Paper Promises

Paper Promises (2011) by Phillip Coggan is a masterful study of money and debt. Coggan worked at the Financial Times for 20 years and now writes at The Economist. He has written a number of books on finance that are all highly regarded. The book looks at the history of money and credit and concentrates on the post industrial revolution world where credit and fiat currency rapidly expanded.

The book starts with a brief look at money in history before moving the C19 and then C20 and most of the book looks at the period from the depression onwards. The impact of tight money in the depression is carefully examined. Beyond that the Bretton Woods settlement that was in place during the rapid economic growth after WWII and the post Bretton Woods era of freely traded rapidly inflating currencies and the GFC is studied.

The book has a lot of well chosen quotes including the observation the Alan Greenspan displayed asymmetric ignorance in that he knew when a downturn was happening but did not detect bubbles. Coggan also points out how gold was trading at $35 an ounce in 1971 at the end of the Bretton Woods agreement and now trades at $1900, so the modern world has devalued in 40 years as much as Rome did in 200.

The last chapters of the book are fascinating. Coggan looks at how the build up of debt in the latter half of the C20 for Social Spending has been managed by substantial population growth as well as productivity growth and that at least the first, and possibly the second is reducing and that the debts accumulated today cannot be paid off. There will have to be reductions in the debt burden either explicitly or through currency devaluation. Coggan does miss however, that budgets can be balanced as was done by Germany, Singapore, Australia’s last competent government and various Scandinavian countries.   

The book doesn’t give firm recommendations and fairly describes various positions on monetary and fiscal policy. The final chapters don’t give a recommendation but rather a description of the serious problems that many countries around the world are now facing. The books tone and insight are very much like The Economist magazine for which Coggan now writes for. The clear, succinct style is a great strength in looking at a complex issue like money. The book is very much worth reading for anyone interested in finance and economics. 

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