Has it failed its democratic promise? A new book tackles that question.
Most people are used to owing money to others, but few think about what money may owe us: an equitable society, a functioning political system, a peaceful economy that can stay off the exhausting roller coaster of financial booms and crashes.
We don’t usually think of money as a tool to accomplish all that, but Felix Martin, an economist and former World Bank official and author of the compulsively readable new book Money: The Unauthorised Biography, says that money can give us all those things; it can deliver “both stability and freedom”.
The catch is that we must radically rethink money itself. It’s not a fixed, physical thing, he argues, but a virtual “social technology” that should be used to enable a more democratic and equitable world, bring order to the banking system and foster “peace, prosperity, freedom and fairness”. Sign me up.
Money is a fascinating and entertaining pep talk for bankers, economists and armchair revolutionaries dissatisfied with the current financial system, and an attempt to galvanise them into action. The best arguments centre on widespread unfairness: “Global banking’s current structure generates an unjust distribution of risks, where losses are socialised — taxpayers are on the hook for bailouts — while gains are private — the banks and their investors alone reap any profits.” In addition to widespread wealth inequality and stagnant incomes, “the baby boomers own all the houses, and no one under 30 can get on the property ladder”.
Martin’s complaint will be familiar to anyone who has kept up with the flailing of finance in the five years or so since the crash. A wide group of dissidents has strengthened its opposition to the current financial system. This worldview — which holds, roughly, that banks are greed — driven agents of chaos and governments their weak-willed enablers of social inequality — crystallised first in the back alleys of the internet, then on the streets through the Occupy protests, on to the campaign trail with Ron Paul’s “End the Fed”, and now peeks through the growing debate around the virtual currency Bitcoin, which is backed by no government or bank.
This set of movements was spurred by what its adherents consider a failure of capitalism as we know it and a desire to either change it for the better or escape it entirely. Martin is very much with them — or at least with some of them.
Martin sides strongly with the camp that says the financial system failed, particularly the banking system. He suggests that banks broke their traditional bond with governments by going rogue: issuing trillions of dollars of derivatives that flooded the shadow banking system and creating a largely unregulated “parallel monetary universe”.
He calls it a coup d’état, and he’s sympathetic to the dissidents — “Why respect the rules of the system, ask the Occupy protesters and indignados in Madrid, if the system consistently generates crises?” — but rejects financial anarchy and interlopers like Bitcoin and comes down on the side of changing our financial system for the better.
His intellectual agenda takes more work. He says both consumers and economists are mistaken when they connect money to things — whether it is gold or cash or goods in a supermarket. We need to understand money as a set of promises, “not as a thing, but as a social technology” that should be “unflinchingly responsive to the demands of democratic politics”.
Economists, similarly, when they obsess about inflation, are merely conflating money with the fixed value of the things it buys, like the price of an average basket of goods. The financial crisis demonstrates, in Martin’s view, that money has failed its democratic promise. He reminds us that money, as we know it, has been the primary tool of democratic government and social mobility.
The outstanding flaw in Martin’s argument is whether the system can change, and whether the impetus exists to change it — whether, in fact, the crash was bad enough to force a revolution of any kind. There are enough strong voices on the other side of his argument who would suggest it wasn’t, including Daniel W. Drezner in his book The System Worked, and the economists Charles W. Calomiris and Stephen H. Haber, who suggest in their book, Fragile by Design, that financial crises are an inevitable outcome of the push-and-pull between banks and governments.
Into this pitched battle of economic ideas wanders the well-meaning American consumer, just trying to pay for a latte. Whether he uses cash, credit, loyalty cards or Bitcoins is largely irrelevant to him; he just wants coffee and isn’t looking for a fight. Too bad. He is a potential economic foot soldier in Martin’s view, and the war is very much on.
The writer is the finance and economics editor for Guardian US