January 2024 – J. W. Mason

Thoughts on International Finance, with Application to the US and China

(I wrote this back in 2020, and never posted it. The context is different now, but the substance still seems valid.)

Here is my mental model, for whatever it’s worth:

(1) The US-China trade balance is determined in the short to medium run by relative income growth in the two countries. In the medium to long run relative prices do play a role. But at least past the early stages of industrialization, the impact of exchange rates is thru producer entry/exit than thru expenditure switching. The impact of the overvalued dollar of the early 80s came mainly through e.g. the bankruptcy of US steel producers selling at world prices, rather than a loss of market share from selling at US prices.

(2) Chinese capital controls limit cross-border financial flows. This especially limits the acquisition of foreign assets (including real estate, consequentially for New York) by Chinese firms and households. This implies greater net inward financial flows than there would be in absence of controls. This is probably the most important Chinese policy with respect to cross-border flows — a broad liberalization would be more likely to push the renminbi down than up.

(3) The Chinese central bank passively accumulates/decumulates whatever level of reserves are implied by the combination of 1 and 2.

(4) The exchange rate is either chosen by one or both governments or determined in speculative markets. (In practice this means the Chinese government, but there’s no in-principle reason why this has to be so.) There is no meaningful link from the trade balance to the exchange rate, and at most a weak link from the exchange rate to the trade balance. Exchange rate interventions are not an independent factor in reserve changes.

(5) The interest rate on US Treasury debt is determined by some mix of Fed policy and self-confirming market expectations (convention). Chinese reserve purchases play zero role.

(6) US deficit spending is not constrained, required, or influenced in any way by foreign reserve accumulation. When desired foreign reserve accumulation departs from new Treasury issues, the gap is accommodated by net sales between foreign central banks and the private sector.

(7) If a mismatch between the supply of Treasury issues and the demand for reserve accumulation creates pressure anywhere, it will be on private assets that are close substitutes for Treasuries. In particular, it is plausible that insufficient federal borrowing in 1990s-2000s helped create the mortgage securitization market.

(8) Returning to exchange rates. The fact that import price elasticities are low, and that most trade is priced in dollars, means that exchange rates affect trade mainly via exporters’ profit margins. An appreciation can undermine exports, but this is a slow process of failure/exit by exporters, and thus strongly depends on financial capacity of exporters to operate with diminished margins. So for instance the large, roughly symmetrical movements in the dollar-yen exchange rate in the first and second halves of the 1980s affected the US tradable sector more than the Japanese, because Japan’s bank-based financial system plus the lack of shareholder pressure made it easier to sustain losses for extended period there than in the US.

In the textbooks, we get a picture of a tightly articulated system where a change in behavior in one place must lead to an exactly offsetting change somewhere else, mediated by price changes. Given a set of fundamental parameters, there is only one possible equilibrium. The considerations above suggest a different vision.

In the orthodox vision, international trade and financial flows are like a pool of water. If you drop a rock in, the whole surface of the pool rises by the same amount. Of course there are passing ripples. But knowing what level this part of the pool was at a while go doesn’t tell you anything about what level it is at now. One could, though, just as easily imagine a pile of rocks. When you move one rock, it normally affects only the rocks in the immediate vicinity. And the same rocks can be piled up in many different ways; where they are now depends on where they were before.

From where I’m sitting, there are three major sources of flexibility in the international system, all of which undermine any claim that shift in one flow must lead to equivalent shift in some other flow.

First is the existence of passive, accommodating positions that act as buffers. Central bank reserves can function this way; this is accepted in mainstream theory. But so can bank loans and deposits, and positions taken by fx specialists. In the short run, bank deposits are always accommodating buffers for any other flow.

Second is speculative price dynamics that make asset demand endogenous to current price. Concretely: If an asset is held largely in hope of capital gains, as opposed to yield or use in production, and if there are anchored expectations of normal or long-run price x, then any position that produces a price move away x implies capital gains for anyone who takes the other side of the position. In markets where these kinds of speculative dynamics operate – and I think they operate very widely – then even large changes in flows don’t have to lead to significant price adjustments. (Conversely, shifting expectations can lead to large price changes without any shift in flows.)

Third is the fact that trade adjustment happens mainly thru entry/exit rather than expenditure switching in product markets. This means in effect that the balance sheets of exporting firms act as shock absorbers. Let’s say that a country’s financial assets become more desirable to global wealth owners, causing a financial inflow and (plausibly though not necessarily) an appreciation of its currency. In the textbook story, this leads to an equal and immediate fall in net exports. But in reality, with exports priced in global markets, the immediate effect is a fall in the profitability of exporters. Only over time, as those firms go bankrupt or give up on export markets, will trade volumes change.

Thirteen Ways of Looking at Money

I taught a class last semester on alternative theories of money, drawing heavily on Money and Things, the book I am working on with Arjun Jayadev. It was one of the best classes I’ve ever taught in terms of the quality of the discussions. John Jay MA students are always great, but this group was really exceptional. It was a a privilege to have such thoughtful and wide-ranging conversations, with such an enthusiastic and engaged group of (mostly) young people.

The class syllabus is here. A number of the readings were draft chapters from the book. I am not posting these publicly, but if you are interested you can contact me and I’ll be happy to share.

In this post, I want to sketch out some of the puzzles and questions around money — my own version of what makes money difficult. Many of these were explicit topics during the semester, others were in the background. I wouldn’t claim this is a comprehensive list, but I think most debates around money fall somewhere on here.

The first problem is defining the topic. When we talk about “money” as a distinct set of questions in economics, what are we distinguishing from what? In particular, are finance, credit and interest on the money side of the line? Given that aggregate demand is, presumably, defined in terms of desired monetary expenditure, are demand and its effects a subset of questions around money? The main classification codes for economics articles include a category for “Macroeconomics and Monetary Economics”; this suggests an affirmative answer, at least in the mainstream imagination. Do we agree?

Put another way, a focus on money in economic analysis means something quite different if the implied alternative is an imagined world of barter, versus if it’s a a broader range of financial arrangements. In the first case, talking about money involves a broadening of perspective, in the second case a narrowing of it. If someone says, “we have to think about the business cycle in terms of money” are they rejecting Real Business Cycle approaches (a good thing, in my book) or are they telling us to focus on M2 (not so good)?

In principle one would like to delineate the field designated by “money” before asking questions within it. But in practice what concepts we group with money depends on our views about it. So let’s move on to some more substantive questions.

1. First, is money better imagined as a (physical) token, or as a unit of measurement? Or perhaps better, does our analysis of money start with exchange, or with accounting? Do we start by asking what is the thing that is exchanged with commodities, and then build an account of its use as a standard of value and in debt contracts on top of that? Or do we start with he idea of money as a unit like the meter or second, which is used to denominate obligations? In which case the debts incurred in the circulation of commodities appear as one particular case of the more general category, and the question of what exactly is accepted in settlement of an obligation is secondary.

I think of this as the difference between an exchange-first and and an accounting-first approach; Schumpeter makes a similar distinction between money theories of credit and credit theories of money. You’ll find most economists from Adam Smith to modern textbook writers on the first side, along with Marx (arguably) and most Marxists (definitely). On the second side you’ll find Keynes (in the Treatise if not the General Theory) along with Schumpeter, various chartalists, and sociologists like Geoffrey Ingham.

This is a question about logical priority, about where we should start analytically. But the same question can be, and often is, posed as a historical one. Did money originate out of barter, or out of a system of public record-keeping? In principle, the origin of money is separate from the question of how we should best think go if it today. But in practice, almost everyone writing about the origin of money is interested in it because they think it is informative about, or a parable for, how money works in the present.

Another dimension of this question is how we think of the central bank. Do we think of it as — in some more or less metaphorical sense — issuing the nation’s currency? Or do we think of it as the peak institution of the banking system?

2. A second question, related to the first one, is, where do we draw the line between money and credit? Is there a sharp divide, or a continuum? Or does money just describe particular kinds of credit, or credit as it is used in certain settings? To the extent there is a distinction, which is primary and which is derivative? Is money any promise, or any promise that can be transferred to a third party, or anything that can be used to settle an obligation? Almost any statement about money can have a different meaning depending on what parts of credit and finance are implicitly being included with it.

Similarly, is there a sharp line between money and other assets, or does money describe some function(s) that can be performed to different degrees by many assets? An important corollary of this is, is there a meaningful quantity of money? If there is a sharp line between money and other assets then at any moment there should be a definite quantity of money in existence. If “moneyness” is a property which all kinds of assets possess in different degrees, then there isn’t. This is a more important question than it might seem, because many older debates about money are were framed in terms of the quantity of it, and it’s not always obvious how to translate them for a world where liquidity exists across the balance sheet, on both the asset and liability sides.

This is a question where the conventional wisdom has shifted quite sharply over the past generation. Into the 1990s, both mainstream and heterodox writers used the money stock M as a basic part of the theoretical toolkit. But now it has almost entirely disappeared from the conversation in both academic and policy worlds.¹

3. Third: To the extent that it is meaningful to talk about a quantity of money, is the quantity fixed independently of demand for it, or does it vary endogenously with demand? (And if so, does this happen within the banking system, or through the actions of the monetary authority? — the old horizontalists versus verticalists debate.) When I was first studying economics, this question was a central line of conflict between (Post) Keynesians and the mainstream, but its valence has shifted since then. “Banks create money” used to be a touchstone for heterodox views; now it’s something that everyone knows. There is still the question of how much this matters, i.e. how much bank lending is constrained by the supply of reserves or monetary policy more broadly. Victoria Chick has a fascinating piece on shifting views on this question over the 20th century.

In general, talking about how M varies with demand for it now feels a bit conservative and old-fashioned, since it assumes that the money stock is an economically meaningful quantity. After teaching some of the same articles on these questions that I read in graduate school, I feel like the question is now: How can the debate over endogenous money be reformulated for a world without a distinct money stock? Another possible reframing: Is endogeneity inherent in the nature of money, or is it a contingent, institutional fact that evolves over time? At one point, bitcoin looked like an effort to re-exogenize the money supply; but I don’t think anybody talks about it that way anymore.

The flip side of the question of endogenous money — or maybe an alternative formulation of it — is, is the supply of money ever a constraint (on credit creation, and/or on real activity)? A negative answer is stronger than simply saying that the money supply is endogenous, since it further implies it can be expanded costlessly.

4. This leads to the fourth question: What role does money play in the determination of the interest rate? Is interest, as Bagehot got put it, the price of money? Or is it the price of savings, or of future relative to present consumption, which just happens to be expressed (like other prices) in terms of money? This is another long-standing frontline between orthodox economics and its Keynesian challengers, which remains an active site of conflict.

In the General Theory, Keynes developed his claims about money and interest in terms of demand for an exogenously fixed stock of money. This was a serious wrong turn, in my view; chapter 17 (“The Essential Properties of Interest and Money”) is in my opinion the worst chapter of the book, the one most likely to confuse and mislead modern readers.² But unlike endogeneity, this is a Keynesian theme that is easily transposed to an accounting-first key. We simply have to think of interest as the price of liquidity, rather than of one particular asset. This view of interest — as opposed to one that starts from savings — remains arguably the most important dividing line between orthodoxy and followers of Keynes. In general, if you want to work within Keynes’ system, you shouldn’t be talking about saving at all.

5. The role of money in the determination of the interest rate leads to a fifth, broader question: Is money neutral? If so, with respect to what? And over what time horizon? In other words, do changes in the supply (or availability) of money affect “real” variables such as employment, or do they affect the price level? Or do they affect both, or neither?

From a political-policy perspective, neutrality is the question. Can increasing the availability of money (in general, or to some people in particular) solve coordination problems, mobilize unutilized resources, or otherwise increase the real wealth of the community? Or will it only bid up the price of the stuff that already exists? When, let’s say, late-19th century Populists demanded a more elastic currency, were they expressing the real interests of their farmer and artisan constituency, or were they victims (or peddlers) of economic snake oil? And if the former, what were the specific conditions that made more abundant money a meaningful political demand?

Another way of looking at this: Does money just facilitate trades that would have happened anyway? (What does it mean to facilitate, in that case?) On the other hand, if we think of money as a technology for making promises, for substituting a general obligation for a particular one, then it may do so to a greater or lesser extent. Increasing the availability of money, or broadening the range of ways it can be used, should make new forms of cooperation possible. If money is useful, shouldn’t it follow that more money is more useful?

Turning to the present, is the availability of money an important constraint on decarbonization? The content of this question is contingent on some of the earlier ones; is the terms no which credit is available to green projects a question of money? But even if you say yes, it’s not clear how important this dimension of the problem is. There’s a plausible case, to me at least, that there is a vast universe of decarbonization projects with positive private returns at any reasonable discount rate, which nonetheless aren’t undertaken because of a lack of financing. But it’s also possible that credit constraints are not all that important, at least not directly; that what’s scarce is the relevant skilled labor and organizational capacity, not financing.³

Though it lies a bit downstream from some of the more fundamental theoretical issues, money’s neutrality is probably the highest-stake question in these debates.

To what extent, and under what conditions, can increasing access to money and credit develop the real productive capacities of a community? To what extent are shorter-term fluctuations and crises the result of interruptions in the supply of money and credit? One reason, it seems to me, that debates on these questions can be so murky and acrimonious is that while economic orthodoxy makes a strong claim that money is neutral, there is no well-defined pole on the other side. Rejecting the textbook view, in itself, doesn’t tell us much about when and how money does matter.

6. The other side of this is the sixth question: What is the relationship between money and inflation? If money is neutral with respect to the “real” economy (bracketing what exactly this means) then what it does affect must be the price level. If you pick up, let’s say, Paul Krugman’s international economics textbook, you will find the thoroughly Friedmanesque claim that the central banks its the supply of money (M), that in the short run an increase in the supply of money may raise output and employment, but over periods beyond a few years, changes in the money supply simply translate one for one into changes the price level, with output and other “real” variables following the same path regardless of what the central bank does.

The claim that the price level varies directly with an exogenously fixed money supply is the quantity theory of money, arguably the oldest theory in economics. This can be derived on first principles only under a set of stringent assumptions that clearly done’t describe real economies. So is there some broader metaphorical sense in which it is sort of true, at least in some times and places? Inflation is only defined with respect a unit of account, but it’s not clear that there is any necessary link with money in its concrete existence.

Here, unlike the previous question, there are (at least) two well-defined poles. Anyone who has read anything on these issues has encountered Friedman’s koan that inflation is everywhere and always a monetary phenomenon. Against this there is a vocal group of economists (both Post Keynesian and more mainstream) who counter that “inflation is always and everywhere a conflict phenomenon.” Personally, I am not convinced that inflation is always and everywhere any one particular thing. But that is a topic for another time.

7. More broadly, whether reimagine “the money supply” as a fixed quantity or in terms of more or less elastic credit, we can ask, are changes in money supply linked to changes in prices, in incomes, in the interest rate, or some combination of them? This leads to the seventh question: Is the money supply, or the terms on which money is provided or created, an appropriate object of policy? This is partly question about what social objectives can be advanced by changes in the availability of money. But it is also a question about whether there is something inherently public about money as a social ledger, which means that it should be (or in some sense always is) the responsibility of the state.

8. Which brings us to question eight: Is there a fundamental relationship between money and the state, and with the authority to collect taxes? Georg Simmel famously described money as “a claim against society”. Who represents society, in this case? Is it — necessarily or in practice — the government? If we think of money as a ledger recording all kinds of obligations as commensurable quantities and allowing them to be netted out, is the use of such a shared ledger necessarily imposed by a sovereign authority, or can we think of it as arising organically? A bit more concretely: Is the value of money backed, in some sense, by the authority to tax? This view is strongly associated with chartalism. But you can also get a version of it from someone like Duncan Foley, working within the Marxist tradition.

9. Turning to money as a unit of measurement, our ninth question is: Do money values refer to some objective underlying quantity? And if so, what is it? What does it mean to speak of “real” values underlying the monetary ones? Obviously money values have objective content within a given pay community. For an individual within the community, the fact that two objects – or more precisely, two distinct property rights – have an equal price, implies the possibility of a choice between them. Ownership of this stuff and ownership of that stuff are equivalent in the sense that one can have one more of one by giving up an equal value of the other. For the community as a whole, we can, on some not too unreasonable assumptions, interpret price as reflecting the possibilities of producing more of one thing as opposed to something else.

But what about when comparisons are made outside of an exchange community? If there is no possibility of substitution either in the purchase or production of things – where there is no market in which they exchange – is there a sense in which we can nonetheless compare their value? Do the quantities of money describe some underlying “real” quantity? When we compare “real income” ver time or between different countries, what is it exactly that we are comparing?

The textbook answer is that we are thinking of the economy in terms of a single representative consumer whose preferences are the same in all times and places (and at all levels of income), and asking how much income in one setting it would take to buy a basket of goods that this representative consumer would willingly swap for the average basket of goods consumed somewhere else. When stated like this, it sounds absurd. Yet this is literally the basis for widely used price level measures like Purchasing Power Parity indexes used to compare real incomes across countries. The problem is actually even worse than this, since even on the most heroic assumptions there is no way to consistently measure price levels both across countries and over time.⁴ But it’s very hard for people — certainly for economists — to give up the idea that there exists something called “real GDP” or “real income” that behaves like a physical quantity.

If the neutrality of money is the question with the most immediate real-world implications, this one, I think, is where there is the biggest gap between what people assume or think they know, and what holds up on closer examination.

10. Related to this, question ten: Are relative prices prior to, or independent of, money prices? In his review of David Graeber’s Debt, Mike Beggs insisted that “States print the money, but not the price lists.” This is the orthodox view — if one of commodity A trades for two of commodity B, that is an intrinsic fact about the commodities themselves, reflecting their costs of production and/or their ability to satisfy human needs.It doesn’t depend on the fact that the prices are expressed in terms of money, or that the commodities are bought and sold for money rather than directly exchanged for each other.

But as I pointed out in my reply to Mike, not all economists agree with this. Hyman Minsky’s two-price model (much more interesting, in my mind, than the financial fragility hypothesis) is precisely an argument that money matters for the price of long-lived assets in a way that it does not for current output. The price of a building, say, cannot be derived from just the cost of producing it and the rent people will pay for it; it depend fundamentally on the terms on which it can be financed.

More broadly, we can think of some activities — those that lock in payment commitments while promising distant or uncertain income — as being more demanding of liquidity. Changes in the availability of money will change the price of these activities relative to those that are less liquidity-demanding. From a Minskyan perspective, money is not neutral; the price lists depend fundamentally on how much (and on what terms) money is being printed.

11. Finally, some questions about the international dimension of money. First, various questions related to exchange rates — how they are, and should be, determined, and what effects they have on real activity. This is one area— perhaps the only one on the whole list — where, it seems to me, there is a very clear difference between today’s textbook views and pre-Keynesian orthodoxy. Today, floating exchange rates are treated as normal, and government interventions in the foreign exchange market are viewed with suspicion. Whereas the older orthodoxy assumed that currencies should, and apart from exceptional cases would, be permanently fixed in terms of gold.

12. Twelfth: If we think of money as a ledger, does it matter where the ledger is kept? That the dollar is the global currency is true in obvious, observable ways — its unrivaled dominance in reserve holdings, foreign-exchange transactions, and trade pricing. (And despite constant predictions to the contrary, this shows no signs of changing.) But what constraints does this fact impose on the rest of the world, both in terms of international positions and domestic finance? And what, advantages (or disadvantages) does it have for the United States?

One argument (made powerfully by Jörg Bibow, and also in this old working paper by me) is that in a world of unmanaged cross-border trade and financial flows, the United States current account deficit plays an essential role as a source of dollar liquidity for the rest of the world — that efforts to balance US trade will only lead to slower growth elsewhere. The assumption here, which may or may not be reasonable, is that there is something like of an exogenous stock of global money, even if not at the national level.

A related issue is how the financial and current account sides of the balance of payments balance. If we think of money as a token or substance, then any given transaction involves a certain amount of it either flowing into or out of a country, and the need for these flows to equal out evidently calls for some kind of market mechanism. On the other hand, if we think of money as a ledger entry, then the mere fact that a transaction takes place automatically creates an offsetting entry on the financial account. There may well be ways in which, say, foreign demand for a country’s assets causes its trade balance to shift toward deficit. But the argument has to be made in behavioral terms, it is not necessarily true.

13. Finally, thirteen: What does it mean to possess monetary sovereignty? Is having control over your own money a binary, yes or no question, or does it exist on a continuum? A more concrete aspect of this question is under what conditions countries can set their own interest rates. The older view was that a floating exchange rate was sufficient; the newer view — among established as well as heterodox economists — is that autonomous monetary policy is only possible with limits on financial flows, i.e. capital controls. Otherwise, what happens to your interest rate depends on the Fed’s choices, not yours.

I have my own opinions about what are more and less convincing answers to these questions. But my goal is not to convince you, or my students, of the answers. My goal is to convince you that these are real questions.

One reason that arguments about money-related questions are so often so painful an inconclusive, it seems to me, is that people start out from strong commitments to particular answers to various of these questions, or questions like these, without even realizing that they are questions — that it is possible to take a view on the other side. Almost nobody who talks about “real GDP” pauses to ask what exactly this number refers to. That the interest rate is the price of liquidity — of money — is the pivot of Keynes’ whole argument in The General Theory. But it’s constantly ignored or forgotten by people who think of themselves as Keynesians. In general, it seems to me, debates connected with money are less often about disagreements on substantive issues than about different premises, which are seldom recognized or acknowledged. Before denouncing each other, before accusing people of some basic error of fact, let’s at least try to map out the intellectual terrain we are fighting over.

A second purpose of this list is to show how these are not just academic questions, but have important implications for our efforts to, in Haavelmo’s phrase, become masters the happenings of real life. To be sure, this post doesn’t do this. But it was a goal of the class. And it is very much a goal of the book.

2023 Books

Books I read in 2023. I’m probably forgetting some.

Geoffrey Ingham, The Nature of Money. One of the fundamental divides in thinking about money is whether we start from the commodity or the unit of account. Do we begin, logically and historically, with the idea of exchange and then bring in money, or do we start from an abstract unit of measurement which then, among other things, is used to value commodities? The latter view defines what’s known as chartalism; Ingham offers the most persuasive statement of the chartalist position that I know. The most visible (though, it seems to me, fading) contemporary version of chartalism is the one offered by Modern Mone(tar)y Theory. There’s a clear affinity between Ingham and MMT but also some important differences; taking Mitchell Innes rather than Knapp as its starting point, Ingham’s version emphasizes money as a measure of obligations in general, rather than taxes specifically.

Like the next five books on the list, I read this one in as I worked on Money and Things, and in conjunction with the “Alternative Perspectives on Money” course I taught this fall.

Lev Menand, The Fed Unbound: Central Banking in a Time of Crisis. I am a big admirer of Menand’s writing on monetary policy and the Fed. He’s a good example of how many of the most interesting conversations around economics these days are happening in law schools. I am constantly pointing people to his short piece on the “The Fed’s Sole Mandate,” which does a brilliant job reframing debates around monetary policy. I would love to see that argument developed at book length. Unfortunately, this is not really that. The book falls a bit awkwardly between two sets of stools — between a general history of the Fed and a comment on pandemic-era interventions, on the one hand, and between a popularization and original argument on the other. I’m sympathetic – these are both tensions I also struggle with. (Despite some encouragement from me, Lev also has not been quite able to give up the idea of a definite quantity of money.) I will certainly continue to draw on and assign his work in the future, but I think I’ll look more to his law review articles rather than this book.

David McNally, Blood and Money: War, Slavery, Finance, and Empire. I would also put this in the broad category of chartalism, again emphasizing the role of money as an abstract unit of measurement rather than as a specific commodity. This is a more eclectic and Marx-influenced version, focusing on money as quantification as such rather than of obligations. The most importnat things being reduced to commensurable quantities, in McNally’s telling, are human bodies — for him, money is the obverse of slavery, and of coercive violence more broadly. The book’s title should be taken literally.

The historical material here makes an interesting complement to Ingham. Most chartalist writing, in my experience, draws from a relatively short list of historical parables — ancient Babylon, colonial Madagascar. Ingham mostly sticks to the canon, but McNally ranges more widely. As with many books of this kind (Graeber’s Debt is the notorious example) the analysis starts glitching a bit when the story reaches the modern world. It’s not surprising. When you are writing about a general topic like money or debt, there is nothing wrong with picking whatever particular examples from the vast palette of the past that work best for the picture you’re trying to paint. But when you are writing about recent history, you are stuck with the specific things that actually happened.

Stefan Eich, The Currency of Politics: The Political Theory of Money from Aristotle to Keynes. The subject of this book is the question — one which motivates so many debates about money — of how, and to what extent, the form and management of money shapes broader social relations. It’s the question of whether money is, in the broadest sense, neutral, or whether changes in the terms on which money is created can transform politics and relations of production. The book, to be clear, is not framed this way; it’s set up, rather as six distinct essays, on particular thinkers and milieus, from classical Athens through Locke, Fichte, Marx and Keynes to the “political theory of money after Bretton Woods.” As Colin Drumm suggests, the book is best understood (and perhaps read) backward. To make sense of current debates about money, we need to go back to the early 20th century Years of High Theory, and then back to the thinkers that influenced them, and on back to Aristotle. Personally, I learned the most from the Athens and Marx chapters; but the whole thing is very worth reading

Merijn Knibbe, Macroeconomic Measurement Versus Macroeconomic Theory. This is a book-length struggle with a question dear to my heart, the disconnect between the categories of economic theory and measurement. Concepts like output, employment, the price level or the capital stock can be defined unambiguously within a formal economic model. But when we use them to describe developments in the real world, their meaning depends on a whole host of specific decisions about what exactly to count, what to impute and where to draw various more or less arbitrary lines. The data we look at is highly sensitive to these choices — a full third of US consumption, for instance, consists of non cash items like the notional rent paid by homeowners to themselves, services provided gratis by nonprofits and government, and the notional value of financial services provided by low-interest bank accounts. Mainstream economists — and, I’m afraid to say, many heterodox ones — are blissfully unconcerned with these choices. But it is impossible to make any meaningful statements about real economies except in the terms that they are actually observed.

Many economists will acknowledge this problem in principle but Knibbe’s book is a rare attempt to address it head on. It is brilliant, perceptive and original, but also digressive, a bit of a ramble. One of its strengths is the author’s less academic background — he has a deep knowledge of topics, like exactly how milk prices are set in the Netherlands, that are not taught in any economics program. A challenge for any book like this is how much work it takes to explain the intricate fantasies of orthodox theory as a prelude to dismantling them; I don’t know what the solution to this problem is, if one is going to write critically about economics at all.

I provided comments on early chapters of the book, and at one point we discussed coauthoring it. That didn’t happen, obviously, but he did just fine on his own.

Anitra Nelson, Marx on Money: The God of Commodities. The most thorough and convincing account of Marx’s (incomplete and sometimes contradictory) writing on money that I have read. I won’t attempt to summarize Nelson’s arguments here; perhaps I’ll do so in a future post.

Enzo Traverso, Fire and Blood: The European Civil War 1914-1945. This book presents itself as a history of Europe’s second thirty years war. It is organized not chronologically but thematically, around various concepts that structured what Traverso presents as fundamentally an intra-European rather than international conflict — dual power, the partisan, the trauma of industrial violence, the new legal concept of war crimes, and so on. At its heart is an effort to reclaim anti-fascism as positive political project. Resistance to fascism required, and called forth, a creative fusion of socialist and Enlightenment values. Antifascism, in Traverso’s telling, was not merely a negative reaction to right-wing authoritarianism. It was a “civil religion of humanity, democracy and socialism”; it was “a “shared ethos that, in a historical context that was exceptional and necessarily transitory, made it possible to hold together Christians and atheist Communists, liberals and collectivists.” Traverso amasses a great range of historical, artistic and literary material to flesh out this view of antifascism as a positive political program. Anti-fascism is not just resistance to movement in the fascist direction; it is pressure for movement away from the status quo in the other direction. It’s a timely reminder that one cannot effectively defend democratic values and practices where they already exist without also fighting to extend them where they currently do not.

This is very much an intellectual history — personally, I wouldn’t have minded if Traverso had included a few less reproductions of paintings and introduced some quantitative material. Its antagonists are liberal historians — Francois Furet in particular — who see “the West” following a steady path toward liberal democracy as a kind of technical progress, with the violent conflicts between Left and Right as a friction or distraction. Traverso’s argument – not stated in so many words, but the overarching theme of the book — is that there was no technological inevitability to universal suffrage, civil liberties or the rest of it. Human progress, such as it is, is the result of active struggle. The battle against fascism yielded something quite different from a straight line projection from the years before 1914.

Luciano Canfora, Democracy in Europe. Another book by an Italian historian, developing many of the same themes as Traverso, though on a broader canvass. The central argument is that if democracy means “rule by the people,” then we should think of this not as an institution but an event, as the rare episodes in which the propertyless majority are able to collectively exercise power against the interests of the rich. Democracy, in his words, means “the temporary ascendancy of the poorer classes in the course of an endless struggle for equality”. Elections with broad suffrage are at best an enabling condition of democracy, not a definition of it. They create an arena in which the mass of people may sometimes be mobilized if the conditions are right. As Friedrich Engels put it, elections are important because they offer “a means to make contact with the masses where they are still distant from us,” not so much as a direct route to power.

By the late 19th century, Engels believed, democratic politics offered an open road toward socialism. In Canfora’s view, however, he underestimated the ability of elites to mobilize mass support for their own programs. The development of mass political participation in the early 20th century owed as much, he argues, to efforts by conservative government to inoculate the population against socialism, as to any advance of democratic values. Conservatives were nonetheless hostile to universal suffrage right down to World War One. The book quotes the British writer George Cornwall Lewis urging that “the attempt to attain perfect equality in … the powers of government seems … as absurd as the attempt to attain perfect equality in the distribution of property.” Canfora accepts this equivalence but turns it around — sustained equality in government has never been compatible with concentrated property ownership. Historically, expansion of formal democracy was either a step toward broader social equality, or a defense against it.

Like Traverso, Canfora emphasizes how “antifascism was widened from a negative concept — rejection — to a positive one. … the forces that had fought fascism … could by definition transform society in a progressive direction.” He sees a fundamental parallel between developments in eastern and western Europe after war. On both sides, the upheavals of war and and popular mobilizations created new opening for demands from the masses. In the immediate postwar period, governments gave ground to pressure from below both substantively and in terms of public participation; but as they became more established, genuine popular involvement was displaced by self-confirming legality. The relationship of the US to Italy was not fundamentally different from that of the USSR to Poland or Hungary, even if military intervention was only prepared and not carried out. To drive this point home, he notes that it was Churchill, not Stalin, who proposed the division of Europe into spheres of influence; while the latter, for his part, urged an acceptance of liberal norms by communists in Western Europe.

Moving to the present, Canfora firmly rejects the idea that the countries of “the West” are democratic simply by virtue of their electoral arrangements. At the same time he insists that changes to electoral systems are important for either narrowing or widening the possibilities for substantive democracy. In particular, he sees the shift from proportional representation to single-member districts or hybrid systems (as occurred in both France and Italy in recent decades) as a way of closing off space for democracy. In his view, steps away from proportional representation are no different from outright restrictions of the franchise. They “combine the electoral principle … with the reality of the protected ascendancy of the … upper classes.”

Rebecca Karl, Mao Zedong and China in the Twentieth-Century World: A Concise History. This is a sympathetic but not uncritical account of Mao’s life and the surrounding history. One of the book’s big virtues — besides providing the basic narrative of events that I knew much less about than I should — is that its perspective is always the situation and context in which Mao himself operated. It tries to understand why he made the choices he did in the circumstances that he faced. This is partly a matter of how the book is written, but it also requires the writer (and reader) to be able to imagine themselves as part of the revolutionary project Mao was engaged in.

I learned a great deal from this book. Here are a few general points that stand out. First, Mao’s formative political experiences involved China’s political disintegration and subordination to outside powers and, interestingly, the subordination of women in the traditional Chinese family (the subject of his first significant political writings.) His embrace of class politics and Marxism came afterwards, as a response to the practical problems of national independence and revival. (And to the savage repression by the nationalists.) Second, despite being an early leader of the Communist Party, he was, in Karl’s telling, almost constantly in conflict with it. He never had the unquestioned authority of a Stalin, and for much of the period after 1960 or so he was effectively excluded from day to day leadership. The cult of personality — the Little Red Book and so on — were real enough, but they reflected relative marginalization rather than dominance; they arose from, on the one side, his efforts to pressure from the outside a government he no longer dominated, and from the other, the Party’s efforts to claim his legacy even while rejecting his positions substantively. Conversely, the “reforms” after his death don’t represent a repudiation of the Revolution so much as a reassertion of tendencies that were there all along. Third, Mao’s worst mistakes were in large part overreactions to correctly perceived problems with the Soviet model. The Great Leap Forward — disastrous as it was — is in no way comparable to the great famines under Stalin. It was the result rather of a search for a form of industrialization that would not favor the cities at the expense of the peasants. The problem was a breakdown in the systems of coordination, communication and transport rather than — as under Stalin — a systematic extraction of grain from the countryside. The Cultural Revolution, meanwhile, came from the conflicts between Mao and the party leadership mentioned earlier — it was intended by Mao as a revolution against the party, as an effort to prevent the consolidation of a new ruling class or stratum as he believed had happened in the USSR.

These broad brush summaries don’t do justice to the book, which is much more concrete and historically grounded. One question that it does not answer, however — that it does not even pose, given its choice to write largely from Mao’s own perspective — is, how and to what extent did the Chinese revolution lay the groundwork for China’s astonishing success — maybe the greatest in history — as a late industrializer. (Isabella Weber’s book, while also very good, only addresses a small part of this question.) But I still found it extremely informative and worth reading. One other virtue: it is very short. I would love to see more books in this format. There are a lot of big topics on which I would be happy to read 150 pages, but probably would not manage 700.

Fintan O’Toole, We Don’t Know Ourselves: A Personal History of Modern Ireland. A charming and very readable first-person account of Ireland since 1960, seamlessly interweaving historical and autobiographic material. When I picked this book up (at The Lofty Pigeon, a lovely new bookstore in my corner of Brooklyn) I knew a bit about the Irish war of independence and of course about the euro-era financial bubble and crisis, but but not much about the period in between. It’s a fascinating story — 20th century Ireland has to be one of the outstanding cases of cultural transformation in just a generation or two, from a closed semi-theocracy to a fully “modern” country, for better or worse. O’Toole has an appealing ambivalence about this transformation. He is unflinching in his descriptions of the stifling cruelty of mid-century Irish schools and the treatment of women who violated sexual norms; it’s interesting how, in his telling even features of this society that might seem appealing — big multi-generational families with neighbors constantly present — could seem oppressive to those living in it. But neither does he whitewash the Irish modernization project or the politicians who led it.

Edward Burrows and Mike Wallace, Gotham. A massive, comprehensive history of New York from the first European arrival to consolidation in 1898. I consumed this as an audiobook intermittently over the past year or so. Its episodic structure works well in that format, though not so much its profusion of names, dates, and places. (Someone should make a geographic concordance from it, if there isn’t one.) What is there to say about it? If you want to learn about the history of New York City, this is the book.

Adam Hochschild, American Midnight: The Great War, a Violent Peace, and Democracy’s Forgotten Crisis. A history of US politics and political repression in the period around and immediately after World War One. As Hochschild makes clear, nothing in Donald Trump’s dreams comes close to the institutionalized racism, nativism and criminalization of dissent under Woodrow Wilson. If you’ve read some labor history, you won’t be shocked at the stories of the violent suppression of the IWW. But what about the movie director sentenced to four years in prison for making a film about the American Revolution that depicted the British in too negative a light? Or the Swiss-born orchestra conductor whose lynching on suspicion of German sympathies was hailed by The Washington Post as a “healthful and wholesome awakening” of patriotic sentiment? Or the mass roundups of young men suspected of evading the draft by vigilante squads? It’s an important reminder that fascism is a long-established and central strand in American politics, not something introduced by Trump or Newt Gingrich.

Johannes Krause and Thomas Trappe, A Short History of Humanity: A New History of Old Europe. I enjoy books about ancient history and paleantology, especially ones that, like this one, are as much about how we know what we know, as about what we do know. The specific focus here is the new information from the reconstruction of genomes from ancient human remains, something that has only recently become possible; one of the authors is a pioneer in the technique. There is a rather serious problem, which is visible in the juxtaposition of the title and subtitle: Europe and humanity are quite different things. (The authors are hardly the only ones to have trouble remembering this.) Still, it’s fascinating how much detail is now known about ancient population movements.

Thomas Lin, ed., Alice and Bob Meet the Wall of Fire. Essays from online science magazine Quanta. I enjoy their podcasts, but this collection was underwhelming. This is the one book on this list that I do not recommend.

Abdelrahman Munif, The Trench and Variations of Night and Day. These are the second and third novels in the Cities of Salt trilogy telling the story of a fictional gulf monarchy over the first half of the 20th century. (At least, it’s a trilogy in English; I believe there are further volumes that haven’t been translated.) I wrote a bit about these books at the end of this post.

Annie Ernaux, A Man’s Place. A short, beautiful book about the author’s father, about class, education and the the distance between the center and the periphery, and about the irreversible passage of time. It’s one of those in-between-genres books that gets shelved with the novels in France and with memoirs in the United States.

Roberto Bolaño, By Night in Chile. An allegory of the position of intellectuals under right-wing dictatorships, how you simultaneously know and don’t know what is going on — metaphorically, but in the allegory literally — beneath the floors of your literary get-togethers. It’s the story of a well-meaning priest, “the most liberal member of Opus Dei in Chile,” who, improbably … well, I won’t spoil it.

Natalie Ginsburg, The Dry Heart; Happiness, as Such; and Voices in the Evening. Sad, occasionally political, and very occasionally violent family conflicts in small-town Italy from the 1940s through the 1960s. They are good.

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