## Metadata - Author: [[Philip Coggan]] - Full Title: Paper Promises - Category: #books ## Highlights - Given that mankind has been using money for thousands of years, it is perhaps surprising that money is still such a nebulous concept. The word itself comes from a title of the Roman deity Juno – Juno Moneta – the goddess of warning and advice; a suitable omen for those who rely too much on its value. ([Location 478](https://readwise.io/to_kindle?action=open&asin=B006ZOYLLO&location=478)) - Two of these monetary roles – the means of exchange and the store of value – lie at the heart of the struggle between creditors and debtors. Treat money mainly as a means of exchange and it seems obvious that we should want more of it. The more exchange (trade) we have, the wealthier we get. ‘Bank notes are simply the small change of credit,’ said one nineteenth-century observer. ‘If you lend to borrowers with good credit, then the money will return to the bank when it is repaid.’9 But treat money as a store of value, and we want to restrict its supply. Indeed, part of the reason for the enduring appeal of precious metals as money is that there is so little of them to go around. If money is simply created at will, it eventually becomes worthless. And, of course, if it is worthless, it loses all value as both a unit of account and medium of exchange. ([Location 515](https://readwise.io/to_kindle?action=open&asin=B006ZOYLLO&location=515)) - Imagine, however, that you are a creditor or a merchant selling goods. Your debtor or customer offers to pay you back, not in pounds or dollars, but in Monopoly money. You might not regard this as payment at all. The fundamental worry of creditors is that governments can issue as much money as they like. Indeed, the concept is built into the rules of the Monopoly board game. The rules state that, ‘The Bank never goes broke. If the Bank runs out of money it may issue as much more as may be needed by merely writing on any ordinary paper.’ And in a sense, monopoly money is what we are all using. The monopolists in this case are governments, ([Location 525](https://readwise.io/to_kindle?action=open&asin=B006ZOYLLO&location=525)) - Creating the right amount of money is an art, not a science. Gold and silver offer a discipline, but their supply is very lumpy. At various points in history, gold and silver have been in short supply – prior to the New World discoveries of the sixteenth century, for example. The resulting monetary boost to Europe involved the outright exploitation of the Aztec and Inca peoples unlucky enough to be in possession of the metals concerned. Ancient empires had a similarly direct approach. They acquired extra bullion by conquering their neighbours. This treasure was both an incentive to attack and a means of financing the campaign. The classical approach to monetary stimulus was thus to start a war. ([Location 535](https://readwise.io/to_kindle?action=open&asin=B006ZOYLLO&location=535)) - History’s tug of war between monetary shortage and excess has resulted in several different, but interlinked, forms of money. One can very broadly break down these into three: precious metals, and other commodity-related currencies; bank notes created by government order, as in John Law’s system; and credit, as created by the banking system. ([Location 547](https://readwise.io/to_kindle?action=open&asin=B006ZOYLLO&location=547)) - With the demise of Bretton Woods, money was free of its link to gold, the ‘barbarous relic’ as Keynes had described it. In the ancient battle between creditors and debtors, this was a victory for the latter and, as we shall see in the next chapter, it led to an explosion in the amount of debt. In the battle to define money, it was also a victory for those who believed its primary function was as a medium of exchange, not as a store of value. Paper money has no intrinsic value. ([Location 1996](https://readwise.io/to_kindle?action=open&asin=B006ZOYLLO&location=1996)) - From the 1940s to the mid-1970s, Keynesian economics held sway. Governments attempted to fine-tune their economies by increasing spending in the face of recession. Whether Keynes would have approved of what was done in his name is a difficult question. His remedy was devised for the Great Depression, when the economy appeared to be stuck. It is not clear he thought that governments should attempt to abolish the business cycle altogether. He argued that governments should build up surpluses in good years, like the biblical Joseph, to give them scope to run deficits in bad years. ([Location 2016](https://readwise.io/to_kindle?action=open&asin=B006ZOYLLO&location=2016)) - The first duty of governments (and central banks), in Friedman’s view, was to keep inflation down by controlling the money supply. ‘Inflation is always and everywhere a monetary phenomenon,’ he said.1 Just as the New World discoveries of silver had pushed up prices in the sixteenth century, the printing of paper money did so in the twentieth. Fiscal policy would have no effect on unemployment, according to the monetarists. The answer, instead, was to improve the workings of the economy by making it easier for employers to hire and fire labour. These so-called ‘supply side’ reforms would improve productivity. By the early 1980s, with Margaret Thatcher in power in Britain and Ronald Reagan in America, Friedman’s influence was at its peak. The government role in the economy was to control inflation and to ensure the rule of law and property rights. Otherwise, markets should be given free rein to allocate resources, which they would inevitably do in a more efficient way than bureaucrats. The Chicago school also argued that lower taxes would result in a ‘supply-side boost’ to economic activity, as businessmen and workers were given incentives to work harder. ([Location 2041](https://readwise.io/to_kindle?action=open&asin=B006ZOYLLO&location=2041))