I do not recommend this book. However, it does contain some observations that I wish to preserve.



Page 3:

Gold is no else's liability; you can own it outright. Paper or electronic money is always a claim on someone else, whether a bank or a government.

Pages 3-4:

The philospher John Stuart Mill warned in The Principles of Political Economy, published in 1848, that 'the issuers may have, and in the case of a government paper always have, a direct interest in lowering the value of the currency, because it is the medium in which their own debts are computed'.

Page 16:

When money is too sound, economic activity can contract because consumers and companies are crushed under the burden of their debts. But when money is too weak, economic activity can also break down; there is no incentive to save and supermarket shelves are bare. When money is too active, the country gets caught in a frenzy of speculation as citizens seek to get rich by buying and selling assets within a short period. Eventually, the result is a spectacular bust as prices collapse. But when money is too idle, when it sits under mattresses or lies unused in bank accounts, then industry stagnates for lack of capital and no new jobs are created.

This is an interesting item, but I'll rewrite it into a form that I prefer.





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Page 18:

Creating money can also be seen as an inflation tax. The tactic is a substitute for the hard and unpopular work of raising tax from the country's citizens. Since government debts are usually fixed in nominal terms, inflation reduces the cost of repaying the debt in real terms. At 8 per cent inflation, prices double in nine years; so the real cost of repaying a debt halves over the same period.

Governments through the ages have used the inflation tax as a way of raising revenue with minimal public outrage. The Greek playright Aristophanes describes the minting of bad coins in The Frogs, and adulteration of the coinage was a favourite habit of Roman emperors, who were constantly in need of money to pay their soldiers. Failure to pay the Praetorian guards could turn an emperor into an ex-emperor quicker than you could say 'Et tu, Brute'. If 100 ounces of silver can be used to make 1,000 coins, diluting the silver content by half produces 2,000. The steady use of this tactic caused the silver content of the Roman coinage to decline by 96 per cent over the course of two centuries.

Page 29-30:

Silver has a long pedigree as the basis for coinage; the French words for money and silver - argent - are the same. It is also more common than gold and that made it much more useful for everyday transactions. In his Financial History of Western Europe, Charles Kindleberger wrote that 'silver was the principal money in use in ordinary transactions within countries until late in the eighteenth-century'. And when silver was too valuable, copper coins could be used for small sums.

Precious metals are hard-wearing, so they will not deteriorate when stored. And they are, in the right hands, malleable, so they can be melted down and turned into coins. Economic history can be seen through the evolution of coinage, with those of the dominant economic power being accepted outside their states of origin. The discovery of silver deposits at Laureion in Greece allowed the city-state of Athens to expand its coinage; Athenian owls, as the coins became known, were widely used for the next six centuries. The Romans had the denarius and when that was debased, the golden solidus; the Byzantine Empire had the bezant. Some currencies derived their name from their origins. The British coin, the guinea, was named after the part of Africa where the gold was found; the word dollar comes from the German thaler, a coin minted in Joachimsthal in Bohemia (thal means valley). These were cut into eight. From this habit, we get the currency peso meaning 'piece', the old pirate talk of 'pieces of eight', and the term 'two bits' for a quarter dollar.

These coins circulated freely around the globe. In the early seventeenth century, some 341 silver and 505 types of gold coin were in circulation in the Dutch Republic. [0] Such a multiplicity of coins meant that individual traders could easily be confused by their value. This was an age-old problem which created the need for specialists who could distinguish between the different currency units. These were the 'money changers' that Jesus threw out of the temple. Another historic term, 'touchstone', derives from a method of assessing a coin's metallic value.

Just as the QWERTY keyboard outlasted the manual typewriter, initial choices of names and weights have had long-lasting consequences. Pepin the Short, the father of Charlemagne, the first Holy Roman Emperor, lived from c.715 to 768. He established that a livre or pound of silver was worth 240 denarii or pennies, while the solidus was worth 12 denarii. [1] This was the basis for the British monetary system for centuries until 1971. Sums in my primary school maths book had to be calculated under the headings l s d (livre, solidus, denarius) to signify pounds, shillings and pence. The L of livre is the basis of the modern pound symbol.

Page 32:

Precious metals should not be dismissed lightly. Monetary systems based on gold and silver were tremendously long-lasting. From time to time, people argue that we should return to a gold-based system. After all, paper money has not played its role as a store of value. When the last link between gold and paper currencies was dropped in 1971, bullion traded at $35 an ounce; by mid-2011, the price was $1,900. In gold terms, therefore, the dollar had lost 98 per cent of its value. It is progress of a kind. The Romans took two hundred years to devalue their currency by the same amount; our generation has achieved the trick in just forty years.

Page 34:

Goldsmiths kept a lot of gold and thus developed safes for security. [2] Other people then started to use those safes to store their own bullion. In return, the goldsmith handed over a receipt to the value of the gold; these were the earliest forms of banknotes. If you are a Briton, you can gaze at your banknotes and still see a picture of the sovereign with the legend 'I promise to pay the bearer on demand the sum of . . .'. This dates from the days when you could present your note at a bank and demand the requisite amount of gold in return.

Historically, that promise created confidence that the money had a real value and, crucially, limited the amount that could be created.

Pages 36-37:

The concept of money became more and more notional. Rather than swap metal coins, we swapped banknotes. Rather than swap lots of banknotes, we swapped receipts (cheques in Britain, checks in America) to prove we had money in a bank account. Finally, we have reached the stage where an entry on one computer is transferred into an entry on another computer; money is just 'bits' of data. Each stage - credit cards, debit cards, Internet transactions - has built on the last. As money has broken away from its precious metal origins, it has become harder and harder to define.

The electronic age means that governments need not actually go to the effort of creating money. Modern quantitative easing involves a central bank buying government bonds (gilts in the UK) from investors. Rather than send the investors bundles of notes in return, it electronically credits their accounts with money, a process as simple as altering a computer entry. It is as if a benign computer hacker had, instead of stealing money from your online bank account, decided to add money to it.

Pages 40-41:

If there is not enough official money to go around, but people want to trade, new forms of money will be invented; cigarettes and petrol in times of war, ration books in years of austerity, and so on. An analogous process occurs in the financial sector; if there is a demand for financial assets, new ones will be invented, as with all those complex products created during the sub-prime housing boom. While confidence is high, these assets will be traded at face value, 100 cents on the dollar; but if confidence is destroyed, then the assets will trade like debased coins, at a fraction of their declared worth.

Page 43:

The verb 'to pay' comes from the Latin pacare, meaning to pacify or appease. When it comes to livestock, the payment could come in the form of offspring - the Sumerian word for interest, mas, means calves. The Roman word for a herd of animals, pecua, was the basis for the word pecunia for money, a word that survives in the form of 'pecuniary interest' today.

Page 55:

Galbraith wrote, 'If the history of commercial banking belongs to the Italians and of central banking to the British, that of paper money issued by a government belongs indubitably to the Americans.'.

Pages 55-56:

It is possible to argue that trading systems were an early form of our modern economy, with its layers of debt and reliance on paper money. A merchant might extend credit to his customers; in turn, he would need such credit from his own suppliers, who might only have bought the goods with money borrowed from someone else. The default of one party would ripple through the system.

This system was formalized in the form of bills of exchange, promissory notes offered as payment from one trader to another. The recipient might then use the bill as collateral to raise cash from a bank or other lender. The bill would be accepted at a discount, depending on a number of factors, most crucially the creditworthiness of the merchant concerned. This was, in effect, a paper money system outside the government's control.

I have in my possession a paper copy of Paper Promises, by Philip Coggan. It has the subtitle "Money, Debt and the New World Order".

Details from the first few pages:
- First published by Allen Lane 2011
- Published in Penguin Books 2012
- Copyright © Philip Coggan, 2011, 2012
- Typeset by Palimpsest Book Production Limited, Falkirk, Stirlingshire
- Printed in Great Britain by Clays Ltd, St Ives plc


I transcribed and/or dictated the excerpts in this article.


Changes from the original text:
- I have removed word-breaking hyphens.
- I have not preserved the original line breaks. I treat each paragraph as a single line.
- I have not preserved page divisions or page numbers.
- I have replaced any use of indentation at the start of a new paragraph with an empty line between paragraphs.
- I have replaced curled apostrophes with straight single quotation marks.
- When a sentence ends with a quoted sentence that ends with a final punctuation mark (. ! ?), I have included the appropriate final punctuation mark for the enclosing sentence.
- If I begin a quoted section in the middle of a sentence, I capitalise the first letter of the first word in the sentence fragment.
- I have not included all footnotes.
- I have added a tilde in front of the author's name in standalone quotations.