard but wasn’t fully realized until the fulfillment of the Resumption of Specie Act in 1879. My quibbles aside, McWilliams has written a very lively book on what makes the world go round.