Tuesday, 3 January 2017

“Money, the Unauthorised Biography”, by Felix Martin, supports full reserve banking.

Having spent about ten years, a lot of time and money pushing the case for full reserve, I’m pleased to see the above book, which was the Financial Times economics book of the year in 2013, also supports the idea.

However, arguing the case for full reserve is not the central objective of the book: as the title implies, the book is a history of money, and it goes right back to the beginning. I.e. it covers ancient Mesopotomia, ancient China, Greece, Rome, etc. It then moves on to Europe in the Middle Ages and on up to the present day. 

It’s only near the end that the author, having considered the numerous problems associated with money, concludes that the best system is full reserve – quoting in particular (far as I remember) Milton Friedman, Irving Fisher and Lawrence Kotlikoff.
The book is brilliant: it combines readability with scholarship. For example there are about 200 items in the bibliography / references section. The book (at about 120,000 words) is also (at a guess) a bit longer than the average book.

Ancient Rome’s credit crunch.

If you want a taste of the author’s style before buying, here is a short passage describing Rome’s credit crunch.

“In such an extensively monetised economy, it is hardly surprising that the Romans were also well acquainted with another familiar feature of modern finance: the credit crisis. Occasionally, the simi¬larities with the modern age are nothing short of eerie. In AD 33, the Emperor Tiberius' financial officials were persuaded that the recent boom in private lending had become excessive. It was decided that regulation must be tightened in order to extinguish this irrational exuberance. After a brief review of the statutes, it was dis· covered that none other than the father of the dynasty, Julius Caesar, had in his wisdom instituted a law many decades before specifying strict limits on how much of their patrimony wealthy aristocrats could farm out in loans. He had, in other words, introduced a rigorous capital adequacy requirement for lenders. The law was clear enough: but not for the first time in history, industrious lenders had proved remarkably skilled at circumventing it. Their ingenious evasions, the historian Tacitus reported, 'though continually put down by new regulations, still, through strange artifices, reappeared.

Now the emperor decreed the game was up: the letter of the old dictator's law would be enforced. The consequences were chaotic. As soon as the first ruling was made, it was realised with some embarrassment that most of the Senate was in breach of it. All the familiar features of a modern banking crisis followed. There was a mad scramble to call in loans in order to comply. Seeing the danger, the authorities attempted to soften the edict by relaxing its terms and announcing a generous transitional period. But the measure came too late. The property market collapsed as mortgaged land was fire-sold to fund repayments. Mass bankruptcy threatened to engulf the financial system. With Rome in the grip of a credit crunch, the emperor was forced to implement a massive bailout. The Imperial treasury refinanced the overextended lenders with a 100-million sesterces program of three-year, interest-free loans against security of deliberately overvalued real estate. To the Senate's relief, it all ended happily: credit was thus restored, and gradually private lending resumed."


Update: This article also appears on the Seeking Alpha site.



  1. Bought this and am currently reading it on your recommendation.First few chapters are excellent,he says actual money is not that important, it is the "credit and clearing " that matters.You can settle these debts with widely accepted tokens(money.)So money is just the tail end of the story...I fully concur.
    As he says understanding what money is like the old Chinese proverb..."the fish is the last to know the water".Every now and again, in a financial crisis, we notice its presence when the bowl gets tipped over and we are left like "fish out of water" .....i.e we have no money.
    I will be back when I have finished it.

    1. I'm always interested in other people's take on something I think I've read and understood, but probably haven't...:-)

  2. I think you know it better than most,we can always learn from new angles on it though.

  3. Well finished it and many thanks for recommending it,brilliantly done.Having a classics edge to him brings about a very rounded view of money is its historical perspevtive.Makes you realise how money has evolved and that the problems it creates are always the same.
    I love the story of the Spartans rejecting the use of money altogether in contrast to the first totally Monetary society in Athens.This was not seen as any kind of progress to the Spartans who actually stopped areas they conquered from using money.
    A pretty extreme view, but one they saw as a backward step into greed and personal wealth accumulation at the expense of "traditional "(non money) responsiblities of those in power to those beneath them.To them this was an issue about human morals....it still is.
    Money on the whole has its uses and now we are all fully "monetarised" it is best we get to grips with money.As he points out it is us as a society and as individuals who finaly accept what is the money we use and whether it has become "detached " from reality or not.But we must take control of that money to make it serve us not the other way round, which us the position we have found ourselves in ala 2008.
    First kings and rulers issued the money,they failed on the whole to make that work for society ,so banks arose to bypass Sovereign money.Only to find they struggled to make it work for any long stable period of time too.We have been badly served ever since.What we need to do now is take that control back and hand it over to the place that this all should be designed to work for..."We the Poeple.It is our Sovereign money and we demand to be in control of it for a more "just society".

  4. The only point I'd question there is your idea that various types of money introduced by rulers didn't "work for society". Certainly the tally sticks introduced to Britain in a big way just after the Norman conquest worked well for about the next 600 years. I.e. (far as I know) anyone who was anyone used them. Though the average peasant didn't probably.

  5. Fair point,but this system was in the main benficial to the King,he could issue as many tally sticks as he wished no doubt??.As the French philosopher Oresme was quoted in the book circa 14th Century,the King should create money for the "greater good" not just the benfit of the King...so something was not working for society at that time.

  6. I might add that Martin also said that subsequent Kings largley ingored this recommendation.


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