Tuesday, September 2, 2014

Another phase in money’s evolution

This book review was first published in The Hindu on September 02, 2014

Easy Money — Evolution of the Global Financial System to the Great Bubble Burst: Vivek Kaul
Sage Publications India Pvt. Ltd.
B 1/I-1, Mohan Cooperative Industrial Area,
Mathura Road, New Delhi-110044
Rs 425

The first book in the trilogy tracing the evolution of money took us through the era when anything and everything was treated as money in some or the other part of the world. From salt, to dried cod, cowry shells to cattles and even slaves!

The second book in the ‘Easy Money’ series, from the same publisher [Sage], continues the journey from where the first book left us, the First World War. When one finished reading the first book, one felt a part of history. You know the feeling, like when we hear stories about our forefathers and want to go back in time. The only problem is that history books are more focused towards battles and boundaries and not on [common] man and money.

Most of us, in our generation, the next and the previous too, have read about the World War I, World War II, Cold War and the Gulf War in our history lessons. But what we did not read about is the hara-kiri that ‘Money’ was going through while Hiroshima was burning. “Dollar became as good as gold” in the aftermath of the World War II. But why? Kaul explains it beautifully in his book.

Similar scenario

The flow of money from the U.S. to Japan to U.S. and the huge budget deficits that the U.S. economy ran up in the 1960s mirror the U.S.-to-China-to-U.S. scenario in the 21 century. The chronologies of events as detailed by Kaul in the book are so reminiscent of our times, that they not only familiarise us with what happened then, but also clarify what is happening now.

We have vivid memories of the Gulf War and the dot com bubble bust. Those of us who actually read the papers then and were of a curious mind, would always feel frustrated. No news, no report was comprehensive enough. Why what was happening was actually happening? Were the analysts so blind that they recommended [buy] Worldcom at a valuation of $200 billion? How could eToys be more valuable than Toys ‘R’ Us? Kaul gets into the skin of the matter. From the policies of Greenspan to superstar analysts and the irrational exuberance, he weaves them all with the history of easy money.

The book is even good for those who want to understand the development of various financial products and institutions. For example, the advent of Investment trusts (mutual funds of today) in the early 1920s in the U.S. Or, the formation of the Organization of the Petroleum Exporting Countries (OPEC) in 1960 and the role it played in ensuring the supremacy of the U.S. dollar.

Fed under Greenspan

Alan Greenspan became the Chairman of the Federal Reserve of the United States in 1987 and soon became “the darling of the American media and the world media as well as Wall Street firms”. His policies which ensured that interest rates were cut at the ‘right moment’ and constant pumping of the money into the system led to the overvaluation of the American Stocks and the ‘Irrational Exuberance’ that he was too well aware of. Kaul explains the steps, the thought process and the roles of various institutions that led to the decisions taken by Greenspan, which eventually resulted in the Dot Com bust of the 2000. Many more such stories make the book a very interesting read.

In this book, Kaul had a tough task at hand. The first one read like a fiction; you start reading and put it down only when you finish it. This volume started around the First World War and since then, the financial system started becoming complicated. Especially after the collapse of the Bretton Woods system when currencies started to float. To keep the language simple and terminologies comprehensible to the poets [non-economists] must have been an onerous task. Kaul manages to do just fine.

The second book in this trilogy is strongly recommended. If one wants want to understand the present, one must read this historical account of the evolution of money. Because, history repeats itself so does Economics!
Post a Comment