Money by Felix Martin: Exposing the flaws in the way we think about money

A fresh addition to the growing library of "recession lit": one which delves into anthropology and ancient history to argue we will never understand the financial crisis with our current misguided perspective on money.

Money: the Unauthorised Biography
Felix Martin
Bodley Head, 336pp, £20

By now, one might have thought there was little to add to the literature of the “Great Recession”. But it keeps coming and some leading economic practitioners, notably the departing governor of the Bank of England, Mervyn King, argue that it will be three decades until we get the authoritative account. Many believe the best book on the 1929 meltdown was John Kenneth Galbraith’s The Great Crash 1929, published in 1955.

One of the biggest failings of modern-day economic and financial writing is a lack of historical perspective. When the run on Northern Rock caught the Bank of England and other regulators on the hop in August 2007, King established a recherché book club at his Notting Hill home in west London, where economists and economic historians gathered to discuss works on financial panics.

Felix Martin, an academic economist who now seeks to apply his knowledge in the financial world, reaches beyond conventional analysis in explaining the events that brought about the biggest disruption to finance and economic activity for more than a century. His core argument, reaching into anthropology and ancient history for support, is that classical economics – as exemplified by Adam Smith – misjudges the nature of money.

Smith and his cohorts saw money as commodity, based on gold, silver, copper or some other substance, that is used as a medium of exchange in commercial transactions. Martin does not disagree with this but views it as only part of the picture. He reaches into the primitive culture of the Pacific island of Yap and into the almost destroyed history of England’s Exchequer tallies: strips of willow on which non-monetary business transactions were recorded to understand the social technology of money.

What the author finds is enormously helpful in resolving some of the mystery behind the “Great Recession”. He found that physical coins and banknotes issued by central authorities such as the Bank of England tell only a fraction of the money story. The broader narrative is one of accounting: unseen transactions conducted privately among businesses and, in modern times, among banks without any notable intervention by central authorities.   

These transactions are so vast and so much more important socially and commercially that they far outstrip the notes and coins in circulation and the officials bills and bonds issued by central bankers on behalf of governments. It is this enormous social edifice that was the hidden hand behind the “great panic” of 2007-08 that came close to bringing the whole banking and financial system down. Financiers took “social” banking to the ultimate degree, turning the dodgy physical product of sub-prime mortgages into exotic securities.       

When it came to stabilising the financial system, the traditional central banking solution of providing temporary cash (lender of last resort money) in exchange for bills or securities, was inadequate to the task. The banks needed recapitalisation to restore solvency, and only the “sovereigns” – national governments – were adequate to the task. In the US the capital injections came to 4.5 per cent of GDP or the size of the vast US defence budget; in Britain, with its bloated financial sector, the sovereign bailout was 8.8 per cent of GDP and in Ireland it reached 40 per cent. Bank debt, at a stroke, had been socialised and politicised.

The virtue of Martin’s book is that it exposes the deep flaws in the way we have traditionally thought about money. The exposition is clear, unlike most jargon-filled economic texts. But this book could have done with some tighter editing. The flow is interrupted by clunky transitions from the ancient to the modern, interspersed with attempts at a conservational, over-a-drink style. Nevertheless, it provides a fresh understanding of its subject.

Alex Brummer is city editor of the Daily Mail and the author of “Britain for Sale”

Adolfo Tovar, collector of old banknotes and coins, brandishing his treasures. Photograph: Getty Images.

This article first appeared in the 10 June 2013 issue of the New Statesman, G0

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Four times Owen Smith has made sexist comments

The Labour MP for Pontypridd and Jeremy Corbyn’s Labour leadership rival has been accused of misogynist remarks. Again.

2016

Wanting to “smash” Theresa May “back on her heels”

During a speech at a campaign event, Owen Smith blithely deployed some aggressive imagery about attacking the new Prime Minister. In doing so, he included the tired sexist trope beloved of the right wing press about Theresa May’s shoes – her “kitten heels” have long been a fascination of certain tabloids:

“I’ll be honest with you, it pained me that we didn’t have the strength and the power and the vitality to smash her back on her heels and argue that these our values, these are our people, this is our language that they are seeking to steal.”

When called out on his comments by Sky’s Sophy Ridge, Smith doubled down:

“They love a bit of rhetoric, don’t they? We need a bit more robust rhetoric in our politics, I’m very much in favour of that. You’ll be getting that from me, and I absolutely stand by those comments. It’s rhetoric, of course. I don’t literally want to smash Theresa May back, just to be clear. I’m not advocating violence in any way, shape or form.”

Your mole dug around to see whether this is a common phrase, but all it could find was “set back on one’s heels”, which simply means to be shocked by something. Nothing to do with “smashing”, and anyway, Smith, or somebody on his team, should be aware that invoking May’s “heels” is lazy sexism at best, and calling on your party to “smash” a woman (particularly when you’ve been in trouble for comments about violence against women before – see below) is more than casual misogyny.

Arguing that misogyny in Labour didn’t exist before Jeremy Corbyn

Smith recently told BBC News that the party’s nastier side only appeared nine months ago:

“I think Jeremy should take a little more responsibility for what’s going on in the Labour party. After all, we didn’t have this sort of abuse and intolerance, misogyny, antisemitism in the Labour party before Jeremy Corbyn became the leader.”

Luckily for Smith, he had never experienced misogyny in his party until the moment it became politically useful to him… Or perhaps, not being the prime target, he simply wasn’t paying enough attention before then?

2015

Telling Leanne Wood she was only invited on TV because of her “gender”

Before a general election TV debate for ITV Wales last year, Smith was caught on camera telling the Plaid Cymru leader that she only appeared on Question Time because she is a woman:

Wood: “Have you ever done Question Time, Owen?”

Smith: “Nope, they keep putting you on instead.”

Wood: “I think with party balance there’d be other people they’d be putting on instead of you, wouldn’t they, rather than me?”

Smith: “I think it helps. I think your gender helps as well.”

Wood: “Yeah.”

2010

Comparing the Lib Dems’ experience of coalition to domestic violence

In a tasteless analogy, Smith wrote this for WalesHome in the first year of the Tory/Lib Dem coalition:

“The Lib Dem dowry of a maybe-referendum on AV [the alternative vote system] will seem neither adequate reward nor sufficient defence when the Tories confess their taste for domestic violence on our schools, hospitals and welfare provision.

“Surely, the Liberals will file for divorce as soon as the bruises start to show through the make-up?”

But never fear! He did eventually issue a non-apology for his offensive comments, with the classic use of “if”:

“I apologise if anyone has been offended by the metaphorical reference in this article, which I will now be editing. The reference was in a phrase describing today's Tory and Liberal cuts to domestic spending on schools and welfare as metaphorical ‘domestic violence’.”

***

A one-off sexist gaffe is bad enough in a wannabe future Labour leader. But your mole sniffs a worrying pattern in this list that suggests Smith doesn’t have a huge amount of respect for women, when it comes to political rhetoric at least. And it won’t do him any electoral favours either – it makes his condemnation of Corbynite nastiness ring rather hollow.

I'm a mole, innit.