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.

My Amazon Review of Kim Stanley Robinson's "The Ministry for the Future"

A Disservice to the Politics of Climate Change

 

Sci-fi writer Kim Stanley Robinson has done a disservice to those of us who care about the peril of climate change. It isn’t clear from his book that he cares more about dismantling capitalism than solving the problem of climate change. His book will convince the diehard climate activists who are already convinced, but it rouses the suspicions of those of us who view the politics of climate change as a ruse to upend capitalism.

 

His Ministry for the Future, a U.N. body, is headed up by Mary Murphy a former Irish foreign minister. Operating out of Zurich in 2025 and beyond she is charged with solving the climate crisis. However, what could have been a very interesting personality, Murphy is a one-dimensional character as are all of the other characters in the book.

 

The book opens with a catastrophic heat wave in India and features the flooding of the Los Angeles plain along with other climate horrors. As the crises deepens Murphy convinces the central banks of the world to engage in quantitative easing by issuing a carbon currency. Although this sounds novel, it really is a modified cap and trade system, and it ignores the inflationary consequences of the currency issuance. Robinson is partial modern monetary theory (MMT), but the book was written before the inflation of 2021 and 2022 which discredited MMT and huge fiscal deficits.

 

Most troubling is Robinson’s tacit approval of eco-terrorism where swarms of drones take down aircraft and container ships triggering a global depression. Somehow the populace of the industrial west remains strangely compliant. Obviously, Robinson didn’t witness the panic of $5 gas in 2022 and how such enviro-friendly politicians as Bernie Sanders and Elizabeth Warren attacked the oil companies for high gas prices. Both of those politicians were cynically ignorant of the fact that high gas prices promote alternative energy.

 

Although Robinson to his credit seems to favor geo-engineering and carbon capture to reduce emissions, he does not mention nuclear power as a potential carbon free source of energy and further there is nary a mention of expediting permits for alternative energy projects. I guess he can only go so far for fear of losing his environmental constituency.

The book has a “happy” ending with climate emissions declining in the 2040’s, but Robinson’s path in getting there strains credulity. For example, has the northern plains depopulated and returning to grasslands and many corporations turning into industrial coops.

For the full Amazon URL see: A Disservice to the Politics of Climate Change (amazon.com)

"The Sum of All Fears," UCLA Anderson Forecast March 2020 Interim Forecast

As we noted in our quarterly March report, the forecast represented an “attempt to distill incomplete and rapidly evolving information into a framework about the future course of the economy.” We now have new information that has confirmed the coronavirus is spreading rapidly, the travel and recreation sectors of the economy are shutting down, oil prices continued to plunge in response to the Russian war on the American fracking industry, credit spreads have widened dramatically thereby tightening financial conditions and stocks remain volatile with a downward bias.

As a result we have changed our forecast. Simply put we believe that when the business cycle dating committee of the National Bureau of Economic Research meets they will note that the 2020 recession began this month. Significant increases in Federal spending to support individuals and industries damaged by the coronavirus and a new program of quantitative easing by the Fed will limit, but not avert the decline in economic activity that we foresee. In summary our new forecast is as follows:

·        Real GDP declines by 6.5% and 1.9% in 2Q and 3Q, respectively. Growth rebounds in the 4Q a 4% clip.  (Figure 1)

·        Social distancing causes real consumption to fall by 7.8% in 2Q. (Figure 2)

·        Real Business Fixed Investment declines throughout the year. (Figure 3)

·        Two million jobs are lost between 1Q20 to 1Q21. (Figure 4) 

·        The unemployment rate rises from 3.6% to 5.0%. (Figure 5)

·        The Fed responds with a zero interest rate policy and QE. (Figure 6)

·        Inflation remains muted. (Figure 7)

Note: No Figures in this post.