The power of this bestselling book derives from the positioning of the author rather than its contents. Paul Sheard’s cv and list of endorsers speak for themselves.
The subtitle suggesting the existing system of (debt-)money creation helps us all prosper hints at the unconventionality of the book : a seemingly conventional economist challenging “How We Think Money Works”.
Sheard’s heterodoxy is largely that of the neither new- nor quite post-Keynesianism that has lately managed to thrust itself into the mainstream narrative as MMT.
Sheard shares MMT’s limitations as “pure”, ie non-political economics but not MMT’s typical “social democratic” tendencies. This may explain why the editorial endorsers range from Stephanie Kelton to Klaus Schwab. It also explains many of the criticisms made by reformist and post Keynesian reviewers like Geoff Crocker (see reviews below)
From this money researcher’s point of view, what is sorely lacking are any considerations of, or refences to
- the ongoing history of the (abuses) of the power of money
- the theoretical implications for (pseudo-scientific) orthodox equilibrium economics, let alone to heterodox alternative macro ecomomics as a social science
- the political and ecological imperatives and possibilties of reforming the existing monetary system
Nonetheless, given most people still get a massive headache when confronted with propositions like: “If all debts were paid off, there would be virtually no money left”, Sheard’s book may teach some money truths to those other authors cannot reach.
Just follow the money…
play as u read money power music
Money permeates our everyday lives—it literally makes the economic world go round—and yet confusion and controversy about money abound. In The Power of Money, economist Paul Sheard distills what money is, how it comes into existence, and how it interacts with the real economy. Money issues dominate the news, but economic jargon and the complexity of it all can be bamboozling. Leading economist Paul Sheard is known for his ability to see the forest and the trees and demystify complex economic phenomena. With The Power of Money, Sheard empowers readers to become better-informed economic citizens by providing context for some of the biggest questions surrounding money, such as:
- How does money come into existence?
- How is the process of money printing governed?
- Does government debt ever have to be repaid?
- Are financial crises bound to happen sometimes?
- Can the euro, a currency without a government, survive in its current form?
- Are proposed cures for economic inequality worse than the disease?
- What is the future of money—are cryptocurrencies going to change everything?
Financial enthusiasts and non-specialists alike will be surprised by the answers to these questions. The Power of Money provides a comprehensive foundation of knowledge to help you feel better informed and more confident as you follow and engage in economic and financial affairs and policy debates.
“There is a funny thing about what we normally think of as money: some of it is a debt of the central bank, which means the government, and some of it—in fact most of it—is a debt of commercial banks.”
“Because banknotes are technically debts of the central bank, they appear on the liability side of a central bank’s balance sheet. But what exactly does the central bank owe? In a modern fiat-money system, nothing except the banknote itself. A banknote, such as a Federal Reserve Note, may be debt, but it is a special kind of debt: one that never has to be repaid.”
“Governments, central banks, and commercial banks are joined at the hip in the creation of money, and fiscal policy and monetary policy are not as distinct and separate as commonly supposed.”
arabnews.jp 9-2023 Economist Sheard criticizes US policy of freezing countries’ dollar assets
pingthread/DirkEhnts 2021 POLITICAL ECONOMY OF FISCAL POLICY – Panel discussion with Warren Mosler, Achim Truger, Philippa Sigl-Glöckner and Paul Sheard
bqprime.com 2018 Lehman Brothers Former Global Chief Economist Paul Sheard On The 2008 Financial Crisis: Lessons Learned, Lessons Missed
hks.harvard.edu 2018 Paul Sheard: Quantitative Easing – Explaining It and Dispelling the Myths
hks.harvard.eduu/pdf 2013 All You Need To Know About “Abenomics” by Paul Sheard
openresearchdep.pdf 1992 INTERNATIONAL ADJUSTMENT AND THE JAPANESE FIRM – edited by Paul Sheard
Author Paul Sheard writes that every generation leaves to the next generation a capital stock that is always bigger and better than what it received from the prior generation. IN HIS book, The Power of Money: How Governments and Banks Create Money and Help Us All Prosper, Paul Sheard, an Australian-American economist and the former vice-chairman of S&P Global, provides novel explanations related to money, including what it is and how governments, commercial banks and central banks create it and influence its creation. He clears up common misconceptions that many people have about money, including whether the US government is imposing a huge burden on the country’s grandchildren, and mortgaging their future by racking up huge debts. That particular species of fallacious thinking, termed a “category error”, treats the government as if it were a single household, when in fact, it is analogous to an amalgam of all households in a country. The current generation can borrow only from itself, not from future generations that do not exist yet. Sheard says that every generation leaves to the next generation a capital stock that is always bigger and better than what it received from the prior generation. There is no reason that governments should always balance their budgets, and generally, they should not. If too much government debt is outstanding at some point, then macroeconomic policy can take care of it.
Sheard explores many important money topics that are relevant today, such as bank runs and financial crises, the euro sovereign debt crisis, wealth inequality, and Bitcoin and other cryptocurrencies. Money can cause serious problems for an economy and society at large. The risk of bank runs and financial crises arises because of the inherent mismatch between the liquidity of financial claims that the monetary economy generates and the illiquidity of the productive assets that constitute the real economy. The central bank’s role as the lender of last resort empowers it to prevent financial crises and quell those that occur. Sheard argues that the US Federal Reserve erred in not acting as lender of last resort to Lehman Brothers in 2008.
The euro sovereign debt crisis of 2009 to 2010 revealed a deep structural flaw in the euro area’s economic architecture. Member states are obligated to pool their monetary sovereignty, but not their fiscal sovereignty. They cede their monetary sovereignty to the European Central Bank, while retaining responsibility for their fiscal affairs. The situation results in member nations having to borrow in a foreign currency, one they cannot produce at will. For the euro to endure, says Sheard, euro area members must voluntarily accept stringent fiscal restraints and recognise that pooling monetary sovereignty is a political act. The right of a nation state to create and control its own money is a core aspect of sovereignty. According to Sheard, if the EU political elites cannot explain to their electorates that monetary union is just as deeply political in nature as fiscal union, and garner the necessary consent to complete the economic and monetary union, the euro may one day be finished.
The book also looks at the economic forces behind large wealth disparities, especially in relation to the tiny cohort of the uber-rich. Sheard argues that extreme wealth inequality is a by-product of prosperity-generating market processes, and that the uber-rich do much less harm than is often claimed. If the government deems improving the plight of the poor desirable, it should do so independently of whether and how it “taxes the rich”.
Finally, Sheard believes that Bitcoin and other cryptocurrencies are not as detached from the legacy monetary system as they appear, and are likely to struggle to compete with it when it comes to fulfilling the three canonical roles of money: unit of account, medium of exchange, and store of value. Cryptocurrencies are likely to find a permanent niche in the monetary ecosystem, but they may at this time be early in their innovation cycle, making definitive predictions tough. Rather than challenging the traditional monetary system, cryptocurrencies and their foundational technologies are more likely to help reshape it by spurring innovation. In summary, this book is useful reading at a time when innovations such as Bitcoin and other cryptocurrencies, as well as policy experiments such as quantitative easing (QE), have made it critical to understand how money works.
asiaasset.com 9-2023 Asset managers and the secrets of the magic money tree – Paul Sheard’s The Power of Money reviewed by Anthony Rowley
What should asset managers make of the bold and controversial statement by Harvard economist Paul Sheard in his recently published book The Power of Money that “government debt never has to be repaid?” Does it imply that government bonds can never be redeemed whatever their maturity?
Treasuries or “gilts” and other government debt securities are of course continually rolled over and there are such things as perpetual bonds, but the claim by Sheard (former vice chairman of S&P Global) appears to give governments carte blanche to go into limitless and endless debt. He rejects the claim that government debt represents a “burden on future generations”, which in turn suggests that running up debt is an acceptable thing for governments to do – now and for evermore. A similar claim is made by proponents of Modern Monetary Theory, otherwise known as “magic money tree” advocates.
Government debt, Sheard argues, looks similar to corporate or household debt but is “fundamentally different”. The banking reserves (base money) that a government creates when it runs a budget deficit do not have to be repaid any more than do banknotes – provided the government issues debt in its own currency. This is the “catch” and it effectively limits the ability to create endless debt to those few governments, notably the US, whose currencies enjoy universal acceptance. But this could change as more governments form regional currency arrangements and faith in the dollar erodes.
Money managers and asset managers who need to make regular decisions on the amount and quality of government debt they invest in need to be aware of these developments, as a reading of Sheard’s provocative new book makes clear. The landscape of government debt may be about to change. The fact that this has not happened so far and that the United States is virtually the only country that can run continual budget and external deficits and indulge in regular fiscal brinkmanship (via debt-ceiling crises) is because markets are happy to accept the dollar at face value.
Conventional wisdom holds that the dollar will remain the world’s principal trading, investment and reserve currency for the foreseeable future, with the euro as a distant second and currencies like China’s RMB relegated to the status of the “also-ran” or the unsuccessful challenger. But conventional wisdom may well be wrong. Regional currency arrangements of one kind or another (many of them with the RMB as a component) are proliferating, and if members of these are willing to accept each other’s currencies that will widen considerably the scope for their governments to issue “non-repayable” debt.
To give just one example, the number of members of the BRICS group (Brazil, Russia, India, China and South Africa) will see their numbers more than double from five to eleven on January 1, 2024, to include oil giants Saudi Arabia, the UAE and Iran, as well as Argentina, Egypt and Ethiopia. Bringing the three oil majors into the fold may appear to be mainly a move by the BRICS countries to ensure future energy security among the grouping despite founder members China and Russia also being significant producers. But it is also about an evolving BRICS financial and economic strategy.
This aspect of global power projection is not always appreciated in assessments of why Asian and other emerging economies such as China place great store by having their currencies achieve international status. It is not just a matter of prestige or trade and investment convenience. Governments need to finance not only areas like health, welfare, education and other domestic spending but also defence and military power projection as well as international development spending on infrastructure and foreign aid.
Sheard’s book explains the mystery of how money is created in the first place through bank loans and government deficits rather than deposits. It gets good reviews from experts like former US Treasury Secretary Larry Summers and World Economic Forum head Klaus Schwab. But it is not only interesting reading for experts.
ubi.org 8-2023 The Power of Money reviewed by Geoff Crocker
Paul Sheard provides a very lucid, very readable and well-explained account of how money really works in the economy. He eloquently dispels several powerful myths. All money is initially created rather than borrowed, and quintessentially is therefore not debt. Historically it was created in metal or paper, but now is largely created electronically, i.e. out of ‘thin air’, and thus with 100% seigniorage. Commercial banks create money when they make business or personal loans which are then accounted as customer debt. Central banks create money when they purchase government bonds in secondary markets. This is also accounted as government debt, but as Sheard shows, wrongly so, an error which has immense consequences.
Sheard appears to follow the MMT position that money is essentially debt, but that at the government level, it’s not really debt, not repayable or repaid (p38), and anyway is balanced by net surpluses in the private and overseas sectors, an identity due to Francis Cripps and Wynne Godley, but importantly a ‘post-hoc’ identity, not a simple direct flow (p50). Conventional accounting practice insists on equal liabilities and assets in the central bank’s balance sheet, despite the fact that ‘thin air’ cannot be accounted. When central banks create money to buy government debt, for example from a pension fund, that money is necessarily re-banked, some of it reaching back to the central bank, which is then said to have a debt on the same money it initially created! Not calling money debt in the first place would eradicate this nonsense.
There are some big consequences here that Sheard doesn’t fully draw out. Firstly, when government debt is held by its own central bank, which is owned by the same government (or in the case of the Fed is required to pay any surpluses to the US Treasury), then this is zero net debt. Arguments for austerity based on this debt therefore fail. Secondarily, the common prohibition on direct central bank money financing of government expenditure restricts the central bank to purchasing government debt only in the secondary market, thus creating huge risk-free gains for primary market traders. This is a scandal Sheard doesn’t mention. He explains how central banks use the interest rate to seek to control inflation (chapter 3), and points out the limits of this strategy when interest rates are already very low, but doesn’t fully critique monetarism for this reliance on the single tool of the price of money to manage the economy. The interest rate has several other effects, from reducing aggregate demand where people hold mortgages, to revaluing the currency, to affecting business investment costs.
Given Sheard’s leading executive position in global finance, it’s surprising that his clear and correct views have not challenged and replaced orthodox views of debt constraint amongst central bankers and politicians. In his account of the 2008 collapse of Lehman Brothers, where he argues Lehman should have been rescued, he acknowledges his role as global chief economist at the time but offers no acknowledgement of any responsibility. His account of the crisis is entirely monetary and doesn’t address the fundamental cause of deficient effective aggregate demand.
Sheard is clearly an extremely well-qualified financial expert. But when he ventures off-piste into social and ethical issues, he declines into superficial comment. This is particularly so in his chapters on inequality and the Euro. He defends huge levels of inequality as market efficient, with no reference to John Rawls or anyone else on social justice. Christ famously threw the market out of the temple, but for Sheard, the market is the temple. Like the MMT school, Sheard derides the Euro. Whether this is because it challenges the axiom that governments can create money in their own currency, or because the Euro threatens the dollar hegemony which Sheard celebrates, isn’t clear. He is correct to point out that the Euro makes the integration of monetary and fiscal policy more challenging, but as the EU and ECB have shown, this can be achieved, and the Euro works. His book would be more powerful if he had concentrated on his core expertise.
ft.com 8-2023 Best Economics summer books – Martin Wolf book review
Sheard, former vice-chair of S&P Global, explains that much of what is conventionally thought about money and monetary policy is wrong: governments do not run out of money, but demand may exceed available resources; banks do not intermediate money, but create it; monetary and fiscal policies are not independent, but are joined at the hip; and cryptocurrencies do not serve the functions of money, but are speculative assets. The book is that rare combination: both sensible and provocative.
blogs.cfainstitute.org 8-2023 The Power of Money – Book Review by Mark K. Bhasin
In The Power of Money: How Governments and Banks Create Money and Help Us All Prosper, Paul Sheard, an Australian American economist and the former vice chair of S&P Global, provides novel explanations related to money, including what it is and how governments, commercial banks, and central banks create it and influence its creation. He clarifies several common misunderstandings and controversies that many people have about money, including whether the US government is imposing a huge burden on our grandchildren and mortgaging their future by racking up large amounts of debt.
That particular species of fallacious thinking, termed a “category error,” treats the government as if it were a single household, when, in fact, it is analogous to an amalgam of all households in a country. The current generation can borrow only from itself, not from future generations that do not exist yet. According to Sheard, every generation leaves to the next generation a capital stock that is always bigger and better than what it received from the prior generation. There is no reason that governments should always balance their budgets, and generally, they should not. If too much government debt is outstanding at some point, then macroeconomic policy can take care of it.
Sheard explores many important money topics that are relevant today, such as bank runs and financial crises, the euro sovereign debt crisis, wealth inequality, and bitcoin and other cryptocurrencies. Money can cause serious problems for an economy and society at large. The risk of bank runs and financial crises arises because of the inherent mismatch between the liquidity of financial claims that the monetary economy generates and the illiquidity of the productive assets that constitute the real economy. The central bank’s role as the lender of last resort empowers it to prevent financial crises and quell those that occur. Sheard argues that the US Federal Reserve erred in not acting as lender of last resort to Lehman Brothers in 2008.
The euro sovereign debt crisis of 2009–2010 revealed a deep structural flaw in the euro area’s economic architecture. Member states are obligated to pool their monetary sovereignty but not their fiscal sovereignty. They cede their monetary sovereignty to the European Central Bank while retaining responsibility for their fiscal affairs. The situation results in member nations having to borrow in a foreign currency, one they cannot produce at will.
For the euro to endure, says Sheard, euro area members must voluntarily accept stringent fiscal restraints and recognize that pooling monetary sovereignty is a political act. The right of a nation state to create and control its own money is a core aspect of sovereignty. According to Sheard, if the EU political elites cannot explain to their electorates that monetary union is just as deeply political in nature as fiscal union and garner the necessary consent to complete the economic and monetary union, the euro may one day be finished.
The book also looks at the economic forces behind large wealth disparities, especially in relation to the tiny cohort of the uber-rich. Sheard argues that extreme wealth inequality is a by-product of prosperity-generating market processes and that the uber-rich do much less harm than is often claimed. If the government deems improving the plight of the poor desirable, it should do so independently of whether and how it “taxes the rich.”
Finally, Sheard considers bitcoin and other cryptocurrencies to be not as detached from the legacy monetary system as they appear and likely to struggle to compete with it when it comes to fulfilling the three canonical roles of money: unit of account, medium of exchange, and store of value. Cryptocurrencies are likely to find a permanent niche in the monetary ecosystem, but they may at this time be early in their innovation cycle, making definitive predictions tough. Rather than challenging the traditional monetary system, cryptocurrencies and their foundational technologies are more likely, by spurring innovation, to help reshape it.
In summary, this book is useful reading at a time when innovations such as bitcoin and other cryptocurrencies, as well as policy experiments such as quantitative easing (QE), have made it critical to understand how money works.
> Bitcoin, cryptocurrencies, European Sovereign Debt Crisis, fiat money, Inequality, Alternative Investments, Drivers of Value, Economics, History & Geopolitics, Philosophy
nytimes.com 7-2023 One Economist Is Challenging How We Think Money Works –“Cryptocurrencies want to be money, but mostly aren’t. Money is “a surprisingly slippery concept,” the economist Paul Sheard wrote in a new book – Review by Peter Coy
spe.org.uk 7-2023 Power of Money – reviewed by Ian Bright
“Where is the money going to come from?” This is often the supposed killer argument used in political debate to halt a policy or infrastructure project. The argument seems responsible. Political parties vie for the credibility of being “fiscally responsible”. Any suggestion of increasing the budget deficit is depicted as a sign of being feckless. It is as if money dominates society rather than money being used for what society wants. Paul Sheard has stark words for those who speak of fiscal responsibility in an almost Pavlovian manner. In the second chapter of his book describing the role of money in society, he discusses government debt. Under the sub-heading of “The “Government as a Household” Fallacy” he writes:
“We shouldn’t be worrying about the government racking up too much debt because it might overwhelm the ability of the government to repay it or because future generations will inherit too large a debt burden. Rather, we should be worried about, or debating, other things. What is the right size and role of government? Is it too big or not big enough? How actively should it seek to manage the macroeconomy and how? How proactive a role should the government play in steering economic activity and seeking to redistribute income? Is it creating too much money relative to the capacity of the economy now and in the future to absorb the associated purchasing power without causing excess inflation? Is the right institutional framework in place to ensure that inflation is neither too high nor too low? Is the productive potential of the economy on track to grow fast enough to sustain the viability of the promises society makes to itself?” (Kindle page 41).
Soon after he provides further clarity writing: “The relevant question from a macroeconomic policy perspective is not “Has the government borrowed too much?” but rather “Has the government created too much purchasing power?” The first is a non sequitur, because the government does not really borrow money – it just looks as if it does. The answer to the second question hinges on how much of that purchasing power is being released into the economy at any point in time relative to the capacity of the economy to absorb it without causing inflation to take off.” (Kindle pages 41 and 42).
The key element in this second quote is “the government does not really borrow money – it just looks like it does.” That this needs to be said explains why this book is relevant now and will remain so. Many people commenting on economic matters, including those from financial institutions, appear not to understand what money is and how it is created. Comments such as “the public finances will be placed under strain” or “the public purse cannot afford this” are facile. One commentator on UK macroeconomics calls this “media macro”. Government programmes should be assessed against the criteria outlined in the two quotes above. The money can – and should – be made available if it is deemed desirable to society.
The approach taken in this book is methodical and easily understood. The reader is taken through illustrative commercial and central bank balance sheets in a step by step manner that explains how money is created and flows through the financial system. According to this approach, money can be created in one of three ways. A bank creates it when it makes a loan, the government creates it when it spends and does not withdraw that spending by taxation (i.e. the government runs a budget deficit), or the central bank buys a government debt security (or another asset) from the public. Because money can be created or destroyed either by government activity (i.e. fiscal policy) or by the central bank (i.e. monetary policy), the two are closely linked. The two are so closely linked that, in a primitive and idealised society playfully named a “monetary garden of Eden”, a central bank need not exist. Central banks are part of the institutional arrangement designed to guard against excessive money creation. Of course, the activities of central banks are more complicated than this but, for the topic of this book, this is their key reason for being.
The institutional structures that separate monetary and fiscal policy create difficulties in the language used to describe government activities. Common parlance talks of governments needing to fund budget deficits by issuing bonds. Going back to the three ways money is created suggests that is wrong. Bonds exist only as part of the institutional framework of the monetary system. The government could simply run a budget deficit and create money. The narrative of the book is heavily influenced by modern monetary theory (MMT). The traditional reserves and money multiplier approach is considered limited because it concentrates on the third way of money creation. The role of banks as active creators of money is subsumed. That said, Sheard has mentioned elsewhere that he is not a complete convert to MMT. It is also fair to say that mainstream economists can accept some aspects of MMT without endorsing the approach Gregory Mankiw gives a flavour of some of those opinions in his “A Skeptic’s Guide to Modern Monetary Theory” in the May 2020 edition of the American Economic Review.
That Sheard should favour this approach is likely influenced by his experience. He spent many years in Japan working both as an academic and in finance. He speaks and has authored books in Japanese. In later years he spent time in the US, both at Lehman Brothers before and during its collapse, and later at S&P Global. Given this experience in Japan and during a crisis that saw monetary and budgetary systems placed under great strain, it should not be surprising that he appears less worried about high public debt levels than some other writers. I should, at this juncture, disclose a conflict of interest. Paul and I both worked at Baring Asset Management together many years ago. We have kept in casual contact.
There are several parts of the book that could be improved. At the risk of setting up straw arguments, the chapter on inequality is curious. For example, high executive pay is explained as a reward for rare talent. The literature on this and other aspects of inequality is more nuanced. The chapter on monetary policy in the Eurozone has been covered often (countries having a single currency but separate fiscal policies). However, it is harsh to dismiss the way the Eurozone is organised as a folly. If it is such a folly, one needs to explain why so many countries seem intent on joining. The idea of alternative international payment systems to the US dollar dominated system that currently exists could be covered more extensively.
One topic that could have been drawn out more fully is the relationship between monetary and fiscal policy. The book argues that there should be more coordination between the two. That may require rethinking the mandates of central banks. Paul Tucker’s 2018 “Unelected Power” goes into this in detail. A further area of concern is that the book could say more about how changes in asset prices affect economic conditions and society. Changes in asset prices can destabilise financial systems. Chapter six covers financial crises from a monetary and lender of last resort perspective. This is fine but the issue of whether stability in asset prices should also be considered along with price and budgetary stability is worth considering further. Andrew Smithers’ writings on this are well worth thinking about.
This is a useful and topical book. When, for example, a politician may claim that a policy – for example, extending welfare payments to cover beyond the second child in a family – cannot be afforded, think back to the quotes at the beginning of this review. Take account of the constraints in those quotes Then consider whether such a policy can be afforded if that is the choice society wishes to make.
omfif.org 5-2023 Governments, central banks and commercial banks ‘joined at the hip’ – Continuing the constant debate about money – book review by George Hoguet
Australian-American economist Paul Sheard’s latest book, ‘The Power of Money: How Governments and Banks Create Money and Help Us All Prosper’, is part monetary economics primer, part theoretical disquisition and part manifesto. As a primer, Sheard carefully clarifies many key concepts and misperceptions. As theory, the author rejects the textbook ‘money multiplier’ approach to money creation and highlights the monetary aspects of fiscal policy. As a manifesto, the book calls for reform of policy frameworks that make a sharp distinction between monetary and fiscal policy.
The book is not a graph-laden textbook. Instead, it is an extended analysis that should be of interest to pedagogues, policy-makers and market practitioners alike. Sheard suggests that consideration be given ‘to restructuring the policy framework to clearly make aggregate demand management a joint responsibility of monetary and fiscal policy.’ For Sheard, the careful coordination of fiscal and monetary policy can lead to more effective aggregate demand management. Sheard has worked as an academic and business economist in both Japan and the US. His detailed knowledge of Japanese monetary policy and his experience as chief economist at S&P Global and Lehman Brothers add granularity to his self-styled ‘explanation’ of money. The book is an ambitious undertaking covering everything from the accounting entries when money is created to Sheard’s views on the economic implications of income inequality, executive compensation, financial crises, the euro and cryptocurrencies.
This sashay through economic hotspots aims to buttress Sheard’s main policy reflections. First, the conceptual and operational separation of monetary and fiscal policy is suboptimal, and both have distributional consequences. Second, the vocabulary of public policy discourse on monetary and fiscal issues should be refined. Instead of obsessing about a debt to gross domestic product ratio of 100%, why not say ‘debt is equal to one year’s output?’ The relevant economic constraint in society is not money, but real resources and how effectively they can be used. Third, the deposit (money)-creating function of banks is critical to the orderly functioning of the economy and must be closely regulated. Fourth, the ‘weaponisation’ of the dollar puts its pre-eminent reserve currency status at risk. And finally, the real economy and the monetary economy are ‘inexorably converging, as both become more digital’. A main theme of the book is that governments, central banks and commercial banks are ‘joined at the hip in the creation of money…’.
Sheard’s discussion of where money comes from and of issues arising from the definition, measurement and management of money is insightful. Throughout, the author stresses the importance of viewing the government as a consolidated entity. A useful technical appendix defines in simple algebraic terms the interaction between the central bank and banking system in the reserve and deposit creation process. For Sheard, government bonds are a form of money and it is clearer to think of loans creating deposits, rather than deposits funding loans. The author evaluates various narratives on the quantitative easing monetary transmission mechanism. He prefers to think of the ‘portfolio rebalance’ channel (banks and investors using extra reserves and deposits to buy higher yielding assets) as an ‘asset price equilibrium’ channel wherein financial asset prices rise such that investors in the aggregate are indifferent between holding cash versus other assets.
In terms of fiscal policy, Sheard makes short shrift of popular narratives about government debt. But his assertion that ‘there are lots of things to worry about in this world, but leaving too much government debt to future generations is not one of them’ is problematic. There are many examples of country defaults, hyperinflation, currency crashes and squandered resources. There are also examples of monetary and fiscal policy working in opposite directions, as in the first Ronald Reagan administration. Each chapter in Sheard’s compact inquiry could be the subject of a separate book, and one can easily find in this volume propositions to debate. But Sheard succeeds in demonstrating the ‘social construct’ aspects of money, and that fiscal and monetary policy are not as distinct and separate as commonly supposed. This overview is a useful and welcome contribution to the never-ending debate about money.
see also > money as power
featured – articles etc by date below
amazon.com 3-2024 Women Money Power: The Rise and Fall of Economic Equality –by Josie Cox
From an experienced financial journalist, Women Money Power is the story of how women have fought for financial freedom, and the social and political hurdles that have kept them from equality. For centuries, women were denied equal access to money and the freedom and power that came with it. They were restricted from owning property or transacting in real estate. Even well into the 20th century, women could not take out their own loans or own bank accounts without their husband’s permission. They could be fired for getting married or pregnant, and if they still had a job, they could be kept from certain roles, restricted from working longer hours, and paid less than men for equal work.
It was a raw deal, and women weren’t happy with it. So they pushed back. In Women Money Power, financial journalist Josie Cox tells the story of women’s fight for financial freedom. This is an inspirational account of brave pioneers who took on social mores and the law, including the “Rosies” who filled industrial jobs vacated by men and helped win WWII, the heiress whose fortune helped create the birth control pill, the brassy investor who broke into the boys’ club of the New York Stock Exchange, and the namesake of landmark equal pay legislation who refused to accept discrimination. But as any woman can tell you, the battle for equality—for money and power—is far from over. Cox delves deep into the challenges women face today and the culture and systems that hold them back. This is a fascinating narrative account of progress, women’s lives, and the work still to be done.
One of the first things I learned as an organizer is that there are two kinds of power: money and people. Our side doesn’t have money, so we need people. Over more than a decade of organizing, this became a robotic refrain I repeated while on the streets, in legislative offices, at campaign events, and at people’s doors. Is it true? Much (though not all) of my work was paid. Many of our national partners seemed to easily raise and waste millions every year. Some of the most transformative organizing I witnessed was funded, and fundraising was a central question any decently experienced organizer, paid or not paid, was expected to agonize over. Clearly, money power and people power are not entirely separate. Perhaps because the left is thought to be disadvantaged in accessing money, we often avoid the conversation. But money is useful… read whole article on gg-page here
mdpi.com 2022 Power Theory of Exchange and Money – by Yaroslav Stefanov
Abstract – Modern exchange theories model a large market, but do not explain single exchanges. This paper considers the phenomenon of single exchange and formulates the general exchange problem in the form of a system of two equations, subjective and objective. Subjective equilibrium is given by the Walras–Jevons marginal utility equation. Objective equilibrium equations by Walras and Jevons are averaged over all transactions in the market and can only give a rough general picture without explaining the specific price of an individual exchange. An exchange micro-condition must be found that, when averaged, will give the Walras market equilibrium macro-condition. The study of the internal structure of exchange leads to the need to consider power. The concept of generalized power is introduced. It is generalized power that serves as the primary comparable and measurable objective basis of exchange. The power theory of exchange provides the objective price-equation. It is demonstrated that money is a measure of generalized power in exchange and a certification of generalized power in subsequent exchanges. This methodology is based on an interdisciplinary analysis of an abstract exchange model in the form of a system of equations. The proposed theory is able to uniformly explain any exchange, including a single one, which is impossible with the existing theories of exchange.
> exchange; exchange theory; money; money theory; power
ellevest.com 2021 Money Is Not Just Money – By Sallie Krawchaeck
One thing we believe at Ellevest: money is not just money. It can be a lot more than just money. Money is Power. I like to say that money can be the power to live the lives we want. To leave the job you hate, leave the relationship that no longer works for you, start the business you’re dreaming about, take that trip around the world. Money can also be the power of protest. We saw that with the Redditors buying up GameStop stock. Regardless of whether you saw it as a powerful protest against “the man” (in this case, Wall Street hedge funds) or market manipulation — and it really was a bit of a Rorschach test — it demonstrated the power of money coming together. And it can be the power of the positive.
One good thing to come out of 2020 was a significant increase in “impact investing,” which is simply aligning your investment dollars with your values to drive positive social and environmental change along with a financial return. Investing your money in stocks and funds with better policies and practices on gender diversity, for example. Or companies that are doing right by the environment, that have a strong stance on social issues like human rights and racial justice, companies that have strong corporate governance.
That also means divesting — or taking your investment dollars out of — companies with policies and practices that don’t align with your values. Refusing to let the status quo stay the status quo. If we collectively get capital to companies that align with our values — and starve those that don’t — it can make a difference. In our financial wellness community survey, we asked you to tell us what money means to you. I like the way that Jessica from California put it: that money can be “power, possibility, progress, execution of vision, creation of beauty, enabler of creativity.”
Innovation in money is just as important as innovation in any other sphere of activity; money is always a “work in progress.” In fact, history shows societies have tried out a wide diversity of monetary arrangements. Ideas about money have played key roles at crucial turning points in world history and during national histories. Recently, a new global money space has been created, a joint venture between the public and private sector.
This book explores the new money society that has grown up to inhabit this new space. The book has several aims: Firstly, the book shows how beliefs about money, as well as attitudes and values towards it, have varied between societies and over time, and specifically how they have changed over the modern era. Secondly, the book shows the powerful effects that changing ideas have had on events, including wars and revolutions, recessions, booms and financial crises. Thirdly, the book recounts the creation of a global money space, dated to the last quarter of the 20th century, and explores its features. Fourthly, the book describes some characteristics of the new money society that inhabits the global money space. Fifthly, the book shows how each society, and indeed successive generations of the same society, has made its own unique arrangements to govern money – i.e. how it comes to terms with the power of money.
The author argues that we need to develop a new arrangement now and suggests that we have much to learn from recent creative work in a number of fields ranging from the sociology of money to contemporary art. This approach sheds new light on a number of controversial issues, including the rise of crony capitalism, growing social divisions, currency wars, and asset price bubbles.
econvue.com 2020 “Robert Pringle has written a book on money that is different from any other.” He “draws on a long life in the worlds of money, banking, and central banking and on his wide-ranging interests beyond economics and the social sciences to history and the arts to reflect on the strange relationship money and society have on and to each other.” He does this using different cultures across the world from the late nineteenth century, through Weimar to Japan, the U.S. and beyond to the recent global financial crisis. “A truly innovative and stimulating study”. Forrest Capie
Banks and bankers are hardly the most beloved institutions and people in this country. With its corruptive influence on politics and stranglehold on the American economy, Wall Street is held in high regard by few outside the financial sector. But the pitchforks raised against this behemoth are largely rhetorical: we rarely see riots in the streets or public demands for an equitable and democratic banking system that result in serious national changes.
Yet the situation was vastly different a century ago, as Christopher W. Shaw shows. This book upends the conventional thinking that financial policy in the early twentieth century was set primarily by the needs and demands of bankers. Shaw shows that banking and politics were directly shaped by the literal and symbolic investments of the grassroots. This engagement remade financial institutions and the national economy, through populist pressure and the establishment of federal regulatory programs and agencies like the Farm Credit System and the Federal Deposit Insurance Corporation. Shaw reveals the surprising groundswell behind seemingly arcane legislation, as well as the power of the people to demand serious political repercussions for the banks that caused the Great Depression. One result of this sustained interest and pressure was legislation and regulation that brought on a long period of relative financial stability, with a reduced frequency of economic booms and busts. Ironically, this stability led to the decline of the very banking politics that brought it about.
Giving voice to a broad swath of American figures, including workers, farmers, politicians, and bankers alike, Money, Power, and the People recasts our understanding of what might be possible in balancing the needs of the people with those of their financial institutions.
Women are running for political office in record numbers this year. They are challenging the sexual status quo from Hollywood to corporate offices, pursuing power as seldom before. But there is one barrier yet to be toppled: Money. Of 2,043 billionaires on the latest annual Forbes tally, 227 are women; most of that small group inherited their wealth. A record number of women were donors and political bundlers for Hillary Clinton’s campaign, but men still gave the most money and were the largest individual donors. Parents spent more time talking about money with boys than with girls last year, according to a survey conducted by T. Rowe Price… read article on gg-page here
Sovereign governments have the power to create money. Policies can be enacted to address public debt and deficits, as well as distributional unfairness. What are the consequences for sovereign nations of giving up their constitutional right to print their own money? … Money is power! We know it much too well from our personal experience. Especially when living in societies where the means of production is protected by private property rights… read article on gg-page here
Foreword by Gurminder K Bhambra – “Debt” is a seemingly universal and constant aspect of human experience and history. However, the social practices and economic structures that are involved need to be understood through the global interconnections that give form to its historical instantiations as well as its contemporary manifestations. This is the compelling claim of Tim Di Muzio and Richard H. Robbin’s book Debt as Power and, as such, fits perfectly into the Theory for a Global Age series that seeks to take “global interconnections” as the basis from which to rethink both conceptual frameworks and commonly held understandings. In Debt as Power, Di Muzio and Robbins present a historical account of the modern origins of capitalist debt by looking at how commercial money is produced as debt in the late seventeenth and early eighteenth centuries. They expertly demonstrate their key contention—that debt is a technology of power—and identify the ways in which the control, production, and distribution of money, as interest-bearing debt, are used to discipline populations. Their sharp analysis brings together histories of the development of the Bank of England and the establishment of permanent national debt with the intensification and expansion of debt, as a “technology of power”, under colonialism in a global context. The latter part of the book addresses the consequences of modern regimes of debt and puts forward proposals of what needs to be done, politically, to reverse the problems generated by debt-based economies. The final chapter presents a convincing case for the 99% to use the power of debt to challenge present inequalities and outlines a platform for action suggesting possible alternatives. This ambitious book is both a diagnosis of our current social and economic global condition structured by the debt–credit nexus and a clarion call to action. Action is necessary if we are to overturn the manifold miseries associated with debt and bring about a more equal distribution, not only of wealth, but also of societal well-being. It is possible, as Di Muzio and Robbins forcefully argue, that the very survival of humanity depends on it.
levyinstitute.org 2016 Money, Power, and Monetary Regimes by Pavlina R. Tcherneva
Money, in this paper, is defined as a power relationship of a specific kind, a stratified social debt relationship, measured in a unit of account determined by some authority. A brief historical examination reveals its evolving nature in the process of social provisioning. Money not only predates markets and real exchange as understood in mainstream economics but also emerges as a social mechanism of distribution, usually by some authority of power (be it an ancient religious authority, a king, a colonial power, a modern nation state, or a monetary union). Money, it can be said, is a “creature of the state” that has played a key role in the transfer of real resources between parties and the distribution of economic surplus.
In modern capitalist economies, the currency is also a simple public monopoly. As long as money has existed, someone has tried to tamper with its value. A history of counterfeiting, as well as that of independence from colonial and economic rule, is another way of telling the history of “money as a creature of the state.” This historical understanding of the origins and nature of money illuminates the economic possibilities under different institutional monetary arrangements in the modern world. We consider the so-called modern “sovereign” and “nonsovereign” monetary regimes (including freely floating currencies, currency pegs, currency boards, dollarized nations, and monetary unions) to examine the available policy space in each case for pursuing domestic policy objectives.
Shortly before the subprime crisis, US treasury secretary Hank Paulson insisted that it is best to leave the financial sector alone to do its work. This is not a surprising statement for a former CEO of investment bank Goldman Sachs, whom we would expect to have the interests of the financial industry close to his heart. However, the statement also embodies the prevailing view espoused by textbook economics and economists giving policy advice. According to this view, competition among financial service providers, issuers of securities and investors will ensure that prices of financial instruments reflect their value at all times and that scarce financial resources are allocated to their best uses. It also holds that financial markets tend toward equilibrium and accurately reflect all available information about the future. The laissez-faire attitude of mainstream economics stands in contrast to popular wisdom. “Money is Power” goes the saying. Those who have a lot of money tend to have commensurate power.
pbs.org/wgbh 2012 MONEY, POWER AND WALL STREET – In the special four-hour investigation, Money, Power and Wall Street, FRONTLINE tells the inside story of the struggles to rescue and repair a shattered economy, exploring key decisions, missed opportunities, and the unprecedented and uneasy partnership between government leaders and titans of finance that affects the fortunes of millions of people around the world
The international power of the United States in the twentieth century has been grounded in its economic strength. In 1900, even before the US had much of an army, it was perceived as a power and a future great power. By 1920 it was the supreme financial power in the world, having displaced Great Britain during the First World War. By 1945 it was virtually the only financial power, most others having been devastated by the Second World War. By 1985 it had lost its position as supreme financial power, with Japan succeeding to the crown. It had been a short but action-packed reign.
Abstract – Although we all use money every day, the nature and functioning of money seem shrouded in commonplace myths and ancient mysteries. Money plays a central role in economics today, yet rarely do we come across a serious, informed discussion of what money really is and what role it plays in the development of society. Money is a remarkable human invention, a mental symbol, a social organization and a means for the application and transfer of social power for accomplishment. This article is the first in a series of articles exploring the origins, nature and functioning of money and its creative power by comparing money with two other pre-eminent social institutions – language and the Internet. Money, according to the adage, makes the world go round. And just now the world appears to be spinning wildly out of control, escaping from its traditional orbit and raising the specter of a head-on collision with economy, democracy and the welfare of humanity. Concern with the prevailing monetary system has given rise to calls for abolition of the current system of national currencies, a return to the gold standard, elimination of debt money and interest, reversion to local currencies that were prevalent in earlier centuries, and invention of new forms of money such as energy currency or earth currency linked to productive capacities and natural resources. The plethora of ideas floating around suggest that there is widespread discontent and confusion intermixed with a good dose of myth and superstition regarding the origin, nature and role of money in society. Rather than hastening to contribute one more solution to the mountain that has been proposed, we may do well to first inquire into the fundamental principles on which money is based and the process by which it has evolved with the development of society. This may help us identify the precise points at which the global monetary system has become vitiated and ensure that any changes we propose are in line with humanity’s evolutionary advance. – read article here
journals.sagepub.com 1994 Money, Power and Inequality within Marriage – Carolyn Vogler, Jan Pahl
Abstract – The growing body of research on the intra-household economy suggests that in couple households there are significant associations between control over household finances and more general power within the household. However, most earlier research has been based on relatively small samples. Here a major new British data set, produced by the Social Change and Economic Life Initiative, is used to examine the relations between money, power and inequality within marriage. Six different systems of financial allocation are identified. The results suggest that even when couples nominally pool their money, in practice either husband or wife is likely to control the pool. In only one fifth of couples was the pool jointly controlled, but these households were characterised by the highest levels of equality between husband and wife in terms of decision making, experience of deprivation and access to personal spending money. Findings from the study indicate a complex pattern of relationships between household income level, household allocative system and gender. Female control of finances, though it was associated with greater decision-making power for women, did not protect them against financial deprivation; however, male control of finances, especially when it took the form of the housekeeping allowance, did serve to protect the financial interests of men in comparison with women. Gender inequality was least in households with joint control of pooled money and greatest either in low income households or in higher income households with male control of finances.
historytoday.com 1993 Money and Power: America and Europe in the 20th Century – Money makes the world go around: Kathleen Burk looks at how the Yankee dollar transferred influence from the Old World to the New. by Kathleen Burk
Money is both a vibrant, dynamic material substance and a social force that permeates industrial societies in their entirety. Yet significant aspects of how money works in society are concealed by myths, dogmas, and misperceptions. In The Power of Money Henry Bretton focuses on how money works in a democracy. He contends that the well-being of political democracy depends on a fuller understanding of the centrality of money in politics, and he presents his ideas on monetary policy, corruption and reform, banking and politics, private power within a democracy, money in international relations, and the system-destroying effects of money. Bretton considers the subject of money and democracy in the context of how monetarization of societies proceeded form antiquity to the Industrial Revolution, and he analyzes the formative years of the United States in terms of being based on political ideas that did not take account of monetarization. He reviews what social theorists and economists from Aristotle to Friedman have thought about the role of money in society and how it affects individual behavior and social norms. The link between economics and politics has been only partially explored, he contends, and he sees the major task for social scientists as developing a fuller integration of the two mainstreams of social theory, the political and the economic.
jstor.org 1971 Money and Power by David A. Baldwin
marxists.org 1844 The Power of Money – Economic and Philosophic Manuscripts of 1844 by Karl Marx
…By possessing the property of buying everything, by possessing the property of appropriating all objects, money is thus the object of eminent possession. The universality of its property is the omnipotence of its being. It is therefore regarded as an omnipotent being. Money is the procurer between man’s need and the object, between his life and his means of life. But that which mediates my life for me, also mediates the existence of other people for me. For me it is the other person….