Review of Felix Martin’s Money: the unauthorised biography

Felix Martin tempts fate by opening with a quote from A. H. Quiggan: “Everyone, except an economist, knows what ‘money’ means.” Martin is a former World Bank economist, and at the end of this book, I sympathised with Quiggin.

After 260 pages of heavy-going argument, Martin concludes that money is: “not a thing but a social technology – a set of ideas and practices for organising society. To be precise (!) … [money] is a concept of universally applicable economic value.”

Earlier he states that: “Coins and currency … are useful tokens to record the underlying system of credit accounts and to implement the underlying process of clearing.”

Rather than providing a new and counter-intuitive insight into money, which he claims, there is analytical confusion.

A logical fallacy in much analysis of money is repeated here: because debts have often been used as money, it does not follow that money is a debt. Martin’s novel version of this fallacy is to argue that because we use credit accounts and a clearing system to net off payments, this makes the credit and clearing system “money”. This is a logical error. The standard definition of money – anything accepted as payment for goods and services – is clear, and distinguishes it from debt and the clearing system. This definition does not assume, as Martin implies, that money is a “commodity”. The accepted means of payment, as his many examples illustrate, can be physical, or abstract (or virtual).

This is really a history book, which claims to have identified an unconventional and more relevant understanding of what money is. There is lots of history, but the central thesis is unconvincing. Martin goes as far as to suggest that a flawed definition of money, with intellectual roots in Locke and even Aristotle, explains the economics professions’ failure to foresee the financial crisis. We know this to be false. Economic policymakers and academics ignored the financial system. The reason is not because they had incorrectly defined money, it is because they focus on the last problem. The obsession with inflation targeting was a prolonged response to the inflation shock of the 1970s and 80s. Unsurprisingly, economists – academics and policymakers – are now producing a vast literature on the financial system, banking and asset bubbles, without any re-definition of “money” (and it goes without saying that the next problem will lie elsewhere).

Consistent with this mainstream response, Martin places far too much faith in the idea that “narrow” banking will save the world. It is a variant of the old proposal that when you deposit money with a bank, it should hold an equivalent amount of cash in reserve. This view re-emerges in some form after every major banking crisis. Friedman was an advocate in the 1950s. The interesting question, which Martin evades, is why it is never adopted. Perhaps it is not such a good idea.

I had looked forward to reading this book. Martin’s main argument is initially intriguing and there’s plenty of history, but ultimately it is unconvincing and confused. For really good histories of money, I would first read Milton Friedman’s Money Mischief or Paper Promises by Philip Coggan. The absence of reference to either of these is odd. Even more so is the superficial dismissal of Hayek, without reference to his views on money. Hayek’s economics is flawed, but his insights into money, drawing on David Hume, are profound, and close to Martin’s. Indeed, Martin’s “novel” idea – that money is a social institution, not a physical object – originates with Hume, who is unacknowledged. These omissions, and errors of fact, do not reassure the reader. For an example of the latter, Domingo Cavallo, Argentina’s former economy minster and a central figure in Chapter 4, is re-christened “Domenico”. An error repeated in the Index.

About The Author

Eric Lonergan is a macro hedge fund manager, economist, and writer. His most recent book is Supercharge Me, co-authored with Corinne Sawers. He is also author of the international bestseller, Angrynomics, co-written with Mark Blyth, and published by Agenda. It was listed on the Financial Times must reads for Summer 2020. Prior to Angrynomics, he has written Money (2nd ed) published by Routledge. He has written for Foreign AffairsThe Financial Times, and The Economist. He also advises governments and policymakers. He first advocated expanding the tools of central banks to including cash transfers to households in the Financial Times in 2002. In December 2008, he advocated the policy as the most efficient way out of recession post-financial crisis, contributing to a growing debate over the need for ‘helicopter money’.

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