Thought some of you might be interested in this PBS special, “The Ascent of Money”, based on Niall Ferguson’s recent book of the same title.
http://www.pbs.org/wnet/ascentofmoney/featured/watch-full-program-the-ascent-of-money/24/
You can also find it on Google Video. That’s the version I embedded on my blog.
Anyway, watching it now and finding it pretty interesting. It is rather slickly presented & edited to give it wider appeal. Interested to know what you all think of this series.
David
I actually came across that when it was airing on t.v. when I was bored. Though I am natually emtremely sceptical of anything on PBS, “The Ascent of Money” actually impressed me as an honest documentry that seeks the truth, not a apologetic piece of propoganda that pushes an agenda. Though, of course, they never mentioned it, the coverage on influence of the lack of savings in the American economy (in the Chimerica segement) strongly point towards the Austrian theory of the business cycle at work.
It was on in the UK a few months ago.
I liked it’s pro-Gold Standard-ness.
The segment on “Chimerica” is certainly a wake up call for those of us in the US! Humorous phrasing, that.
I thought the PBS version was very good, if a little bit flashy in its editing/pacing. There was a lot of good information on money and finance, and (surprisingly for this type of current-day program) nothing that I could really take umbrage with. In fact, the special actually exposed much of the nonsense that was underpinning our very easy-money & credit economy.
Surprised I haven’t heard a bit more about this special, actually.
My mother gave me the book for xmas. When I read it, I’ll post a review. The tone of the introduction seemed to indicate a non-Austrian view on business cycles, although it did praise money and credit markets as fundamental necessities of human progress. …i’ll let you know…
I have finished chapter 1, which is about money and credit…
It is NOT Austrian, which is surprising from a lot of what he initially says. One particular instance was the Spanish mining of silver in Mexico/central America. The Spanish found the mountain of money they inherited unable to produce real goods, basically. He drew the analogy between the non-linear real economic gains of monetary expansion, highlighting that its main benefit was simply redirecting producers’ focus more towards the crown’s wishes, not magically enhancing economy.
Yet in talking about banking, he decribes fractional reserve banking simply as evolution, and never questions it. He correctly describes runs, reserve requirements, etc., yet he always presumes that runs are avoidable, via central banking. He blames the great depression on the youth of the Federal Reserve and its reluctance to expand credit. [+o(]
He blames the current crisis on securitization, and says traditional banking and money/credit creation have no part, which to him include central banking.[+o(][+o(]
…I have yet to read his analysis of bond, stock, insurance, real estate, and global finance markets, but I predict it will suck. Once we got to banking, it seems to have fallen apart. (Stock market section is called “Blowing Bubbles”)
One inference he drew about money was that it was bound by trust. It thus seemed no different than credit in his mind. I don’t think this is correct. Money is bound by the laws of supply and demand. Money substitutes are bound by trust…or in many cases, ignorance. He should have at least seen the severely different scales of trust. Of course a whole market will “trust” money’s purchasing power, when past experience and prices earn such trust, which is why money emerges from a commodity. Any “trust” earned by a money substitute then must clearly compete/cooperate with established money, which is why artificial credit expansion must occur slowly. But the trust becomes ever-more fragile. His knowledge of banking accounting should make it clear that inifinitely short-term liabilities cannot be matched with fixed-term assets. He even acknowledges that such assets cannot be liquidated quickly (deleveraging) in a manner that would not make the bank more insolvent. He never understands that credit must always relate to saving real goods, rather than promises of repayment. He never questions government, although his history is entirely accurate from what I can tell. It is frustrating to read.
Finished chapter 2, and I came back to say that this book takes a much better turn here. There is a good amount of detail paid towards hyperinflation, inflation as purely a monetary phenomenon, and government debt. It shows the rise of the international bond market, and its importance in determining the victors and losers of war…and the outcome’s importance on the fortunes of bond investors. It shows hyperinflation as a partial consequence of being cut off from foreign credit.
The fundamental thing here is that this is more or less a history book filled with interesting and correct facts but misleading and unexplained conclusions. It is only worthwhile to read for global financial historical context.
This chapter was interesting from the view of America’s future. We can be fairly sure the federal government is insolvent. The US is also in the unique position of having its external (in addition to internal) debts denominated in its own currency. So, eventually the government will have to choose between which debts to default on, or attempting to inflate out of them (in other words, seriously devalue them). Every choice is painful. Defaulting on government agency debt, like medicare or Social Security, is political suicide. Defaulting on external treasury bonds would send interest rates skyward and cause economic contraction, also politically unfavorable. Inflation seems to produce the same outcomes; however, because few understand that inflation is a purposeful activity of government, this is likely the favored choice. Expect strong inflation in the future.
He may not be an austrian but he does seem to get “it”, in some sense. Below is a quote from an interview he did on Lateline in Australia
"…but you have to bear in mind that, in many ways, stockmarket bubbles usually have the same cause, whether it’s in 1719 or in 2000, when the last great stockmarket crash happened before the one we’re in now. Nearly always, it’s the role of monetary policy that’s decisive. Excessively lax credit by the central bank was as much to blame in 1719 as it was in the 1990s and in the early 2000’s in the United States. "
Id say he has tones of austrian school in him.\
Ferguson makes a very misleading statement right at the beginning:
“But what is this thing called money, anyway? The answer is simple: it’s the tangible expression of the relationship between lender and borrower; creditor and debtor - a relationship built on trust - and whether money takes the form of silver coins, seashells, bars of gold or banknotes, that’s been true from ancient times, right down to the present day. Even lumps of clay can work better than silver coins, if people have enough confidence in them”.
This is astounding to hear someone of such stature make such a foolish statement, which puts his credibility in serious doubt.
commodity currencies are not equivalent to debt based currencies, such as banknotes. Ferguson is wrong to say that a transaction with a commodity such as silver or gold involves a relationship between ‘lender and borrower’ - unlike fiat money, commodities have value unrelated to debt - there is no lender or borrower in a commodity trade; there is simply a trade of value, not a transfer of debt.
to imply that money is all about ‘confidence’ ignores the fact that silver is objectively more valuable than clay as a monetary instrument due to its scarcity, and other attributes.
I have not read the book or watched the entire PBS show (or original longer BBC version) but I am sorry to see that this man appears to be just another cog in the misinformation stream, which benefits only the elite of criminals in high places, politicians and bankers.
“Even lumps of clay can work better than silver coins, if people have enough confidence in them”
Lovely. I guess witch doctors can resurrect the dead if people have enough confidence in them, too.
It was a pretty bad film. It blamed the business cycle on herd mentality, comparing humans to bulls who get scared when other bulls somehow get scared (without actually showing any neurological link between humans and bulls.)
Then it claimed that the dollar was valuable because it was commonly accepted, neglecting the fact that it is also illegal to use another form of currency.
All in all, it’s not worth the hour spent watching it.
The thing that frustrates me the most about the book is that he does not seperate economic theory and history at all. It seems he simply invents whatever theories are necessary to explain the facts. He also litters his work with unfounded and unexplained opinions, such as the nature of money.
I think it is amazing that people continue not understanding money when there are such easily understandable explanations for it.
One could be lenient in this case had the terms lender and borrower been defined, but from the text it does not appear so. Had he said that the creditor was the man holding money and the debtor society as a whole, what was said could hold true. But no such thing was said.
I’ve got at least one friend who have read this book who are determined that gold is as useless as anything else as money and this is based on the story about the spanish in this book. I think it must all be a travesty and shameful not to explain that it does not matter if you use a printing press or if you go and plunder a nation somewhere else, both are a form of counter fit money because it was not earned through fair trade.
I don’t think that’s what Ferg missed. Even if the Spanish homesteaded the silver and brought it back to Spain without the use of slaves, the point was that they believed it could somehow bring them national greatness when in fact it would simply alter prices until imbalances in real production were restored. It is similar to the printing press government “solutions” we currently have.
Additionally, if there were an actual free market in money, a miner would not necessarily want to unearth ore at such a high rate. By introducing such supply rapidly, it may render the commodity unfit for use as money with consumers switching to alternatives. Of course governments make such errors - they are a monopoly, and they can try to intervene around it with price fixing or legal tender laws. Ferg really never considers this view. He believes money is some kind of innate social trust.