The Ascent of Hooey

By Robert K. Landis

On October 16, 1929, Irving Fisher, Professor of Economics at Yale University, made a famous prediction: “Stock prices have reached what looks like a permanently high plateau.” [1] The prediction, coming as it did less than two weeks before Black Tuesday, ultimately ruined the popular reputation of this celebrity economist. On November 13, 2008, some two months after the Federal takeover of Fannie Mae (September 7) and the bankruptcy of Lehman Brothers (September 13), Niall Ferguson, Professor of History at Harvard University, published The Ascent of Money (Penguin Press, 2008). Only time will tell whether this book, a spirited defense of the monetary status quo directed at the general public, will do for this celebrity historian what his stock price prediction did for Professor Fisher.

The Ascent of Money bills itself as A Financial History of the World. A pleasant, undemanding read, it brilliantly, albeit unwittingly, demonstrates why the English speaking world is so stupid about money: our elites wish it so.

A Champion from Central Casting

The author, as the flyleaf of his book reminds us, is not just some academic hack. He is the Laurence A. Tisch Professor of History at Harvard. He’s also a best-selling author whose titles include Paper and Iron, The House of Rothschild, The Pity of War, The Cash Nexus, Empire, Colossus and The War of the World. He “…writes regularly for newspapers and magazines all over the world. He has written and presented four highly successful television documentary series for Channel 4: Empire, American Colossus, The War of the World and, most recently, The Ascent of Money.”

In short, he is precisely the man to whom you would turn if you needed a credible voice to calm the mass mind and defend the basis of your power, if an unfolding crisis had conclusively revealed the fraud beneath it all, and was showing signs of getting out of hand. And The Ascent of Money is precisely what you’d get, if your man delivered the goods.

Sit Down and Shut Up

This is a work of ‘popular’ history. The target audience is us ordinary folk:

In trying to cover the history of finance from ancient Mesopotamia to modern microfinance, I have set myself an impossible task, no doubt. Much must be omitted in the interest of brevity and simplicity. Yet the attempt seems worth making if it can bring the modern financial system into sharper focus in the mind’s eye of the general reader. [p. 13]

The takeaway is ‘know your place’:

Angry that the world is so unfair? Infuriated by fat-cat capitalists and billion-bonus bankers? Baffled by the yawning chasm between the Haves, the Have-nots – and the Have-Yachts? You are not alone. Throughout the history of Western civilization, there has been a recurrent hostility to finance and financiers, rooted in the idea that those who make their living from lending money are somehow parasitical on the ‘real’ economic activities of agriculture and manufacturing. This hostility has three causes. It is partly because debtors have tended to outnumber creditors and the former have seldom felt very well disposed towards the latter. It is partly because financial crises and scandals occur frequently enough to make finance appear to be a cause of poverty rather than prosperity, volatility rather than stability. And it is partly because, for centuries, financial services in countries all over the world were disproportionately provided by members of ethnic or religious minorities, who had been excluded from land ownership but enjoyed success in finance because of their own tight-knit networks of kinship and trust.

Despite our deeply rooted prejudices against ‘filthy lucre’, however, money is the root of most progress. [p. 2]

Got that, maggot? If you resent the trashing of your Constitution and the hijacking of your government by powerful factions who run it for themselves; if you detest being forced to fund ‘performance bonuses’ paid to unindicted white collar criminals whose greed and incompetence have brought you to the edge of ruin and your country to the brink of collapse; well, then, you’re just like all the other human chattels throughout history, and you’re probably an anti-Semite to boot. Furthermore, we’ll have you know, notwithstanding your tawdry prejudices, money makes the world go round. [2]

A brief note on technique: Did you notice the subtle, implicit smear by association? Of course you did. How about the slippery non-sequitur? That one may require elaboration. The author was talking about resentment of money lenders. He then tells us to chill, because money is good. Remember this little sleight of hand; you will see it again.

What a Waste

Cutting to the chase, this is a very bad book indeed. It is superficial, subjective and impressionistic. It is intellectually dishonest, and riddled throughout with shoddy scholarship, or rather, scholarship not worthy of the name. It is breezy, anecdotal polemic in support of a fraudulent monetary system and its corrupt principals, masquerading as history written for the common man. And those are its good points.

The real problem with The Ascent of Money, as we see it, is the squandered opportunity it represents. The collapse and Federalization of the US financial system showed plainly that we sorely need straight talk on money from those to whom, for better or worse, we pay attention. The last thing we need is yet another betrayal of trust, in which we are fed yet another load of bromides and told simply to be grateful for what we have, because believe us when we tell you, the alternatives are worse.

Professor Ferguson has considerable, and we daresay well deserved, stature and prestige. He is well positioned to make a serious contribution to the popular understanding of the critical issues. Instead, here he chose, or perhaps he was instructed, to flatter his powerful friends and patrons in defense of an indefensible system. As a consequence, he has done us all a grave disservice. In so doing, he has put his credibility and his legacy at risk.

The Big Picture

Structurally, The Ascent of Money is a broad and shallow survey of various financial topics: the history and nature of money; credit markets; bubbles; insurance; housing; and the co-dependency of China and the United States. Thematically, it is what we used to call Whig history back in college: it portrays discrete, cyclical and even discontinuous phenomena as stages in an evolution toward a better, more enlightened present. Substantively, it is a paean to central banking and central bankers.

Some of it is very good history. The section dealing with the House of Rothschild, for example, drawn from the author’s earlier work on the subject, is excellent. So is his discussion of the German hyperinflation.

Some of it is also very good monetary analysis. For example:

The inescapable reality seems to be that breaking the link between money creation and a metallic anchor has led to an unprecedented monetary expansion – and with it a credit boom the like of which the world has never seen. …

* * * * *

Is it any wonder, then, that money has ceased to hold its value in the way that it did in the era of the gold standard? The modern-day dollar bill acquired its current design in 1957. Since then its purchasing power, relative to the consumer price index, has declined by a staggering 87 per cent. Average annual inflation in that period has been over 4 per cent, twice the rate Europe experienced during the so-called price revolution unleashed by the silver of Potosi. A man who had exchanged his $1,000 of savings for gold in 1970, while the gold window was still ajar, would have received just over 26.6 ounces of the precious metal. At the time of writing, with gold trading at close to $1,000 an ounce, he could have sold his gold for $26,596. [p. 63]

Maddeningly, however, these flashes of insight are typically marshaled in support of inapposite conclusions or in delineation of false choices. Or they leave out information critical to an understanding of what any discussion of contemporary monetary arrangements is really about: the intervention by the state in matters financial. An example of the latter can be seen in the passage above: left unmentioned is the fact that any American who did exchange his $1,000 for gold in 1970 would have been liable to criminal prosecution under Federal law. An example of the former can be seen in the sentences that immediately follow that same passage:

A world without money would be worse, much worse, than our present world. It is wrong to think (as Shakespeare’s Antonio did) of all lenders of money as mere leeches, sucking the life’s blood out of unfortunate debtors. [p. 63]

Yeah, that follows. Either we content ourselves with an evaporating paper currency and its scurrilous administrators and beneficiaries, or we go dark. Your call, Mr. Sixpack.

Some of it is just plain silly. In the chapter on bubbles, for example, he compares John Law to Ken Lay, of all people, without noting a rather fundamental distinction: John Law had state backing and the control of his nation’s monetary system, whereas Ken Lay did not. [3] In the chapter on insurance, he concludes with a defense of derivatives, those self-same financial instruments that had become the talk of the town just weeks before publication:

Though they have famously been called financial weapons of mass destruction by more traditional investors like Warren Buffett (who has, nonetheless, made use of them), the view in Chicago is that the world’s economic system has never been better protected against the unexpected. [p. 228]

Overall, the book will be extremely frustrating to anyone who has the slightest familiarity with the topics under discussion. With due allowance for the impossibility of treating in any depth such a vast subject in a book of some 340 pages, there are curious lapses. Most derive from the author’s reticence on the role of the state in the phenomena under discussion. How is it possible, for example, to avoid use of the term ‘fiat money’ in a book on financial history? In light of what was unfolding even as this book came to press, how can one still praise moral hazard?

[Fed Chairman Alan Greenspan’s] response to the Black Monday crash was swift and effective. His terse statement on 20 October, affirming the Fed’s ‘readiness to serve as a source of liquidity to support the economic and financial system’, sent a signal to the markets, and particularly the New York banks, that if things got really bad he stood ready to bail them out. [p. 166] [4]

And finally, how can one use the term ‘gold standard’ in a work of history without at least a cursory attempt to describe what it was, how it came about, and how it ended? The following excerpt is all Professor Ferguson has to offer by way of explanation of the gold standard. It is quite a long passage, but we quote it in full because it demonstrates some important points regarding the method, the perspective and the purpose of this book:

In 1924, John Maynard Keynes famously dismissed the gold standard as a ‘barbarous relic’. But the liberation of bank-created money from a precious metal anchor happened slowly. The gold standard had its advantages, no doubt. Exchange rate stability made for predictable pricing and reduced transaction costs, while the long-run stability of prices acted as an anchor for inflation expectations. Being on gold may also have reduced the costs of borrowing by committing governments to pursue prudent fiscal and monetary policies. The difficulty of pegging currencies to a single commodity based standard, or indeed to one another, is that policymakers are then forced to choose between free capital movements and an independent national monetary policy. They cannot have both. A currency peg can mean higher volatility in short-term interest rates, as the central bank seeks to keep the price of its money steady in terms of the peg. It can mean deflation, if the supply of the peg is constrained (as the supply of gold was relative to the demand for it in the 1870s and 1880s). And it can transmit financial crises (as happened throughout the restored gold standard after 1929.) By contrast, a system of money based primarily on bank deposits and floating exchange rates is freed from these constraints. The gold standard was a long time dying, but there were few mourners when the last meaningful vestige of it was removed on 15 August 1971, the day that President Richard Nixon closed the so-called ‘gold window’ through which, under certain restricted circumstances, dollars could still be exchanged for gold. From that day onward, the centuries-old link between money and precious metal was broken. [p. 58]

First, method. Where on Earth, the casual reader is likely to wonder upon encountering the paragraph above, did this come from? Set off from the preceding text, it appears like a freak hailstorm in a summer stroll. There is no citation. But the style is different, the diction denser, the terminology new and oddly bureaucratic (nowhere else in this work does Professor Ferguson use terms like ‘peg’, ‘anchor for inflation expectations’, ‘policymakers’, etc. Students of the subject will at once recognize the fine hand of officialdom.) Although Professor Ferguson’s former faculty colleague, former Treasury Secretary and current Chief Economic Adviser to the President, Lawrence Summers, is not directly credited with this or any other passage, he is mentioned in the Acknowledgements as one of “a number of historians, economists and financial practitioners” who “generously read all or part of the manuscript in draft or discussed key issues.” Indeed.

Second, perspective. The sole discussion of the gold standard relates to choices confronting ‘policymakers’, without any discussion whatever about how it came to be that there is a choice to be made as between free capital movements and an independent national monetary policy, and why it is that bureaucrats, rather than free markets representing choices of individual actors, get to make the call. Why does he deem the separation of gold from bank-created money a ‘liberation’? Because it eliminated ‘constraints’. On whom? The answer is implied, but never stated. Why, governments, banks and bankers, of course. So we are instructed that the gold standard was simply an administrative expedient that inefficiently constrained policymakers. It ‘died’, in a protracted organic process. Good riddance.

Third, purpose. Students of the subject, alert as ever, will at once recognize the paragraph excerpted above for what it is, propaganda. It is certainly not history, popular or otherwise. Any history worthy of the name would have made at least passing mention of the origin of the gold standard in custom and usage in the free market, well before the state grabbed hold of it. [5] Note the heavy handed spin throughout: the gold standard ‘died’, it was not dismantled by governments [6]; the separation of paper from gold was a ‘liberation’ from ‘constraints’, not the destruction of a vital safeguard of individual liberty [7]; the abrogation of Bretton Woods by the United States was a mere ‘closing of the gold window’, not a unilateral upending of the global financial system. You get the idea.

In any event, as disappointing as The Ascent of Money is in its big picture failings and statist bias, it is positively infuriating in its attempt to promulgate a bogus theory of money on the cheap and on the sly. This is where we propose to allocate the bulk of our attention.

The Harvard Theory of Money

Way back in 2003 we had the privilege of addressing the Association of Mining Analysts in London. Our topic was gold as money. In our remarks, we took issue with a strain of propaganda that had emerged in the wake of the United States’ abrogation of the Bretton Woods accords, a strain we dubbed the ‘commodity paradigm’ of gold. Under this paradigm, gold had been demonetized in 1971 by order of the United States, and was just another volatile commodity ever after. We also took issue with an implicit corollary of that paradigm, the notion that money is credit. It was implicit because virtually no one had stepped forward to articulate a theory of money that actually dealt with the ruptured monetary system that remained in place after the United States defaulted on its obligation to redeem dollars in gold. [8]

Equally absurd is an implicit corollary that stems from the assertion of “demonetization”:

Money itself is a form of credit. It is not a thing, but an abstraction, a category of information created by the state that embodies a claim on society.

We see this in a simple colloquy:

Question: With respect to what, precisely, was gold demonetized?

Answer: Irredeemable notes, a weak form of sovereign credit, hiding behind what Murray Rothbard called the “accounting fiction” of an ostensibly independent central bank.

But if these irredeemable notes are money, then money itself must be a form of credit. The theory must fit the facts.

So why haven’t we seen the emergence and adoption of a new theory of money that calls a spade a spade? Why, indeed, haven’t we seen a constitutional amendment in the United States that explicitly declares the obligations of the United States to be lawful money? Because fraud hates sunlight.

Lo and behold, The Ascent of Money has taken up the challenge of articulating a monetary theory to fit the sordid facts.

It posits what it pains us to call the Harvard Theory of Money just a few pages into Chapter I. [9] It does so by first reciting, while implicitly dismissing, the ‘conventional’ argument on money:

Money, it is conventional to argue, is a medium of exchange, which has the advantage of eliminating inefficiencies of barter; a unit of account, which facilitates valuations and calculation; and a store of value, which allows economic transactions to be conducted over long periods as well as geographical distances. To perform all these functions optimally, money has to be available, affordable, durable, fungible, portable and reliable. Because they fulfill most of these criteria, metals such as gold, silver and bronze were for millennia regarded as the ideal monetary raw material. [p. 23]

At last, we cried inwardly, on our first reading: the long overdue discussion on money has begun. Here, finally, is a leading academic speaking out. As a self-styled maverick, opposing conventional wisdom, no less. So far, so good. But still, we were a little uneasy. What’s the punchline, we wondered? Where’s he going with this? We read on, with ever-increasing dismay. Several pages in, after flitting from the Greeks to the Romans to the Franks to the Spaniards, he shows his cards:

There was in fact no reason other than historical happenstance that money was for so long equated in the Western mind with metal. In ancient Mesopotamia, beginning around five thousand years ago, people used clay tokens to record transactions involving agricultural produce like barley or wool, or metals such as silver. Rings, blocks or sheets made of silver certainly served as ready money (as did grain), but the clay tablets were just as important, and probably more so. A great many have survived, reminders that when human beings first began to produce written records of their activities they did so not to write history, poetry, or philosophy, but to do business. It is impossible to pick up such ancient financial instruments without a feeling of awe. Though made of base earth, they have endured much longer than the silver dollars in the Potosi mint. One especially well-preserved token, from the town of Sippar (modern day Tell Abu Habbah in Iraq), dates from the reign of King Ammi-ditana (1683 – 1647 BC) and states that the bearer should be given a quantity of silver at the end of a journey. [p. 27]

Whoa, there, pardner. Not so fast. Let’s pause for a moment and analyze what just happened here. Bear with us. This is very subtle, very slippery. At the beginning of the quoted paragraph, the author contradicts, with a breezy ‘happenstance’, his earlier recitation of the reasons -- perfectly valid -- why metals were settled on as money over the millennia. In the very next breath, he points out that the ancient Mesopotamians used clay ‘tokens’ to record transactions. Implication: The ancient Mesopotamians used clay as money. In the next sentence, while conceding in the first clause that silver served as money, he states in the second that clay tablets were just as important, if not more so. Implication: The tablets were equally important forms of money. A little farther down, he compares the longevity of the clay tablets with that of silver dollars from Potosi, noting that the clay has lasted longer. Implication: what is being compared is the two substances’ property of durability as money. Overall, what is the reader supposed to take away from this clever string of suggestive juxtapositions and comparisons? Clearly, that the ancient Mesopotamians, unlike the Westerners of happenstance, were not wedded to metal as money, but instead used clay ‘tokens’.

Now, it so happens that the actual facts described in the King Ammi-ditana anecdote demonstrate the opposite, i.e., that the clay tablet -- it was not a token, by the way, with that term’s connotation of moneyness, but a tablet -- merely recorded a promise to pay, and was not by any means considered money or even a money substitute. The author nevertheless apparently wishes the reader to understand that in this ancient commercial transaction: (1) the clay ‘token’ was the money; (2) the silver was not the money, but just a commodity; and (3) the silver was not required to be paid, but rather to be ‘given’ to the bearer at the end of the journey. Welcome back, Nabu---Diki---Ah. Have a few mina of silver, on the house. [10]

In the very next paragraph, Professor Ferguson goes on to imply that the ancient clay was actually like a modern banknote, because the modern banknote is also a promise to pay.

If the basic concept seems familiar to us, it is partly because a modern banknote does similar things. Just take a look at the magic words on any Bank of England note: ‘I promise to pay the bearer on demand the sum of…’. [p. 27]

Oh, Lordy, Lordy. This is the sort of fallacy of historical exposition we might expect from an eager freshman, not the boss. Let’s review the infirmities of this meretricious linkage. Our modern banknotes function as money. Did clay function as money in ancient Mesopotamia? No. Why do our modern banknotes function as money? Because we are forced to accept them; they are legal tender. Was clay similarly advantaged by state action in ancient Mesopotamia? No again. What did one get upon settlement of the obligation recorded on the clay tablet? Money, in the form of silver. What does one get upon settlement of the obligation expressed on the face of the modern banknote? Debt, in the form of more banknotes. So how are these things alike? They are not. What then is the purpose of this spurious analogy? To support the Harvard Theory of Money, coming at you momentarily.

With the foundation of his theory now laid, Professor Ferguson delivers the money shot, as it were:

What the conquistadors failed to understand is that money is a matter of belief, even faith: belief in the person paying us; belief in the person issuing the money he uses or the institution that honours his cheques or transfers. Money is not metal. It is trust inscribed. And it does not seem to matter much where it is inscribed: on silver, on clay, on paper, on a liquid crystal display. [p. 30]

So there you have it, the Harvard Theory of Money: Money is credit, from the Latin credere, to believe. How elegant the phrasing: ‘trust inscribed’. How catastrophic the consequences. For everyone, that is, but the lucky few running the scam.

After several pages of variably interesting anecdotes featuring loan sharks, Fibonacci, the Medicis, the Swedish Riksbank and the Bank of England, Professor Ferguson returns to put the final polish on his theory:

The important point to grasp is that with the spread throughout the Western world of a) cashless intra-bank and interbank transactions b) fractional reserve banking and c) central bank monopolies on note issue, the very nature of money evolved in a profoundly important way. No longer was money to be understood, as the Spaniards had understood it in the sixteenth century, as precious metal that had been dug up, melted down and minted into coins. Now money represented the sum total of specific liabilities (deposits and reserves) incurred by banks. Credit was, quite simply, the total of banks’ assets (loans). Some of this money might indeed still consist of precious metal, though a rising proportion of that would be held in the central bank’s vault. But most of it would be made up of those banknotes and token coins recognized as legal tender along with the invisible money that existed only in deposit account statements. Financial innovation had taken the inert silver of Potosi and turned it into the basis for a modern monetary system, with relationships between debtors and creditors brokered or ‘intermediated’ by increasingly numerous institutions called banks. [p. 51]

And so we see that in the world according to Professor Ferguson, there has been a steady ‘evolution’ in the concept of money, from tangible asset to intangible debt. This was due, he tells us, to financial innovation, i.e., market-based activity. In the real world, the actual ‘evolution’ was not in the concept of money, but in the intervention of the state. And here we confront the unnamed elephant in this tidy narrative. As an historian of the first rank, Professor Ferguson knows that ‘central bank monopolies on note issue’ were not financial innovations that ‘evolved’; they were expansions of state power, imposed by state action. He also knows that banknotes and token coins are not ‘recognized’ as legal tender; they are required, again by state action, to be accepted, on pain of prosecution. He also knows that it was the unilateral abrogation of Bretton Woods by the United States, state action writ large, a little less than forty years ago, that severed the official linkage between metal and money and created the financial world of managed currencies and infinite leverage he describes here as the product of ‘financial innovation’ and the end result of an ‘evolution’.

Bad History, Worse Theory

Well all right, then. The Harvard Theory of Money is now before us, in all its glory, for better or worse: money is credit. It is altogether fitting that a ‘popular’ history was chosen as the vessel for the elaboration of this theory. The history of money is pretty arcane. Who’s going to notice that the historical premise of this theory, that there was another tradition of money that the ‘West’ could have followed, had it not been for ‘happenstance’, is false? The field of monetary theory is even more arcane. Who’s going to notice the failure to cite, let alone refute, the substantial body of work that is misleadingly dismissed as ‘conventional’ without any effort whatsoever to engage it on the merits? The target audience is well inured to the current unconstitutional fiat monetary system. Who’s going to notice that virtually all the sources cited are what might fairly be called ‘friends of the state’? [11]

We are.

In fact, we are inspired in response to promulgate our own doctrine. We’ll call it the Rules of Advocacy Scholarship in the Discussion of Money in Post-Bretton Woods America, or RASDMPBWA. Rule One: Unless absolutely necessary, ignore the existence of countervailing fact or theory; just make a breezy assertion, then let your prestige and the credulity of your audience do the rest. This is especially important in situations in which objective external circumstances have revealed your position to be untenable, and the only accurate predictions and prescriptions are to be found in the opposing camp. Rule Two: If you feel you must provide some sort of argument in support of said assertion, use inapposite anecdote, false analogy and slippery pseudo-reasoning. Rule Three: If you feel you must cite some authority for your assertion, keep it safely within the family of Keynesians and monetarists and Establishment celebrities.

What Could Possibly Go Wrong?

As Jon Stewart famously scolded financial entertainer and Harvard alumnus Jim Cramer, “This is not a ####ing joke!” The conflation of the concepts of money and credit, far from being a harmless academic error, is the very fallacy that, we submit, underlies the great financial crises in history. It is not the end point of an historical evolution in theory and practice, but a recurrent intellectual virus that regularly appears in support of ill-starred experiments in fiat money, every single one of which, as a matter of irrefutable historical fact, has ended in financial disaster. The Ascent of Money not only misses the crucial point, but purports to fashion a theory out of that very fallacy.

The fruits of the fallacy were plain to see in the wreckage of the US financial system, well before the date of publication of The Ascent of Money. They were also apparent much closer to home, in the shrunken endowment and reduced departmental budgets of Harvard University itself.

Harvard Swaps Are So Toxic Even Summers Won’t Explain
By Michael McDonald, John Lauerman and Gillian Wee

Dec. 18 (Bloomberg) -- Anne Phillips Ogilby, a bond attorney at one of Boston’s oldest law firms, on Oct. 31 last year relayed an urgent message from Harvard University, her client and alma mater, to the head of a Massachusetts state agency that sells bonds. The oldest and richest academic institution in America needed help getting a loan right away.

As vanishing credit spurred the government-led rescue of dozens of financial institutions, Harvard was so strapped for cash that it asked Massachusetts for fast-track approval to borrow $2.5 billion. Almost $500 million was used within days to exit agreements known as interest-rate swaps that Harvard had entered to finance expansion in Allston, across the Charles River from its main campus in Cambridge, Massachusetts.

The swaps, which assumed that interest rates would rise, proved so toxic that the 373-year-old institution agreed to pay banks a total of almost $1 billion to terminate them. Most of the wrong-way bets were made in 2004, when Lawrence Summers, now President Barack Obama’s economic adviser, led the university. Cranes were recently removed from the construction site of a $1 billion science center that was to be the expansion’s centerpiece, a reminder of Summers’s ambition. The school said last week they will suspend work on the building early next year.

‘Case Study’

“For nonprofits, this is going to be written up as a case study of what not to do,” said Mark Williams, a finance professor at Boston University, who specializes in risk management and has studied Harvard’s finances. “Harvard throws itself out as a beacon of what to do in higher learning. Clearly, there have been major missteps.”

Won’t Somebody Please Say Something?

One of the saddest, and most destructive, of the many ripple effects of dishonest money is the government’s wholesale subversion of the economics profession and large swaths of the academic community. [12] Given human nature, it would be naïve to implore Establishment academics to bite the hand that feeds them and come clean about money, by appealing to traditional notions of scholarship, honesty and fairness. But perhaps the unfolding catastrophe, in its glaring obviousness, provides the basis for a different sort of appeal:

Ladies and Gentlemen of the Academy, look to your legacies. How do you wish to be remembered generations hence? As mere ‘servile writers’, as Mises put it, pliant members of a privileged elite who led a life of relative ease in the waning days of a corrupt regime? Or as individuals of distinction who dared to speak out and act honorably? Your call, Professors.

January 5, 2010



1. Niall Ferguson, The Ascent of Money (Penguin Press, 2008), page 157.

2. In fairness, we must note that the bonuses funded by taxpayers were not actually paid to the bankers until after the end of the year in which The Ascent of Money was published. See No Rhyme or Reason: The ‘Heads I Win, Tails You Lose’ Bank Bonus Culture, a report by Andrew M. Cuomo, Attorney General of the State of New York.

3. For a rather different comparison, see Alan Greenspan Is No John Law.

4. For a more accurate account of the role played by the Maestro, see Frederick J. Sheehan, Panderer to Power (McGraw Hill, 2009). Mr. Sheehan’s book was published a year after The Ascent of Money, but his earlier work on the same subject, William A. Fleckenstein and Frederick J. Sheehan, Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve (McGraw Hill, 2008), had been published earlier the same year.

5. Peter Bernstein, no friend of gold or the gold standard, observed a higher standard of scholarship when he acknowledged that “Nobody invented [it], no grand plan was ever devised, no one ever wrote a rule book on the necessary codes of behavior.” Peter L. Bernstein, The Power of Gold (John Wiley & Sons, 2000).

6. See, e.g., Melchior Palyi, The Twilight of Gold (Henry Regnery, 1972), passim; and especially Ludwig von Mises, The Theory of Money and Credit, Second Edition (Yale University Press, 1953), pp. 420-421:

First of all there is need to remember that the gold standard did not collapse. Governments abolished it in order to pave the way for inflation. The whole grim apparatus of oppression and coercion, policemen, customs guards, penal courts, prisons, in some countries even executioners - had to be put into action in order to destroy the gold standard. Solemn pledges were broken, retroactive laws were promulgated, provisions of constitutions and bills of rights were openly defied. And hosts of servile writers praised what the governments had done and hailed the dawn of the fiat-money millennium.

The most remarkable thing about this allegedly new monetary policy, however, is its complete failure. True, it substituted fiat money in the domestic markets for sound money and favoured the material interests of some individuals and groups of individuals at the expense of others. It furthermore contributed considerably to the disintegration of the international division of labour. But it did not succeed in eliminating gold from its position as the international or world standard. If you glance at the financial page of any newspaper you discover at once that gold is still the world's money, and not the variegated products of the divers government printing offices. These scraps of paper are the more appreciated the more stable their price is in terms of an ounce of gold. Whoever to-day dares to hint at the possibility that nations may return to a domestic gold standard is cried down as a lunatic. This terrorism may still go on for some time. But the position of gold as the world's standard is impregnable. The policy of 'going off the gold standard' did not relieve a country's monetary authorities from the necessity of taking into account the monetary unit's price in terms of gold.

7. See, e.g., Mises, Theory of Money and Credit, p. 414, in one of the many passages we never tire of quoting:

It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights. The demand for constitutional guarantees and for bills of rights was a reaction against arbitrary rule and the non-observance of old customs by kings. The postulate of sound money was first brought up as a response to the princely practice of debasing the coinage. It was later carefully elaborated and perfected in the age which - through the experience of the American Continental Currency, the paper money of the French Revolution and the British Restriction period - had learned what a government can do to a nation's currency system.

8. As we noted at the time:

I am aware of only one lonely academic voice that has proposed to follow the logic of the managed currency system to its theoretical conclusion. See Mostafa Moini, Toward a General Theory of Credit and Money, The Review of Austrian Economics, 14:4, 267-317, 2001.

Professor Ferguson does not cite Mr. Moini or any other writer of the chartalist persuasion.

9. We have to call it something. The term ‘State Theory’, of which this is a pale variant, but a variant nonetheless, is already taken. See our Viva la Restoration (11/17/2009). The ‘Princeton Theory’ might work, as it was a former Princeton academic who, as President of the United States, signed into law the legislation establishing the Federal Reserve, and it is yet another Princeton academic who, some one hundred years later, appears likely to end up holding the bag for the demise of both the institution and its promissory notes. But we can’t ignore the fact that it is Harvard, not Princeton, where Professor Ferguson hangs his mortarboard, and that it is Professor Ferguson, not former Professor Bernanke, who wrote The Ascent of Money.

10. Professor Ferguson does not provide us with the literal translation of the tablet from the reign of King Ammi-ditana. It would be interesting to compare the operative language with that of a tablet in our possession from the reign of King Nabonidus, successor to Nebuchadnezzar II and father of Belshazzar, inscribed about a thousand years later. (This was not loot from the invasion of Iraq by the United States, we hasten to point out, but a family heirloom from a great uncle who was a professor of Near Eastern Studies at Yale.) The tablet embodies a residential lease which, as translated circa 1925, makes perfectly clear what the money is: silver, expressed in units called ‘mina’. The tablet itself is no more money than a residential lease today is money. Similarly, the Code of Hammurabi, laid down several hundred years before the reign of King Ammi-ditana, is perfectly clear as to what money was in ancient Mespotamia: gold and silver, expressed in units called ‘mina’ and ‘shekels’.

11. A quick scan of the index reveals the major donors to be comfortably mainstream. In particular, we see the following numbers of pages associated with the indicated individuals: Alan Greenspan: 15; John Maynard Keynes: 13; Lloyd Blankfein: 3; Ben Bernanke: 2. No economists of the Austrian School made the cut. Lord Rees-Mogg, a gold advocate, is noted as having been wrong in predicting a depression in the 1990’s, thanks to the swift and effective action of Alan Greenspan.

12. See Priceless: How the Federal Reserve Bought the Economics Profession.