Money is a fascinating topic. What is it? Where does it come from? How does it work?
So for that reason, Philip Coggan’s Paper Promises is an exciting read. It’s pop-economics -easy, readable, and friendly, and at times I wished his exposition was a little more rigorous. But he does cover some interesting, and I think important, angles.
He covers the fundamental question – what is money?
something that people accept as payment for goods and services because they believe they can use the proceeds to buy goods and services from somebody else.
Of course, he then goes on to talk about the three traditional definitions of money – medium of exchange, store of value, and unit of account. Interestingly, he highlights the tensions between the different uses; as a medium of exchange, the more money, the better. As a store of value, the less, the better. And, of course, each of these uses depends on the others.
He also covers the fact that, once you go off the gold standard – to a purely fiat currency – then debt is money. The two are interchangeable.
But the key fact is that debt and money are two sides, not of the same coin, but of the same bank note.
Once you have a fiat currency, unbacked by an asset, there’s a bias towards the means of exchange – not the store of value use of money. Which matches up with the higher rates of inflation that have occurred since fiat currencies became common.
Another idea he discusses, which makes intuitive sense, was that debt shouldn’t, at some level, grow faster than the economy. Or, than expectations of future growth, is probably the more relevant variable. Either way, it’s an idea I’ve seen referenced in other situations, but hadn’t seen spelled out as clearly.
Overall, it was … an interesting read on the topic, and possibly not a bad place to start. But I kept finding myself thinking that it read a little like a hurried blog post, something that had been dashed off quickly without much editing (like this) – and wishing that it was a little more clearly structured.