The Money Mystery

Anyone familiar with Irish economist David McWilliams' entertaining and insightful weekly podcast on what is often referred to as "the dismal science" will know what to expect from this book.

In 'Money: A Story of Humanity', McWilliams -a former central banker and later investment banker - traces the history of money from its early beginnings in the Congo as notches cut into a Baboon's femur to its current iteration in the crypto currency craze.

Throughout, he manages in his typically Irish love for a "good yarn" to bring life, humour and wonder to what might otherwise be considered to be a dry and bloodless subject.

The clue for his approach is in the sub-title: 'A Story of Humanity'. These stories are ultimately about human beings and the technology they developed over several millenia to establish connections, comunicate, trade with each other, build trust, and bring order and civilisation to social life on this planet.

"Economists take the fun out of money," McWilliams writes in his introduction. "A highly emotional substance, money can be transgressive, sexy, dangerous, mind-altering. Money is power, it is domination, but it can also be liberation."

Indeed, the key theme of this book is that money is a 'social technology' every bit as central to human history as language, law, politics and religion. These are all social tools, McWilliams writes, that emerged with the rise of urbanisation and helped organise collective human energy around common goals governed by rules.

So the book is as much about the evolution of civilization as it is about money. Human beings have made incremental innovations with the notion of money to suit the changing demands of the economy - from our times as hunter-gatherer tribes to emerging agrarianism to the empires of Greece and Rome to the Middle Ages, Renaissance, Restoration, French and American Revolutions, the Industrial Revolution and onwards.

Drawing from the anthropological description of humans as a 'pyrophyte' species (meaning shaped by fire), McWilliams wonders whether we are as much a 'plutophyte' species (meaning one that has adapted to and being adapted from money).

"Money is a store of wealth that motivates and excites us," he writes. "it amplifies human behaviour, bringing into focus attributes such as enthusiasm, hope and optimism, as well as greed, envy and pride. Money changes human behaviour and human behaviour changes money."

Reflecting that thesis, there are so many fascinating stories in this book, each of which focuses on one place in time and how the lives of influential individuals shaped, and were shaped by, the evolution of money. One of my favourites is the chapter on the immortal children's story Wizard of Oz and how its author, journeyman journalist L.Frank Baum, wrote it as an allegory of the class struggle by 1890s mid-western populists against the US financial elite of the time to force the US dollar off the gold standard - which was causing deflation.

But it is in the final chapters where McWilliams transforms from amateur historical buff and barroom storyteller to professional economist, bringing his experience in central banking and investment banking to issues like the global financial crisis, austerity, the backlash represented by Trumpism and Brexit, and more recently the rise of crypto-currencies and modern monetary theory.

I found these parts particularly interesting, as that era from the late 80s and early 90s to today coincides with my own career as a financial journalist and later years in funds management. It's an era in which the world was entering a new relationship with money. We began to put all of faith in central bankers, modern-day high priests who were given extraordinary power by elected governments to manipulate the price of money (interest rates) in pursuit of rigid inflation objectives.

This system worked for a while, and then it didn't work at all. The problem was that our belief that central banks were in control of the system proved ultimately to be an illusion. In reality the commercial banks created the money out of nothing and the central banks followed up behind to clean up the mess. In other words, while the latter group controlled the price of money, it was the former who dictated its quantity. And that - in a nutshell - is how the GFC happened.

For now, we find ourselves in a post-central banker-as-god era, with nothing yet emerging to replace it. On the libertarian right, there are attempts to privatise money through the creation of crypto-currencies. On the left, there is the idea propounded by the modern monetary theorists (MMT) that the state, because it issues money, can never run out of it.

McWilliams doesn't believe either regime is practical - crypto not being a serious means of exchange but a speculative ponzi scheme run by spivs, while MMT (as we saw in the disastrous Liz Truss 'mini-budget' in the UK) inevitably comes up against the hard constraints of inflation and the bond market.

"Crypto has struggled because it failed the evolutionary test that all economic innovations must pass," he writes. "What problem did it solve? None. Was it the best design to fit the challenge or requirement of the time? No."

Money, as ever, continues to evolve as civilization evolves. For my money (no pun intended), we appear to be in a stage of devolution from the high point of the post World War II social democratic consensus. The international financial system, created by the Bretton Woods agreement, is slowly breaking down and, as the US under authoritarian Trumpism turns from the world, the long days of the hegemony of the US dollar as global reserve currency may not survive.

But that will have to be the subject of McWilliams' next book. For now, this is a cracking read and one that sheds new light on the mystery that is money.