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

Photo: Getty
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At last, Jeremy Corbyn gets the biography he deserves

Liam Young reviews Richard Seymour's Corbyn: The Strange Rebirth of Radical Politics.

Corbyn: The Strange Rebirth of Radical Politics is the fullest and fairest account of Jeremy Corbyn’s rise released to date. In avoiding much of the rhetoric espoused in similar accounts focusing on Corbyn’s early career this book provides a frank account of how the unlikely leader took charge of the Labour party. It is a very readable account too. Richard Seymour writes plainly but effectively and his writing is both accessible and incredibly informative.

Seymour attempts two monumental tasks in this piece: first he attempts to account for Corbyn’s rise and then he attempts to predict where such a rise will take him, the Labour party and the wider left. Zoe Williams wrote that Rosa Prince’s Comrade Corbyn was an account of “ex-girlfriends, the state of his flat” and featured “very little ideological insight”. Seymour does the opposite. In simultaneously engaging with Marxist and Gramscian theory, Seymour provides readers with something of academic value in the place of such gossip.

For any supporter of Corbyn, the first few chapters are a trip down Memroy Lane. Reading of the last minute rush to get Corbyn on the ballot paper sends the heart beating once more. While perhaps a niche political event, supporters know where they were the minute Corbyn’s place on the ballot was confirmed. The fact that we know the outcome of the uncertainty that surrounded the leadership election makes for palpable reading.

Seymour’s work is not simply the polar-opposite of Prince’s hit-job though. It would be wrong to suggest that it is a positive, self-fulfilling account of Corbyn’s rise. In many ways it is a hard hitting and realistic look at what lies ahead. For supporters of the Labour leader much of Seymour’s analysis will be discomforting; indeed the writer concludes that it is likely “labourism” will outlive “Corbynism”.

Such a view is hardly surprising though. Seymour’s repertoire of anti-establishment work suggests that it was always unlikely he would find a comfortable home in an establishment party. In this sense it suffers from being an account written by an outsider looking in. While the Marxist analysis of the Labour party is thought-provoking it seems too lengthy and seems to fit with an orthodox view surrounding the inevitable death of the Labour party.

Seymour’s concentration on “movement-building” is pertinent though. Utilising Jeremy’s own words on such a phenomenon is an effective tool. In drawing this distinction Seymour pokes at an open wound on the left asking exactly where all of this fits. It is about time that frank discussion on this topic was had. While there is a range of different opinions on the matter, Seymour’s intervention is an important initial step. It is an awkward conversation that the left can put off no longer.

The criticism levelled at the media is also well founded and long overdue. Seymour’s take on long established journalists who refused to accept Corbynmania makes for entertaining reading. On a more important note the fact that he credits social media as a central part of Corbyn’s campaign is interesting. The importance of this often overlooked element has been a point of debate within “Team Corbyn” and Seymour is right to poke at it.

Seymour’s work is, on the whole, a refreshing take on the events of last summer and a thought-provoking piece on the future of the Labour party. It is important to note that rather than viewing this book as an account of Corbyn’s campaign it should be seen as a review of the context surrounding Corbyn’s victory. Given that context is open to interpretation it is only fair to add the caveat that it should be read with an understanding of Seymour’s ideological foundation. Though I disagree with his conclusion concerning the Labour party’s future, I found it an important read. With an accessible yet authoritative tone Seymour manages the task of providing an academic insight into Corbyn’s election. Such analysis is far more valuable than words wasted on rumour and gossip – Seymour does well to avoid this and should be proud to have done so.

Liam Young is a commentator for the IndependentNew Statesman, Mirror and others.