The second book in the Easy Money trilogy discusses how the global financial system evolved in the aftermath of the First World War and how that finally led to the dot-com crash in the United States.
Easy Money
Vivek Kaul
Publisher: Sage
Pages: 325; Price: Rs 425
The author of the book under review has worked for DNA, Economic Times as also a number of business publications, presently he is with FirstPost.com and is said to be an authority on finance, political economy and marketing. This book is Part Two and the first volume dealt with ‘Evolution of Money: From Robinson Crusoe to the First World War’.
The second volume is dedicated to the period 1914 to 1945 and thus covered the developments during two World Wars — and also the current problems and is about the evolution of the global financial system upto the great bubble burst. The starting point of the book is a paper written 130 years ago entitled, “Shall silver be demonetized?” (1885).
According to that paper even though money is one of the oldest human inventions, there is none that has been perfected so slowly. Kaul is of the firm view that this ancient doctrine of W.G. Sumner of Yale College holds even today and is unassailable.
Kaul predicts that the great recession started seven years ago and was appropriately christened “the Second Great
Depression”. He graphically recounts the significant slowdown in the world’s largest economy in terms of its purchasing power parity – that is China. Kaul warns of consequences of the depreciation of the yuan and the decline for the demand for raw materials and other commodities. An eminent economist is adduced as saying, “New Chinese government under President Xi Jinping is keen on popping the domestic bubble and allowing wider defaults.” (Worth Wray)
Kaul throws a flood of light on the convoluted financial movements of Greece, Russia and China. The financial meltdown has brought back to the front stage Karl Marx and J.M. Keynes. The tools fashioned by them have acquired renewed relevance. The volume shows the author’s penchant for America. The dominance of the United States led to its currency, the Dollar becoming the international currency. This led to America having an important privilege which it still continues to have.
Over the years this privilege has led to many financial crises in different parts of the globe. It has also been responsible for the current financial crisis. Quite recently this doyen of Capitalism has been transforming itself into a Welfare State. China will become, according to Kaul, the most capitalistic country in the world amassing billions of dollars and using it to help finance the great American budget deficit.
The story of twentieth century global economics has been one of a periodic build-up in money supply that resulted in booms followed by busts. This did not prevent economists from prescribing more money printing to enhance growth and reduce unemployment. This led to hyper-inflation as also depression. Kaul’s book enlightens us about the experimentations and follies of governments and economists involving the use and abuse of money over the ages.
This book deals with the evolution of money in the last one hundred years. Three major events of a catastrophic nature are the Asian Financial Crisis of the late 1990s, the Dot.Com collapse of the last decade and finally the Lehman crisis.
Why have the lessons of History not been learnt? There is strong evidence that politicians and central bankers committed the identical financial folly. Busts are precipitated by events like Subprime defaults or by a shift in public expectations. All bubbles burst ultimately. Warren Buffet wrote — “…but a pin lies in wait for every bubble”. Vivek Kaul’s book throws the searchlight on the follies of politicians and economists. Alan Greenspan was honest enough to admit that the old way of thinking does not work anymore. However, economists are not ready to give up the efficient markets hypothesis. The dazzle of this belief has blinded economists so much that they cannot spot bubbles any more.
An important Appendix in this book deals with the astounding contribution of an Italian immigrant in USA — Charles Ponzi who acquired notoriety with a scheme named after him. He was the forerunner of scams the world over which enveloped politicians, government officials and honchos of the corporate world. The original scheme was innocuously called “How to double your money in forty five days”. Now the schemes are infamous as “Ponzi Schemes”.
There are many lessons that History offers. Two economists wrote wisely, “If we learn from experience, History need not repeat itself.” This book is a fascinating historical account of the decline and fall of the monetary system which is chockfull of racy anecdotes. It is a useful guide to students, economists, politicians of every hue.
