Customer Reviews

Money: Revised Edition

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This is JKG holding forth on that most perennially fascinating of topics. The subtitle ("Whence it Came, Where it Went") may bear a relation to the question on everybody's mind during the early and mid-seventies: why is our money behaving so badly?

"In the twenty years before the founding of the [Federal Reserve] System there were 1748 bank suspensions; in the twenty years after it ended the anarchy of unstable private banking, there were 15,502."(p144)

"...the Democrats...could authorize it [the central bank] without being suspected of evil."(p239)

"...the [German] inflation of 1923, with its euthanasia of the "rentier" class...had almost certainly a far greater [than the 1945 inflation] effect on relative wealth. ...The loss of assets makes a deep impression on an impressionable class of people. The loss of jobs is accepted more philosophically."(p303/304)

"... the higher oil price [in 1973] was considered highly inflationary ... in fact, it was deflationary ... the revenues... accumulated in unspent balances. Thus they represented a withdrawal from current purchasing power..."(p363) (The rest of the paragraph is relevant. The basic point is that the oil producers took money out of circulation, since they made it far faster than they could spend it.)"

And the piece de resistence: "To see economic policy as a problem of choice between rival ideologies is the greatest error of our time."(p368)

MONEY

OK, do I have your attention? Well, this book will not demystify money - like love it is resistant to that, but like love we can't let it go. And its progress through our culture is a fascination, attended by hopes, frauds, inventions, and, not least, desperate invocations.

Galbraith is a writer of enormous wit, intelligence, learning, and sympathy. But he is, of course, a liberal, so to many anything he says will be suspected as not arising out of a proper deference to the efficacy of pure market forces. Just as daunting, his strong, ironical style requires a neophyte a few pages to adjust to syntax shock. Once comfortable with the language, though, one can sit back and enjoy the colorful cavalcade of rogues and fools, madmen and prophets, as they invent and wreck institutions, impoverish whole nations, and pay for wars with worthless paper.

A Harvard economist, a former ambassador, and a leading Keynesian in the Roosevelt administration, John Kenneth Galbraith is at home in the twentieth century's public life as few others are, and has a firm intellectual grasp of his sometimes slippery subject. This book is a witty, but intellectually serious, history of a concept absolutely central to what we are pleased to call modern life, and how it has grown and changed from exchanging pieces of something shiny to now encompass powerful banks, puzzling foreign exchange markets, and tottering Ponzi schemes. Vast frauds separated by centuries appeal to the same base motives and use the same crude stratagems to separate us from our bit of money in hopes we'll get more. With money, like love, it seems we will never learn. But there is much enjoyment in the lessons, anyway.

On one side of the world is a broad swath of professional mystery-makers, who stand in awe at the world's complexity, quite often view it as unanalyzable or irreducible, and let it stand pretty much as it was before. Then there are people in this world who want very much to take apart all the world's complex systems and machines, show you what they're made of, and say, "See? It's not all that awe-inspiring after all." I've decided that John Kenneth Galbraith, on the basis of "Money", is one of the latter.

Among those peddling mystery rather than clear thinking around money are some of Galbraith's own economist colleagues, who enshround the topic in hefty terminology and bestow upon money men an authority that, as it turns out, they don't deserve. Here's Galbraith clarifying a couple often-heard terms from the world of finance (after another connected paragraph that I've had to leave out for brevity):

"Few phrases have ever been endowed with such mystery as open-market operations, the bank rate, the discount rate. This is because economists and bankers have been proud of their access to knowledge that even the most percipient of other citizens believe beyond their intelligence. Open-market operations are the sale of securities just mentioned by the central bank which removes the loanable cash or reserves from the commercial or ordinary banks. The bank rate and the discount rate are the same; they are what prevent the banks from too painlessly recouping their cash by borrowing from the central bank. This is it. Viewed in the context of their development in the last century it is hard to regard these mysteries as anything but a simple, even obvious, accommodation to circumstance."

That same tone, in a couple of particulars, is what makes "Money" such a tremendous book. First there's the persistently arched eyebrow, aimed at other economists. Then there's the urge to make the world clearer. The whole book is quite admirable in this way.

Money's pace is a little funny: perhaps 80 pages get us from the start of world history up to the Bank of England, then another 100 pages from the 19th century to World War I. The remaining 150 pages covering the practical collapse of the gold standard through the Depression and its aftermath. It's like Zeno's Monetary History.

Galbraith's central observation about banking is that, beyond its most primitive forms, all banks suffer from one single, ineradicable problem: they have more money on the books than they actually have on hand. And every now and again, panic spreads from bank to bank, justly or unjustly: a nearby bank fails, so all my depositors rush to empty out their accounts. They are all shocked to discover that I don't have a special bag of gold coins labeled "Doris's savings account." My bank fails, as do all the other banks. My bank wasn't necessarily any worse just before the failure than it was a week earlier, but expectations combined to make it collapse. If I'm not mistaken, observations of this form are distinctly Keynesian.

Indeed, Galbraith is an old-school Keynesian, responsible in some fashion for price controls during World War II. Some of the most interesting parts of "Money", to me, were Galbraith's defenses of this centralization. It all worked quite well, says Galbraith, and people seemed generally satisfied with it. When the price controls were lifted, inflation did not go through the roof; there was no pent-up demand waiting to explode, but for the evil central planners. This, and much of the rest of the book, is a more or less direct response to Milton Friedman, maybe especially Friedman and Stigler's "Roofs or Ceilings?"

Part of "Money" is in fact a direct attack on Friedman's monetarism. The standard Keynesian attack seems to go like this: there comes a point in an economic crisis when the interest rate just cannot be productively lowered any more -- we are at the "zero lower bound". Banks are afraid to lend out any more money, so they hoard it. Lower interest rates near the ZLB just lead to more hoarding. The distinctive Keynesian response is to emphasize fiscal policy here over monetary policy: the government should actively spend money to put it in consumers' pockets to get people spending, get them borrowing (clear out those hoards), etc. When read today, Keynes sounds somewhat naïve about the prospects for apolitical control of the economy by a technocratic élite; so does Galbraith.

Some of Galbraith's naïveté comes from a belief that the world is moving to greater centralization: fewer corporations controlling production, and unions representing workers in bulk. It sounds like commerce really was more concentrated during World War II, and consequently that the central planner had a much easier task than he would now. Galbraith doesn't seem to have updated this picture of the world since 1945.

Still, "Money" is a terrific read. A lot of what Galbraith says makes perfect sense, and I have a much better picture of how monetary policy works. He's maybe less reliable on Keynesian demand management; just read the final 50 pages or so with the same skepticism that you brought to the rest of the book, and you'll be fine.

"Money" is an easily read and easily comprehended history of how the western industrialized countries have created, adapted, and managed their monetary systems. Written by one of the post-WWII-era's most famous economists, John Kenneth Galbraith, "Money" is as much a lesson in American history and politics as it is in economics. Galbraith seeks to show how the management of monetary systems, driven by the interests of the rich and supported at times by conservative ideology, has been fraught with error, corruption, and more commonly--simple incompetence. But he protests the inefficacy of monetary management too much. Published in 1975, Galbraith's book can be seen as a response to the rise of the "monetarist" school of economics which, in many ways, was a challenge his economic philosophy.

An ardent supporter of the Keynesian school of economics, Galbraith rose to prominence during the late Depression era and especially during WWII as a government official in charge of controlling prices (He later served in the several Democratic administrations including a post as Ambassador to India for Kennedy). With the Depression still in full force just prior to WWII, he was chosen specifically to help implement a Keynesian economic policy which emphasized the use of fiscal policy--government spending and more activist management of the economy--to bring about full employment.

In 1963, Milton Friedman and Ann Schwartz published the now famous "Monetary History of the United States, 1867-1963". Friedman and Schwartz laid out, in convincing empirical fashion, what became known as the "monetarist" school of economics which emphasized the management of the monetary system as the key to macroeconomics stability and growth. While "Monetary History" acknowledges the managerial shortcomings of past monetary officials--those shortcomings were the result of a lack of understanding of the monetary system rather than an inherent flaw in monetary policies themselves. In contrast, Galbraith's "Money" emphasizes that monetary policy is itself flawed. In addition to showing how attempts to manage monetary systems over the past 200 years have generally been abysmal, Galbraith goes on to assert that even when managed well, monetary policy has a limited impact on macroeconomic health compared to Keynesian-influenced fiscal policies.

Galbraith may have a point. In the 30 years since he published "Money", activist fiscal policy has been replaced by activist monetary policy as the tool of choice for maintaining macroeconomic growth and stability. Yet, monetary crises have remained a significant feature of the economic landscape: The stagflation of the late 1970s, the early 80s recession as a result of the monetary policy response of Paul Volcker's FED; the Asian Financial Crisis; and the current housing bubble brought on by the FED relaxation of interest rates in response to the previous dot-com bubble. The art of managing a monetary system seems no more under control than it did earlier in the 20th century. What has changed over the past 30 years is the realization that increasing economic centralization under the aegis of Keynesian-influenced government intervention has been shown to be problematic to economic growth as well. In addition conservatives also call upon the works of Hayek to show that economic centralization--an inherent feature of heavily Keynesian governments--has political implications that put individual freedoms at risk as well

Ultimately Galbraith's "Money" is an excellent and understandable introduction to the various efforts over the last several centuries to manage monetary systems. But the reader is given more than monetary and Keynesian theory and is engaged in a wonderful, if broad-brushed economic history of the United States. Fifteen years ago, an argument could be made that "Money" was out of date. A second look at recent crises born of monetary policy suggests that "Money" is a relevant reminder that there is still much to learn.

Galbraith presents a generally correct overview of the connection that exists between the private commercial banks' optimizing behavior, loans from the banks to speculators,speculation by the banks themselves,the creation of bubbles leading to manias,panics,crashes and economic collapse ,resulting in recession /depression.The business cycle is thus due to two major sources that create uncertainty about the future,one monetary and one real but both endogenous to the economic system-technological advance ,innovation,and "creative destruction" ,and financial innovation as the banks constantly try to create new assets to avoid the regulatory constraints previously imposed upon them in an effort to rein in and minimize their speculative behavior. Thus, Galbraith gets the following right:"In financing the sale of bad securities and in nourishing the stock market speculation,a leading part was played in these years(author's note-Galbraith is talking about 1925-1929;however,it also applies to the years 1980-2008) by the new monetary system"(Galbraith,p.173).

Unfortunately,Galbraith was tutored,as was Paul Samuelson, on " What Keynes meant " by Joan Robinson,Austin Robinson,and Richard Kahn.This explains the following assessment made by Galbraith about Keynes and the General Theory:" The theoretical justification came in the book Keynes mentioned to Shaw(note-George Bernard Shaw),The General Theory....Keynes had long been suspect among his colleagues for the clarity of his writing and thought,the two often going together.In The General Theory he redeemed his academic reputation.It is a work of profound obsurity,badly written and prematurely published.All economists claim to have read it.Only a few have.The rest feel a secret guilt that they never will.Some of its influence derived from its being extensively incomprehensible.Other scholars were needed to construe its meaning,restate its propositions in intelligible form.Those who initially preformed the task-Joan Robinson in England,Alvin Hansen and Seymour Harris at Harvard-then became highly effective evangilists for the ideas".(Galbraith,pp.217-218).Galbraith,unfortunately,never covered the theoretical core of the GT in chapter 19,the appendix to chapter 19,chapter 20,where Keynes works everything out in great detail,and in chapter 21,where Keynes presents his final results demonstrating that it is speculation that causes involuntary unemployment.Keynes generalizes the Quantity of Exchange formula in chapter 21 so that,for instance,neoclassical theory and Milton Friedman's monetarism are seen as special cases holding only under certainty and linear (normal distribution)risk.These theories break down under non linear risk,uncertainty(ambiguity-D Ellsberg),and ignorance.It's all there on pp.304-306 of the GT.

Galbraith's assessment of Keynes could not be further from the truth.Galbraith's assessment has been a major factor in explaining why economists still have no idea about what Keynes did in 1936.Galbraith is the founder of the American Post Keynesian School(Journal of Post Keynesian Economics),a major influence in the American Institutionalist School (Journal of Economic Issues),and a major influence in the Cambridge Keynesian school(Cambridge Journal of Economics).Galbraith's assessment forms the foundation for all work published on Keynes in these journals and many others as well.

The book is worth buying as long as the reader realizes that Galbraith has no specific knowledge of the GT and probably did not read it himself.

Galbraith explains banks & money as wittily as the Motley Fool demystifies stocks & Wall Street. Too bad Galbraith was way ahead of his time. Too bad it is out-of-print. Please bring "Money..." back ASAP.

Economics and money books can be dry and boring. Not this book!

In typical Galbraith style, he simplifies the topic and delivers it with wit.

Mr. Galbraith discussed various monetary standards and some curious items used as "money".

Among them were; land, gold, silver, and even cigarettes.

Some of his observations provide excellent quotes like these examples:

"If all else fails, immortality can always be assured by adequate error." From page 178.

"Common sense is another term for what has always been believed." From page 235.

The author provided an excellent assessment of fiscal policy in American politics from the Revolution to the Clinton era.

In my humble opinion this is the best book that John Kenneth Galbraith wrote.

Educational, entertaining, and highly recommended!

John Kenneth Galbraith was one of the best writers on economics. You don't agree with him to thoroughly enjoy his books. This is one of his best.

JKG had a great sense of humor and didn't take himself seriously. He was serious about economics. I have one caution: Always read the preface. If he intended to let his personal beliefs enter into the book, that's where he'd tell you.

Although originally published in 1975 by John Kenneth Galbraith (and republished in 2001) this is a great foundational discussion from someone who was closer to the depression than we are today. This work is helpful for a reader to understand how we got to where we are today with money and banks and the governmental systems and institutions.

First discussed is a brief history of how money developed and what it is (a medium of exchange that has taken many forms throughout history. page 5). "Attitudes towards money proceed in long cyclical swings. ...nothing, not even inflation, is permanent. ... that the pursuit of money...is capable of inducing not alone bizarre but repely perverse behavior." (page 3). The root of panics and the gold standard are discussed from his perspective - which I won't go into since each theme has supporters and detractors - however, another perspective is helpful.

Galbraith discusses Keynes and how fiscal policy (expenditures through the Federal budget) helps in certain economic times when some method of making sure money is spent, not simply made available for borrowing (at times even though money is available to borrow, it is not - and we see that tendency in 2008). He also discusses four serious flaws to fiscal policy in chapter six - something policy makers should keep in mind during this economic cycle in the early years of the 21st Century.

Monetary policy (that of the Fed and the Federal Open Market Committee as examples) are discussed along with Milton Friedman. Galbraith wrote in 1975 at a time when the world had not yet experienced a complete cyclic shift between policies - they ended the fiscal stimulus period and had not yet ended a monetary stimulus period - as we have today. We are back to a fiscal stimulus period.

There is a brief and interesting discussion about the human tendency for regulators and politicians to see the train wreck coming, but hesitate to call alarm and be singularly blamed for the ensuing train wreck; better to share the blame with many afterwards, or better yet have that blame shifted somewhere else. Unfortunately, the same is true today as it was then.

My humble conclusion is that economic cycles are just that, cyclical. Both types of policies, fiscal and monetary, have their time when their strengths are needed. However, both types of policies have their weaknesses as well. It would be wise of policy makers to recognize where we are in the cycle and when inflection points matter in order to prevent economic stress due to the extremes of letting a policy go on too long. Both appear to be good policy tools at different times. The challenge is recognizing when one policy will make matters worse if continued, and to transition to the other policy in time to mute the effects of the current policy carried to an extreme in order to encourage the other policy to pick up where the previous leaves off. Otherwise, we are doomed to repeat the cyclical boom and bust cycles of overextension of credit and borrowing to an overextension of government spending that politically can't be turned off when the spending stimulus begins to create inflation.

This book by Galbraith serves the reader well in forming a point of reference "From Whence it Came, Where it Went" that is very helpful to understanding today's economic ills, especially his statement that every bubble is financed in some manner by a credit boom.

For a discussion of Keynes and counter-arguments to Keynesian thought I suggest Where Keynes Went Wrong: And Why World Governments Keep Creating Inflation, Bubbles, and Busts by Hunter Lewis

For a book about a broader discussion of wealth and how it is different from money...

Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics by Eric D. Beinhocker

For a read why perhaps each crisis may be okay after all ...

Pop! Why Bubbles Are Great For The Economy by Daniel Gross

Wealth Odyssey: The Essential Road Map For Your Financial Journey Where Is It You Are Really Trying To Go With Money?

I found that Galbraith presents difficult concepts in a clear manner and with a bit of humor, so I found this book to be an entertaining read. I liked it and recommend it, but with a few minor reservations. Also note that this review is based upon the original 1975 edition, which I believe is the same as the 2001 reprint edition.

A better title for this book would have been money and its influence on economic policy. The first half of the book is about money, what is it and its history. The second half of the book is more about economic policy, particularly Keynesian economic policy. Galbraith was a Keynesian and the book provides a nice succinct discussion of it and how Keynes demonstrated the flaws in the ideas put forward by the French Economist J.B. Say and the Austrian school of economics led by Joseph Schumpeter, although there are those today who would argue that it was Keynes' arguments that were flawed. I particularly liked the discussions of the gold standard, the Bank of England and the history of early US banking, but the earliest history (money in Egypt, Lydia, Rome and during the Middle Ages) is a bit sparse.

I liked the book, but having been written in 1975 it is dated, and the last few chapters, which deal with the economic problems of the late 1960's to mid 70's get a bit personal in Galbraith's critique of the Nixon administration. In view of our current situation I found it almost amusing to read about the "terrible" problem of 8% unemployment, and I longed for a more up to date treatment. The book does, however, provide background from which to view our current economic situation.

His style is both good and bad news. It is delightfully irreverent. But I think he concentrates more on that style than covering some of the basics as billed in the book description. He frequently uses terms that he has not adequately explained.