Frederick Soddy.

MMT bloggers will be familiar with joebhed, but most of them won’t be aware that the picture that appears alongside joebhed’s comments is a picture of Soddy.

Soddy was a chemistry Nobel laureate who wrote a book on money in 1934: “The Role of Money”. It’s available for free on the net. Having skimmed thru it, here are my impressions, for what they’re worth.

If you want just to skim thru, miss out Ch 1: it’s of doubtful quality.

Soddy favours full reserve banking. He has an interesting definition of money. On p.40, under the heading “Money a Claim to What Does not Exist.” he says, “The essential feature of money is . . . that it is a legal claim to wealth over and above the wealth in existence, all of which in an individualistic society is already in the ownership of others independently of this claim.”

That definition has not caused me to change my own ideas about money, but watch this space.

On p.53 he claims that the more enthusiastic advocates of full reserve grossly overestimate the benefits of full reserve. So there’s nothing new under the sun: these over-enthusiastic advocates are still with us in 2012 – no names mentioned.

P.63 & 112. Soddy is concerned about the distinction between current or “checking” accounts and deposit accounts. He says the former is money and the latter is not.

I don’t think he gets the really important point here, which is that using money in checking accounts to fund long term loans (i.e. “borrow short and lend long” or “maturity transformation”) leads to bank fragility. And the same goes for accounts which are supposedly deposit accounts, but where the money deposited is actually available to the depositor very quickly and with little by way of penalty - like lost interest.

P. 79. In case you thought the revolving doors that connect the banking elite to the political elite are something new, they’re not. These revolving doors existed in Britain in the 1920/30s. (No doubt they existed in Ancient Rome!)

P.106. Soddy gets the point that economising on the stock of money is pointless. I.e. maturity transformation, while it seems to make sense at the micro-economic level, is a pointless activity for the country as a whole, i.e. at the macroeconomic level. Or as Milton Friedman put it, “It need cost society essentially nothing in real resources to provide the individual with the current services of an additional dollar in cash balances.”

I.e. he gets very near to the idea that maturity transformation might as well be banned, because it achieves nothing, except contributing to bank fragility. But he doesn’t quite get there – or perhaps I’m doing him an injustice.

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